UNITED STATES SECURITIES AND EXCHANGE ~~COMMISSIONWashington~~COMMISSION Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number 001-32326

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

~~U.S.~~For ~~SHIPPING~~the ~~PARTNERS~~quarterly ~~L.P.(Exact~~period ~~name~~ended ofMarch ~~registrant~~31, ~~as specified in its charter)~~2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _____

Commission file number 001-32326

U.S. SHIPPING PARTNERS L.P.
(Exact name of registrant as specified in its charter)


Delaware		20-1447743
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

399 Thornall St., 8th Floor Edison, NJ 08837 (Address of principal executive offices) (Zip Code)

(732) 635-1500
(Registrant’s telephone number, including area code)

~~(Former~~Securities ~~name,~~registered ~~former~~pursuant ~~address~~to ~~and~~Section ~~former~~12 ~~fiscal~~(g) ~~year,~~of ifthe ~~changed~~Act: ~~since last report)~~None

Indicate by check mark ~~whether~~ ~~the~~if ~~registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of~~ the ~~Securities Exchange Act of 1934 during the preceding~~ ~~12 months (or for such shorter period that the~~ registrant ~~was~~is ~~required~~a towell-known ~~file such~~seasoned ~~reports)~~issuer, ~~and~~as ~~(2)~~defined ~~has~~in ~~been~~Rule ~~subject~~405 toof ~~such filing requirements for~~ the ~~past~~Securities ~~90 days~~Act.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o (Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

~~The~~Indicate ~~number~~by ofcheck mark if the registrant’s ~~common~~is ~~units~~not ~~outstanding~~required asto offile ~~August~~reports 7,pursuant ~~2008~~to ~~was~~Section ~~11,353,808.~~13 Ator ~~that~~Section 15(d) ~~date,~~of ~~6,899,968~~the ~~subordinated units were also outstanding~~Act.

~~U.S.~~Yes ~~SHIPPING~~o No ~~PARTNERS L.P. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2008 TABLE OF CONTENTS~~x

		Page No.
	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007	1
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six-month periods ended June 30, 2008 and 2007	2
	Unaudited Condensed Consolidated Statement of Changes in Partners’ Capital for the six-month period ended June 30, 2008	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2008 and 2007	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	51
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Submission of Matters to a Vote of Security Holders	56
Item 5.	Other Information	57
Item 6.	Exhibits	57
SIGNATURES		58

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) 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 reports), 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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


Large accelerated filer o		Accelerated filer o		Non-accelerated filer (Do not check if smaller reporting company) o		Smaller reporting company x

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

The number of the registrant’s common units outstanding as of July 31, 2009 was 11,353,808. At that date, 6,899,968 subordinated units were outstanding.

U.S. SHIPPING PARTNERS L.P.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2009
TABLE OF CONTENTS


		Page No.

	PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008	3

	Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income for the three month periods ended March 31, 2009 and 2008	4

	Unaudited Condensed Consolidated Statement of Changes in Partners’ Capital for the three-month period ended March 31, 2009	5

	Unaudited Condensed Consolidated Statement of Cash Flows for the three-month periods ended March 31, 2009 and 2008	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	39

	PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Submission of Matters to a Vote of Security Holders	41

Item 5.	Other Information	41

Item 6.	Exhibits	43

SIGNATURES		44

In this report, unless the context otherwise requires, the terms “we,” “us,” “our,” and “the Partnership” refer to U.S. Shipping Partners L.P., a Delaware limited partnership, and its subsidiaries.

~~PART I—FINANCIAL INFORMATION~~2

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

U.S. Shipping Partners L.P. Unaudited Condensed Consolidated Balance ~~Sheets~~ Sheet (in thousands)

	June 30, 2008			December 31, 2007
	March 31, 2009			December 31, 2008
Assets
Current assets
Cash and equivalents	$	3823,~~083~~369		$	2120,~~604~~599
Current portion of restricted cash and equivalents		49,515			113,960
Restricted cash and equivalents		710			7,566
Accounts receivable, net		86,~~169~~483			114,~~934~~905
Prepaid expenses and other current assets		1411,~~785~~648			1019,~~683~~077
Total current assets		~~110~~42,~~552~~210			~~158~~52,~~181~~147
Restricted cash and equivalents, net of current portion		—			11,322
Vessels and equipment, net		762,848			704,195
Vessels and equipment, net		619,503			489,464
Deferred financing costs, net		—			2,253
Deferred financing costs, net		16,838			19,019
Other assets		2,029			1,840
Other assets		4,198			5,042
Total assets	$	807,087		$	760,435
Total assets	$	751,091		$	683,028
Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt	$	3681,~~100~~529		$	3610,~~100~~295
Accounts payable		141,~~856~~727			97,~~668~~424
Due to affiliates		13,~~148~~664			34,~~393~~123
Deferred revenue		~~1,085~~—			16,~~193~~165
Accrued expenses and other liabilities		2630,~~921~~938			3130,~~325~~193
Total current liabilities		47717,~~110~~858			48658,~~679~~200
Long-term debt, net of current portion		515,708			456,927
Deferred income taxes		2,720			2,720
Deferred income taxes		182			2,145
Other liabilities		17,062			17,969
Other liabilities		10,159			10,920
Total liabilities	$	737,640		$	678,889
Total liabilities		573,159			518,671
Noncontrolling interest in Joint Venture		65,081			33,324
Commitments and contingencies (Note 14)
Partners’ Capital
Partners’ capital	$	~~120~~(17,~~776~~695	)	$	~~139~~(4,~~263~~014	)
Accumulated other comprehensive loss		(7,~~925~~155	)		(8,~~230~~294	)
Total partners’ capital		112,851			131,033
Total partners’ equity		(24,850	)		(12,308	)
Total liabilities and partners’ capital	$	751,091		$	683,028
Non controlling interest in Joint Venture		94,297			93,854
Total partners’ capital	$	69,447		$	81,546
Total liabilities and partners capital	$	807,087		$	760,435

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~- 1 -~~3

U.S. Shipping Partners L.P. Unaudited Condensed Consolidated ~~Statements~~Statement of Operations and Comprehensive Income (in thousands,; except per unit data)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	For the Three Months Ended March 31,
	2008			2007			2008			2007
	2009			2008
Revenues	$	4947,~~819~~929		$	4551,~~621~~504		$	~~101,323~~		$	~~87,703~~
Operating expenses
Vessel operating expenses		16,~~384~~172			17,~~407~~021			~~33,405~~			~~32,325~~
Voyage expenses		1715,~~331~~845			813,~~712~~679			~~31,010~~			~~16,149~~
General and administrative expenses		45,~~011~~984			43,~~241~~994			~~8,005~~			~~8,006~~
Depreciation and amortization		10,445			9,054			20,949			18,102
Depreciation and amortization expenses		7,991			10,504
Other expense (income)		45			—			5,832			(3,486	)
Impairment charges		—			5,720
Total operating expenses, net		48,216			39,414			99,201			71,096
Other expense (income)		—			67
Operating income		1,603			6,207			2,122			16,607
Total operating expenses, net		45,992			50,985
Interest expense		6,879			6,655			14,770			13,572
Operating income		1,937			519
Interest income		(655	)		(2,572	)		(1,695	)		(5,247	)
Interest expense		16,303			7,891
Net gains on derivative financial instruments		(586	)		(904	)		(1,028	)		(904	)
Interest income		(32	)		(1,040	)
(Loss) income before income taxes and noncontrolling interest		(4,035	)		3,028			(9,925	)		9,186
Net gain on derivative financial instruments		(1,150	)		(442	)
(Benefit) provision for income taxes		(1,514	)		202			(1,222	)		622
Loss before income taxes and noncontrolling interest		(13,184	)		(5,890	)
(Loss) income before noncontrolling interest		(2,521	)		2,826			(8,703	)		8,564
Provision for income taxes		54			292
Noncontrolling interest in Joint Venture (income) loss		(162	)		(418	)		242			(407	)
Net loss		(13,238	)		(6,182	)
Net (loss) income		(2,683	)		2,408			(8,461	)		8,157
Net gain (loss) attributable to noncontrolling interest		443			(404	)
Other comprehensive loss
Net loss attributable to USSLP unit holders		(13,681	)		(5,778	)
Fair market value adjustment for derivatives		9,008			4,606			305			3,681
Other comprehensive loss
Comprehensive (loss) income	$	6,325		$	7,014		$	(8,156	)	$	11,838
Amortization of deferred loss from derivatives in AOCI		1,139			—
General partner’s interest in net (loss) income	$	(54	)	$	48		$	(169	)	$	163
Fair market value adjustment for derivatives		—			(8,703	)
Limited partners’ interest in net (loss) income
Comprehensive loss	$	(12,542	)	$	(14,481	)
Net (loss) income	$	(2,629	)	$	2,360		$	(8,292	)	$	7,944
General partner’s interest in net loss	$	(274	)	$	(116	)
Net (loss) income per unit - basic and diluted	$	(0.14	)	$	0.13		$	(0.45	)	$	0.44
Limited partners’ interest in net loss
Weighted average units outstanding - basic		18,254			18,234			18,244			18,234
Net loss	$	(13,407	)	$	(5,662	)
Weighted average units outstanding - diluted		18,254			18,235			18,244			18,234
Net loss per unit - basic and diluted	$	(0.73	)	$	(0.31	)
Weighted average units outstanding - basic		18,254			18,234
Weighted average units outstanding - diluted		18,254			18,234

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~- 2 -~~4

U.S. Shipping Partners L.P. Unaudited Condensed Consolidated Statement of Changes in Partners’ ~~CapitalSix Months Ended June~~ ~~30, 2008~~ Capital (in thousands)

	Partners’ Capital
																	Accumulated
	Limited Partners													Accumulated Other Comprehensive
	Partners’ Capital													Non			Other
	Common					Subordinated					General
	Limited Partners													Controlling			Comprehensive
	Units		$			Units		$			Partner			Loss			Total
	Common					Subordinated					General			Interest in			Income
Balance at December 31, 2007		11,341	$	157,683			6,900	$	(18,936	)	$	516		$	(8,230	)	$	131,033
	Units		$			Units		$			Partner			Joint Venture			(Loss)			Total
Net loss		—		(5,154	)		—		(3,138	)		(169	)		—			(8,461	)
Balance at January 1, 2009		11,353	$	66,427			6,900	$	(68,292	)	$	(2,149	)	$	93,854		$	(8,294	)	$	81,546
Issuance of common units		12		146			—		—			—			—			146
Net loss		—		(8,340	)		—		(5,067	)		(274	)		—			—			(13,681	)
Amortization of deferred equity compensation		—		37			—		—			—			—			37
Amortization of deferred loss from derivatives in AOCI		—		—			—		—			—			—			1,139			1,139
Fair market value adjustment for derivatives		—		—			—		—			—			305			305
Adjustments to Non Controlling Interest in Joint Venture		—		—			—		—			—			443			—			443
Cash distributions		—		(10,209	)		—		—			—			—			(10,209	)
Balance at March 31, 2009		11,353	$	58,087			6,900	$	(73,359	)	$	(2,423	)	$	94,297		$	(7,155	)	$	69,447
Balance at June 30, 2008		11,353	$	142,503			6,900	$	(22,074	)	$	347		$	(7,925	)	$	112,851

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~- 3 -~~5

U.S. Shipping Partners L.P. Unaudited Condensed Consolidated ~~Statements~~Statement of Cash Flows (in thousands)

	For the Six Months Ended
	For the Three Months Ended March 31,
	June 30,
	2009			2008
	2008			2007
Cash flows from operating activities
Net (loss) income	$	(8,461	)	$	8,157
Net loss	$	(13,681	)	$	(5,778	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing costs		2110,~~871~~244			1810,~~924~~968
Impairment of construction-in-progress		5,712			—
Impairment charge		—			5,720
Loss on sale of surplus equipment		~~120~~—			—67
Equity compensation		183			37
Amortization of deferred loss from derivatives in AOCI		1,380			—
Provision for accounts receivable		50			315
Benefit for accounts receivable		(51	)		(90	)
Noncontrolling interest in Joint Venture (income) loss		(242	)		407
Equity compensation		—			37
Net gain on derivative financial instruments		(1,~~028~~150	)		(~~904~~442	)
Deferred income taxes		(1,290	)		(431	)
Noncontrolling interest in Joint Venture		443			(404	)
Capitalized drydock costs		(2,551	)		(5,606	)
Deferred income taxes		—			192
Changes in assets and liabilities:
Accounts receivable		3(1,~~263~~527	)		~~(103~~1,162	)
Prepaid expenses and other current assets		(27,~~851~~601	)		(1,~~969~~178	)
Other assets		—			(158	)
Capitalized drydock costs		(2,811	)		(1,966	)
Accounts payable		~~255~~(1,901	)		(921,182	)
Deferred revenue		(108	)		(1,178	)
Interest added to debt outstanding		2,851			—
Accrued expenses and other liabilities		(1,569	)		1,850
Deferred revenue		(6,165	)		(1,193	)
Net cash provided by operating activities		13,354			19,249
Accrued expenses and other liabilities		6,063			(4,762	)
Net cash provided by operating activities		1,296			3,507
Cash flows from investing activities
Change in restricted cash and equivalents, net		756,~~767~~856			2639,~~274~~000
Sale of surplus equipment		~~280~~—			—138
Construction of vessels and equipment		(~~154~~73,~~150~~765	)		(6082,~~506~~183	)
Cash received upon settlement of derivative financial instrument		657			173
Net cash used in investing activities		(66,909	)		(43,045	)
Purchase of interest rate cap		—			(1,924	)
Payments to Hess, net		—			(447	)
Net cash used in investing activities		(77,446	)		(36,430	)
Cash flows from financing activities
Proceeds from borrowings		7,000			25,000
Proceeds from Joint Venture revolver borrowings		—			29,895
Proceeds from Joint Venture revolver borrowings		53,331			5,535
Contribution by noncontrolling interest equity investors in Joint Venture		—			17,936
Contribution by noncontrolling interest equity investors in Joint Venture		31,999			4,476
Proceeds from revolver borrowings		68,383			—
Repayment of debt		~~(1,550~~—	)		(~~1,388~~775	)
Distributions to partners		~~(10,209~~—	)		(165,~~744~~100	)
Net cash provided by financing activities		8068,~~571~~383			1641,~~879~~956
Net increase (decrease) in cash and cash equivalents		16,479			(302	)
Net increase in cash and cash equivalents		2,770			2,418
Cash and cash equivalents at beginning of period		2120,~~604~~599			221,~~686~~604
Cash and cash equivalents at end of period	$	3823,~~083~~369		$	224,~~384~~022

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~- 4 -~~6

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands,; except per unit data)


1.	Nature of Operations

Entering 2008, U.S. Shipping Partners L.P. (the “Partnership”) ~~owns~~owned and ~~operates~~operated six integrated tug barge units (“ITBs”), three chemical product, or parcel, tankers (“Parcel Tankers”), one product tanker (“Houston”) and one articulated tug barge (“ATB”). During the fourth quarter of 2008, the Partnership sold two ITBs, the ITB Groton and the ITB Jacksonville, due to decreased demand for these vessels. The Partnership’s ~~first~~second ATB, the ATB ~~Freeport~~Galveston, was delivered ~~in June 2007~~ and entered service in ~~July~~August ~~2007.~~2008 ~~Additionally,~~and the ~~Partnership~~third ~~has~~ATB, ~~contracted to~~the ~~construct~~ATB ~~three~~Brownsville, ~~additional~~was delivered ~~ATBs~~and ~~which~~entered ~~are~~service ~~scheduled for delivery~~ in ~~August 2008,~~ November 2008 ~~and August 2009~~.

~~The~~As ~~Partnership~~of isMarch ~~engaged~~31, ~~in transportation services between ports in the United States~~2009, ~~principally~~our ~~for~~fleet ~~refined~~consists ~~petroleum~~of ~~products,~~eleven ~~petrochemical~~owned and ~~commodity chemical~~operated ~~products. The~~ tank vessels: ~~operate~~four ~~under~~ITBs, ~~the~~one ~~regulatory~~product ~~provisions of the Jones Act. Recently~~tanker, tothree ~~improve~~chemical ~~utilization~~parcel ~~of the ITB fleet~~tankers, ~~the Partnership~~and ~~has employed~~ three ~~of its ITBs to transport grain overseas for humanitarian organizations~~ATBs. ~~These~~The ~~transactions~~ATB ~~are~~Corpus ~~not~~Christi ~~subject~~was delivered to ~~the~~us ~~provisions of the~~on ~~Jones~~July ~~Act~~31, ~~but~~2009 ~~U.S~~and ~~Flag~~entered ~~vessels~~service ~~are~~in ~~given~~August ~~preference for these voyages~~2009. ~~Recognition~~ ~~principles~~We ofalso ~~revenue~~manage ~~and~~two ~~certain expenses for these voyages under~~product ~~GAAP~~tankers ~~differ~~on ~~from~~behalf ~~the recognition principles applicable to our transportation~~ of ~~petroleum,~~ ~~petrochemical~~a ~~and~~joint ~~commodity~~venture ~~chemical~~we ~~products.~~formed ~~With respect~~ to ~~the transportation~~construct ~~of refined petroleum, petrochemical~~ and ~~commodity~~operate ~~chemical~~five ~~products,~~product ~~under~~tankers ~~GAAP we generally recognize revenue and certain voyage expenses based upon~~ (the ~~relative transit~~“Joint ~~time~~Venture”), ~~in each period to~~ the ~~total~~Golden ~~estimated~~State, ~~transit~~which ~~time~~entered ~~for~~service ~~each~~in ~~voyage.~~January ~~With respect to our grain voyages~~2009, ~~we only recognize revenue~~ and ~~certain voyage expenses when~~ the ~~grain is~~Pelican ~~delivered~~State, towhich ~~its~~entered ~~final~~service ~~destination.~~in June 2009.

~~The~~Our ~~Partnership,~~primary ~~through~~customers ~~its~~are ~~subsidiary~~major ~~USS~~oil ~~Product~~and ~~Carriers~~chemical ~~LLC (“Product~~companies. ~~Carriers”),~~For ~~entered into a contract with~~ the ~~National~~three ~~Steel~~months ~~and~~ended ~~Shipbuilding Company~~March ~~(“NASSCO”)~~31, a2009, ~~subsidiary~~three ofcustomers ~~General~~accounted ~~Dynamics Corporation (“General Dynamics”),~~ for ~~the~~10% ~~construction~~or more of ~~nine~~voyage ~~49,000 deadweight tons (“dwt”)~~revenue. ~~double-hulled~~For ~~tankers.~~the ~~General~~three ~~Dynamics~~months ~~provided~~ended aMarch ~~performance~~31, ~~guarantee~~2008, ~~to Product~~one ~~Carriers~~customer inaccounted ~~respect~~for of10% ~~the~~or ~~obligations~~more of ~~NASSCO~~voyage ~~under the construction contract~~revenue. ~~NASSCO~~We isdo ~~scheduled~~not toassume ownership ~~deliver~~of ~~the~~any ~~first tanker in the second quarter~~ of ~~2009,~~ the ~~second~~products ~~tanker~~that ~~later~~we intransport ~~2009,~~on ~~two~~our ~~tankers~~vessels. ~~in 2010, one tanker in~~The ~~2011,~~Partnership ~~one~~is ~~tanker~~engaged in ~~2012,~~transportation ~~two~~services ~~tankers~~between inports ~~2013 and the last tanker~~ in ~~2014. The Partnership currently expects~~ the ~~cost to construct these nine tankers to~~United ~~aggregate~~States, ~~approximately~~principally ~~$1.2 billion (including an estimate~~ for ~~price escalation~~refined ~~based~~petroleum ~~on projected increases in certain published price indexes)~~products, ~~exclusive~~ ofpetrochemical ~~capitalized interest. In addition, NASSCO~~ and ~~Product Carriers~~commodity ~~share~~chemical inproducts. ~~any~~The ~~cost~~vessels ~~savings~~operate ~~achieved,~~under ~~measured against~~ the ~~original~~regulatory ~~contract~~provisions ~~price based on the terms~~ of the Jones ~~construction contract~~Act. OnTo ~~August~~improve 7,utilization ~~2006,~~of ~~Product Carriers~~the ~~entered~~ITB ~~into a joint venture~~fleet, ~~USS~~the ~~Products~~Partnership ~~Investor~~employed its ~~LLC~~ITB ~~(the~~fleet ~~“Joint Venture”),~~ to ~~finance~~transport ~~the~~grain ~~construction~~overseas offor ~~the~~humanitarian ~~first five tankers~~organizations. ~~The~~ ~~Partnership~~Recognition ~~manages~~principles ~~and~~of ~~owns~~revenue aand ~~40%~~certain ~~interest~~expenses infor ~~the~~these ~~Joint~~voyages ~~Venture and third~~under ~~parties~~GAAP ~~own~~differ from the ~~remaining~~recognition ~~60%~~principles ~~interest.~~applicable ~~Due~~ to ~~the~~our ~~Partnership’s~~transportation ~~control~~ of ~~the~~ ~~Joint Venture~~petroleum, aspetrochemical ~~well~~and ascommodity ~~other~~chemical ~~aspects~~products. ofWith ~~the~~respect ~~joint~~to ~~venture agreement,~~ the ~~financial~~transportation ~~statements~~ of ~~the~~refined ~~Joint~~petroleum, ~~Venture~~petrochemical ~~are~~and ~~consolidated~~commodity ~~with the~~chemical ~~Partnership’s~~products, ~~for~~under ~~financial~~GAAP ~~reporting~~we ~~purposes.~~generally ~~Accordingly,~~recognize ~~the~~revenue ~~debt~~based ofupon the ~~Joint~~ ~~Venture~~relative istransit time ~~presented~~ in ~~the~~each ~~Partnership’s~~period ~~consolidated~~to ~~financial statements, although~~ the ~~Partnership~~total ~~has~~estimated notransit ~~obligation~~time for ~~the~~each ~~liabilities~~voyage. ~~of the Joint~~With ~~Venture~~respect into ~~excess~~our ofgrain ~~its $70~~voyages,~~000~~ ~~capital~~we ~~commitment,~~only ofrecognize ~~which~~revenue ~~approximately $51,504~~and ~~has~~certain ~~already~~voyage expenses ~~been~~when ~~made~~the ~~and~~grain ~~the~~is ~~remaining~~delivered ~~$18,496~~to isits infinal ~~escrow~~destination.

In the opinion of management, these unaudited financial statements reflect all ~~adjustments~~ ~~necessary~~adjustments, consisting of normal and recurring entries, necessary for a fair presentation ~~statement~~ of the financial results of such interim periods in accordance with accounting principles generally accepted in the United States ~~for~~and ~~interim financial~~have ~~information~~been ~~and~~prepared ~~with~~pursuant to the ~~instructions~~rules toof ~~Form~~the ~~10-Q~~Securities and ~~Rule~~Exchange ~~10-01 of Regulation S-X~~Commission. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for a full year, particularly in light of the fact that the Partnership and certain of its subsidiaries and affiliated entities filed voluntary petitions for reorganization relief under the bankruptcy code. These financial statements should be read together with the consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, ~~2007~~ 2008 (the “Form 10-K”). The December 31, 2007 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

- In the 5third -quarter of 2008, the Partnership determined that it should have been allocating gains and losses in respect of its joint venture to construct five product tankers (the “Joint Venture”) in accordance with the expected economic returns of the Joint Venture, rather than proportionally based on ownership interest. As a result, the Partnership determined that it had been erroneously allocating 60% of gains and losses to its Joint Venture partners via the Noncontrolling Interest line since the inception of the Joint Venture in 2006. The Partnership does not consider this error material to the historical financial statements and has, therefore, revised this allocation by correcting the error during the quarter ended September 30, 2008. Accordingly, all losses from the Joint Venture are allocated to the Partnership and all gains from the Joint Venture are allocated to the noncontrolling interest holder. The first quarter 2008 impact of this out of period adjustment would have been an additional allocation of $404 in losses to the Partnership, recorded through the Noncontrolling Interest line.

The liquidity pressures facing the Partnership described in its Form 10-K for the year ended December 31, 2008 continued in the first quarter of 2009 and led to the Partnership, together with all of its wholly-owned subsidiaries, US Shipping General Partner LLC, its general partner (“USSGP”), and USS Vessel Management LLC, a wholly-owned subsidiary of USSGP (collectively, the “Company”) filing for bankruptcy on April 29, 2009 as further described below in Note 2, “Proceedings Under Chapter 11 of the Bankruptcy Code. ~~Liquidity~~The Joint Venture was not part of the bankruptcy filing. The ability of the Partnership to continue as a going concern is dependent upon, among other things, (i) the Partnership’s ability to comply with the terms and conditions of the cash collateral order entered by the Bankruptcy Court in connection with the Bankruptcy Cases (defined below); (ii) the ability of the Partnership to generate cash from operations; (iii) the ability of the Partnership to obtain confirmation of and to consummate the Plan or another plan of reorganization under the Bankruptcy Code; and (iv) the cost, duration and outcome of the reorganization process. Uncertainty as to the outcome of these factors raises substantial doubt about the Partnership’s ability to continue as a going concern. We are currently evaluating various courses of action to address the operational and liquidity issues the Partnership is facing, and formulating plans for improving operations. There can be no assurance that any of these efforts will be successful. Consistent with generally accepted accounting principles preparing these unaudited consolidated financial statements on a going concern basis contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. These unaudited consolidated financial statements do not include any adjustments that might result should the Partnership be unable to continue as a going concern.

During the first half of 2008, all but one of the Partnership’s ITBs began to operate in the spot market for the transportation of petroleum products, which has increased the volatility of the Partnership’s revenues and working capital requirements, and decreased the predictability of its cash flows. Beginning in late March 2008, market conditions in the spot market deteriorated substantially due to overall declining economic activity and decreased demand for the domestic coastwise transportation of petroleum products. Additionally, refinery utilization has declined considerably, fuel prices for operating the Partnership’s vessels are at record levels and newbuilds have increased capacity serving the Jones Act market at a faster rate than demand and the decrease in capacity due to the required phase-outs under the Oil Pollution Act of 1990 (“OPA 90”). Due to these market shifts, the ITBs have recently incurred idle periods greater than, and charter rates below, the Partnership’s expectations at the beginning of 2008. During the first half of 2008 the Partnership also experienced modest decreased demand for the domestic coastwise transportation of chemical products served by its chemical transporting vessels, which the Partnership believes was primarily due to its customers working off inventory levels due to the decline in economic activity. As a result, the Partnership’s cash flows and liquidity have come under increasing pressure due to the current difficult market conditions, which has substantially increased the likelihood that the Partnership will not be able to remain in compliance with certain financial covenants relating to leverage (debt to EBITDA) and fixed charge and interest coverage under its senior credit facility as early as the end of the third quarter of 2008. The Partnership was in compliance with all its financial covenants as of the end of the second quarter of 2008. 7

~~If a covenant breach occurs, the Partnership will be prohibited from making distributions on its common units until it has cured such breach (although any unpaid distributions will accrue)~~U.S. InShipping ~~addition,~~Partners ~~a breach of the Partnership’s~~L.P. ~~loan~~Notes ~~covenants would give the lenders under the senior credit facility the right~~ to ~~refuse~~Unaudited toCondensed ~~make funds available under the revolving credit facility and~~Consolidated toFinancial ~~demand immediate payment of the Partnership’s loans under the senior credit~~Statements ~~facility~~(dollars and cause cross defaults under the Partnership’s other debt agreements. If all such outstanding indebtedness were declared to be immediately due and payable, the Partnership would not have the financial resources to repay immediately in ~~full~~thousands; ~~all~~except ~~outstanding~~per ~~borrowings~~unit under its various debt agreements. As such, the Partnership would be required to either amend the senior credit facility or replace it with an alternate credit facility. In addition, the lenders under the senior credit facility could prohibit the Partnership from paying interest on the senior notes. data)

~~In response to these issues, the Partnership has retained Greenhill & Co~~2., ~~LLC and~~Proceedings ~~Jefferies~~Under &Chapter ~~Company,~~11 ~~Inc. to assist it in exploring strategic alternatives, including either the possible sale~~ of the ~~business~~Bankruptcy or the sale of new equity, and other ways to increase liquidity and strengthen the financial resources of the Partnership. In order to give the Partnership adequate time to pursue strategic alternatives, the Partnership has entered into negotiations with its lenders to amend certain financial ratio covenants under its senior credit facility. Code

InEffective ~~light~~April 29, 2009, the Partnership, together with all of ~~these~~its ~~liquidity~~wholly-owned subsidiaries, ~~pressures~~USSGP, and USS Vessel Management LLC, filed voluntary petitions for reorganization relief under Chapter 11 of Title 11 of the ~~Partnership~~United ~~did~~States Bankruptcy ~~not~~Code ~~pay~~(the a“Bankruptcy ~~distribution~~Code”) in the United States Bankruptcy Court onfor ~~its~~the ~~subordinated~~Southern ~~units~~District ~~and~~of ~~general~~New ~~partner~~York ~~units~~(the “Bankruptcy Court”) (the “Bankruptcy Filing”). Immediately prior to the Bankruptcy Filing, the Company entered into a Plan Support Agreement (the “April PSA”) with the holders of (i) in excess of two-thirds of the amounts (including without limitation in respect of the termination ~~fourth~~obligations under the interest rate swaps) due under the ~~quarter~~Partnership’s Third Amended and Restated Credit Agreement, dated as of ~~2007~~August 7, 2006, as amended, by and ~~first~~among ~~quarter~~the Partnership, certain subsidiaries of ~~2008~~the Partnership, Canadian Imperial Bank of Commerce, as administrative agent, and the ~~will~~lenders ~~not~~and ~~pay~~other aagents ~~distribution~~party onthereto (the lenders thereunder the “Senior Secured Lenders”) and (ii) ~~any~~approximately 70% of ~~its~~the ~~units~~amounts due in respect of the ~~second~~Partnership’s ~~quarter~~13% ofSenior Secured ~~2008~~Notes due 2014 (the “Second Lien Notes”). ~~Based~~On onJuly ~~discussions~~10, 2009, the Partnership and a majority in interest of each of the Senior Secured Lenders and holders of Second Lien Notes who were party to ~~date~~the ~~with~~April ~~its~~PSA ~~lenders~~entered ~~regarding~~into ana ~~amendment~~First Amendment to Plan Support Agreement (the ~~senior~~April ~~credit~~PSA ~~facility~~as amended by the First Amendment, the “Amended Plan Support Agreement”) pursuant to which the Partnership ~~believes~~and ~~any~~the ~~amendment~~lenders ~~will~~party ~~prohibit~~to the April PSA adjusted certain milestones related to the ~~payment~~Company’s ofbankruptcy ~~distributions~~proceedings onand ~~any~~amended ~~units~~the ~~for~~terms atand ~~least~~conditions aof ~~specified~~the ~~period~~proposed plan of reorganization ~~time.~~as set forth in the Plan Term Sheet attached as Exhibit A to the April PSA.

~~Consistent~~The ~~with~~parties ~~generally~~to ~~accepted~~the ~~accounting~~Amended ~~principles,~~Plan ~~the~~Support ~~condensed~~Agreement ~~consolidated financial~~have ~~statements~~agreed ~~included~~to ~~herein~~support ~~have~~a ~~been~~plan ~~prepared~~of reorganization onfor the ~~basis~~Company ~~that~~on the ~~Partnership~~ ~~will~~terms ~~continue~~and asconditions aset ~~going~~forth ~~concern,~~in ~~which contemplates~~ the ~~realization~~Plan ofTerm ~~assets~~Sheet ~~and~~attached ~~the~~as ~~satisfaction~~Exhibit ofA ~~liabilities~~to in the ~~normal~~Amended ~~course of~~Plan ~~business~~Support Agreement. They ~~Assuming~~have ~~that~~also ~~the~~agreed ~~debt~~not isto ~~not~~support, ~~accelerated~~directly or indirectly, ~~the~~any ~~Partnership~~other plan, ~~believes~~in ~~that~~exchange itfor ~~will~~the ~~have~~Company’s ~~sufficient~~agreement ~~liquidity~~ to ~~meet~~implement ~~ongoing~~all ~~operations~~steps ~~for~~necessary to solicit the ~~remainder~~requisite acceptances of ~~2008.~~the ~~The~~Plan ~~Partnership’s~~(as ~~lenders’~~defined ~~right~~below) toand ~~demand immediate~~obtain ~~payment~~from of the ~~Partnership’s~~Bankruptcy ~~outstanding~~Court ~~indebtedness~~an ~~upon~~order confirming the ~~occurrence~~Plan ofsubstantially ain ~~default~~accordance ~~under~~with the ~~senior~~terms ~~credit~~of ~~facility,~~the ~~coupled~~Amended ~~with~~Plan aSupport ~~substantial~~Agreement. ~~doubt~~The Amended ~~about~~Plan ~~the~~Support ~~Partnership’s~~Agreement ~~ability~~may tobe ~~repay~~terminated ~~this~~under ~~indebtedness~~certain ~~immediately~~circumstances, including in the event that the Plan and, related disclosure statement are not approved by ~~accordingly~~certain deadlines, inthe ~~such~~Plan ~~circumstances~~is tonot ~~continue~~consummated aswithin a ~~going~~certain ~~concern~~period of time after its filing with the Bankruptcy Court, ~~leads~~a toparty materially breaches the ~~need~~Amended toPlan ~~successfully~~Support ~~renegotiate~~Agreement, ~~its~~the ~~existing,~~Chapter or11 ~~secure~~cases ~~alternative,~~are ~~financing~~converted to cases ~~arrangements.~~under ~~Although~~Chapter ~~there~~7 ~~can~~of bethe noBankruptcy ~~assurance,~~Code or the ~~Partnership~~Bankruptcy ~~believes~~Court itgrants relief ~~will~~that beis ~~successful~~inconsistent inwith ~~renegotiating~~the ~~its~~Amended ~~senior~~Plan ~~credit~~Support ~~facility~~Agreement or the Plan Term Sheet.

- On August 6, -2009, the Company filed its First Amended Joint Plan of Reorganization with the Bankruptcy Court (the “Plan”). Under the Plan:


	·	The Senior Secured Lenders will receive:


(i)	new senior secured term notes issued by reorganized USSP (“Reorganized USSP”) in an aggregate principal amount equal to $240,000 and guaranteed by the other reorganized debtors. The senior secured term notes will:

	(A)	be secured by a first priority lien on substantially all of the assets of the reorganized debtors;

	(B)	require quarterly mandatory prepayment from excess cash flow (as defined in the Plan) once the reorganized debtors have achieved a $25,000 cash balance in the first year following the Company’s emergence from bankruptcy and a $20,000 (subject to adjustment under certain circumstances) cash balance thereafter;

	(C)	amortize at the annual rate of 1% of the aggregate amount of the new senior secured term notes beginning in the first full year following the Company’s emergence from bankruptcy;

U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)


	(D)	have a final maturity date of August 7, 2013;

	(E)	bear interest at a rate of LIBOR plus 7.20%, subject to a 2% LIBOR floor; and

	(F)	be subject to certain customary covenants, including without limitation an interest coverage test (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage ratio to be determined (but consistent with the interest coverage test and the projections provided by the Partnership to the Senior Secured Lenders).

(ii)	new junior secured term notes issued by Reorganized USSP in an aggregate principal amount equal to $60,000 and guaranteed by the other reorganized debtors. The junior secured term notes will:

	(A)	be secured by a second priority lien on substantially all of the assets of the reorganized debtors;

	(B)	require, after the senior secured term notes are repaid in full, quarterly mandatory prepayment from excess cash flow (as defined in the Plan once the reorganized debtors have achieved a $25,000 cash balance in the first year following the Company’s emergence from bankruptcy and a $20,000 (subject to adjustment under certain circumstances) cash balance thereafter;

	(C)	amortize, after the senior secured term notes are repaid in full, at the annual rate of 1% of the aggregate amount of the new junior secured term notes;

	(D)	have a final maturity date of August 7, 2013;

	(E)	bear interest at a rate of LIBOR plus 0.50%, subject to a 2% LIBOR floor; and

	(F)	be subject to certain customary covenants, including without limitation an interest coverage test (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage ratio to be determined (but consistent with the interest coverage test and the projections provided by the Partnership to the Senior Secured Lenders).

(iii)	all of Reorganized USSP’s Class A Common Stock, representing fifty percent (50%) of Reorganized USSP’s common stock on a fully diluted basis before giving effect to the Class B Common Stock to be issued pursuant to a management equity plan described below, provided that Senior Secured Lenders that are not U.S. Citizens for U.S. Coastwise Trade Law purposes will receive a combination of Class A Common Stock and warrants to purchase Class A Common Stock (“Class A Warrants”).


	·	The holders of the Second Lien Notes will receive shares of Class B Common Stock representing, on a fully diluted basis, fifty percent (50%) of the common stock of Reorganized USSP, before giving effect to the Class B Common Stock to be issued pursuant to a management equity plan described below, provided that holders of the Second Lien Notes that are not U.S. Citizens for U.S. Coastwise Trade Law purposes will receive a combination of Class B Common Stock and warrants to purchase Class B Common Stock. The Second Lien Notes will be cancelled.

	·	The Class A Common Stock and the Class B Common Stock will have the same ownership and voting rights, provided that dividends and other distributions declared in respect of Reorganized USSP’s common stock will first be distributed in respect of the Class A Common Stock in an amount equal to, in aggregate, approximately $54,000 (dependent on the termination value of our interest rate swaps), the unpaid portion of which will increase by four percent (4%) per year (non-compounded) (the “Priority Distribution Amount”). The Class A Warrants will provide that in the event Reorganized USSP makes a distribution to holders of Class A Common Stock in respect of the Priority Distribution Amount, each holder of such Class A Warrant will receive a cash payment equal to the amount it would have received had it exercised its Class A Warrant immediately prior to such distribution being made and owned Class A Common Stock as the time such distribution was being made.

U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)


	·	In no event will persons who are not U.S. Citizens for U.S. Coastwise Trade Law be issued common stock of Reorganized USSP representing in aggregate more than 23% of the common stock to be outstanding on the date the Company emerges from bankruptcy.

	·	Reorganized USSP will adopt a management equity plan providing for the issuance to management of 18.18% of the Class B Common Stock, representing on a fully-diluted basis 10% of the outstanding common stock of Reorganized USSP. Fifty percent (50%) of such equity to be available under the plan will be issued to management at the time the Company emerges from bankruptcy, with 25% vesting immediately and an additional 25% vesting on the first, second and third anniversaries of the Company’s emergence from bankruptcy. The remaining fifty percent (50%) available under the management equity plan will be issuable from time to time as determined by the board of directors of Reorganized USSP.

	·	The warrants to be issued to the persons who are not U.S. Citizens for U.S. Coastwise Trade Law purposes will have an exercise price of $0.001 per share, will expire December 31, 2029 and may only be exercised by persons who are U.S. Citizens for U.S. Coastwise Trade Law purposes.

	·	The existing and outstanding common units, subordinated units and general partnership interests of USSP will be cancelled without the payment of any amount to the holders thereof.

	·	Customary releases will be provided to the Company, its current and former officers and directors, the Senior Secured Lenders, the holders of the Second Lien Notes, the various agents and trustees under the debt agreements and the respective officers, directors, employees, agents, advisors and professionals of each of the foregoing, subject to specified exceptions.

The implementation of the Plan is dependent upon a number of factors, including final documentation, the approval of a disclosure statement and confirmation and consummation of the Plan in accordance with the provisions of the Bankruptcy Code.

Refer to Note 3—Proceedings Under Chapter 11 of the Bankruptcy Code in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008 and our various Bankruptcy Court filings for additional information on our Proceedings Under Chapter 11 of the Bankruptcy Code.


3.	New Accounting Pronouncements

InOn ~~September~~March ~~2006~~31, 2009, the ~~Financial~~Partnership ~~Accounting~~adopted ~~Standards Board (“~~FASB”) ~~issued Statement~~Staff ofPosition ~~Financial Accounting Standards~~ (~~“FAS”~~FSP) ~~Statement~~ No. ~~157, “Fair Value Measurement,” (“~~FAS ~~157”) effective for fiscal years beginning after~~ ~~November 15, 2007. FAS~~ 157 ~~defines fair value~~-4, ~~establishes~~―Determining aFair ~~framework~~Value ~~for measuring~~When ~~fair~~the ~~value~~Volume and ~~expands~~Level ~~disclosures~~of ~~about~~Activity ~~fair value measurements.~~for ~~This~~the ~~statement~~Asset ~~does~~or ~~not~~Liability ~~require~~Have ~~any~~Significantly ~~new~~Decreased ~~fair~~and ~~value measurements, but simplifies~~Identifying ~~and~~Transactions ~~codifies~~That ~~related~~Are ~~guidance~~Not ~~within~~Orderly, ~~generally~~(FSP ~~accepted accounting principles.~~ FAS 157-4). ~~applies~~FSP ~~under~~FAS ~~other~~157-4 ~~accounting~~provides additional ~~pronouncements~~guidance ~~that~~for ~~require~~estimating ~~or permit~~ fair value ~~measurements.~~in ~~Relative~~accordance towith ~~FAS~~SFAS 157, when the ~~FASB~~volume ~~issued~~and ~~FASB~~level ~~Staff~~of ~~Position (“FSP”)~~activity ~~157-2,~~for ~~which defers~~ the ~~effective~~asset ~~date~~or ofliability ~~FAS~~have ~~157 for all nonfinancial~~significantly ~~assets~~decreased and ~~nonfinancial~~includes ~~liabilities,~~guidance ~~except~~for ~~those~~identifying circumstances that ~~are~~indicate ~~recognized or~~a ~~disclosed~~transaction atis ~~fair~~not ~~value~~orderly. inThis ~~the~~guidance ~~financial~~is ~~statements~~necessary onto amaintain ~~recurring~~the ~~basis, until~~overall ~~fiscal~~objective ~~years~~of ~~beginning~~fair ~~after~~value ~~November 15~~measurements, ~~2008,~~which ~~and~~is ~~interim~~that ~~periods~~fair ~~within those~~value ~~fiscal~~is ~~years.~~the ~~The~~price that ~~Partnership~~would ~~adopted~~be ~~FAS~~received ~~157~~to assell ofan ~~January~~asset 1,or ~~2008 related~~paid to ~~financial~~transfer ~~assets~~a ~~and~~liability ~~financial~~in ~~liabilities. See Note 11 for~~an ~~additional~~orderly ~~discussion~~transaction onbetween ~~fair~~market ~~value~~participants ~~measurements.~~at ~~The~~the ~~Partnership~~measurement isdate ~~currently~~under ~~evaluating~~current ~~the~~market ~~impact~~conditions. The adoption of FSP FAS 157-4 ~~related~~had tono ~~nonfinancial~~impact ~~assets and nonfinancial liabilities~~ on the Financial ~~Partnership’s financial statements~~Statements.

InOn ~~February~~January 1, ~~2007~~2009, the ~~FASB~~Partnership ~~issued~~adopted ~~FAS~~SFAS ~~Statement~~No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” ~~159~~(SFAS 160). SFAS 160 amends Accounting Research Bulletin No. 51, “~~The~~Consolidated ~~Fair~~Financial ~~Value~~Statements,” ~~Option~~to establish accounting and reporting standards for ~~Financial~~the ~~Assets~~noncontrolling ~~and~~interest ~~Financial~~in ~~Liabilities~~a -subsidiary ~~Including~~and anfor ~~amendment~~the deconsolidation of ~~FAS Statement~~a Nosubsidiary. ~~115~~This pronouncement,” ~~(“FAS~~among ~~159”)~~other ~~effective~~requirements, requires asentities ofwith ~~the~~noncontrolling ~~beginning~~interests ofto ~~fiscal~~classify ~~years~~noncontrolling ~~beginning~~interests ~~after~~as ~~November~~components ~~15,~~of ~~2007~~equity. ~~FAS~~This ~~159~~pronouncement ~~permits~~requires entities to ~~choose to~~be ~~measure~~viewed ~~many~~for ~~financial~~reporting ~~instruments~~purposes ~~and~~from ~~certain~~an ~~other~~economic ~~items~~unit atperspective ~~fair~~rather ~~value~~than ata ~~specified~~controlling ~~election~~interest ~~dates~~perspective. AThe ~~business~~Partnership ~~entity~~adopted ~~shall~~FAS ~~report~~Statement ~~unrealized~~No. ~~gains and~~160 ~~losses~~effective onJanuary ~~items~~1, ~~for~~2009 ~~which~~and reclassified the ~~fair~~60% ~~value~~noncontrolling ~~option~~interest ~~has~~of the ~~been~~Partnership’s ~~elected~~Joint Venture in ~~earnings~~its ~~at each~~consolidated ~~subsequent~~balance ~~reporting~~sheet ~~date.~~to ~~The~~the ~~fair~~equity section. ~~value option:~~

On January 1., ~~May~~2009, bethe ~~applied~~Partnership ~~instrument~~adopted bySFAS ~~instrument~~No. 161, ~~with~~“Disclosures about aDerivative ~~few~~Instruments ~~exceptions~~and Hedging Activities—an amendment of FASB Statement No. 133,” ~~such~~(SFAS as161). ~~investments~~SFAS ~~otherwise~~161 ~~accounted~~requires ~~for~~enhanced bydisclosures about ~~the~~an ~~equity~~entity’s ~~method~~derivative 2.and Ishedging ~~irrevocable~~activities, including (~~unless~~i) how aand why ~~new~~an ~~election~~entity ~~date~~uses ~~occurs~~derivative instruments, (ii) how 3derivative instruments and related hedged items are accounted for under SFAS No. 133, Is“Accounting for ~~applied~~Derivative ~~only~~Instruments toand ~~entire~~Hedging Activities,” as amended (SFAS 133), and (iii) how derivative instruments and ~~not~~related tohedged ~~portions~~items affect an entity’s financial position, financial performance, and cash flows. Other than the required disclosures (see Note 11, “ Hedging”), the adoption of ~~instruments~~SFAS 161 had no impact on the Financial Statements.

~~The Partnership has not elected fair value treatment for any financial instruments as of June 30, 2008.~~ 10

~~In December 2007, the FASB issued FAS Statement No~~U. ~~160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No~~S. ~~51,”~~Shipping ~~effective~~Partners ~~as of the beginning of fiscal years beginning after December 15, 2008~~L.P. ~~This~~ ~~pronouncement,~~Notes ~~among other requirements, requires entities with noncontrolling interests~~ to ~~classify~~Unaudited ~~noncontrolling~~Condensed ~~interests~~Consolidated asFinancial ~~components of equity. This~~Statements ~~pronouncement~~(dollars ~~requires~~in ~~entities~~thousands; toexcept beper ~~viewed for reporting purposes from an economic~~ unit perspective rather than a controlling interest perspective. This pronouncement will impact the Partnership’s financial statement presentation for the 60% noncontrolling interest of the Partnership’s Joint Venture. data)

In ~~December~~May ~~2007~~2009, the ~~FASB~~Financial ~~issued~~Accounting ~~FAS~~Standards ~~Statement~~Board ~~No.~~(“FASB”) ~~141~~issued ~~(revised~~Statement ~~2007),~~of ~~“Business~~Financial ~~Combinations,”~~Accounting ~~(“FAS~~Standards ~~141~~(RSFAS)”) ~~which~~No. ~~replaces~~165, ~~FAS~~―Subsequent ~~141~~Events, ~~“Business~~(SFAS ~~Combinations~~165).” SFAS ~~FAS~~165 ~~141(R)~~establishes ~~retains~~general ~~the~~standards ~~underlying concepts~~ of ~~FAS~~accounting ~~141~~for inand ~~that~~disclosure ~~all~~of ~~business~~events ~~combinations~~that ~~are~~occur ~~still~~after ~~required~~the tobalance besheet ~~accounted~~date ~~for~~but atbefore ~~fair~~financial ~~value~~statements ~~under the~~are ~~acquisition~~issued ~~method~~or ofare ~~accounting~~available ~~but~~to ~~FAS~~be ~~141(R)~~issued. ~~changed~~Specifically, ~~the~~SFAS ~~method~~165 ofsets ~~applying~~ forth the period ~~acquisition~~after ~~method~~the inbalance asheet ~~number~~date ofduring ~~significant~~which ~~aspects.~~management ~~FAS~~of ~~141(R)~~a isreporting ~~effective~~entity onshould aevaluate ~~prospective~~events ~~basis~~or ~~for~~transactions ~~all~~that ~~business~~may ~~combinations~~occur for ~~which the~~potential ~~acquisition~~recognition ~~date is on~~ or ~~after~~disclosure in the ~~beginning~~financial ofstatements, the ~~first~~circumstances ~~annual period~~under ~~subsequent~~which toan ~~December~~entity ~~15,~~should ~~2008,~~recognize ~~with~~events ~~the~~or ~~exception~~transactions ofoccurring after the balance ~~accounting~~sheet ~~for valuation~~date ~~allowances~~in onits ~~deferred~~financial ~~taxes~~statements, and ~~acquired~~the ~~tax~~disclosures ~~contingencies.~~that ~~FAS~~an ~~141(R)~~entity ~~amends~~should ~~FAS~~make ~~109~~about ~~“Income~~events ~~Taxes”~~or ~~such~~transactions that ~~adjustments~~occurred ~~made~~after tothe ~~valuation~~balance ~~allowances~~sheet ondate. ~~deferred~~SFAS ~~taxes~~165 ~~and~~is ~~acquired~~effective ~~tax~~for ~~contingencies~~interim ~~associated~~periods ~~with acquisitions~~ending ~~that~~after ~~closed~~June ~~prior~~15, 2009. toThe ~~the~~adoption ~~effective date~~ of ~~FAS~~SFAS ~~141(R)~~165 ~~would~~is ~~also~~not ~~apply~~expected ~~the~~to ~~provisions~~have ofan ~~FAS~~impact ~~141(R).~~on ~~Early~~the ~~adoption~~Financial isStatements ~~not~~as ~~allowed.~~management ~~The~~already ~~Partnership~~followed ~~will~~a ~~evaluate~~similar approach prior to the ~~impact~~adoption of this ~~pronouncement~~standard on(see ~~any future~~Note ~~acquisitions~~16, “Subsequent Events”).

In ~~March~~June ~~2008~~2009, the ~~Emerging~~FASB ~~Issues~~issued ~~Task~~SFAS ~~Force~~No. ~~reached~~167, a―Amendments ~~consensus~~to onFASB Interpretation ~~EITF~~No. ~~07-4~~46(R), ~~“Application~~ of(SFAS ~~the~~167). ~~Two-Class~~SFAS ~~Method~~167 ~~under~~amends FASB ~~Statement~~Interpretation No. 46 ~~128~~(Revised December 2003), ~~Earnings~~―Consolidation ~~per~~of Variable Interest ~~Share,~~Entities—an tointerpretation ~~Master~~of ~~Limited~~ARB ~~Partnerships~~No.” ~~EITF~~51, ~~07-4~~(FIN ~~requires~~46(R)) ~~master~~to ~~limited partnerships~~require ~~with~~an ~~incentive~~enterprise to ~~distribution~~perform ~~rights~~an ~~(“IDRs”),~~analysis to ~~measure~~determine ~~earnings~~whether the enterprise’s variable interest ~~per~~or ~~unit~~interests asgive it ~~relates~~a controlling financial interest in a variable interest entity; to ~~IDRs~~require ~~consistent~~ongoing ~~with~~reassessments of whether an enterprise is the primary ~~two-class~~beneficiary ~~method~~of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration ~~measuring~~event ~~earnings~~for ~~per~~determining ~~unit.~~whether ~~This~~an ~~issue~~entity is ~~effective~~a ~~for~~variable ~~financial~~interest ~~statements~~entity when any ~~issued~~changes ~~for~~in ~~fiscal~~facts ~~years~~and ~~beginning~~circumstances ~~after~~occur ~~December~~such 15that holders of the equity investment at risk, ~~2008~~as a group, ~~and~~lose ~~interim~~the ~~periods~~power from voting rights or similar ~~within~~rights of those ~~fiscal~~investments ~~years~~to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. ~~The~~SFAS 167 becomes effective for the Partnership on January 1, 2010. Management is currently evaluating the potential impact of ~~this~~SFAS 167 on ~~pronouncement.~~the Financial Statements.

-4. 7Net -Income per Unit

~~In March~~The ~~2008,~~units ~~the FASB issued FAS Statement No. 161, “Disclosures about~~used ~~Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133,” (“FAS 161”). FAS 161 expands the current disclosure requirements of FAS No. 133, “Accounting~~ for ~~Derivative~~basic ~~Instruments~~net ~~and~~loss ~~Hedging~~per ~~Activities,”~~unit ~~(“FAS 133”) such that entities must now provide enhanced disclosures on a quarterly basis regarding how~~ and ~~why~~diluted ~~the~~net ~~entity~~loss ~~uses~~per ~~derivatives;~~unit ~~how derivatives and related hedged items~~ are ~~accounted~~reconciled ~~for under FAS 133 and how derivatives and~~below ~~related hedged items affect the entity’s financial position, performance and cash flow. Pursuant to the transition provisions of the Statement, the Partnership will adopt FAS 161~~ (in fiscal year 2009 and will present the required disclosures in the prescribed format on a prospective basis. This Statement will not impact the Partnership’s financial statements as it is disclosure-only in nature. thousands):

In April 2008, the FASB issued FAS Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” (“FAS 162”). FAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This Statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Partnership does not expect the adoption of FAS 162 to impact its financial statements.


	For the Three Months Ended March 31,

	2009		2008


Weighted average units outstanding for basic net (loss) income per unit		18,254		18,234
Dilutive effect of restricted units		—		—

Weighted average units outstanding for dilutive net (loss) income per unit		18,254		18,234


The computation of diluted net loss per unit does not assume conversion, exercise or issuance of units that would have an anti-dilutive impact on net loss per unit.

4 Excluded from the calculation of dilutive net loss per unit for the three months ended March 31, 2008 were 6 restricted units. ~~Net~~Since ~~Income~~we (had a net loss) for the three months ended March 31, 2008, any outstanding restricted stock units, unit options and phantom units were excluded from the calculation of diluted net loss per ~~Unit~~unit because their inclusion would have had an anti-dilutive effect. There were no dilutive securities outstanding for the three months ended March 31, 2009.

Basic net income (loss) per unit is determined by dividing net income (loss), after deducting the amount of net income (loss) allocated to the general partner’s interest, by the weighted average number of units outstanding during the period. Diluted net income (loss) per unit is calculated in the same manner as net income (loss) per unit, except that the weighted average number of outstanding units is increased to include the dilutive effect of outstanding unit options and phantom units. Outstanding restricted stock units, unit options and phantom units are excluded from the calculation of diluted net loss per unit because their inclusion would have an anti-dilutive effect. 11

~~The units~~U.S. ~~used~~Shipping ~~for~~Partners ~~basic~~L.P. ~~net~~ Notes ~~income~~to ~~(loss)~~Unaudited ~~per~~Condensed ~~unit~~Consolidated ~~and~~Financial ~~diluted~~Statements (dollars ~~net~~in ~~income~~thousands; ~~(loss)~~ except per unit ~~are reconciled below (in thousands~~data):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2008		2007		2008		2007
Weighted average units outstanding for basic net income per unit		18,254		18,234		18,244		18,234
Dilutive effect of restricted units		—		1		—		—
Weighted average units outstanding for dilutive net income per unit		18,254		18,235		18,244		18,234

Excluded from the calculation of dilutive net loss per unit for the six months ended June 30, 2008 are 6,143 restricted units that, if included, would have an anti-dilutive effect. There were no dilutive securities outstanding during the three months ended June 30, 2008.

- 8 -


5.	Restricted Cash and Equivalents

On August 7, 2006, ~~two~~an escrow ~~accounts~~account ~~were~~was established as part of the Partnership’s debt and equity financings to fund the construction of three new ATBs (the “ATB Escrow”). ~~and~~Amounts ~~the~~are ~~Partnership’s~~released ~~remaining~~from escrow ~~committed~~as ~~equity contributions~~needed to ~~the~~fund ~~Joint Venture (the “Joint Venture Escrow”)~~construction. As of ~~June~~March 3031, ~~2008~~ 2009 and December 31, ~~2007~~2008, the ATB Escrow balance was ~~$31,019 and $85,453,~~ ~~respectively, and the Joint Venture Escrow balance was~~ $~~18,496~~710 and $397,~~829~~566, ~~respectively.~~ Additionally, amounts drawn on the ATB Escrow account for items expected to be paid in the third quarter of 2008 were $26,417, and are included in cash and equivalents on the Unaudited Condensed Consolidated Balance Sheets at June 30, 2008 as they were no longer legally restricted as to use at June 30, 2008. Similar amounts included in cash and equivalents totaled $13,369 at December 31, 2007. Amounts the Partnership projects will be used to satisfy obligations due during the next twelve months are classified as current restricted cash and equivalents of $49,515 and $113,960 at June 30, 2008 and December 31, 2007 respectively. ~~At December 31, 2007, the remainder balance of $11,322 of restricted cash was classified as noncurrent restricted cash and equivalents.~~

Amounts drawn on the ATB Escrow account for items expected to be paid in the second quarter of 2009 were $2,887, and are included in cash and equivalents on the Consolidated Balance Sheet at March 31, 2009 as these amounts were no longer legally restricted as to use at March 31, 2009. Similar amounts included in cash and equivalents totaled $439 at December 31, 2008. As the Partnership projects all of the funds in the ATB Escrow will be used to satisfy obligations due during the next twelve months, all such funds are classified as current restricted cash and equivalents at March 31, 2009 and December 31, 2008.


6.	Vessels and Equipment

Vessels and equipment ~~consist~~consisted of the following:

	June 30, 2008		December 31, 2007
	March 31, 2009		December 31, 2008
Vessels	$	348,315	$	348,368
Vessels - Partnership	$	395,299	$	395,299
Vessels - Joint Venture		146,485		—
Office furniture, equipment and other		448		448
		348,763		348,816
		542,232		395,747
Less: Accumulated depreciation		118,852		106,810
Less: Accumulated depreciation - Partnership		100,912		95,782
		229,911		242,006
Less: Accumulated depreciation - Joint Venture		1,211		—
Construction in progress-ATB’s		159,059		111,321
Subtotal		440,109		299,965
Construction in progress-tankers		204,161		101,141
Construction-in-progress - Drydock		—		3,392
Capitalized drydock expenditures, net of amortization of $31,082 and $22,172		26,372		34,996
Construction-in-progress - ATB’s		66,048		62,111
Total vessels and equipment, net	$	619,503	$	489,464
Construction-in-progress - Tankers		243,083		327,869
Capitalized drydock expenditures, net of amortization of $9,902 and $8,252		13,608		10,858
Total vessels and equipment, net	$	762,848	$	704,195

Vessels are recorded at cost, including capitalized interest and transaction fees where appropriate, and depreciated to salvage value using the straight-line method as follows: ~~ITBs and the Sea Venture to their mandatory retirement from the transport of petroleum products as required by OPA 90, between 2012 and 2014;~~ 10 years for the Chemical Pioneer, the Charleston and the Houston ; and 30 years for the ATB Freeport, the ATB Galveston and the ATB Brownsville based on their respective estimated useful lives. The ITB’s are being depreciated to recoverable value over their remaining estimated depreciable lives through September 2010. Office furniture, equipment and other are depreciated over the ~~estimated~~ estimated useful life of three to ten years. Major renewals and betterments of assets are capitalized and depreciated over the remaining useful lives of the assets. Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed as incurred. Leasehold improvements are capitalized ~~and~~ and depreciated over the shorter of their useful life or the remaining term of ~~the~~ the lease.

Both domestic and international regulatory bodies require that the Partnership’s vessels be drydocked for major repair and maintenance at least twice every five years. To date, the Partnership’s ITBs have been able to participate in the United States Coast Guard Underwater Inspection In Lieu of Drydock (“UWILD”) Program, which allows the ITBs to be drydocked once every five years, with a mid-period underwater survey in lieu of a drydock. The Partnership expects to continue to participate in the UWILD Program. If the Partnership is required to conduct a second drydock in each five year period rather than rely on an underwater survey, the ITBs will be out of service longer and drydock expenditures will be higher than the time required for and the cost of conducting an underwater survey. Because of the age of the ITBs, their continued participation in the UWILD Program is now conditioned on their undergoing an enhanced survey during the UWILD, resulting in the vessel being off-hire, and not earning revenue, for an additional 12 days each time a survey is conducted; however, under international maritime organization regulations, in order for it to continue to trade internationally (including grain voyages), it will have to undergo two drydockings in each five year period, rather than a drydocking and a UWILD. Additionally, vessels may have to be drydocked in the event of accidents or other unforeseen damage. The Partnership’s recently constructed ATB Freeport and all of the newbuild ATBs and product tankers qualify for the UWILD Program.

Three vessels employed in our chemical business are scheduled for drydocking in the fourth quarter of 2008, and two ITBs are scheduled for UWILD surveys in the fourth quarter of 2008.

- 9 -

There were no drydocks in progress at June 30, 2008 or December 31, 2007. The ITB Baltimore sustained damages during Hurricane Dean while in the shipyard after completing its drydocking in mid-2007. Costs to repair the ITB Baltimore are substantially covered by insurance, with the exception of the insurance policy deductible of $125, which is the total loss previously recognized due to the damage sustained by the ITB Baltimore. The Partnership does not carry off-hire insurance for the revenues lost while repairs are performed. At June 30, 2008 and December 31, 2007, the Partnership has recognized approximately $753 and $745 as a receivable for the insurance proceeds based upon the estimated repair costs, respectively. Capitalized drydock expenditures of $338 and $2,433 were accrued at June 30, 2008 and December 31, 2007, respectively. During the six months ended June 30, 2008, the Partnership reduced previously recorded estimates of drydock costs by $170.

Depreciation of vessels and equipment for the three months ended June 30, 2008 and June 30, 2007 was $6,021 and $5,591, respectively. Amortization of drydocking expenditures was $4,426 and $3,463 for the three months ended June 30, 2008 and 2007, respectively.

Depreciation of vessels and equipment for the six months ended June 30, 2008 and June 30, 2007 was $12,041 and $11,182, respectively. Amortization of drydocking expenditures was $8,910 and $6,920 for the six months ended June 30, 2008 and June 30, 2007, respectively.

At June 30, 2008 and December 31, 2007, “Construction in progress-ATBs” includes capitalized interest of $12,828 and $7,793, respectively, and accrued invoices (which represent cash flow add backs) of $6,947 and $1,237, respectively. At June 30, 2008 and December 31, 2007, “Construction in progress-tankers” of the Joint Venture includes capitalized interest of $16,574 and $11,266, respectively, and accrued liabilities of $11,290 and $15,589, respectively.

In 2006, the Partnership entered into a contract with Manitowoc Marine Group (“MMG”) for the construction of four barges, each of which is specified to have a carrying capacity of approximately 156,000 barrels at 98% of capacity, although the Partnership had an option to cancel the fourth barge, which it exercised immediately prior to its expiration on June 30, 2008. In 2006, the Partnership entered into a contract for the construction of three tugs with Eastern Shipbuilding Group, Inc. (“Eastern”), which will be joined with the barges to complete three new ATB units. The contract with Eastern included an option to construct and deliver an additional tug which would have been combined with the fourth barge referenced above; however, the Partnership let this option expire in connection with the cancellation of the contract to construct the fourth barge. The total construction cost anticipated for the first three new ATB units is approximately $67,000 to $69,000 per unit (subject to modifications and changes in the cost of steel), in each case inclusive of owner furnished equipment, but exclusive of capitalized interest. The Partnership expects that the first two of these ATB units will be completed in August 2008 and November 2008, respectively, and the third ATB unit to be completed in August 2009. As of June 30, 2008, the Partnership made payments totaling $146,231 related to the first three ATBs and had in escrow approximately $31,019, plus $26,417 of funds drawn from the escrow account in anticipation of payments due in the third quarter of 2008. These escrowed amounts and funds drawn represent the estimated cost to substantially complete construction of the first three ATBs under construction at MMG and Eastern.

During the quarter ended March 31, 2008, the Partnership determined that the fourth ATB unit referenced above was impaired, as the Partnership did not obtain financing for its construction and assessed the fair value of the construction in progress of this ATB unit at zero which resulted in a non-cash impairment charge of $5,720, which includes $3,831 previously paid for construction of the barge portion of this ATB unit, $1,394 for deposits on certain owner furnished equipment and $495 of capitalized interest cost. In the second quarter of 2008, the Partnership exercised its cancellation option and recorded a favorable adjustment of $8 to this impairment charge. In addition, the Partnership may be required to make additional payments for certain owner furnished equipment but it has no further financial obligations with regard to either the tug or the barge.

- 10 -

On October 25, 2007, the Joint Venture and NASSCO contractually accelerated the delivery dates for the first five tankers that NASSCO is constructing for the Joint Venture. The revised delivery schedule is for the first tanker to be delivered in the second quarter of 2009, the second tanker to be delivered in the fourth quarter of 2009, the third and fourth tankers to be delivered in 2010, and the fifth tanker to be delivered in 2011. Because Product Carriers and the Joint Venture have declined NASSCO’s request to accelerate the delivery of tankers six through nine, NASSCO has the right to use their additional capacity to construct vessels for other third parties. However, the Partnership believes any such use of additional capacity should not materially affect the delivery dates of vessels six through nine. In June 2008 the Partnership extended until September 21, 2008 the expiration date of the option for the Joint Venture Investors to elect to finance the construction of the sixth and seventh vessels to be constructed under the Partnership’s contract with NASSCO. There were no fees associated with this extension.

The Partnership reviews the net book value of vessels for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a vessel may not be fully recoverable. In the current period, the Partnership has not recorded any charges as a result of changes in the carrying value of any of the Partnership’s vessels.

We currently anticipate scrapping the Sea Venture and selling the ITB New York in the second half of 2009 unless market conditions improve.

At March 31, 2009, vessels include the Golden State, which entered into service for the Joint Venture on January 9, 2009. It was completed at a total cost of $139,029 (excluding capitalized interest of $7,455).

U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

Vessels are required by both domestic (United States Coast Guard) and international (International Maritime Organization) regulatory bodies to be inspected twice every five years. To date, our ITBs have participated in the Underwater Inspection In Lieu of Drydock (“UWILD”) Program which allows vessels to be drydocked once every five years with a mid-period UWILD. In April 2007, we were advised by the U.S. Coast Guard that it will allow continued participation in the UWILD Program of non-or double hulled tank barges that are over 15 years of age if they only trade domestically. The Partnership expects to continue to participate in the UWILD Program. If the Partnership is required to conduct a second drydock in each five year period rather than rely on an underwater survey, the ITBs will be out of service longer and drydock expenditures will be higher than the time required for and the cost of conducting an underwater survey. Because of the age of the ITBs, their continued participation in the UWILD Program is now conditioned on their undergoing an enhanced survey during the UWILD, resulting in the vessel being off-hire, and not earning revenue, for an additional 12 days each time a survey is conducted; however, under international maritime organization regulations, in order for it to continue to trade internationally (including grain voyages), it will have to undergo two drydockings in each five year period, rather than a drydocking and a UWILD. Additionally, vessels may have to be drydocked in the event of accidents or other unforeseen damage. The Partnership’s recently constructed ATB Freeport, ATB Galveston and ATB Brownsville and the remaining newbuild ATB qualify for the UWILD Program. The Senior Credit Facility prohibits the Partnership from drydocking any of the ITBs without the prior consent of the senior lenders. If the Partnership is not permitted to drydock the ITBs, it will be required to take them out of service.

There were no drydocks in progress at March 31, 2009 and one at December 31, 2008. Capitalized drydock expenditures of $4,400 and $2,410 were accrued at March 31, 2009 and December 31, 2008, respectively.

Depreciation of vessels and equipment for the quarters ended March 31, 2009 and 2008 were $6,341 and $6,020, respectively. Amortization of drydocking expenditures was $1,650 and $4,484 for the quarters ended March 31, 2009 and 2008, respectively.

At March 31, 2009 and December 31, 2008, “Construction –in-progress-ATBs”, all of which relates to the ATB Corpus Christi, which was completed in July 2009 and entered service in August 2009, includes capitalized interest of $6,783 and $5,054, respectively, and accrued liabilities of $598 and $2,631, respectively. At March 31, 2009 and December 31, 2008, “Construction-in-progress-tankers” includes capitalized interest of $18,803 and $23,574, respectively, and accrued liabilities of $69 and $6,086, respectively.

During the quarter ended March 31, 2008, the Partnership determined that the value of construction in progress of the fourth ATB unit referenced above was impaired, as the Partnership did not obtain financing for its construction. Management assessed the fair value of the construction in progress of this ATB unit at zero which resulted in a non-cash impairment charge of $5,720.


7.	Deferred Financing Costs

~~Deferred~~As ~~financing~~a ~~costs~~result ~~include~~of ~~fees~~the ~~and~~Partnership ~~costs~~not ~~incurred~~being toin ~~obtain~~compliance ~~debt~~with ~~financings.~~certain ~~On August~~financial 7,covenants ~~2006,~~at asSeptember ~~part~~30, of2008 ~~the Partnership’s debt~~ and ~~equity~~December ~~financings~~31, ~~the Partnership~~2008 ~~issued senior secured notes~~ and ~~entered~~as ~~into~~a anresult ~~amended~~of ~~and~~the ~~restated~~senior ~~credit~~lender ~~facility,~~waiver ~~while~~for ~~the~~non-compliance ~~Joint~~initially ~~Venture~~expiring ~~entered~~at ~~into~~January ~~its own revolving credit loan facility. In conjunction therewith~~31, 2009, the Partnership ~~and Joint~~accelerated ~~Venture~~the ~~incurred~~amortization ~~approximately~~period ~~$11,586~~for ~~and $12,960 of~~ deferred financing costs, ~~respectively.~~to ~~Effective~~January ~~June 29~~31, ~~2007, the Partnership amended certain financial covenants in its senior credit facility, for which it paid an amendment fee of $158~~2009. ~~This fee is being amortized over the remaining term of the loan.~~ For the ~~three~~quarters ~~and six months~~ ended ~~June~~March 3031, 2009 and 2008, deferred financing costs of the Partnership (excluding those of the Joint Venture) of $~~462~~2,253 and $~~927~~464, respectively, were amortized and included in interest expense in the accompanying Unaudited ~~Condensed~~ Consolidated Statements of Operations and Comprehensive Income, ~~compared to $418~~ and ~~$822~~a ~~for the three and six months ended June 30, 2007, respectively. A pro rata~~ portion ~~of the 2008 and 2007 amortization of deferred financing costs~~ is included in ~~construction in~~ Construction-in-progress-ATBs ~~as part of the capitalized interest portion of the Partnership’s ongoing project to construct ATBs. For the three~~ and ~~six~~Vessels ~~months ended June 30, 2008, deferred financing costs of $627 and $1,254, respectively, were amortized and included in construction in progress-tankers~~ as part of the capitalized ~~interest~~ interest portion of the ~~Joint Venture~~Partnership’s ongoing project to construct ~~tankers, compared to $627 and $1,248 for the three and six months ended June 30, 2007~~ATBs.

As a result of the Partnership receiving a notice from the agent for the lenders to the Joint Venture asserting that events of default under certain revolving notes facility agreement with the Joint Venture have occurred, which the Partnership disputes, the Partnership wrote off the Joint Venture’s remaining net deferred financing costs at December 31, 2008. For the quarters ended March 31, 2009 and 2008, deferred financing costs of $0 and $627, respectively, were amortized and included in construction-in-progress-tankers as part of the capitalized interest portion of the Joint Venture’s ongoing project to construct tankers.

U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)


8.	Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following ~~at June 30, 2008 and December 31, 2007~~:

	June 30, 2008		December 31, 2007
	March 31, 2009		December 31, 2008
Construction of vessels	$	11,365	$	16,977
Interest	$	21,735	$	12,757
Interest		5,293		5,218
Insurance claims		3,007		3,061
Insurance claims		2,213		2,520
Taxes payable		1,527		1,597
Fuel charges		3,030		2,080
Construction of vessels		629		6,795
Taxes payable		1,295		1,947
Accrued fuel charges		241		511
Other		3,~~725~~799		25,~~583~~472
	$	26,921	$	31,325
Total	$	30,938	$	30,193

- 11 -


9.	Debt

The Partnership’s outstanding debt consisted of the following ~~at June 30, 2008 and December 31, 2007~~:

	June 30, 2008		December 31, 2007
	March 31, 2009		December 31, 2008
Third Amended and Restated Credit Facility - Term, bearing interest at LIBOR plus 3.5% (6.3% at June 30, 2008 and 8.3% at December 31, 2007)	$	304,247	$	305,797
Third Amended and Restated Credit Facility - Term, bearing interest at base rate (4.25%) plus LIBOR floor (3.25%); 7.5% at March 31, 2009 and December 31, 2008 including $3,410 PIK accrued interest of 1.5% from October 24, 2008 to January 30, 2009 and 4.5% from January 31, 2009 to March 31, 2009	$	301,191	$	298,639
Third Amended and Restated Credit Facility - Revolving Notes bearing interest at LIBOR plus 3.5% (6.3% at June 30, 2008and 8.3% at December 31, 2007)		20,000		13,000
Third Amended and Restated Credit Facility - Revolving Notes bearing interest at base rate (4.25%) plus LIBOR floor (3.25%); 7.5% at March 31, 2009 and December 31, 2008 including $386 PIK accrued interest of 1.5% from October 24, 2008 to January 30, 2009 and 4.5% from January 31, 2009 to March 31, 2009		35,234		34,935
13% Senior Secured Notes due 2014		100,000		100,000
Revolving Notes Facility - Joint Venture, bearing interest at LIBOR plus 4.5% (7.0% at June 30, 2008 and 9.3% at December 31, 2007)		94,561		41,230
Revolving Notes Facility - Joint Venture, bearing interest at LIBOR plus 4.5%; 5.06% at March 31, 2009 and 5.46% at December 31, 2008		245,104		176,721
Total		~~518~~681,~~808~~529		~~460~~610,~~027~~295
Less: Current portion of long-term debt		3681,~~100~~529		3610,~~100~~295
Long-term debt	$	~~515,708~~—	$	~~456,927~~—

Capitalized interest expense for the ~~three~~quarters ~~months~~ ended ~~June~~March 3031, ~~2008~~2009 and ~~June~~2008 ~~30, 2007~~ was $5,~~639 and~~843 and $5,~~228~~249, respectively. ~~Capitalized interest for the six months ended June 30, 2008 and June 30, 2007 was $10,838 and $9,728, respectively.~~

~~The~~Senior ~~Partnership’s~~Credit cash flows and liquidity have come under increasing pressure due to the current difficult market conditions, which has substantially increased the likelihood that the Partnership will fall out of compliance with certain financial covenants relating to leverage (debt to EBITDA) and fixed charge and interest coverage under its senior credit facility as early as the third quarter of 2008. The Partnership was in compliance with all its financial covenants as of the end of the second quarter of 2008, and expects to generate sufficient cash that, together with borrowings under its revolving credit facility, will allow the Partnership to make interest payments and scheduled principal payments on its debt. In order to give the Partnership adequate time to pursue strategic alternatives, the Partnership has entered into negotiations with its lenders to amend certain financial ratio covenants under its senior credit facility. The Partnership expects that any amendment to its financial covenants will require the payment of fees and a higher rate of interest, which would negatively impact the Partnership’s results of operations. See Note 2 for additional discussion. Facility

10 On December 30, 2008, the Partnership entered into a Forbearance Agreement with the lenders under the Third Amended and Restated Credit Facility (the “Senior Credit Facility”), which was extended several times and amended and restated on March 13, 2009, and which was scheduled to terminate on April 30, 2009. Pursuant ~~Taxes~~to the forbearance agreements, our lenders agreed not to take any action as a result of the Partnership’s failure to make both the December 31, 2008 and March 31, 2009 principal and interest payments under the Senior Credit Facility, our failure to be in compliance with certain of our financial covenants at September 30, 2008 and December 31, 2008, and our failure to make the scheduled interest payment due in respect of our Second Lien Notes on March 17, 2009. During the term of the forbearance agreements, the Partnership agreed to engage in good faith negotiations with the administrative agent and the lenders regarding restructuring and strategic alternatives, including a possible sale of the Partnership. The Partnership filed for protection under the U.S. bankruptcy laws prior to the expiration of the most recent forbearance period. See Note 2—Proceedings Under Chapter 11 of the Bankruptcy Code.

InAs ~~January 2008,~~ the Partnership’s ~~made~~Senior anCredit ~~election~~Facility tois ~~treat~~callable, ~~one~~the ofPartnership ~~its~~has ~~subsidiaries,~~classified ~~USCS~~it ~~Sea Venture LLC,~~ as acurrent ~~corporation for tax purposes effective January 2, 2008. The tax basis of the assets of this entity differed from the book basis~~ at ~~the~~March ~~time of the election~~31, ~~resulting~~2009 ~~in the recognition of a deferred tax asset~~ and ~~related~~December ~~tax benefit of $1,114 in the three months ended March~~ 31, 2008~~, before any valuation allowance~~.

Subsequently, the Partnership determined that the deferred tax asset and related tax benefit recorded in the three months ended March 31, 2008 should have been $646, which is net of a valuation allowance of $117. The revision to the deferred tax asset was recorded during the three months ended June 30, 2008, resulting in a decrease of $468 in the deferred tax benefit for the period. 14

~~In February~~U.S. ~~2008,~~Shipping ~~the~~Partners ~~Partnership made an election to treat one of its subsidiaries, ITB Philadelphia LLC, as a corporation for tax purposes effective December 10, 2007~~L.P. ~~The tax basis of~~ ~~the~~Notes ~~assets~~to ofUnaudited ~~this~~Condensed ~~entity~~Consolidated ~~differed~~Financial ~~from the book basis at the time of the~~Statements ~~election,~~(dollars ~~resulting~~ in ~~the~~thousands; ~~recognition~~except ofper aunit ~~deferred tax liability and related tax expense of $1,431 in the three months ended March 31, 2008.~~ data)

- On March 1231, -2009, the debt associated with our Senior Credit Facility was quoted at an average price of approximately $0.407 to the dollar, which results in an implied market value of $136,925. In addition, our Second Lien Notes had an implied market value of $0.10 to the dollar, yielding an implied market value of $10,000.

InSecond ~~May~~Lien ~~2008,~~Notes the Partnership contributed the ownership interests of four of its subsidiaries, ITB Jacksonville LLC, ITB Groton LLC, ITB Baltimore LLC, and ITB New York LLC, to one of its subsidiaries, USCS Chemical Pioneer, Inc., that is a corporation. The tax basis of the assets of these entities differed from the book basis at the time of the transfers, resulting in the recognition of a deferred tax asset of $2,861, which is net of a $2,873 valuation allowance recorded as part of the valuation allowance discussed below.

~~The~~At ~~Partnership~~March ~~provides~~31, ~~deferred~~2009 ~~income~~and ~~taxes~~December ~~for~~31, 2008 the ~~tax~~Partnership ~~effects~~had ofaccrued ~~differences between~~$7,559 ~~the financial reporting~~ and $4,875 ~~tax bases~~ of ~~assets~~interest ~~and~~on ~~liabilities~~the ofSecond ~~its subsidiaries~~Lien ~~taxed as corporations~~Notes, ~~which~~respectively. ~~are~~In ~~recorded~~February ~~at enacted tax rates in~~2009, ~~effect~~holders ~~for~~of ~~the~~$91,290 ~~years~~of ~~in which~~ the ~~differences~~Second ~~are~~Lien ~~projected~~Notes, torepresenting ~~reverse~~91.29% ~~The Partnership~~of ~~evaluates~~ the ~~recoverability of deferred tax assets and establishes~~Second aLien ~~valuation~~Notes, ~~allowance~~delivered ~~when~~letters itto isthe ~~more~~Partnership ~~likely~~waiving ~~than~~their ~~not~~February ~~that~~15, 2009 ~~some~~interest ~~portion~~payment oron ~~all of~~ the ~~deferred~~Second ~~tax~~Lien ~~assets~~Notes, ~~will~~and ~~not~~all befuture ~~realized. The Partnership determined~~interest ~~that~~payments iton isthe ~~more~~Second ~~likely~~Lien ~~than~~Notes, ~~not~~until ~~that~~the ~~certain~~earlier ~~deferred~~of ~~tax~~six ~~assets~~months ~~that existed~~following asrepayment ofin ~~June~~full ~~30,~~of ~~2008~~all ~~will~~amounts ~~not~~outstanding beunder ~~realized~~the ~~and,~~Senior ~~accordingly,~~Credit ~~provided valuation~~Facility ~~allowances~~and ~~totaling~~the ~~$3,777~~Partnership ~~for~~seeking ~~these~~bankruptcy ~~deferred tax assets~~protection. ~~There~~On ~~were~~March ~~no such allowances as of December 31~~17, ~~2007. At June 30~~2009, ~~2008~~the Partnership ~~and~~provided ~~December~~$566 ~~31,~~to ~~2007,~~ the ~~Partnership~~ ~~had~~trustee ~~net~~to ~~deferred~~pay ~~tax~~the ~~assets~~interest ofdue ~~$37~~on ~~and~~the $~~713~~8,710 principal ~~respectively.~~amount Atof ~~June 30,~~the ~~2008~~Second ~~and~~Lien ~~December~~Notes ~~31,~~for ~~2007,~~which the ~~Partnership~~February ~~had~~15, ~~net deferred tax~~2009 ~~liabilities~~interest ofpayment ~~$182~~had ~~and~~not ~~$2,145,~~been ~~respectively~~waived.

AtBecause ~~June~~the ~~30,~~indenture ~~2008~~governing ~~and December 31, 2007,~~ the ~~Partnership~~Second ~~had~~Lien ~~$871~~Notes ~~and~~contains ~~$729~~cross-default ofprovisions ~~unrecognized~~that ~~tax~~accelerate ~~benefits,~~payment ~~respectively, excluding interest and penalties. At June 30, 2008 and December 31, 2007, the Partnership had approximately $146 and $99, respectively,~~ of ~~accrued interest and penalties related to uncertain tax positions. In~~ the ~~three~~Second ~~month~~Lien ~~periods~~Notes ~~ended~~if ~~June~~there ~~30,~~is ~~2008~~a ~~and~~payment ~~2007, the Partnership’s~~default ~~Unaudited~~or ~~Condensed~~acceleration ~~Consolidated Statement~~ of ~~Operations included $90 and $88 of unrecognized tax benefits, respectively. In~~ the ~~six~~Senior ~~month~~Secured ~~periods ended June 30~~Facility, ~~2008 and 2007,~~ the ~~Partnership’s~~Second ~~Unaudited~~Lien ~~Condensed~~Notes ~~Consolidated~~have ~~Statement~~also ofbeen ~~Operations~~classified ~~included~~as ~~$188~~current ~~and~~at ~~$228~~March ~~of unrecognized tax benefits~~31, ~~respectively.~~ ~~There~~2009 ~~were~~and noDecember ~~other increases or decreases in unrecognized tax benefits during the period related to the lapse of any statute of limitations~~31, ~~settlements~~ ~~with taxing authorities, or changes in the Partnership’s assessment of whether it was more likely than not to prevail based on the technical merits of any tax position taken in prior periods~~2008. ~~The tax years 2002-2007 remain open to examination by the major taxing jurisdictions in which the Partnership is subject to tax.~~

Joint Venture Credit Facility

On August 7, 2006, the Joint Venture entered into a Revolving Notes Facility Agreement (the “Revolver”) pursuant to which affiliates of The Blackstone Group and other parties (the “Joint Venture Lenders”) made available $325,000 of revolving credit loans, of which $245,104 and $176,721 were drawn as of March 31, 2009 and December 31, 2008, respectively.

The Partnership received notice from the agent for the Joint Venture Lenders asserting that events of default under the Revolver have occurred and that the lenders were intending to foreclose on the Golden State vessel owned by the Joint Venture that the Partnership is managing pursuant to the management agreement. Because of the purported defaults, which could result in all amounts due under the Revolver becoming immediately due and payable if such defaults were actually determined to have occurred, which the Partnership disputes, these amounts have been classified as current at March 31, 2009 and December 31, 2008. For further information, refer to Note 16—Subsequent Events—Settlement of Litigation with Joint Venture Investors.

At March 31, 2009, the estimated fair value of the Joint Venture’s current debt equaled its carrying value of $245,104.


10.	Income Taxes

Prior to January 1, 2009, for federal income tax purposes, the Partnership took the position that it was a partnership that is not subject to federal income tax (excluding certain subsidiaries which are subject to corporate level taxation) based on the fact that at least 90% of its gross income in each year consisted of certain identified types of “qualifying income” (which includes dividends from subsidiary corporations and income from the transportation of minerals and natural resources, including gas, oil or products thereof).

On December 19, 2008, because of its increase in nonqualifying income and the likelihood that less than 90% of its gross income will be “qualifying income”, the Partnership elected to be classified as a corporation beginning January 1, 2009. Prior to this election, certain subsidiaries were already treated as corporations for tax purposes. At the time of this election, the tax basis of the assets and liabilities in the Partnership differed from the book basis, however, no net deferred tax asset was recorded as a full valuation allowance was established against this deferred tax asset.

The Partnership provides deferred income taxes for the tax effects of differences between the financial reporting and tax bases of its assets and liabilities which are recorded at enacted tax rates in effect for the years in which the differences are projected to reverse. The Partnership evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Partnership determined that it is more likely than not that certain deferred tax assets that existed as of December 31, 2008 will not be realized and, accordingly, provided a valuation allowance of $60,552 against these deferred tax assets. At March 31, 2009 and December 31, 2008, the Partnership had current deferred tax assets net of valuation allowances of $2,720 and $2,720, respectively. At March 31, 2009 and December 31, 2008, the Partnership had non-current deferred tax liabilities of $2,720 and $2,720, respectively.

U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

At March 31, 2009 and December 31, 2008, the Partnership had $19,246 and $19,201 of unrecognized tax benefits, respectively. At March 31, 2009 and December 31, 2008, the Partnership had approximately $201 and $193, respectively, of accrued interest and penalties related to uncertain tax positions. In the three month period ended March 31, 2009 and 2008, the Partnership’s Unaudited Condensed Consolidated Statement of Operations included $54 and $98 of unrecognized tax benefits, respectively. There were no other increases or decreases in unrecognized tax benefits during the period related to the lapse of any statute of limitations, settlements with taxing authorities, or changes in the Partnership’s assessment of whether it was more likely than not to prevail based on the technical merits of any tax position taken in prior periods. The tax years 2002-2008 remain open to examination by the major taxing jurisdictions in which the Partnership is subject to tax.


11.	Hedging

Use of Fair Value Measures

In September 2006, the FASB issued FAS 157 effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but simplifies and codifies related guidance within generally accepted accounting principles. FAS 157 applies under other accounting pronouncements that require or permit fair value measurements. Relative to FAS 157, the FASB issued FSP 157-1 and 157-2. FSP 157-1 amends FAS 157 to exclude FAS No. 13, “Accounting for Leases,” and its related interpretive accounting pronouncements that address leasing transactions. FSP 157-2 defers the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Non-recurring nonfinancial assets and nonfinancial liabilities include those measured at fair value in goodwill impairment testing, indefinite lived intangible assets measured at fair value for impairment testing, asset retirement obligations initially measured at fair value, and those assets and liabilities initially measured at fair value in a business combination. The Partnership has adopted FAS 157 as of January 1, 2008 related to financial assets and financial liabilities and the adoption did not have an impact on the Partnership’s financial statements. The Partnership is currently evaluating the impact of FAS 157 related to nonfinancial assets and nonfinancial liabilities on the Partnership’s financial statements.

- 13 -

The Partnership endeavors to utilize the best available information in measuring fair value. The Partnership has determined that all of its financial assets and financial liabilities are valued using Level 2 inputs as of June 30, 2008 in the fair value hierarchy described as follows:

Valuation Hierarchy

FAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 inputs — quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs — quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 inputs — unobservable inputs based on the Partnership’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The financial assets and liabilities carried at fair value measured via Level 2 inputs on a recurring basis as of June 30, 2008 include:

· Foreign currency forward contracts with a fair market asset value of $838. · An interest rate cap with a fair market asset value of $2,296. · An interest rate swap with a fair market liability value of $5,998. · An interest rate swap with a fair market liability value of $3,144.

Valuation Techniques

The fair value of the foreign currency forward contracts is based on dealer quotes of market forward rates and reflects the amount the Partnership would receive or pay at their maturity dates for contracts involving the same currencies and maturity dates.

The fair value of the interest rate cap is developed from market-based inputs under the income approach using cash flows discounted at relevant market interest rates.

The fair value of the interest rate swaps is developed from market-based inputs under the income approach using cash flows discounted at relevant market interest rates.

Partnership Hedging

In connection with ~~the~~entering ~~refinancing~~into ofthe ~~its~~Senior ~~credit~~Credit ~~facility~~Facility in 2006, the ~~Partnership~~ Partnership entered into an interest rate swap with a notional amount of $125,000 that effectively converted a portion of the floating LIBOR-based payments of its ~~credit~~ ~~facility~~Senior Credit Facility to a fixed rate of 8.9%. The fair value of this hedge was a ~~loss~~ liability of $58,~~998~~575, net of a credit risk adjustment of 39% at ~~June~~March 3031, ~~2008~~2009 and a ~~loss~~liability of $69,~~643~~167 at December 31, ~~2007~~2008. This contract was originally designated as a cash flow hedge. As a result of the October 20, 2008 amendment to the Senior Credit Facility, the Partnership determined that as of October 1, 2008, this contract no longer met the hedge effectiveness requirements and accordingly, discontinued the hedge accounting treatment. Any subsequent gains or losses due to change in fair value of the contract beginning October 1, 2008 were recorded to earnings. The fair value of this contract at September 30, 2008 is reflected in other comprehensive income in the accompanying financial statements. asThe ~~this~~change ~~contract~~in fair value for the period January 1, 2009 through March 31, 2009 has been recorded ~~designated~~in earnings as a ~~cash~~gain ~~flow~~of ~~hedge~~$593. This hedge was early terminated by the counterparty as a result of the Partnership’s bankruptcy filing.

In December 2006, the Partnership entered into an interest rate swap with a notional amount of $99,750 that effectively converted a portion of the floating LIBOR-based payments of its ~~credit~~Senior ~~facility~~Credit Facility to a fixed rate of 8.4%. The ~~fair~~ fair value of this hedge was a ~~loss~~liability of $36,~~144~~028, net of a credit risk adjustment of 39% at ~~June~~March 3031, ~~2008~~2009 and a ~~loss~~liability of $36,~~449~~ 396 at December 31, 2008. ~~2007~~This contract was originally designated as a cash flow hedge. As a result of the October 20, 2008 amendment to the Senior Credit Facility, the Partnership determined that as of October 1, 2008, this contract no longer met the hedge effectiveness requirements and accordingly, discontinued the hedge accounting treatment. Any subsequent gains or losses due to change in fair value of the contract beginning October 1, 2008 were recorded to earnings. The fair value of this contract at September 30, 2008 is reflected in other comprehensive income in ~~the~~ the accompanying financial statements. The change in fair value for the period January 1, as2009 ~~this~~through ~~contract~~March 31, 2009 has been ~~designated~~recorded in earnings as a gain ~~cash~~of ~~flow~~$368. This hedge. was early terminated by the counterparty as a result of the Partnership’s bankruptcy filing.

In February 2006, the Partnership entered into contracts, denominated in Euros, for the purchase of owner-furnished items costing approximately $14,439 relative -to the Partnership’s newbuild ATB series. To hedge the exposure to foreign currency, the Partnership entered into a series of foreign currency forward contracts effective through June 5, 2009, with an average exchange rate of $1.25/Euro. These contracts were originally designated as cash flow hedges, and through February 2008, the fair value of these contracts was included in other comprehensive income. Subsequent to February 2008, the Partnership received $827 and recorded this in earnings related to the Partnership’s foreign currency hedges that were terminated given that the related underlying contract payments for owner furnished equipment for one of the ATBs was cancelled. As of December 31, 2008, all contracts for this hedge have been satisfied.

In February 2006, the Partnership entered into contracts, denominated in Euros, for the purchase of owner-furnished items costing approximately $14,439 relative to the Partnership’s newbuild ATB series. To hedge the exposure to foreign currency, the Partnership entered into a series of foreign currency forward contracts effective through June 5, 2009, with an average exchange rate of $1.25/Euro. These contracts were originally designated as cash flow hedges, and through February 2008 the fair value of these contracts was included in other comprehensive income. In March 2008, the Partnership paid amounts for the purchase of a portion of the owner-furnished equipment six months ahead of the original forecasted expenditure date. Accordingly, changes in fair value of the contract related to this expenditure subsequent to the date of the March payment, totaling $25, is included in earnings, since the forecasted hedging relationship no longer exists. In addition, two of the forecasted payments were contractually extended and subsequently terminated, rendering the contracts designated as cash flow hedges for these forecasted payments ineffective. The Partnership sold these contracts during June 2008 and received net proceeds totaling $657, which is included in earnings. Of the total fair value of foreign exchange gains of $838 at June 30, 2008, $813 was recorded in other comprehensive income at June 30, 2008, and $25 was recorded in earnings for the each of the three and six-month periods ended June 30, 2008. The gain or loss on the foreign currency forward contracts currently included in comprehensive income will be recognized in earnings at the time that the underlying hedged items (i.e., the owner-furnished items) are recognized in earnings as a component of depreciation expense. The fair market value of the foreign currency forward contracts at June 30, 2008 and December 31, 2007 was a gain of $838 and $955, respectively. 16

U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

Joint Venture Hedging

On February 27, 2007, the Joint Venture purchased a nine year interest rate cap with a notional amount of $100,000 effective April 1, 2007 for $1,924, including transaction fees. This interest rate cap of the three month U.S. Dollar LIBOR of 6% is part of a hedging strategy in place at the Joint Venture to protect the value of its vessels and the chartering contracts thereon. Upon the completion of the construction of each vessel, the Joint Venture expects to sell the vessel together with any chartering contract that may be in place on such vessel. Since the long-term chartering contracts entered into by the Joint Venture will result in a fixed stream of cash flows over a multi-year period, the value that the Joint Venture may be able to obtain upon the sale of the combined vessel and chartering contract is subject to volatility based upon how interest rates fluctuate. The interest rate cap is intended to reduce the potential negative impacts to the Joint Venture’s cash flows that could result in movements in interest rates between the date a chartering contract was entered into for the first product tanker in December 2006 and the anticipated sale date of such combined vessel and chartering contract. The Joint Venture does not plan to hold or issue derivative financial instruments for trading purposes, but has not performed the activities necessary to qualify the contract for hedge accounting treatment under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. The fair market value of the interest rate cap at ~~June~~March 3031, ~~2008~~2009 and December 31, ~~2007~~2008 was a receivable of $~~2,296~~965 and $1775,~~950,~~ respectively, and is recorded in “Other Assets” on the ~~Unaudited Condensed~~ Consolidated Balance Sheets. AnThe ~~increase~~change in the fair value of the instrument ofwas a gain of $~~609~~189 and a loss of $~~346~~264 for the three ~~and six~~ months ended ~~June~~March 3031, 2009 and 2008, respectively, and is recorded as a gain and loss, respectively, on derivative financial instruments in the accompanying ~~Unaudited Condensed~~ Consolidated Statements of Operations and Comprehensive Income~~, compared to a gain of $731 for each of the three and six months ended June 30, 2007~~.


12.	Partners’ Capital

The Partnership’s general partner has a 2% general partner interest and certain incentive distribution rights in the Partnership. Incentive distribution rights represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution, any cumulative arrearages on common units, and certain target distribution levels, have been achieved. The Partnership is required to distribute all of its available cash from basic surplus, as defined in the Partnership agreement. ~~The~~Under ~~target distribution levels entitle~~ the ~~general~~ ~~partner~~terms ~~to receive 15%~~ of ~~quarterly~~our ~~cash~~Senior ~~distributions~~Credit ~~in excess of~~Facility ~~$0.50~~the ~~per~~Partnership ~~unit~~is ~~until~~no ~~all~~longer ~~unitholders~~permitted ~~have~~to ~~received~~make ~~$0.575 per unit, 25% of quarterly cash~~ distributions into ~~excess~~any of ~~$0.575~~its unitholders ~~per unit~~ until all ~~unitholders have~~outstanding ~~received~~borrowings ~~$0.70~~under ~~per~~the ~~unit,~~Senior ~~and~~Credit ~~50% of quarterly cash distributions in excess~~Facility ofare $0repaid.~~70 per unit.~~

Distributions

In July 2008, the Board of Directors of the general partner determined not to declare a distribution in respect of the second quarter of 2008 on any of its outstanding common units, subordinated units and general partner units.

On May 12, 2008, the Board of Directors of the general partner declared the regular cash distribution as it relates to the first quarter of 2008 of $0.45 per common unit, but did not declare a distribution on its subordinated units and general partner units for the first quarter. The distribution was paid on all common units on May 21, 2008 to all common unitholders of record on May 16, 2008. The aggregate amount of the distribution was $5,109.

- 15 -

On February 7, 2008, the Board of Directors of the general partner declared and the Partnership announced its regular cash distribution as it relates to the fourth quarter of 2007 of $0.45 per common unit. The distribution was paid on all common units on February 15, 2008 to all common unitholders of record on February 12, 2008. The aggregate amount of the distribution was $5,100. In February 2008, the Partnership did not declare or pay a distribution on the subordinated or general partners units. United States Shipping Master LLC (“Shipping Master”), the holder of the Partnership’s subordinated units and general partner units, requested that the Partnership not pay the fourth quarter distribution on the subordinated units and general partner units and instead retain the cash for working capital purposes; to increase the reserves available for payment of future distributions on its common units; for the completion of its capital construction program; and to strengthen coverage with respect to the Partnership’s financial covenants under its credit facility in future periods.

Restricted Units / Deferred Equity Compensation

On April 1, 2008, the Partnership issued to each of the non-employee directors of its general partner, who are not employed by Sterling Investment Partners, 3,065 fully vested common units under the Long-Term Incentive Plan for a total grant of 12,260 units. The value of the restricted units as determined on the date of issuance was $146, which has been fully recognized in earnings in the three months ended June 30, 2008.


13.	Related Party Transactions

General Partner

General and administrative expenses, including shore side employee expenses, certain facility and lease costs, and wages and benefits for crew members, are incurred directly by the Partnership’s general partner. These amounts are reimbursable by the Partnership pursuant to the partnership agreement. Reimbursable amounts expensed by the Partnership were $14,~~267~~882 and $14,~~000~~523, ~~for the three months ended June 30, 2008 and June 30, 2007,~~ respectively, ~~and $28,790 and $26,708~~ for the quarters ~~six months~~ ended ~~June~~March 3031, ~~2008~~2009 and ~~June 30, 2007, respectively~~2008.

New York ~~Office~~ Premise

On ~~September~~December 2322, ~~2005~~2008, the Partnership entered into a ~~ten-~~one year lease ~~for office~~beginning ~~space~~February ~~for~~1, ~~its~~2009 ~~New~~for ~~York City office. The Partnership subleases 75% of~~ the ~~leased space~~tenancy/residency ~~to certain companies affiliated with the Chairman~~ of the Partnership.’s ~~The~~chief ~~affiliated companies will pay their portion of~~executive ~~the rent in advance of the Partnership making the rental payment~~officer. ~~The Partnership~~A ~~has~~security ~~provided~~deposit ~~a letter~~ of ~~credit totaling~~ $~~214~~17 towas ~~secure~~paid ~~final payments~~upon ofentering the lease ~~commitment~~. ~~The~~For ~~Partnership has been reimbursed 75% of~~ the ~~cost of providing the letter of credit and has received a guaranty from its~~ ~~Chairman~~quarters ~~in the event of any default of the lease, including that which would require drawdown of the letter of credit. For the three months~~ ended ~~June~~March 3031, ~~2008~~ 2009 and ~~2007~~2008, the Partnership paid $~~108~~25 and $~~103~~0, ~~respectively, in connection~~ ~~with the lease and received $89 and $94,~~ respectively, ~~from its related parties. For the six months ended June 30, 2008 and 2007, the Partnership paid $215 and $205, respectively,~~ in connection with ~~the~~this lease ~~and received $184 and $162, respectively, from its related parties~~.

USS Product Manager LLC

USS Product Manager LLC (“Product Manager”), the Partnership’s wholly-owned subsidiary, manages the construction and operation of the tankers for the Joint Venture, for which it will receive the following, subject to certain specified limitations:

· an oversight fee of $1,000 per tanker, payable ratably over the course of construction of such tanker; · a management fee of $1,000 per year for each completed tanker that is operated by the Joint Venture; · a delivery fee of up to $750 per tanker, depending on the delivery date and cost of construction; and · a sale fee of up to $1,500 per tanker upon its sale to the Partnership or a third party, depending on the price obtained and whether a charter meeting specified terms is in place.

- 16 -

The management agreement between Product Manager and the Joint Venture has an initial term of 10 years, subject to early termination under certain circumstances. The obligations under the management agreement will be performed by employees of US Shipping General Partner LLC, the Partnership’s general partner. Certain members of the Partnership’s management are expected to devote significant time to the management and operation of the Joint Venture. For the three months ended June 30, 2008 and 2007, the Partnership recorded $292 and $45, respectively, in income related to this management agreement; however these amounts were eliminated in consolidation. For the six months ended June 30, 2008 and 2007, the Partnership recorded $626 and $62, respectively, in income related to this management agreement; however these amounts were eliminated in consolidation.

In December 2007, Product Manager agreed to assume responsibility for certain site supervision activities previously performed by the Joint Venture in exchange for fees that will total $1,000 per vessel constructed, subject to certain limitations, in addition to the oversight fees. For the three and six months ended June 30, 2008 Product Manager recognized $292 and $626, respectively, in fees for these site supervision activities, which were eliminated in consolidation.

Third Party Joint Venture Investors

As a result of the formation the Joint Venture, the Partnership considers the third party investors in the Joint Venture, led by affiliates of The Blackstone Group (the “Joint Venture Investors”), to be related parties. In connection with the formation of the Joint Venture, the Joint Venture paid fees of $10,788 to the Joint Venture Investors. For the three months ended ~~June~~March 3031, ~~2008~~ 2009 and ~~2007~~2008, the Joint Venture has paid interest of $2,~~084~~830 and $1,~~252~~738, respectively, to the ~~Joint~~ ~~Venture Investors. For the six months ended June 30, 2008 and 2007, the~~ Joint ~~Venture has paid interest of $3,822 and $2,454, respectively, to the~~ ~~Joint~~ Venture Investors.

~~Director Compensation~~ 17

~~On February~~U.S. 6,Shipping ~~2008,~~Partners ~~the~~L.P. ~~Board~~ Notes ofto ~~Directors~~Unaudited ofCondensed ~~the~~Consolidated ~~general~~Financial ~~partner~~Statements (dollars ~~approved~~in ~~the following:~~thousands; except per unit data)

· That each non-employee director (other than Messrs. Macey and Newhouse) be issued 3,065 common units of the Partnership on April 1, 2008, which units are fully vested; · that directors M. William Macey and Douglas Newhouse be paid fees equivalent to the fees paid to the other non-employee directors for their Board and committee services, for their services as members of the Board of Directors and for their service on various committees of the Board; and · that William Kearns be paid an additional annual retainer of $12 for serving as lead director of the Board.

Mr. Macey is a co-founder and managing partner of Sterling Investment Partners, L.P. and Sterling Investment Partners II, L.P. Mr. Newhouse is a co-founder and managing partner of Sterling Investment Partners, L.P. and Sterling Investment Partners II, L.P. Sterling/US Shipping L.P., by virtue of its right to elect a majority of the Board of Shipping Master, may be deemed to beneficially own the securities owned by Shipping Master. Shipping Master owns 100% of the Partnership’s general partner and the Partnership’s 6,899,968 subordinated units outstanding.


14.	Commitments and Contingencies

Severance Obligations

In October 2008, Mr. Gridley, the Partnership’s former chairman and chief executive officer, resigned as an employee of the general partner of the Partnership. The Partnership had accrued severance of $1,251 of which $977 remains as of March 31, 2009. As a result of our bankruptcy filing, we are no longer making severance payments to Mr. Gridley.

In December 2008, Mr. Al Bergeron, the Partnership’s vice president-chief financial officer, left the Partnership and the general partner. The Partnership had accrued severance of $930 of which $853 remains as of March 31, 2009. As a result of our bankruptcy filing, we are no longer making severance payments to Mr. Bergeron.

Claims and Litigation

At ~~June~~March 3031, ~~2008~~2009 and December 31, ~~2007~~2008, the Partnership has a liability for total claims exposure, both insured and uninsured, of $23,~~213~~007 and $23,~~520~~061, respectively, and a corresponding receivable from the insurance carrier of $3,~~256~~718 and $23,~~999~~905, respectively.

- The Partnership 17is -the subject of various claims and lawsuits in the ordinary course of business arising principally from personal injuries, collisions, and other casualties. Although the outcome of any individual claim or action cannot be predicted with certainty, the Partnership believes that any adverse outcome, individually or in the aggregate, would be substantially mitigated by applicable insurance and would not have a material adverse effect on the general partner’s financial position, results of operations or cash flows. The Partnership is subject to deductibles with respect to its insurance coverage up to $150 per incident and provides on a current basis for estimated payments thereunder. Legal costs associated with such claims are expensed as incurred.

~~The~~See ~~Partnership~~Note is16—Subsequent ~~the~~Events—Settlement ~~subject~~ of ~~various~~Litigation claims and lawsuits in the ordinary course of business arising principally from personal injuries, collisions, and other casualties. Although the outcome of any individual claim or action cannot be predicted with ~~certainty,~~Joint ~~the~~Venture ~~Partnership believes that any adverse outcome,~~Investors ~~individually~~for orinformation in the aggregate, would be substantially mitigated by applicable insurance and would not have a material adverse effect on the Partnership’s financial position, results of operations or cash flows. The Partnership is subject to deductibles with respect to ~~its~~our ~~insurance~~litigation ~~coverage~~with upthe toJoint ~~$150~~Venture ~~per~~Investors ~~incident~~ and ~~provides~~Joint onVenture ~~a current basis for estimated payments thereunder~~Lenders. ~~Legal costs associated with such claims are expensed as incurred.~~

ATB Commitments

InThe ~~2006, the~~ Partnership ~~entered~~has ~~into~~contracted awith ~~contract~~Manitowoc ~~with~~Marine Group (“MMG”) for the construction of ~~four~~ ~~barges, each of which is specified to have~~ a ~~carrying capacity of approximately 156,000 barrels at 98% of capacity, although the Partnership had an option to cancel the fourth~~ barge, ~~which~~and ithas ~~exercised immediately prior to~~also ~~its~~contracted ~~expiration~~with onEastern ~~June~~Shipbuilding 30Group, ~~2008~~Inc. In(“Eastern”) ~~2006, the Partnership entered into a contract~~ for the construction of ~~three~~a ~~tugs with Eastern~~tug, which ~~will~~was be joined with the ~~barges~~barge to complete ~~three~~its ~~new ATB units. The contract with Eastern~~newest ~~included an option to construct~~ and ~~deliver~~final anATB ~~additional~~unit ~~tug~~in ~~which would have been combined with~~ the ~~fourth~~third ~~barge~~quarter ~~referenced~~of ~~above;~~2009. ~~however,~~The ~~the~~ Partnership ~~let~~ ~~this~~took ~~option expire in connection with the cancellation~~ delivery of the ~~contract~~ATB ~~to construct~~in ~~the~~August ~~fourth~~2009 ~~barge.~~at ~~The~~a ~~total construction~~ cost ~~anticipated~~of ~~for the first three new ATB units is~~ approximately $6771,~~000~~335 ~~to $69,000 per unit~~ (~~subject~~excluding tocapitalized ~~modifications~~interest ~~and~~which ~~changes~~totaled ~~in the cost of steel)~~$6,783 inat ~~each~~March ~~case inclusive of owner furnished equipment~~31, ~~but exclusive of capitalized interest~~2009). ~~The capitalized~~At ~~interest~~March ~~as of June 30~~31, ~~2008 relating to the first three ATB units~~ ~~is $12~~2009,~~828.~~ ~~The~~the Partnership ~~expects~~had ~~that~~restricted ~~the~~cash ~~first two~~ of ~~these~~$710 ~~ATB~~and ~~units~~funds ~~will be completed~~ in ~~August~~operating ~~2008~~cash of ~~and November 2008~~$2,887 ~~respectively,~~which ~~and~~was ~~the~~used ~~third ATB unit~~ to bepay ~~completed~~costs incurred in ~~August~~ 2009. Asto ofcomplete ~~June~~this ~~30,~~final ATB. ~~2008,~~The ~~the~~ Partnership ~~made payments~~funded ~~totaling $146,231 related to~~ the ~~first three ATBs and had in escrow~~ approximately $318,~~019,~~285 ~~plus $26,417~~ of ~~funds~~construction ~~drawn~~costs ~~from~~needed ~~the escrow account in anticipation of payments due in the third quarter of 2008. These escrowed amounts and funds drawn represent the estimated cost~~ to ~~substantially~~ complete ~~construction~~ of the final ~~first~~ATB ~~three~~and ~~ATBs~~not ~~under~~in ~~construction~~escrow atfrom ~~MMG~~its ~~and~~operating ~~Eastern.~~cash flows.

During the quarter ended March 31, 2008, the Partnership determined that the fourth ATB unit referenced above was impaired, as the Partnership did not obtain financing for its construction, and assessed the fair value of the construction in progress of this ATB unit at zero, which resulted in a non-cash impairment charge of $5,720, which includes $3,831 previously paid for construction of the barge portion of this ATB unit, $1,394 for deposits on certain owner furnished equipment, and $495 of capitalized interest costs. In the second quarter of 2008, the Partnership exercised its cancellation option. In addition, the Partnership may be required to make additional payments for certain owner furnished equipment.

Joint Venture Commitments

On August 7, 2006 the Partnership entered into the Joint Venture to finance the construction of the first five petroleum tankers. The Joint Venture Investors have committed to provide an aggregate of $105,000 of equity financing and the Partnership has committed to provide $70,000 of equity financing to the Joint Venture, of which approximately $51,504 was paid through June 30, 2008. The Partnership’s remaining commitment of $18,496 is secured by a letter of credit for the benefit of the Joint Venture, and the Partnership has segregated an equivalent amount of cash into an escrow account to meet such obligations. In addition, the Joint Venture entered into a revolving notes facility agreement pursuant to which the Joint Venture Investors have made available $325,000 of revolving credit loans to finance construction of the tankers, of which $94,561 has been borrowed at June 30, 2008.

- 18 -

Tanker Commitments

The Partnership, through its subsidiary, Product Carriers, entered into a contract with NASSCO for the construction of nine 49,000 dwt double-hulled tankers. The Partnership currently expects the cost to construct these nine tankers to aggregate approximately $1.2 billion (including an estimate for price escalation based on projected increases in certain published price indexes), exclusive of capitalized interest. Upon formation of the Joint Venture, Product Carriers assigned its rights and obligations with respect to the construction of the first five tankers to the Joint Venture. The Joint Venture has the right to elect to have rights and obligations under the NASSCO contract to construct up to four additional tankers assigned to the Joint Venture at specified times. NASSCO released Product Carriers from any obligation under the construction contract relating to the first five tankers and will release Product Carriers from any obligation under the construction contract relating to tankers six through nine to the extent the rights with respect to such tankers are assigned to the Joint Venture. If the Joint Venture elects not to construct the last four tankers, Product Carriers would be obligated to obtain alternative financing for their construction or to transfer the shipyard slots. In such event, it is possible that Product Carriers will not be able to obtain the necessary financing on acceptable terms or at all. If Product Carriers is unable to obtain the financing for these four tankers, it is obligated to reimburse NASSCO for any damages incurred by NASSCO as a result of these tankers not being constructed, or if they are transferred to a third party at a loss to NASSCO, up to a maximum of $10,000 (plus costs and expenses incurred by NASSCO) for each such tanker, with such amounts being funded solely out of monies received by Product Carriers in respect of its equity investment in the first five vessels constructed by the Joint Venture. In June 2008, the Partnership extended until September 21, 2008 the expiration date of the option for the Joint Venture Investors to elect to finance the construction of the sixth and seventh vessels to be constructed under the Partnership’s contract with NASSCO.

Hess Support Agreement

On September 13, 2002, the Partnership entered into an agreement (the “Support Agreement”) with Hess in which certain daily charter rates were agreed through September 13, 2007 and based upon which support payments would be made by Hess to the Partnership in respect of the ITBs. Under the terms of the Support Agreement, Hess agreed to pay the Partnership for the amount by which the Partnership’s negotiated third-party contract rates were less than the agreed charter rate. However, in the event that the charter rates the Partnership received on the ITBs were in excess of the Hess support rate, then the Partnership was obligated to pay such excess amounts to Hess until the Partnership had repaid Hess for all prior support payments made by Hess to the Partnership, and then the Partnership was obligated to share 50% of any additional excess amount with Hess. The differences resulting from these rates were calculated on a monthly basis and subject to a final “true-up” following expiration of the support agreement, which “true-up” is currently ongoing. The net amounts received or paid by the Partnership were considered contingent purchase price during the term of the Support Agreement. At the conclusion of the Support Agreement in September 2007, the net amount received was treated as a purchase price adjustment to the six ITBs acquired by the Partnership from Hess in September 2002.

The cumulative net amount that was recorded as a reduction in the purchase price of the six ITBs was $8,568 upon the expiration of the Support Agreement in September 2007.


15.	Supplemental Guarantor Information

Set ~~forth~~ forth below is additional information regarding the financial position, results of of operations and cash flows of U.S. Shipping Partners L.P. ~~(the “Parent”)~~ and U.S. Shipping Finance Corp. (~~“Subsidiary Issuer,”~~ together ~~with the Parent~~, the “Issuers” of the Partnership’s $100,000 13% Senior Secured Notes due 2014 (the “Second Lien Notes”)), the Partnership’s subsidiary guarantors of such Second Lien Notes and the Partnership’s subsidiary non-guarantors of such ~~Notes~~Second ~~comprised~~Lien ~~of Product Carriers and the Joint Venture and its subsidiaries. All of the Partnership’s wholly-owned subsidiaries other than the non-guarantor subsidiaries guarantee the~~ Notes ~~on a full and unconditional, joint and several basis~~. ~~There are no restrictions on the ability of U.S. Shipping Partners L.P. to obtain funds from its wholly owned subsidiaries.~~

The Partnership’s Joint Venture and its subsidiaries, are contractually restricted from distributing assets to the Partnership entities, either by equity distribution or loan, without the consent of the Joint Venture Investors, or alternately, upon the achievement of operational and financial goals as established in the joint venture agreement. 18

-U.S. 19Shipping -Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

The subsidiary co-issuer entity (U.S. Shipping Finance Corp.), which is a 100% owned finance subsidiary of U.S. Shipping Partners L.P., commenced operations ~~Unaudited~~on ~~Consolidating~~August ~~Balance~~7, ~~Sheet~~2006, two of the non-guarantor subsidiaries (USS Products Investor AsLLC and USS Product Carriers LLC) both commenced operations on August 7, 2006, one non-guarantor subsidiary, USS ATB 3 LLC, did not commence operations until May 2009 and the remaining non-guarantor subsidiary, USS ATB 4 LLC, never commenced operations. In addition, all of ~~June~~the 30Partnership’s wholly-owned subsidiaries other than the non-guarantor subsidiaries identified above guarantee the Second Lien Notes on a full and unconditional, ~~2008~~joint and several ~~(in~~basis. ~~thousands)~~There are no restrictions on the ability of U.S. Shipping Partners L.P. to obtain funds from its wholly owned subsidiaries.

	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries		Non- Guarantor Subsidiaries**		Adjustments			Total
Assets
Current assets
Cash and equivalents	$	—		$	—		$	38,077	$	6	$	—		$	38,083
Current portion of restricted cash and equivalents		—			—			49,515		—		—			49,515
Accounts receivable, net		—			—			8,169		—		—			8,169
Prepaid expenses and other current assets		—			—			14,752		33		—			14,785
Total current assets		—			—			110,513		39		—			110,552
Investment in subsidiaries, net		262,847			—			—		—		(262,847	)		—
Intercompany receivable		273,895			70,214			—		—		(344,109	)		—
Restricted cash and equivalents, net of current portion		—			—			—		—		—			—
Vessels and equipment, net		—			—			415,342		204,161		—			619,503
Deferred financing costs, net		8,660			3,795			—		8,178		(3,795	)		16,838
Other assets		838			—			1,064		2,296		—			4,198
Total assets	$	546,240		$	74,009		$	526,919	$	214,674	$	(610,751	)	$	751,091
Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt	$	3,100		$	—		$	—	$	—	$	—		$	3,100
Accounts payable		—			—			14,856		—		—			14,856
Due to affiliates		—			—			907		241		—			1,148
Deferred revenue		—			—			1,085		—		—			1,085
Accrued expenses and other liabilities		—			—			15,260		11,661		—			26,921
Total current liabilities		3,100			—			32,108		11,902		—			47,110
Intercompany payable		—			—			273,895		—		(273,895	)		—
Long-term debt, net of current portion		421,147			100,000			—		94,561		(100,000	)		515,708
Deferred income taxes		—			—			182		—		—			182
Other liabilities		9,142			—			1,017		—		—			10,159
Total liabilities		433,389			100,000			307,202		106,463		(373,895	)		573,159
Noncontrolling interest in Joint Venture		—			—			—		65,081		—			65,081
Commitments and contingencies
Partners’ Capital
Partners’ capital		120,776			(25,991	)		219,717		43,130		(236,856	)		120,776
Accumulated other comprehensive loss		(7,925	)		—			—		—		—			(7,925	)
Total partners’ capital		112,851			(25,991	)		219,717		43,130		(236,856	)		112,851
Total liabilities and partners’ capital	$	546,240		$	74,009		$	526,919	$	214,674	$	(610,751	)	$	751,091

The Joint Venture is contractually restricted from distributing assets to the Parent entities, either by equity distribution or loan, without the consent of the Joint Venture Investors, or alternately, upon the achievement of operational and financial goals as established in the joint venture agreement.

* Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet. In addition, the related deferred financing costs are presented as an asset of both entities.19

**U.S. ~~Consists~~Shipping ofPartners ~~the~~L.P. ~~Joint~~ ~~Venture~~Notes ~~and~~to ~~the~~Unaudited ~~Partnership’s~~Condensed ~~wholly-owned~~Consolidated ~~subsidiary~~Financial ~~that~~Statements (dollars ~~owns~~in ~~its~~thousands; ~~investment in~~except ~~the~~per ~~Joint~~unit ~~Venture.~~data)

-U.S. 20Shipping -Partners L.P.Unaudited Consolidating Balance SheetAs of March 31, 2009 (in thousands)

U.S. Shipping Partners L.P. Unaudited Consolidating Balance Sheet As of December 31, 2007 (in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries		Non- Guarantor Subsidiaries**		Adjustments			Total

Assets
Current assets
Cash and equivalents	$	—		$	—		$	21,176		2,193	$	—		$	23,369
Restricted cash and equivalents		—			—			710		—		—			710
Accounts receivable, net		—			—			6,470		13		—			6,483
Prepaid expenses and other current assets		—			—			11,438		210		—			11,648

Total current assets		—			—			39,794		2,416		—			42,210
Investment in subsidiaries, net		188,148			—			—		—		(188,148	)		—
Intercompany receivable		238,031			60,465			—		—		(298,496	)		—

Vessels and equipment, net		—			—			374,492		388,356		—			762,848

Other assets		—			—			1,064		965		—			2,029

Total assets	$	426,179		$	60,465		$	415,351		391,737	$	(486,644	)	$	807,087


Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt	$	436,425		$	100,000		$	—		245,104	$	(100,000	)	$	681,529
Accounts payable		—			—			1,727		—		—			1,727
Due to affiliates		—			—			3,546		118		—			3,664
Accrued expenses and other liabilities		—			—			29,760		1,178		—			30,938

Total current liabilities		436,425			100,000			35,033		246,400		(100,000	)		717,858
Intercompany payable		—			—			238,031		—		(238,031	)		—
Deferred income taxes		—			—			2,720		—		—			2,720
Other liabilities		14,603			—			2,459		—		—			17,062

Total liabilities		451,028			100,000			278,243		246,400		(338,031	)		737,640


Partners’ Capital
Partners’ capital		(17,695	)		(39,535	)		137,108		51,040		(148,613	)		(17,695	)
Accumulated other comprehensive loss		(7,155	)		—			—		—		—			(7,155	)
Non controlling interest in Joint Venture		—			—			—		94,297		—			94,297

Total partners’ capital		(24,850	)		(39,535	)		137,108		145,337		(148,613	)		69,447

Total liabilities and partners’ capital	$	426,178		$	60,465		$	415,351		391,737	$	(486,644	)	$	807,087

		Parent *			Subsidiary Issuer *			Guarantor Subsidiaries		Non- Guarantor Subsidiaries**		Adjustments			Total
*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet. In addition, the related deferred financing costs are presented as an asset of both entities.
Assets
**	Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.
Current assets
Cash and equivalents		$	—		$	—		$	21,596	$	8	$	—		$	21,604
Current portion of restricted cash and equivalents			—			—			113,960		—		—			113,960
Accounts receivable, net			—			—			11,934		—		—			11,934
Prepaid expenses and other current assets			—			—			10,489		194		—			10,683
Total current assets			—			—			157,979		202		—			158,181
Investment in subsidiaries, net			245,914			—			—		—		(245,914	)		—
Intercompany receivable			303,466			76,715			—		—		(380,181	)		—
Restricted cash and equivalents, net of current portion			—			—			11,322		—		—			11,322
Vessels and equipment, net			—			—			388,324		101,140		—			489,464
Deferred financing costs, net			9,587			4,108			—		9,432		(4,108	)		19,019
Other assets			955			—			2,137		1,950		—			5,042
Total assets		$	559,922		$	80,823		$	559,762	$	112,724	$	(630,203	)	$	683,028
Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt		$	3,100		$	—		$	—	$	—	$	—		$	3,100
Accounts payable			—			—			9,668		—		—			9,668
Due to affiliates			—			—			3,197		196		—			3,393
Deferred revenue			—			—			1,193		—		—			1,193
Accrued expenses and other liabilities			—			—			15,359		15,966		—			31,325
Total current liabilities			3,100			—			29,417		16,162		—			48,679
Intercompany payable			—			—			303,466		—		(303,466	)		—
Long-term debt, net of current portion			415,697			100,000			—		41,230		(100,000	)		456,927
Deferred income taxes			—			—			2,145		—		—			2,145
Other liabilities			10,092			—			828		—		—			10,920
Total liabilities			428,889			100,000			335,856		57,392		(403,466	)		518,671
Noncontrolling interest in Joint Venture			—			—			—		33,324		—			33,324
Commitments and contingencies
Partners’ Capital
Partners’ capital			139,263			(19,177	)		223,906		22,008		(226,737	)		139,263
Accumulated other comprehensive loss			(8,230	)		—			—		—		—			(8,230	)
Total partners’ capital			131,033			(19,177	)		223,906		22,008		(226,737	)		131,033
Total liabilities and partners’ capital		$	559,922		$	80,823		$	559,762	$	112,724	$	(630,203	)	$	683,028

-U.S. 21Shipping -Partners L.P. Unaudited Consolidating Balance Sheet As of December 31, 2008 (in thousands)

U.S. Shipping Partners L.P. Unaudited Consolidating Statement of Operations Three Months Ended June 30, 2008 (in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries		Non- Guarantor Subsidiaries**		Adjustments			Total

Assets
Current assets
Cash and equivalents	$	—		$	—		$	20,583		16	$	—		$	20,599
Current portion of restricted cash and equivalents		—			—			7,566		—		—			7,566
Accounts receivable, net		—			—			4,905		—		—			4,905
Prepaid expenses and other current assets		—			—			18,883		194		—			19,077

Total current assets		—			—			51,937		210		—			52,147
Investment in subsidiaries, net		186,797			—			—		—		(186,797	)		—
Intercompany receivable		247,780			63,715			—		—		(311,495	)		—
Vessels and equipment, net		—			—			376,326		327,869		—			704,195
Deferred financing costs, net		2,253			909			—		—		(909	)		2,253
Other assets		—			—			1,065		775		—			1,840

Total assets	$	436,830		$	64,624		$	429,329		328,854	$	(499,201	)	$	760,435


Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt	$	433,574		$	100,000		$	—		176,721	$	(100,000	)	$	610,295
Accounts payable		—			—			7,424		—		—			7,424
Due to affiliates		—			—			3,659		464		—			4,123
Deferred revenue		—			—			6,165		—		—			6,165
Accrued expenses and other liabilities		—			—			23,419		6,774		—			30,193

Total current liabilities		433,574			100,000			40,667		183,959		(100,000	)		658,200
Intercompany payable		—			—			247,780		—		(247,780	)		—
Deferred income taxes		—			—			2,720		—		—			2,720
Other liabilities		15,563			—			2,406		—		—			17,969

Total liabilities		449,137			100,000			293,573		183,959		(347,780	)		678,889


Partners’ Capital
Partners’ capital		(4,014	)		(35,376	)		135,757		51,040		(151,421	)		(4,014	)
Accumulated other comprehensive loss		(8,294	)		—			—		—		—			(8,294	)
Noncontrolling interest in Joint Venture		—			—			—		93,854		—			93,854

Total partners’ capital		(12,307	)		(35,376	)		135,757		144,894		(151,421	)		81,546

Total liabilities and partners’ capital	$	436,830		$	64,624		$	429,329		328,854	$	(499,201	)	$	760,435

		Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total
*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet. In addition, the related deferred financing costs are presented as an asset of both entities.
Revenues		$	—		$	—		$	49,819		$	—		$	—		$	49,819
**	Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.
Operating expenses
Vessel operating expenses			—			—			16,384			—			—			16,384
Voyage expenses			—			—			17,331			—			—			17,331
General and administrative expenses			146			—			3,505			360			—			4,011
Depreciation and amortization			—			—			10,445			—			—			10,445
Other expense			—			—			45			—			—			45
Total operating expenses, net			146			—			47,710			360			—			48,216
Operating (loss) income			(146	)		—			2,109			(360	)		—			1,603
Interest expense			6,879			3,406			—			—			(3,406	)		6,879
Interest income			—			—			(655	)		—			—			(655	)
Net losses (gains) on derivative financial instruments			25			—			(1	)		(610	)		—			(586	)
(Loss) income before income taxes and noncontrolling interest			(7,050	)		(3,406	)		2,765			250			3,406			(4,035	)
Provision for income taxes			—			—			(1,514	)		—			—			(1,514	)
(Loss) income before noncontrolling interest			(7,050	)		(3,406	)		4,279			250			3,406			(2,521	)
Equity in earnings of unconsolidated subsidiaries			4,367			—			—			—			(4,367	)		—
Noncontrolling interest in Joint Venture losses			—			—			—			(162	)		—			(162	)
Net (loss) income		$	(2,683	)	$	(3,406	)	$	4,279		$	88		$	(961	)	$	(2,683	)

* Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Notes. Accordingly, the interest expense in respect of the Notes has been presented as an expense of both entities in the above consolidating statement of operations.21

**U.S. ~~Consists~~Shipping ~~of the~~Partners ~~Joint~~L.P. ~~Venture~~ Notes ~~and~~to ~~the~~Unaudited ~~Partnership’s~~Condensed ~~wholly-owned~~Consolidated ~~subsidiary~~Financial ~~that owns its~~Statements ~~investment~~(dollars in ~~the~~thousands; ~~Joint~~except ~~Venture.~~per unit data)

-U.S. 22Shipping -Partners L.P. Unaudited Consolidating Statement of Operations Three Months Ended March 31, 2009 (in thousands)

U.S. Shipping Partners L.P. Unaudited Consolidating Statement of Operations Six Months Ended June 30, 2008 (in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total

Revenues	$	—		$	—		$	44,107		$	3,822		$	—		$	47,929


Operating expenses
Vessel operating expenses		—			—			14,384			1,788			—			16,172
Voyage expenses		—			—			15,825			20			—			15,845
General and administrative expenses		—			—			5,738			246			—			5,984
Depreciation and amortization		—			—			6,780			1,211			—			7,991

Total operating expenses, net		—			—			42,727			3,265			—			45,992

Operating income		—			—			1,380			557			—			1,937
Interest expense		15,993			4,159			—			310			(4,159	)		16,303
Interest income		—			—			(25	)		(7	)		—			(32	)

Net gain on derivative financial instruments		(961	)		—			—			(189	)		—			(1,150	)

(Loss) income before income taxes and noncontrolling interest		(15,032	)		(4,159	)		1,405			443			4,159			(13,184	)
Provision for income taxes		—			—			54			—			—			54

(Loss) income before noncontrolling interest		(15,032	)		(4,159	)		1,351			443			4,159			(13,238	)
Equity in earnings of unconsolidated subsidiaries		1,351			—			—			—			(1,351	)		—
Noncontrolling interest in Joint Venture		—			—			—			443			—			443

Net (loss) income	$	(13,681	)	$	(4,159	)	$	1,351		$	—		$	2,808		$	(13,681	)

		Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total
*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet. In addition, the related deferred financing costs are presented as an asset of both entities.
Revenues		$	—		$	—		$	101,323		$	—		$	—		$	101,323
**	Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.
Operating expenses
Vessel operating expenses			—			—			33,405			—			—			33,405
Voyage expenses			—			—			31,010			—			—			31,010
General and administrative expenses			183			—			7,024			798			—			8,005
Depreciation and amortization			—			—			20,949			—			—			20,949
Other expense			—			—			5,832			—			—			5,832
Total operating expenses, net			183			—			98,220			798			—			99,201
Operating (loss) income			(183	)		—			3,103			(798	)		—			2,122
Interest expense			14,770			6,814			—			—			(6,814	)		14,770
Interest income			—			—			(1,695	)		—			—			(1,695	)
Net (gains) losses on derivative financial instruments			(682	)		—			—			(346	)		—			(1,028	)
(Loss) income before income taxes and noncontrolling interest			(14,271	)		(6,814	)		4,798			(452	)		6,814			(9,925	)
Provision for income taxes			—			—			(1,222	)		—			—			(1,222	)
(Loss) income before noncontrolling interest			(14,271	)		(6,814	)		6,020			(452	)		6,814			(8,703	)
Equity in earnings of unconsolidated subsidiaries			5,810			—			—			—			(5,810	)		—
Noncontrolling interest in Joint Venture losses			—			—			—			242			—			242
Net (loss) income		$	(8,461	)	$	(6,814	)	$	6,020		$	(210	)	$	1,004		$	(8,461	)

**U.S. ~~Consists~~Shipping ofPartners ~~the~~L.P. ~~Joint~~ Notes ~~Venture~~to ~~and~~Unaudited ~~the~~Condensed ~~Partnership’s~~Consolidated ~~wholly-owned~~Financial Statements ~~subsidiary~~(dollars ~~that~~in ~~owns~~thousands; ~~its~~except ~~investment~~per inunit ~~the Joint Venture.~~data)

-U.S. 23Shipping -Partners L.P. Unaudited Consolidating Statement of Operations Three Months Ended March 31, 2008 (in thousands)

U.S. Shipping Partners L.P. Unaudited Consolidating Statement of Operations Three Months Ended June 30, 2007 (in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total


Revenues	$	—		$	—		$	51,504		$	—		$	—		$	51,504


Operating expenses
Vessel operating expenses		—			—			17,021			—			—			17,021
Voyage expenses		—			—			13,679			—			—			13,679
General and administrative expenses		37			—			3,519			438			—			3,994
Depreciation and amortization		—			—			10,504			—			—			10,504
Other expense		—			—			5,787			—			—			5,787

Total operating expenses, net		37			—			50,510			438			—			50,985

Operating (loss) income		(37	)		—			994			(438	)		—			519
Interest expense		7,891			3,407			—			—			(3,407	)		7,891
Interest income		—			—			(1,040	)		—			—			(1,040	)
Net (gains) losses on derivative financial instruments		(706	)		—			—			264			—			(442	)

(Loss) income before income taxes and noncontrolling interest		(7,222	)		(3,407	)		2,034			(702	)		3,407			(5,890	)
Provision for income taxes		—			—			292			—			—			292

(Loss) income before noncontrolling interest		(7,222	)		(3,407	)		1,742			(702	)		3,407			(6,182	)
Equity in earnings of unconsolidated subsidiaries		1,444			—			—			—			(1,444	)		—
Noncontrolling interest in Joint Venture losses		—			—			—			404			—			404

Net (loss) income	$	(5,778	)	$	(3,407	)	$	1,742		$	(298	)	$	1,963		$	(5,778	)

		Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total
*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Notes. Accordingly, the interest expense in respect of the Notes has been presented as an expense of both entities in the above consolidating statement of operations.
Revenues		$	—		$	—		$	45,621		$	—		$	—		$	45,621
**	Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.
Operating expenses
Vessel operating expenses			—			—			17,407			—			—			17,407
Voyage expenses			—			—			8,712			—			—			8,712
General and administrative expenses			37			—			4,129			75			—			4,241
Depreciation and amortization			—			—			9,054			—			—			9,054
Total operating expenses, net			37			—			39,302			75			—			39,414
Operating income (loss)			(37	)		—			6,319			(75	)		—			6,207
Interest expense			6,654			3,405			—			1			(3,405	)		6,655
Interest income			—			—			(2,570	)		(2	)		—			(2,572	)
Gain on derivative financial instruments			(173	)		—			—			(731	)		—			(904	)
Income (loss) before income taxes and noncontrolling interest			(6,518	)		(3,405	)		8,889			657			3,405			3,028
Provision for income taxes			—			—			202			—			—			202
Income (loss) before noncontrolling interest			(6,518	)		(3,405	)		8,687			657			3,405			2,826
Equity in earnings of unconsolidated subsidiaries			8,926			—			—			—			(8,926	)		—
Noncontrolling interest in Joint Venture income			—			—			—			(418	)		—			(418	)
Net income (loss)		$	2,408		$	(3,405	)	$	8,687		$	239		$	(5,521	)	$	2,408

**U.S. ~~Consists~~Shipping ofPartners ~~the Joint Venture~~L.P. ~~and~~Notes ~~the~~to ~~Partnership’s~~Unaudited ~~wholly-owned~~Condensed ~~subsidiary~~Consolidated ~~that~~Financial ~~owns~~Statements (dollars ~~its~~in ~~investment~~thousands; inexcept ~~the Joint~~per ~~Venture.~~unit data)

-U.S. 24Shipping -Partners L.P. Unaudited Consolidating Statement of Cash Flows For the Three Months Ended March 31, 2009 (in thousands)

U.S. Shipping Partners L.P. Unaudited Consolidating Statement of Operations Six Months Ended June 30, 2007 (in thousands)


	Year Ended 31-Mar-09			Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total

Cash flows from operating activities
Net (loss) income	$	(13,681	)	$	(13,681	)	$	(4,159	)	$	1,351		$	—		$	2,808		$	(13,681	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing costs		10,244			2,253			909			7,991			—			(909	)		10,244
Interest added to debt outstanding		2,851						—			2,851			—			—			2,851
Amortization of deferred loss from derivatives in AOCI		1,380			—						1,380									1,380
Benefit for accounts receivable		(51	)					—			(51	)		—			—			(51	)
Noncontrolling interest in Joint Venture		443			—			—			—			443			—			443
Net gain on derivative financial instruments		(1,150	)		(961	)		—			—			(189	)		—			(1,150	)
Capitalized drydock costs		(2,811	)		—			—			(2,811	)		—			—			(2,811	)
Equity in earnings of unconsolidated subsidiaries		—			(1,351	)		—			—			—			1,351			—
Changes in assets and liabilities:
Accounts receivable		(1,527	)		—			—			(1,527	)		—			—			(1,527	)
Prepaid expenses and other current assets		7,601			—			—			7,601			—			—			7,601
Other assets		—			—			—			74			(74	)		—			—
Accounts payable		(1,901	)		—			—			(1,901	)		—			—			(1,901	)
Deferred revenue		(6,165	)		—			—			(6,165	)		—			—			(6,165	)
Accrued expenses and other liabilities		6,063			—			—			4,888			1,175			—			6,063

Net cash (used in) provided by operating activities		1,296			(13,740	)		(3,250	)		13,681			1,355			3,250			1,296


Cash flows from investing activities
Change in restricted cash and equivalents, net		6,856			—			—			6,856			—			—			6,856
Construction of vessels and equipment		(73,765	)		—			—			(6,212	)		(67,553	)		—			(73,765	)

Net cash provided by (used in) investing activities		(66,909	)		—			—			644			(67,553	)		—			(66,909	)


Cash flows from financing activities
Proceeds from Joint Venture revolver borrowings		68,383			—			—			—			68,383			—			68,383
Intercompany receivable (payable)		—			13,740			3,250			(13,732	)		(8	)		(3,250	)		—

Net cash provided by (used in) financing activities	$	68,383		$	13,740		$	3,250		$	(13,732	)	$	68,375		$	(3,250	)	$	68,383


Net increase in cash and cash equivalents		2,770			—			—			593			2,177			—			2,770
Cash and cash equivalents at beginning of period		20,599			—			—			20,583			16			—			20,599

Cash and cash equivalents at end of period	$	23,369		$	—		$	—		$	21,176		$	2,193		$	—		$	23,369

		Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total
*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet. In addition, the remaining net related deferred financing costs are presented as an asset of both entities.
Revenues		$	—		$	—		$	87,703		$	—		$	—		$	87,703
**	Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.
Operating expenses
Vessel operating expenses			—			—			32,325			—			—			32,325
Voyage expenses			—			—			16,149			—			—			16,149
General and administrative expenses			37			—			7,836			133			—			8,006
Depreciation and amortization			—			—			18,102			—			—			18,102
Other expense (income)			—			—			(3,486	)		—			—			(3,486	)
Total operating expenses, net			37			—			70,926			133			—			71,096
Operating income (loss)			(37	)		—			16,777			(133	)		—			16,607
Interest expense			13,571			6,821			—			1			(6,821	)		13,572
Interest income			—			—			(5,242	)		(5	)		—			(5,247	)
Gain on derivative financial instruments			(173	)		—			—			(731	)		—			(904	)
Income (loss) before income taxes and noncontrolling interest			(13,435	)		(6,821	)		22,019			602			6,821			9,186
Provision for income taxes			—			—			622			—			—			622
Income (loss) before noncontrolling interest			(13,435	)		(6,821	)		21,397			602			6,821			8,564
Equity in earnings of unconsolidated subsidiaries			21,592			—			—			—			(21,592	)		—
Noncontrolling interest in Joint Venture income			—			—			—			(407	)		—			(407	)
Net income (loss)		$	8,157		$	(6,821	)	$	21,397		$	195		$	(14,771	)	$	8,157

**U.S. ~~Consists~~Shipping ofPartners ~~the Joint~~L.P. ~~Venture~~Notes ~~and~~to ~~the~~Unaudited ~~Partnership’s~~Condensed ~~wholly-owned~~Consolidated ~~subsidiary~~Financial ~~that~~Statements (dollars ~~owns~~in ~~its~~thousands; ~~investment in~~except ~~the~~per ~~Joint~~unit ~~Venture.~~data)

-U.S. 25Shipping -Partners L.P. Unaudited Consolidating Statement of Cash Flows For the Three Months Ended March 31, 2008 (in thousands)

U.S. Shipping Partners L.P. Unaudited Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2008 (in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total


Cash flows from operating activities
Net (loss) income	$	(5,778	)	$	(3,407	)	$	1,742		$	(298	)	$	1,963		$	(5,778	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing costs		464			157			10,504			—			(157	)		10,968
Impairment of construction-in-progress		—			—			5,720			—			—			5,720
Loss on sale of surplus equipment		—			—			67			—			—			67
Equity compensation		37			—			—			—			—			37
(Benefit) for accounts receivable		—			—			(90	)		—			—			(90	)
Noncontrolling interest in Joint Venture loss		—			—			—			(404	)		—			(404	)
Gain (loss) on derivative financial instruments		(706	)		—			—			264			—			(442	)
Deferred income taxes		—			—			192			—			—			192
Capitalized drydock costs		—			—			(1,965	)		—			—			(1,965	)
Equity in earnings of unconsolidated subsidiaries		(1,444	)		—			—			—			1,444			—
Changes in assets and liabilities:
Accounts receivable		—			—			1,162			—			—			1,162
Prepaid expenses and other current assets		—			—			1,178			—			—			1,178
Other assets		—			—			(1	)		—			—			(1	)
Accounts payable		—			—			(1,182	)		—			—			(1,182	)
Deferred revenue		—			—			(1,193	)		—			—			(1,193	)
Accrued expenses and other liabilities		—			—			(4,897	)		135			—			(4,762	)

Net cash (used in) provided by operating activities		(7,427	)		(3,250	)		11,237			(303	)		3,250			3,507


Cash flows from investing activities
Change in restricted cash and equivalents, net		—			—			39,000			—			—			39,000
Sale of surplus equipment		—			—			138			—			—			138
Construction of vessels and equipment		—			—			(22,693	)		(59,490	)		—			(82,183	)

Net cash provided by (used in) investing activities		—			—			16,445			(59,490	)		—			(43,045	)


Cash flows from financing activities
Proceeds from Joint Venture revolver borrowings		—			—			—			29,895			—			29,895
Contribution by noncontrolling interest equity investors in Joint Venture		—			—			—			29,895			(11,959	)		17,936
Repayment of debt		(775	)		—			—			—			—			(775	)
Intercompany receivable / payable		13,302			3,250			(25,261	)		—			8,709			—
Distributions to partners		(5,100	)		—			—			—			—			(5,100	)

Net cash provided by (used in) financing activities	$	7,427		$	3,250		$	(25,261	)	$	59,790		$	(3,250	)	$	41,956


Net increase (decrease) in cash and cash equivalents		—			—			2,421			(3	)		—			2,418
Cash and cash equivalents at beginning of period		—			—			21,596			8			—			21,604

Cash and cash equivalents at end of period	$	—		$	—		$	24,017		$	5		$	—		$	24,022

	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total
Cash flows from operating activities
Net (loss) income	$	(8,461	)	$	(6,814	)	$	6,020		$	(210	)	$	1,004		$	(8,461	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing costs		926			314			20,945			—			(314	)		21,871
Impairment of construction-in-progress		—			—			5,712			—			—			5,712
Loss on sale of surplus equipment		—			—			120			—			—			120
Equity compensation		183			—			—			—			—			183
Provision for accounts receivable		—			—			50			—			—			50
Noncontrolling interest in Joint Venture loss		—			—			—			(242	)		—			(242	)
(Loss) gain on derivative financial instruments		(682	)		—			—			(346	)		—			(1,028	)
Deferred income taxes		—			—			(1,290	)		—			—			(1,290	)
Capitalized drydock costs		—			—			(2,551	)		—			—			(2,551	)
Equity in earnings of unconsolidated subsidiaries		(5,810	)		—			—			—			5,810			—
Changes in assets and liabilities:
Accounts receivable		—			—			3,263			—			—			3,263
Prepaid expenses and other current assets		—			—			(2,851	)		—			—			(2,851	)
Other assets		—			—			—			—			—			—
Accounts payable		—			—			255			—			—			255
Deferred revenue		—			—			(108	)		—			—			(108	)
Accrued expenses and other liabilities		—			—			(1,074	)		(495	)		—			(1,569	)
Net cash (used in) provided by operating activities		(13,844	)		(6,500	)		28,491			(1,293	)		6,500			13,354
Cash flows from investing activities
Change in restricted cash and equivalents, net		—			—			75,767			—			—			75,767
Sale of surplus equipment		—			—			280			—			—			280
Construction of vessels and equipment		—			—			(48,779	)		(105,371	)		—			(154,150	)
Gain on derivative financial instruments		—			—			657			—			—			657
Net cash provided by (used in) investing activities		—			—			27,925			(105,371	)		—			(77,446	)
Cash flows from financing activities
Proceeds from borrowings		7,000			—			—			—			—			7,000
Proceeds from Joint Venture revolver borrowings		—			—			—			53,331			—			53,331
Contribution by noncontrolling interest equity investors in Joint Venture		—			—			—			53,331			(21,332	)		31,999
Repayment of debt		(1,550	)		—			—			—			—			(1,550	)
Intercompany receivable / payable		18,603			6,500			(39,935	)		—			14,832			—
Distributions to partners		(10,209	)		—			—			—			—			(10,209	)
Net cash provided by (used in) financing activities	$	13,844		$	6,500		$	(39,935	)	$	106,662		$	(6,500	)	$	80,571
Net increase (decrease) in cash and cash equivalents		—			—			16,481			(2	)		—			16,479
Cash and cash equivalents at beginning of period		—			—			21,596			8			—			21,604
Cash and cash equivalents at end of period	$	—		$	—		$	38,077		$	6		$	—		$	38,083

* Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Notes. Accordingly, the cash flows related to the Notes have been presented as cash flows of both entities in the above consolidating statement of cash flows.

** Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.

-U.S. 26Shipping -Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

U16.S. ~~Shipping~~Subsequent ~~Partners L.P. Unaudited Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2007 (in thousands)~~Events

	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total
Cash flows from operating activities
Net income (loss)	$	8,157		$	(6,821	)	$	21,397		$	195		$	(14,771	)	$	8,157
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing costs		822			321			18,102			—			(321	)		18,924
Provision for accounts receivable		—			—			315			—			—			315
Deferred income taxes		—			—			(431	)		—			—			(431	)
Equity compensation		37			—			—			—			—			37
Noncontrolling interest in Joint Venture income		—			—			—			407			—			407
Gain on derivative financial instruments		(173	)		—			—			(731	)		—			(904	)
Capitalized drydock costs		—			—			(5,606	)		—			—			(5,606	)
Equity in earnings of unconsolidated subsidiaries		(21,592	)		—			—			—			21,592			—
Changes in assets and liabilities:
Accounts receivable		—			—			(103	)		—			—			(103	)
Prepaid expenses and other current assets		—			—			(1,982	)		13			—			(1,969	)
Other assets		—			—			(158	)		—			—			(158	)
Accounts payable		—			—			(92	)		—			—			(92	)
Deferred revenue		—			—			(1,178	)		—			—			(1,178	)
Accrued expenses and other liabilities		—			—			2,094			(244	)		—			1,850
Net cash provided by (used in) operating activities		(12,749	)		(6,500	)		32,358			(360	)		6,500			19,249
Cash flows from investing activities
Change in restricted cash and equivalents, net		—			—			26,274			—			—			26,274
Cash received upon settlement of derivative financial instruments		173			—			—			—			—			173
Payments to Hess, net		—			—			(447	)		—			—			(447	)
Purchase of interest rate cap		—			—			—			(1,924	)		—			(1,924	)
Construction of vessels and equipment		—			—			(49,801	)		(10,705	)		—			(60,506	)
Net cash provided by (used in) investing activities		173			—			(23,974	)		(12,629	)		—			(36,430	)
Cash flows from financing activities
Proceeds from borrowings		25,000			—			—			—			—			25,000
Contribution by noncontrolling interest equity investors in Joint Venture		—			—			—			7,459			(2,983	)		4,476
Proceeds from Joint Venture revolver borrowings		—			—			—			5,535			—			5,535
Repayment of debt		(1,388	)		—			—			—			—			(1,388	)
Intercompany receivable / payable		5,708			6,500			(8,691	)		—			(3,517	)		—
Distributions to partners/members		(16,744	)		—			—			—			—			(16,744	)
Net cash provided by (used in) financing activities	$	12,576		$	6,500		$	(8,691	)	$	12,994		$	(6,500	)	$	16,879
Net (decrease) increase in cash and cash equivalents		—			—			(307	)		5			—			(302	)
Cash and cash equivalents at beginning of period		—			—			2,686			—			—			2,686
Cash and cash equivalents at end of period	$	—		$	—		$	2,379		$	5		$	—		$	2,384

Settlement of Litigation with Joint Venture Investors

* On July ~~Both~~10, 2009, the ~~Parent~~Partnership and ~~the Subsidiary~~its ~~Issuer~~wholly-owned ~~are~~subsidiaries ~~co-issuers~~USS ofProduct Carriers ~~$100~~LLC (“Product Carriers”),~~000~~ inProduct ~~Notes~~Manager and USS PC Holding Corp. (collectively ~~Accordingly,~~the “USS Entities”) entered into a settlement agreement with the Joint ~~cash~~Venture Investors and the Joint Venture Lenders (such investors and ~~flows~~lenders ~~related~~collectively the “Blackstone/Cerberus Entities”), to settle litigation relating to control of the ~~Notes~~operations ~~have~~of ~~been~~the ~~presented~~Joint asVenture. ~~cash~~Under ~~flows~~the terms of the ~~both~~settlement, ~~entities in~~which was approved by the ~~above~~Bankruptcy ~~consolidating~~Court ~~statement~~on ofJuly ~~cash~~17, ~~flows.~~2009 and effective on July 28, 2009 (the “Effective Date”):

** Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.


(i)	on the Effective Date Product Carriers transferred its Class B member interest to the Joint Venture Investors for one dollar and no longer has an interest in, or the right to act as managing member of, the Joint Venture;

(ii)	in consideration of the termination of Product Manager’s right to manage the operations of the Joint Venture:

	(a)	the Blackstone/Cerberus Entities will pay Product Manager an aggregate of $14,000, of which $9,000 was paid on the Effective Date, $2,300 will be paid 40 days after the orderly transition of management of the vessels from Product Manager to a replacement manager appointed by the Blackstone/Cerberus Entities, and $2,700 will be paid in equal monthly installments through December 2010;

	(b)	the Joint Venture will pay to Product Manager 50% of the first $1,000 of any cost savings received by the Joint Venture in respect of the three vessels still under construction if those vessels are delivered under the contracted cost; and

	(c)	the Joint Venture will pay to Product Manager 50% of the first $500 of any cost savings received by the Joint Venture in respect of the last vessel still under construction if that vessel is delivered under the contracted cost, provided that this amount will only be paid to the extent the cost savings were not used to pay the amount due under clause (ii)(b) above;

(iii)	the USS Entities have a right of first offer to purchase the Joint Venture’s vessels to the extent the Joint Venture determines to offer all or any portion of them for sale in the future, although the Joint Venture has no obligation to accept any offer;

(iv)	the contracts between the USS Entities or their affiliates and the Joint Venture are being terminated;

(v)	the USS Entities and the Blackstone/Cerberus Entities have exchanged broad, global releases; and

(vi)	on the Effective Date, all the litigation between the USS Entities and the Blackstone/Cerberus Entities was dismissed with prejudice.

- Refer to 27Note 15 – Supplemental Guarantor Information for information regarding the financial position, results of operations and cash flows of the Partnership’s subsidiaries that are not guarantors of its Second Lien Notes which, as of March 31, 2009 and for the three months then ended, consisted of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.

~~ITEM~~ Edison, New 2.Jersey ~~Management’s~~Office ~~Discussion and Analysis of Financial Condition and Results of Operations~~Lease

On July 23, 2009, the Partnership entered into a lease agreement with Thornall Associates, L.P. to extend the rental of the Edison, New Jersey office space from May 31, 2009 until October 31, 2014. The new lease stipulates an annual fixed rent of $350 payable monthly in advance. The lease also allows for an abatement of $146 which is to be applied against the monthly fixed rent payments due for the months of June 2009 through October 2009.

Rand Logistics Offer to Acquire Substantially all Assets of the Partnership

On July 30, 2009, Rand Logistics, Inc. (“Rand”) submitted a non-binding proposal via letter to the board of directors of USSGP pursuant to which Rand proposed, as an alternative to the Partnership’s proposed plan of reorganization dated July 10, 2009, a transaction in which Rand would acquire the majority of the assets, and assume certain liabilities, of the Partnership and its subsidiaries for a combination of cash, notes and warrants (the “Rand Proposal”).

U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

On August 4, 2009, after consultation with its financial and legal advisors and the Steering Committee of the secured lenders, the Partnership advised Rand that the board of directors had determined that the Partnership’s proposed plan of reorganization dated July 10, 2009 will deliver a higher value to all the Partnership’s stakeholders than the non-binding alternative plan of reorganization proposed by Rand. The Partnership also advised Rand that as a result, the board of directors did not believe it is appropriate to negotiate an amendment to the Disclosure Statement to permit the Partnership’s creditors the option to consider the Rand Proposal as an alternative to the Partnership’s July 10, 2009 proposed plan of reorganization.

On August 6, 2009, Rand responded to the Partnership’s August 4, 2009 letter, disagreeing with the Board’s conclusion and making slight changes to the Rand Proposal.

On August 11, 2009, after consideration of Rand’s August 6, 2009 letter and consultation with its financial and legal advisors, the Partnership advised Rand that the board of directors had determined that the Partnership’s proposed plan of reorganization dated August 6, 2009 (the “Plan”) will deliver a higher value to all the Partnership’s stakeholders than the non-binding, highly speculative alternative plan of reorganization proposed by Rand. The Partnership also advised Rand that as a result the board of directors did not believe it is in the best interests of all the Partnership’s stakeholders to negotiate an amendment to the Disclosure Statement to permit the Partnership’s creditors the option to consider Rand’s proposal as an alternative to the Plan. The Partnership also advised Rand that “absent an offer at a value that the Board of Directors determines is at least reasonably equivalent to the value provided by the Plan and that has been approved by the Rand Board of Directors, is fully financed with no conditions to the financing and contains no conditions to closing other than approval of the transaction by the Bankruptcy Court, the Board does not believe it to be in the best interests of all the Partnership’s stakeholders to disrupt its current process and introduce uncertainty by negotiating with Rand regarding a non-binding, highly speculative transaction”.

ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Overview

The following is a discussion of the historical consolidated financial condition and results of operations of U.S. Shipping Partners L.P, and should be read in conjunction with our historical consolidated financial statements and notes thereto included elsewhere in this report. Refer to Item 7— Management’s Discussion And Analysis Of Financial Condition And Results Of Operations in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008 for additional information that may not be contained in this discussion.

Proceedings Under Chapter 11 of the Bankruptcy Code

On April 29, 2009 (the “Commencement Date”), we, together with all of our wholly-owned subsidiaries, US Shipping General Partner LLC, our general partner (“USSGP”), and USS Vessel Management LLC, a wholly-owned subsidiary of USSGP, filed voluntary petitions for reorganization relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Chapter 11 cases are being jointly administered under the caption In re U.S. Shipping Partners L.P. et al., Case No. 09-12711 (RDD) (the “Bankruptcy Cases”). We are continuing to manage our properties and operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. See Part II—Item 5. Other Information for additional information regarding our bankruptcy and our proposed plan of reorganization.

We have incurred and will continue to incur significant costs associated with the reorganization. The amount of these costs, which are being expensed as incurred, are expected to significantly affect our results of operations.

As of the Commencement Date, we had approximately $15.5 million in unrestricted cash and cash equivalents. Our ability to continue as a going concern is dependent upon, among other things, (i) our ability to comply with the terms and conditions of the cash collateral order entered by the Bankruptcy Court in connection with the Bankruptcy Cases; (ii) our ability to generate cash from operations; (iii) our ability to obtain confirmation of and to consummate a plan of reorganization under the Bankruptcy Code; and (iv) the cost, duration and outcome of the reorganization process. Uncertainty as to the outcome of these factors raises substantial doubt about our ability to continue as a going concern. We are currently evaluating various courses of action to address the operational and liquidity issues the Partnership is facing, and formulating plans for improving operations. There can be no assurance that any of these efforts will be successful. The accompanying unaudited consolidated financial statements do not include any adjustments that might result should the Partnership be unable to continue as a going concern. Consistent with generally accepted accounting principles preparing the accompanying unaudited consolidated financial statements on a going concern basis contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

As a result of the Bankruptcy Filing, realization of assets and liquidation of liabilities are subject to uncertainty. While operating as a debtor-in-possession under the protection of Chapter 11, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, we may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements. Further, a plan of reorganization could materially change the amounts and classifications reported in our consolidated financial statements. Our historical consolidated financial statements do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.

The potential adverse publicity associated with the Bankruptcy Filing and the resulting uncertainty regarding our future prospects may hinder our ongoing business activities and our ability to operate, fund and execute our business plan by impairing relations with existing and potential customers; negatively impacting our ability to attract, retain and compensate key executives and employees and to retain employees generally; limiting our ability to obtain trade credit; and impairing present and future relationships with vendors and service providers.

American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (SOP 90-7), which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the consolidated statements of operations beginning in the quarter ending June 30, 2009. The consolidated balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by the plan must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by reorganization items must be disclosed separately in the condensed consolidated statement of cash flows. The Partnership adopted SOP 90-7 effective in May 2009 and will segregate those items as outlined above for all reporting periods subsequent to such date.

Description of Business

We are a leading provider of long-haul marine transportation services, principally for refined petroleum, petrochemical and commodity chemical products, in the U.S. domestic “coastwise” trade. Marine transportation is a vital link in the distribution of refined petroleum, petrochemical and commodity chemical products in the United States. ~~Recently,~~During to2008 ~~improve~~and ~~utilization~~continuing ofinto the ~~ITB~~first ~~fleet~~quarter of 2009, we ~~have~~at various times employed ~~three~~some of our ITBs to transport grain overseas for humanitarian organizations. ~~These transactions are not subject~~ to ~~the provisions~~improve ofutilization ~~the Jones Act, but U.S Flag vessels are given preference for these voyages. We do not assume ownership~~ of ~~any of~~ the ~~products that we~~ITB ~~transport on our vessels. Our existing~~ fleet consists of eleven tank vessels: six integrated tug barge units (“ITBs”); one product tanker (“Houston”); three chemical parcel tankers (“Parcel Tankers”) and one articulated tug barge unit (“ATB”) that entered service in July 2007. We have embarked upon a capital construction program to build additional ATBs and, through a joint venture, additional tank vessels that upon completion will result in our having one of the most modern fleets in service. Our primary customers are major oil and chemical companies.

~~Significant~~ Our existing ~~Challenges~~fleet as of March 31, 2009 consists of eleven vessels: four integrated tug barge units (“ITBs”), one product tanker (“Houston”); three chemical parcel tankers (“Parcel Tankers”) and three articulated tug barge units (“ATBs”), one of which entered service in July 2007, the second in August 2008 and the third in November 2008. Our ~~Changing~~last ATB, which was under ~~Business~~construction ~~Model~~at March 31, 2009, was delivered in July 2009 and placed in service in August 2009. At March 31, 2009, we were also managing one tanker on behalf of our Joint Venture.

Our ~~business~~primary ~~model~~customers isare ~~changing~~major inoil ~~the~~and ~~near~~chemical ~~term~~companies. ~~Upon~~We ~~our~~do ~~formation,~~not ~~our six ITBs~~assume ~~transported~~ownership ~~petroleum~~of ~~products~~any ~~under long-term charters with major petroleum companies. Our level~~ of ~~revenues and~~ the ~~types~~products ~~of product~~ that we ~~transported were~~transport ~~predictable.~~on ~~However,~~our asvessels. aOur ~~result of the expiration of the Hess support~~market ~~agreement,~~is ~~which~~largely ~~provided~~insulated usfrom ~~with~~direct ~~specified~~foreign ~~minimum~~competition ~~charter~~because ~~rates~~the ~~for our ITBs,~~Merchant ~~combined~~Marine ~~with~~Act ~~the desire~~ of ~~customers for new vessels and the newbuilding programs~~1920, ~~which~~commonly ~~have~~referred ~~resulted~~to inas the ~~supply of~~ Jones Act ~~vessels able to transport petroleum products not decreasing as we had expected~~, werestricts ~~anticipate that our ITBs will operate more in the spot market, which has become more competitive, than the term charter market~~U. ~~Accordingly, our revenues will be~~S. ~~less predictable and, due~~ point-to-point ~~the~~maritime ~~increasing~~shipping ~~importance of our specialty chemical transportation business and our desire~~ to ~~keep our~~ vessels operating, ~~more~~under ~~of our revenues may be derived from~~ the ~~transportation of products that are not petroleum based~~U.S. ~~As a publicly traded master limited partnership~~flag, ~~our earnings~~ ~~are~~built ~~generally~~in ~~not~~the ~~subject~~United ~~to tax~~States, asat ~~long~~least ~~as 90~~75% orowned ~~more~~and ofoperated ~~our~~by ~~revenues~~U.S. ~~are~~citizens ~~from~~and ~~qualifying~~manned ~~income~~by ~~which~~U.S. ~~includes revenue derived from the transportation of petroleum based products, among other items~~crews. ~~Our~~All ~~increasing percentage~~ of ~~revenue~~ ~~derived from the transportation of non petroleum based products that do not generate qualifying income has caused us to operate more of~~ our vessels ~~from~~ ~~entities taxed as corporations, which~~ are ~~subject~~qualified to ~~entity~~transport ~~level taxation~~cargo ~~but~~between ~~allow us to exclude this revenue from the 90% qualifying income test (and allow us to include dividends paid to us by these corporate entities as qualifying income)~~U.S. ~~This~~ports ~~increases~~under ~~our tax burden, and requires us to closely monitor~~ the ~~level~~Jones ~~of non qualifying income generated in our non corporate entities for compliance with the aforementioned 90% rule~~Act. ~~We are actively seeking measures to optimize our capital structure and our legal entity structure to cope with this changing business model.~~

Since our ITBs were under time charters in prior years, we did not require substantial operations to manage the day-to-day logistical and chartering aspects of the business. Subsequent to the acquisition of the ITBs, we began to acquire vessels that transported non petroleum products, including the Chemical Pioneer, the Charleston, the Sea Venture and the ATB Freeport. These parcel tankers and barges differ from our ITBs in that they carry smaller lots and are designed to carry multiple products simultaneously. We have contracts of affreightment from chemical customers that historically accounted for the capacity of these vessels. These contracts of affreightment allow us the flexibility to employ our vessels as we see fit, and accordingly, we manage the logistical requirements of these vessels collectively. Additionally, our ITBs are expected to operate predominantly in the spot market prospectively until their OPA 90 phase-out date, and are increasingly likely to carry non petroleum products, as most petroleum customers prefer to contract new double-hulled vessels under long-term charters. This combination of our ITBs in the spot market, and the logistical aspects of managing our chemical contracts and grain voyages, has placed an additional operating burden on us. Our ability to effectively manage our changing operations is critical to our future success.

- 28 -

Additionally, participation in the spot market requires us to carry higher amounts of working capital, as under spot charters fuel costs are our responsibility and are paid at the time fuel is delivered, and not realized economically until payment is made to USS by the customer. Additionally, payment generally occurs at the completion of a voyage, compared to time charters, where payment is generally made by the customer at the beginning of a fixed period of time, such as a month. In addition, grain voyages, where we are paid following delivery of the grain to its final destination, tend to be substantially longer in duration than refined petroleum product voyages. As we add two additional vessels in 2008 and our ITBs participate more in the spot market, USS expects its working capital requirements to increase. We have limited availability under our credit facility to finance this increase in working capital requirements.

During 2008 we have been successful in employing three of our ITBs that might otherwise have been idle in the overseas transportation of grain for humanitarian organizations. These voyages have different characteristics than our transportation of refined petroleum products, including longer voyages, voyages overseas and different revenue and expense recognition policies. These different characteristics make a comparison of our present results with our prior results less meaningful. In addition, we do not have any long-term contracts to transport grain and there can be no assurance that we will be able to continue to obtain these grain voyages. Furthermore, to the extent more of our activities involve the transportation of products that do not generate “qualifying income,” it will be more difficult for us to insure that at least 90% of our revenue is “qualifying income.” If less than 90% of our revenue is “qualifying income,” we will be taxed as a corporation rather than a partnership, which may result in a significant reduction in the amount of cash available for distribution to unitholders.

Liquidity

During the first half of 2008, all but one of our ITBs began to operate in the spot market for the transportation of petroleum products, which has increased the volatility of our revenues and working capital requirements, and decreased the predictability of our cash flows. Beginning in late March 2008 market conditions in the spot market deteriorated substantially due to overall declining economic activity and decreased demand for the domestic coastwise transportation of petroleum products. Additionally, refinery utilization has declined considerably, fuel prices for operating our vessels are at record levels and newbuilds have increased capacity serving the Jones Act market at a faster rate than demand and the decrease in capacity due to the required phase-outs under the Oil Pollution Act of 1990 (“OPA 90”). Due to these market shifts, our ITBs have recently incurred idle periods greater than, and charter rates below, our expectations at the beginning of 2008. During the first half of 2008, we also experienced modest decreased demand for the domestic coastwise transportation of chemical products served by our chemical transporting vessels, which we believe was primarily due to our customers working off inventory levels due to the decline in economic activity. As a result, our cash flows and liquidity have come under increasing pressure due to the current difficult market conditions, which has substantially increased the likelihood that the Partnership will not be able to remain in compliance with certain financial covenants relating to leverage (debt to EBITDA) and fixed charge and interest coverage under our Third Amended and Restated Credit Facility (“Senior Credit Facility”), as early as the end of the third quarter of 2008 We were in compliance with all of our financial covenants at the second quarter of 2008.

If a breach occurs, we will be prohibited from making distributions on our common units until we have cured such breach (although any unpaid distributions will accrue). In addition, a breach of our loan covenants would give the lenders under the Senior Credit Facility the right to refuse to make funds available under the revolving credit facility and to demand immediate payment of our loans under the Senior Credit Facility and cause cross defaults under our other debt agreements. If all such outstanding indebtedness were declared to be immediately due and payable, we would not have the financial resources to repay immediately in full all outstanding borrowings under our various debt agreements. As such, we would be required to either amend the Senior Credit Facility or replace it with an alternate credit facility. In addition, the lenders under the senior credit facility could prohibit us from paying interest on the senior notes.

In response to these issues, we have retained Greenhill & Co., LLC and Jefferies & Company, Inc. to assist us in exploring strategic alternatives, including either the possible sale of the business or the sale of new equity, and other ways to increase liquidity and strengthen our financial resources. In order to give us adequate time to pursue strategic alternatives, we have entered into negotiations with our lenders to amend certain financial ratio covenants under the Senior Credit Facility.

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In light of these liquidity pressures, we did not pay a distribution on our subordinated units and general partner units in respect of the fourth quarter of 2007 and first quarter of 2008, and will not pay a distribution on any of our units in respect of the second quarter of 2008. Based on discussions to date with our lenders regarding an amendment to the Senior Credit Facility, we believe any amendment will prohibit the payment of distributions on any units for at least a specified period of time.

Consistent with generally accepted accounting principles, our condensed consolidated financial statements included herein have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Assuming that our debt is not accelerated, we believe that we will have sufficient liquidity to meet ongoing operations for the remainder of 2008. Our lenders’ right to demand immediate payment of our outstanding indebtedness upon the occurrence of a default under the Senior Credit Facility, coupled with a substantial doubt about our ability to repay this indebtedness immediately and, accordingly, in such circumstances to continue as a going concern, leads to the need to successfully renegotiate our existing, or secure alternative, financing arrangements. Although there can be no assurance, we believe we will be successful in renegotiating the Senior Credit Facility.

Competitive Advantage

Our market is largely insulated from direct foreign competition because the Merchant Marine Act of 1920, commonly referred to as the Jones Act, restricts U.S. point-to-point maritime shipping to vessels operating under the U.S. flag, built in the United States, at least 75% owned and operated by U.S. citizens and manned by U.S. crews. All of our vessels are qualified to transport cargo between U.S. ports under the Jones Act.

Industry Capacity and Utilization

With the announced newbuilding programs by us and our competitors, we expect that these new vessels will become fully utilized on delivery and replace substantially all the capacity taken out of the market due to OPA 90. It is likely that some of these vessels will be placed in service prior to the phase-out of currently operating vessels, which could result in an over-supply of vessel capacity in the near term. As a result, we believe the domestic supply of tank vessels may increase in the near term. This trend could negatively impact our utilization rate for petroleum transporting vessels in the future and, as a result, our levels of qualifying income for tax purposes.

Any additional newbuildings or retrofittings of existing tank vessels may result in additional capacity that the market will not be able to absorb at the anticipated demand levels. The availability of additional capacity could adversely affect the charter rates that we can obtain. Further, several of the major oil companies have imposed a limit on the age of the vessels that they will utilize, and our ITBs have reached these age limits. Accordingly, we expect that our ITBs will continue to derive an increasing percentage of their revenue from operating in the spot market over the next several years. The announced or other newbuilding programs may make the repurposing of our ITBs uneconomical or unattractive to charterers compared to a newly built vessel, and may adversely impact our levels of qualifying income for tax purposes.

Future Growth

We have entered into contracts to construct four additional ATB units, each of which is specified to have a carrying capacity of approximately 156,000 barrels at 98% of capacity. However, in June 2008 we exercised our option to cancel the fourth ATB. We expect that the first two of these ATB units will be completed in August 2008 and November 2008, respectively, and the third ATB unit will be completed in August 2009. The tug for the first of these ATBs is currently enroute to pick up the barge portion in Sturgeon Bay, Wisconsin. The Partnership expects that the completed ATB will be placed in service during the second half of August, 2008, at a total cost (excluding capitalized interest) of approximately $66.6 million. The cost increase over the originally budgeted amount of $65 million was principally due to contractually provided cost increases related to increases in major components and change orders. The funds to substantially complete these three ATBs have been placed in escrow. For a discussion of our obligations under our construction contracts, please see the section titled, “Contractual Commitments and Contingencies” below.

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We, through our subsidiary USS Product Carriers LLC (“Product Carriers”), entered into a contract for the construction of nine 49,000 deadweight tons (“dwt”) double-hulled tankers. The builder is currently scheduled to deliver the first tanker in the second quarter of 2009, the second tanker later in 2009, two tankers in 2010, one tanker in 2011, one tanker in 2012, two tankers in 2013 and the last tanker in 2014. Product Carriers entered into a joint venture, USS Products Investor LLC (the “Joint Venture”), to finance the construction of the first five tankers with third party investors led by affiliates of The Blackstone Group (the “Joint Venture Investors”). Our ability to take delivery of these vessels from our Joint Venture will depend on our ability to finance the purchase of these vessels upon their completion. If the vessels remain in the Joint Venture, we will not receive the bulk of the benefits associated with ownership of these vessels, our growth strategy and our OPA 90 compliance strategy for replacement of our ITB fleet will be adversely affected, which could have a material adverse effect on our business, results of operations and financial condition, and it is likely that our interest in the Joint Venture will be negatively impacted.

For a discussion of our obligations under our construction contracts, please see the section titled, “Contractual Commitments and Contingencies” below.

Revenue Generating Transactions

We generate revenue by charging customers for the transportation and distribution of their products utilizing our vessels. These services are generally provided under the following four basic types of contractual relationships:

· time charters, which are contracts to charter a vessel for a fixed period of time, generally one year or more, at a set daily rate; · contracts of affreightment, which are contracts to provide transportation services for products over a specific trade route, generally for one or more years, at a negotiated rate per ton; · consecutive voyage charters, which are charters for a specified period of time at a negotiated rate per ton; · and spot charters, which are charters for shorter intervals, usually a single round-trip, that are made on either a current market rate or lump sum contractual basis.

The principal difference between contracts of affreightment and consecutive voyage charters is that in contracts of affreightment the customer is obligated to transport a specified minimum amount of product on our vessel during the contract period, while in a consecutive voyage charter the customer is obligated to fill the contracted portion of the vessel with its product every time the vessel calls at its facility during the contract period and, if the customer does not have product ready to ship, it must pay us for idle time and/or deadfreight.

The table below illustrates the primary distinctions among these types of contracts:

	Time Charter	Contract of Affreightment	Consecutive Voyage Charter	Spot Charter
Typical contract length	One year or more	One year or more	Multiple voyages	Single voyage
Rate basis	Daily	Per ton	Per ton	Per ton/lump sum
Voyage expenses	Customer pays	We pay (1)	We pay (1)	We pay
Vessel operating expenses	We pay	We pay	We pay	We pay
Idle time	Customer pays as long as vessel is available for	Customer does not payoperations	Customer pays if cargo not ready	Customer pays if cargo not ready

(1) Our contracts of affreightment and consecutive voyage charters generally contain escalation clauses whereby a portion of fuel cost increases are passed on to our customers.

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For the three months ended June 30, 2008 and 2007 we derived approximately 52% and 75%, respectively, of our revenue under time charters, consecutive voyage charters and contracts of affreightment, and approximately 48% and 25%, respectively, of our revenue from spot charters. For the six months ended June 30, 2008 and 2007 we derived approximately 60% and 80%, respectively, of our revenue under time charters, consecutive voyage charters and contracts of affreightment, and approximately 40% and 20%, respectively, of our revenue from spot charters. We expect the trend of increasing revenues from spot voyages to continue, as we expect our ITBs to be employed more often in the spot market in the future.

The following table sets forth the markets in which our ITBs were operating during the first and second quarters of 2007 and 2008:

	Quarter Ending	Quarter Ending	Quarter Ending	Quarter Ending
Vessel	March 31, 2008	March 31, 2007	June 30, 2008	June 30, 2007
Baltimore (1)	Time Charter	Time Charter	Time Charter/Spot	Time Charter/Spot
Groton (2)	Time Charter	Time Charter	Spot	Time Charter
Jacksonville (3)	Time Charter	Spot	Spot	Spot
Mobile (4)	Time Charter	Time Charter	Time Charter	Time Charter
New York (5)	COA	Spot	COA/Spot	Spot
Philadelphia (6)	Spot	COA	Spot	COA
Houston	Time Charter	Time Charter	Time Charter	Time Charter
Sea Venture	COA/Spot	COA/Spot	COA/Spot	COA/Spot
Freeport	COA/Spot	COA/Spot	COA/Spot	COA/Spot
Chemical Pioneer	COA/Spot	COA/Spot	COA/Spot	COA/Spot
Charleston	COA/Spot	COA/Spot	COA/Spot	COA/Spot

(1)	ITB Baltimore entered spot market on 5/19/08 upon its first grain voyage.
(2)	ITB Groton entered spot market on 4/28/08.
(3)	ITB Jacksonville re-entered the spot market on 4/7/08 upon its first grain voyage.
(4)	ITB Mobile current time charter will transfer to the ITB New York on 7/4/08.
(5)	ITB New York will begin a time charter transferred from the ITB Mobile on 7/4/08.
(6)	ITB Philadelphia entered spot market on 12/14/07 upon its first grain voyage.

Definitions

In order to understand our discussion of our results of operations, it is important to understand the meaning of the following terms used in our analysis and the factors that influence our results of operations:

· Voyage revenue. Voyage revenue includes revenue from time charters, contracts of affreightment, consecutive voyage charters and spot charters. Voyage revenue is impacted by changes in charter and utilization rates and by the mix of business among the types of contracts described in the preceding sentence. The timing of the recognition of voyage revenue is impacted by the type of products that we carry. With respect to the transportation of refined petroleum, petrochemical and commodity chemical products, under GAAP we generally recognize revenue based upon the relative transit time in each period to the total estimated transit time for each voyage. With respect to our grain voyages, we only recognize revenue when the grain is delivered to its final destination.


·	*Voyage revenue*. Voyage revenue includes revenue from time charters, contracts of affreightment, consecutive voyage charters and spot charters. Voyage revenue is impacted by changes in charter and utilization rates and by the mix of business among the types of contracts: time charters, which are contracts to charter a vessel for a fixed period of time, generally one year or more, at a set daily rate; contracts of affreightment, which are contracts to provide transportation services for products over a specific trade route, generally for one or more years, at a negotiated rate per ton; consecutive voyage charters, which are charters for a specified period of time at a negotiated rate per ton; and spot charters, which are charters for shorter intervals, usually a single round-trip, that are made on either a current market rate or lump sum contractual basis.

·	*Voyage expenses*. Voyage expenses include items such as fuel, port charges, pilot fees, tank cleaning costs, canal tolls, brokerage commissions, discharge fees, inland distribution fees and other costs which are unique to a particular voyage. These costs can vary significantly depending on the voyage trade route. Depending on the form of contract, either we or our customer is responsible for these expenses. If we pay voyage expenses, they are included in our results of operations when they are incurred. Typically, our freight rates are higher when we pay voyage expenses. A substantial portion of certain cost increases can be passed on to our customers.

·	*Vessel operating expenses*. We pay the vessel operating expenses regardless of whether we are operating under a time charter, contract of affreightment, consecutive voyage charter or spot charter. The most significant direct vessel operating expenses are crewing costs, vessel maintenance and repairs, and marine insurance.

·	*Depreciation and amortization*. We incur expenses related to the depreciation of the historical cost of our fleet and the amortization of expenditures for drydockings. The aggregate number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures. Depreciation and amortization is determined as follows:

	o	Vessels are recorded at cost, including capitalized interest and transaction fees where appropriate, and depreciated to salvage value using the straight-line method as follows: 10 years for the Chemical Pioneer, the Charleston and the Houston; and 30 years for the ATB Freeport, the ATB Galveston and the ATB Brownsville based on their respective estimated useful lives. Our ITBs are being depreciated to recoverable value based on their estimated useful lives. The Sea Venture is recorded at its estimated scrapping value after recording an impairment charge at December 31, 2008.

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· Voyage expenses. Voyage expenses include items such as fuel, port charges, pilot fees, tank cleaning costs, canal tolls, brokerage commissions and other costs which are unique to a particular voyage, including, in the case of certain grain voyages, the cost of readying the vessel to carry grain. These costs can vary significantly depending on the voyage trade route. Depending on the form of contract, either we or our customer is responsible for these expenses. If we pay voyage expenses, they are included in our results of operations when they are incurred. Typically, our freight rates are higher when we pay voyage expenses. A substantial portion of certain cost increases can be passed on to our customers. The timing of the recognition of voyage expenses is impacted by the type of products that we carry. With respect to the transportation of refined petroleum, petrochemical and commodity chemical products, we generally recognize voyage expenses based upon the relative transit time in each period to the total estimated transit time for each voyage. With respect to our grain voyages, we only recognize voyage expenses when the grain is delivered to its final destination. These expenses are deferred and accrued as a liability on our balance sheet. · Vessel operating expenses. We pay the vessel operating expenses regardless of whether we are operating under a time charter, contract of affreightment, consecutive voyage charter or spot charter. The most significant direct vessel operating expenses are crewing costs, vessel maintenance and repairs, bunkers and lube oils and marine insurance. · Depreciation and amortization. We incur expenses related to the depreciation of the historical cost of our fleet and the amortization of expenditures for drydockings. The aggregate number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures. Depreciation and amortization is determined as follows:


	o	Office furniture, equipment and other are depreciated over the estimated useful life of three to ten years. Major renewals and betterments of assets are capitalized and depreciated over the remaining useful lives of the assets. Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed as incurred. Leasehold improvements are capitalized and depreciated over the shorter of their useful life or the remaining term of the lease.

	o	To date, our ITBs have been able to participate in the United States Coast Guard Underwater Inspection In Lieu of Drydock (“UWILD”) Program, which allows the ITBs to be drydocked once every five years, with a mid-period underwater survey in lieu of a second drydock. Our chemical vessels must be drydocked twice every five years. In addition, vessels may have to be drydocked in the event of accidents or other unforeseen damage. We capitalize expenditures incurred for drydocking and amortize these expenditures over the remaining depreciable lives for the ITBs and 30 months for the parcel tankers and the Houston. If our ITBs can no longer participate in the UWILD Program and we have to drydock such vessels twice every five years, we will amortize these expenditures over the remaining depreciable lives. We expect that our ITBs will be able to continue participation in the UWILD program.

	o	The ATBs are subject to the same drydock requirements as the ITBs and currently qualify for participation in the UWILD program. We will capitalize expenditures incurred for drydocking the ATBs and amortize these expenditures over 60 months.

·	*General and administrative expenses*. General and administrative expenses consist of employment costs for shore side staff and cost of facilities, as well as legal, audit and other administrative costs and costs related to our review of strategic alternatives, negotiations with our lenders and bankruptcy planning.

·	*Total vessel days*. Total vessel days are equal to the number of calendar days in the period multiplied by the total number of vessels operating or in drydock during that period.

·	*Days worked*. Days worked are equal to total vessel days less drydocking days and days off-hire.

·	*Drydocking days. Drydocking days are days designated for the inspection and survey of vessels, and resulting maintenance work, as required by the U.S. Coast Guard and the American Bureau of Shipping to maintain the vessels’ qualification to work in the U.S. coastwise trade. Both domestic (U.S. Coast Guard) and international (International Maritime Organization) regulatory bodies require that our ITBs and ATBs be drydocked for major repair and maintenance at least twice every five years. To date, our ITBs have been able to participate in the UWILD Program, which allows the ITBs to be drydocked once every five years, with a mid-period underwater survey in lieu of a drydock while in domestic trade; however, under international maritime organization regulations, in order for it to continue to trade internationally (including grain voyages), our ITBs will have to undergo two drydockings in each five year period, rather than a drydocking and a UWILD. The ATBs also qualify for the UWILD program. Our parcel tankers and the Houston* must be drydocked twice every five years. Drydocking days also include unscheduled instances where vessels may have to be drydocked in the event of accidents or other unforeseen damage.

·	*Net utilization*. Net utilization is a primary measure of operating performance in our business. Net utilization is a percentage equal to the total number of days worked by a vessel or group of vessels during a defined period, divided by total vessel days for that vessel or group of vessels. Net utilization is adversely impacted by drydocking, scheduled and unscheduled maintenance and idle time not paid for by the customer.

·	*Time charter equivalent*. Time charter equivalent, another key measure of our operating performance, is equal to the net voyage revenue (voyage revenue less voyage expenses) earned by a vessel during a defined period, divided by the total number of actual days worked by that vessel during that period. Fluctuations in time charter equivalent result not only from changes in types of contracts and charter rates charged to our customers, but also from voyage expenses incurred as well as from external factors such as weather or other delays.

o Vessels and equipment are recorded at cost, including capitalized interest and transaction fees where appropriate, and depreciated to estimated salvage value using the straight-line method as follows: ITBs and the Sea Venture to their mandatory retirement from transportation of petroleum products as required by OPA 90, between 2012 and 2014; 10 years for the Chemical Pioneer, the Charleston and the Houston; and 30 years for the ATB Freeport based on their respective estimated useful lives. o Office furniture, equipment and other are depreciated over the estimated useful life of three to ten years. Major renewals and betterments of assets are capitalized and depreciated over the remaining useful lives of the assets. Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed as incurred. Leasehold improvements are capitalized and depreciated over the shorter of their useful life or the remaining term of the lease. o To date, our ITBs have been able to participate in the United States Coast Guard Underwater Inspection In Lieu of Drydock (“UWILD”) Program, which allows the ITBs to be drydocked once every five years, with a mid-period underwater survey in lieu of a second drydock. Our chemical vessels must be drydocked twice every five years. In addition, vessels may have to be drydocked in the event of accidents or other unforeseen damage. We capitalize expenditures incurred for drydocking and generally amortize these expenditures over 60 months for the ITBs and 30 months for the parcel tankers and the Houston; however, if our ITBs can no longer participate in the UWILD Program and we have to drydock such vessels twice every five years, we will amortize these expenditures over 30 months. We expect that our ITBs will be able to continue participation in the UWILD program. If the Partnership is required to conduct a second drydock in each five year period rather than rely on an underwater survey, the ITBs will be out of service longer and drydock expenditures will be higher than the time required for and the cost of conducting an underwater survey. Because of the age of the ITBs, their continued participation in the UWILD Program is now conditioned on their undergoing an enhanced survey during the UWILD, resulting in the vessel being off-hire, and not earning revenue, for an additional 12 days each time a survey is conducted; however, under international maritime organization regulations, in order for it to continue to trade internationally (including grain voyages), it will have to undergo two drydockings in each five year period, rather than a drydocking and a UWILD. Additionally, vessels may have to be drydocked in the event of accidents or other unforeseen damage. The Partnership’s recently constructed ATB Freeport and all of the newbuild ATBs and product tankers qualify for the UWILD Program.

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o The ATBs are subject to the same drydock requirements as the ITBs and currently qualify for participation in the UWILD program. We will capitalize expenditures incurred for drydocking the ATBs and amortize these expenditures over 60 months.

· General and administrative expenses. General and administrative expenses consist of employment costs for shore side staff and cost of facilities, as well as legal, audit and other administrative costs. · Total vessel days. Total vessel days are equal to the number of calendar days in the period multiplied by the total number of vessels operating or in drydock during that period. · Days worked. Days worked are equal to total vessel days less drydocking days and days off-hire. · Drydocking days. Drydocking days are days designated for the inspection and survey of vessels, and resulting maintenance work, as required by the U.S. Coast Guard and the American Bureau of Shipping to maintain the vessels’ qualification to work in the U.S. coastwise trade. Both domestic (U.S. Coast Guard) and international (International Maritime Organization) regulatory bodies require that our ITBs and ATBs be drydocked for major repair and maintenance at least twice every five years. To date, our ITBs have been able to participate in the UWILD Program, which allows the ITBs to be drydocked once every five years, with a mid-period underwater survey in lieu of a drydock; however, under international maritime organization regulations, in order for it to continue to trade internationally (including grain voyages), it will have to undergo two drydockings in each five year period, rather than a drydocking and a UWILD. The ATBs and petroleum tankers being constructed by the Joint Venture also qualify for the UWILD program. Our parcel tankers and the Houston must be drydocked twice every five years. Drydocking days also include unscheduled instances where vessels may have to be drydocked in the event of accidents or other unforeseen damage. · Net utilization. Net utilization is a primary measure of operating performance in our business. Net utilization is a percentage equal to the total number of days worked by a vessel or group of vessels during a defined period, divided by total vessel days for that vessel or group of vessels. Net utilization is adversely impacted by drydocking, scheduled and unscheduled maintenance and idle time not paid for by the customer. · Time charter equivalent. Time charter equivalent, another key measure of our operating performance, is equal to the net voyage revenue (voyage revenue less voyage expenses) earned by a vessel during a defined period, divided by the total number of actual days worked by that vessel during that period, adjusted for any days related to grain voyages for which revenue has not yet been recognized. Fluctuations in time charter equivalent result not only from changes in charter rates charged to our customers, but also from voyage expenses incurred as well as from external factors such as weather or other delays.

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Results of Operations

The ~~following~~ following table summarizes our results of operations (dollars in thousands, except for operating ~~average time charter equivalent rates and per unit~~ data):

	For the Three Months EndedJune 30,						For the Six Months EndedJune 30,
	For the Three Months Ended March 31,
	2008			2007			2008			2007
	2009			2008
Voyage revenue	$	4947,~~819~~929		$	4551,~~621~~504		$	~~101,323~~		$	~~87,703~~
Vessel operating expenses		16,~~384~~172			17,~~407~~021			~~33,405~~			~~32,325~~
% of voyage revenue		3233.97	%		3833.20	%		~~33.0~~	%		~~36.9~~	%
Voyage expenses		1715,~~331~~845			813,~~712~~679			~~31,010~~			~~16,149~~
% of voyage revenue		3433.81	%		1926.16	%		~~30.6~~	%		~~18.4~~	%
General and administrative expenses		45,~~011~~984			43,~~241~~994			~~8,005~~			~~8,006~~
% of voyage revenue		812.15	%		97.38	%		~~7.9~~	%		~~9.1~~	%
Depreciation and amortization		107,~~445~~991			910,~~054~~504			~~20,949~~			~~18,102~~
Other expenses (income)		45			—			5,832			(3,486	)
Impairment charges		—			5,720
Total operating expenses, net		48,216			39,414			99,201			71,096
Other expense (income)		—			67
Operating income		1,603			6,207			2,122			16,607
Total operating expenses, net		45,992			50,985
% of voyage revenue		3.2	%		13.6	%		2.1	%		18.9	%
Operating income		1,937			519
Interest expense		6,879			6,655			14,770			13,572
% of voyage revenue		4.0	%		1.0	%
Interest income		(655	)		(2,572	)		(1,695	)		(5,247	)
Interest expense		16,303			7,891
Net gains on derivative financial instruments		(586	)		(904	)		(1,028	)		(904	)
Interest income		(32	)		(1,040	)
Loss (income) before income taxes and noncontrolling interest		(4,035	)		3,028			(9,925	)		9,186
Net loss / (gain) on derivative financial instruments		(1,150	)		(442	)
(Benefit) provision for income taxes		(1,514	)		202			(1,222	)		622
Loss before income taxes and noncontrolling interest		(13,184	)		(5,890	)
(Loss) income before noncontrolling interest		(2,521	)		2,826			(8,703	)		8,564
Provision for income taxes		54			292
Noncontrolling interest in Joint Venture (income) loss		(162	)		(418	)		242			(407	)
Net loss		(13,238	)		(6,182	)
Net (loss) income	$	(2,683	)	$	2,408		$	(8,461	)	$	8,157
Net (loss) gain attributable to noncontrolling interest		443			(404	)
Distributions declared per common unit in respect of the period	$	—		$	0.45		$	0.45		$	0.90
Net loss	$	(13,681	)	$	(5,778	)
Operating Data
Distributions declared per common unit in respect of the period	$	—		$	0.45
Number of vessels		11			10			11			10
Operating Data (1)
Total vessel days		1,001			910			2,002			1,810
Partnership
Days worked		937			896			1,922			1,789
Number of vessels - owned		11			11
Drydocking days		—			6			—			6
Total vessel days		990			1,001
Net utilization		94	%		98	%		96	%		99	%
Days worked		773			966
Average daily time charter equivalent rate	$	36,310		$	41,193		$	37,424		$	39,997
Drydocking days		14			—
Net utilization		78	%		97	%
Average daily time charter equivalent rate	$	29,607		$	38,436
Joint Venture
Number of vessels - managed		1			—
Total vessel days		76			—
Days worked		73			—
Drydocking days		—			—
Net utilization		96	%		—
Average daily time charter equivalent rate	$	52,140		$	—

(1) In ~~order to address reduced demand for our ITBs in the spot market for transportation of petroleum products~~2008, we ~~are~~added ~~currently~~two ~~employing~~ATBs ~~three~~to of our ~~ITBs~~fleet ~~in the foreign transportation of grain for humanitarian organizations. Unlike our petroleum voyages, where we generally recognize revenue~~ and ~~expenses~~sold ~~based~~two ~~upon~~ITBs ~~the~~subsequent ~~relative transit time in each period~~ to the ~~total~~three ~~estimated~~months ~~transit~~ended ~~time~~March ~~for each voyage~~31, ~~for~~2008. ~~our~~In ~~grain~~January ~~voyages we recognize revenue and voyage expenses when the grain has been delivered to its final destination~~2009, ~~which may fall into~~ the ~~next reporting~~Golden ~~period. However~~State, ~~our grain voyage expenses are deferred and accrued as a liability on our balance sheet during~~ the ~~voyage.~~Joint AsVenture’s aproduct ~~result,~~tanker ~~a comparison~~managed ofby ~~our~~us ~~results~~was ~~with~~placed ~~prior~~into ~~quarters and comparable periods in the prior year may be less meaningful~~service.

- In order 35to -address reduced demand for our ITBs in the spot market for transportation of petroleum products, we have sought to employ the ITBs in the foreign transportation of grain for humanitarian organizations. In 2009, two of our ITBs delivered grain to their final destinations in the first quarter of 2009 and one of our ITBs commenced a grain voyage in the first quarter of 2009 and completed its grain delivery in the second quarter of 2009. During 2008, we employed all but one of our ITBs in the foreign transportation of grain for humanitarian organizations. Unlike our petroleum voyages, where we generally recognize revenue and expenses based upon the relative transit time in each period to the total estimated transit time for each voyage, for our grain voyages we recognize revenue and certain voyage expenses when the grain has been delivered to its final destination, which may fall into the next reporting period. However, certain grain voyage expenses are deferred and accrued as a liability on our balance sheet during the voyage. These different characteristics, together with the additions of the ATB Galveston and the ATB Brownsville in August 2008 and November 2008, respectively, as well as the sale of the ITB Jacksonville and the ITB Groton late in the fourth quarter of 2008, make a comparison of our results with prior quarters and comparable periods in the prior year less meaningful.

~~Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007~~ 31

~~Voyage Revenue. Voyage revenue was $49.8~~Three ~~million~~Months ~~for~~Ended ~~the~~March ~~three months ended June 30~~31, ~~2008,~~2009 anCompared increase of $4.2 million, or 9%, from $45.6 million for the three months ended June 30, 2007. The increase in voyage revenue was primarily the result of the addition of the ATB Freeport, which was placed in service in July 2007, as well as higher spot market rates compared to ~~time~~Three ~~charter~~Months ~~rates~~Ended ~~given~~March that spot market rates include an amount to cover voyage expenses whereas time charter rates do not include this amount because the customer is responsible for payment of these expenses. These increases in revenues were partially offset by more offhire days due to reduced demand for our ITBs31, as well as the impact related to the difference in revenue recognition policies for grain voyages compared to our other voyages. Revenues are affected by several factors, such as the mix of charter types, the charter rates attainable in the market, fleet utilization and other items such as fuel surcharges. Certain charters, including contracts of affreightment and consecutive voyage charters, generally provide for fuel escalation charges, but do not fully protect us when the price of fuel increases. These charges generally increase revenue, but only serve to partially offset the increase in fuel expenses. Revenue for the three months ended June 30, 2008 ~~included $4.4 million of fuel surcharges, compared to $2.6 million for the three months ended June 30, 2007.~~

~~For the~~The three month ~~months~~period ended ~~June~~March 3031, ~~2008,~~2009 ~~revenues~~is ~~from~~one ~~our~~day ~~chemical~~less ~~fleet~~than ~~were $20.1 million, an increase of $5.4 million over~~ the three ~~months~~month ~~ended June 30,~~period 2007. The ATB Freeport contributed $4.5 million of this increase; the remainder of this increase was due to increased charter rates and fuel surcharges. Revenue from the remainder of the Partnership’s vessels, which consist of the six ITBs and the product tanker Houston, were $29.8 million for the three months ended ~~June~~March 3031, 2008~~, a decrease of $1~~.1 million from the comparable period in 2007. The decrease in revenue is largely due to the deferral of recognition of revenue of approximately $5.5 million attributable to two grain voyages that commenced in the second quarter of 2008 that will be recognized in the third quarter of 2008 upon delivery of the grain to its final destination, as well as increased offhire days due to reduced demand in the spot market for transportation of petroleum products and required repairs to the ITB New York. The decrease in revenues from the Partnership’s ITB fleet was partially offset by the fact that the Partnership obtained higher rates than it would have received if the vessels had been operating on time charters, as the Partnership was responsible for the payment of voyage expenses.

~~Vessel Operating Expenses~~Voyage Revenue.Voyage ~~Vessel operating~~revenue ~~expenses~~was ~~were~~ $1647.49 million for the three months ended ~~June~~March 3031, ~~2008~~2009, a decrease of $13.06 million, or 6.9%, as compared to $1751.45 million for the three months ended ~~June~~March 3031, ~~2007~~2008. We are responsible for vessel operating expenses regardless of the type of charter under which we are operating. The decrease is primarily due to a reduction in expenditures, for supplies, repairs, maintenance, safety and training, of $2.2 million. This decrease is partially offset by the addition of the ATB Freeport, which increased vessel operating expenses by $1.1 million, as well as a $0.1 million net increase in all other vessel operating expenses.

~~Voyage~~Revenues are ~~Expenses.~~affected ~~Voyage~~by ~~expenses~~several ~~were $17.3~~factors, ~~million~~such ~~for~~as the ~~three~~mix ~~months~~of ~~ended~~charter ~~June 30~~types, ~~2008,~~the ~~an increase of $8.6~~charter ~~million,~~rates orattainable ~~99%, compared~~in ~~to $8.7 million for~~ the ~~three~~market, ~~months~~fleet ~~ended June 30~~utilization, ~~2007.~~other ~~Voyage expenses include~~ items such as fuel~~, port charges, pilot fees,~~ ~~tank cleaning costs~~surcharges, ~~canal tolls, brokerage commissions~~ and ~~other~~the ~~costs~~impact ~~which are~~related ~~unique~~ to ~~a particular voyage. These expenses can vary significantly depending on~~ the ~~voyage~~difference ~~trade~~in ~~route.~~revenue ~~Depending on the form of contract, either~~recognition wepolicies ~~or our customer are responsible~~ for ~~these~~grain ~~expenses.~~voyages ~~Typically,~~compared ~~freight~~to ~~rates are~~our ~~higher~~other ~~when we pay voyage expenses~~voyages.

~~During~~There ~~the~~was ~~three~~a ~~months~~$7.9 ~~ended~~million ~~June~~decrease ~~30,~~in ~~2008,~~revenues ~~voyage~~for ~~expenses~~the ~~increased~~ITB byfleet ~~$8.6~~for ~~million over~~ the ~~prior~~same period ~~year~~2008, primarily due to ~~the~~our ~~addition~~sale of the ~~ATB~~ITB ~~Freeport,~~Jacksonville ~~which~~and ~~contributed~~ITB Groton ~~$1.4~~late ~~million~~ in ~~voyage~~the ~~expenses,~~fourth ~~coupled~~quarter ~~with~~of ~~increases~~2008. inRevenues ~~fuel,~~from ~~port, commission and other costs on~~ the remaining ~~fleet~~four ofITBs ~~approximately $7.2~~were ~~million.~~flat ~~Approximately~~at $320.8 million ofin ~~the~~both $7periods.2 ~~million~~In ~~increase~~the ~~related~~three ~~to increased~~months ~~fuel~~ended ~~costs~~March ~~for these vessels~~31, 2009, ~~which~~we ~~were~~recognized ~~only partially offset by the~~ $015.8 million of ~~increased~~revenues ~~fuel~~from ~~surcharge~~grain ~~revenue,~~voyages ~~and~~on ~~approximately $2.8 million of~~ the ~~increase~~ITB ~~related~~Mobile and to the ~~costs of readying our ITBs to transport~~ITB ~~grain.~~Philadelphia, ~~The~~that ~~significant~~both ~~increase~~commenced in ~~voyage expenses is due to~~ the ~~expiration~~fourth ~~of time~~quarter ~~charters for two~~ of ~~our ITBs in~~ 2008, ~~resulting~~and discharged in the ~~Partnership incurring~~first ~~voyage~~quarter ~~expenses~~of ~~that~~2009. In the ~~customer~~same ~~paid~~period ~~directly~~in ~~under~~2008, ~~time~~we recognized ~~charters~~$7. ~~The~~3 ~~impact~~million ofin ~~these~~grain ~~additional~~related ~~voyage expenses increased~~ revenues, asfrom ~~rates~~a ~~are generally higher to compensate for the~~ voyage ~~expenses~~that ~~previously incurred by~~commenced in the ~~customer,~~fourth ~~rather~~quarter ~~than~~of ~~us,~~2008 ~~under~~on athe ~~time~~ITB ~~charter~~Philadelphia. ~~Because~~In wethe dofirst ~~not~~quarter ~~recognize~~of ~~voyage~~2009 ~~expenses related to~~ our ~~grain~~ITBs ~~voyages~~were ~~until~~offhire ~~the~~for ~~grain~~135 isdays due ~~delivered~~ to ~~its~~ ~~final~~poor ~~destination,~~economic ~~voyage expenses for the three months ended June 30~~conditions, ~~2008 do~~compared ~~not include approximately $2.3 million of expenses deferred in connection~~ with ~~grain~~20 ~~voyages~~offhire ~~commenced~~days infor the ~~second quarter of 2008 that were completed~~same period in ~~July~~ 2008.

- The additions 36of -the ATB Galveston and the ATB Brownsville, placed in service in August 2008 and late November 2008, respectively, increased revenues by $2.9 million and $3.4 million, respectively, over the prior period of 2008. Furthermore, the addition of the Joint Venture’s product tanker, the Golden State, managed by the Partnership and placed in service in mid January 2009, increased revenues by $3.8 million.

~~General and Administrative Expenses.~~Offsetting ~~General~~these ~~and~~revenue ~~administrative~~increases ~~expenses~~was ~~were~~a $45.08 million ~~for~~revenue ~~the~~decrease ~~three~~from ~~months~~the ~~ended~~Partnership’s ~~June~~chemical 30fleet from the prior period, ~~2008~~largely ~~compared~~due to ~~$4.2~~14 drydocking ~~million~~days in 2009 for the ~~three months ended June 30~~Charleston, ~~2007,~~56 aoffhire ~~decrease~~days ofon ~~$0.2~~the ~~million~~Sea orVenture ~~5%.~~awaiting charter Aand overall ~~decrease~~unfavorable inrates ~~personnel~~experienced ~~expenses~~on ~~of $0.6~~the ~~million~~chemical ~~was~~fleet ~~partially~~largely ~~offset~~due byto anpoor economic ~~increase~~conditions experienced in ~~professional~~the ~~fees, consisting~~first quarter of ~~legal~~2009, ~~accounting~~which ~~and~~resulted ~~consulting~~in our ~~fees~~customers ~~primarily~~shipping ~~related~~smaller toquantities ~~our review~~ of ~~strategic~~product ~~alternatives,~~than in the first quarter of $02008.~~4 million.~~

~~Depreciation~~Vessel ~~and~~Operating ~~Amortization~~Expenses.Vessel ~~Depreciation~~operating ~~and~~expenses ~~amortization~~were ~~was~~ $1016.4 2 million for the three months ended ~~June~~March 3031, ~~2008~~2009, ana ~~increase~~decrease of $10.4 8 million, or 155.0%, as compared to $917.10 million for the three months ended ~~June~~March 3031, ~~2007~~ 2008. As ~~The~~a ~~increase~~percentage ~~is primarily due to additional amortization~~ of ~~drydock expenditures of $1.0 million~~revenue, ~~principally~~vessel ~~resulting~~operating ~~from~~expenses ~~drydocks~~were ~~completed in 2007, and $0~~33.87% ~~million~~for ~~attributable to~~ the ~~addition of the ATB Freeport. These~~ ~~increases~~quarter toended ~~depreciation~~March ~~and amortization expense were offset by a decrease of $0.4 million~~31, ~~resulting~~2009 ~~from~~as ancompared ~~adjustment~~ to ~~the~~33.0% ~~values~~for ~~assigned to~~ the ~~vessels in~~quarter ~~the~~ended ~~original purchase of the ITBs due to net payments made to us under the~~March ~~Hess Support Agreement~~31, ~~which under GAAP were considered an adjustment to the original purchase price~~2008.

~~Other~~We ~~expense~~are ~~(income)~~responsible for vessel operating expenses regardless of the type of charter under which we are operating. ~~Other~~The ~~expense~~decrease in ~~the~~dollar ~~three~~terms ~~months~~is largely ~~ended~~attributable ~~June~~to ~~30,~~a ~~2008~~reduction of $453.0 ~~reflects~~million ain ~~loss~~operating expenses related to the ITB Jacksonville and the ~~sale~~ITB ofGroton, ~~surplus~~both sold in the fourth quarter ~~equipment~~of 2008, as well as a $0.7 ~~There~~million ~~were~~decrease noin ~~other~~crew ~~expense~~wages orand ~~income~~benefits ~~items~~largely due to three vessels being laid up in the ~~three~~first ~~months~~quarter of 2009, a decrease of ~~ended~~$0.4 ~~June~~million 30in repairs and maintenance, ~~2007~~a decrease of $0.3 million in supplies and a decrease of $0.2 million in other operating expenses.

~~Interest~~Offsetting these ~~Expense.~~reductions ~~Interest~~was ~~expense~~an ~~was~~increase ~~$6.9 million~~in ~~for~~operating expenses due to the ~~three~~additions ~~months~~of the ~~ended~~ATB Galveston ~~June~~and 30the ATB Brownsville, placed in service in August 2008 and late November 2008, anrespectively, ~~increase~~each of which incurred $01.~~2 million,~~0 ormillion ~~3%,~~in ~~compared~~vessel tooperating expenses, or $62.70 million in total, for the three months ended ~~June~~March 3031, ~~2007.~~2009, ~~The increase~~as iswell ~~primarily~~as ~~attributable~~the toaddition aof ~~higher~~the ~~average~~Joint ~~outstanding debt balance~~Venture’s ~~during~~product tanker, the ~~2008~~Golden ~~quarter~~State, ~~partially~~managed ~~offset~~ by athe ~~decrease~~Partnership and placed in ~~interest~~service ~~rates.~~in ~~The average~~mid ~~effective~~January ~~interest~~2009, ~~rate~~which ~~for~~increased ~~the~~vessel ~~quarter~~operating expenses ~~ended~~by ~~June~~$1.8 ~~30,~~million. ~~2008~~Vessel ~~was~~operating ~~9.2% compared~~expenses toincreased ~~10.0%~~as ~~for~~a percentage of revenues as the ~~quarter~~percentage ~~ended~~decrease ~~June~~in ~~30,~~vessel ~~2007~~operating expenses was less than the percentage decrease in revenues.

Interest Income. Interest income, consisting of interest earned on our invested balances, was $0.7 million for the three months ended June 30, 2008, a decrease of $1.9 million, or 75%, compared to $2.6 million for the three months ended June 30, 2007. The decrease is primarily attributable to a decrease in invested balances in the funds held in escrow accounts to fund the construction of our ATBs and to fund our remaining commitment to the Joint Venture. As these funds are used, interest income will continue to decrease.32

~~Net Gains on Derivative Financial Instruments~~Voyage Expenses. ~~The~~Voyage ~~Joint~~expenses ~~Venture~~were ~~recorded a gain of~~ $015.68 million in for the three months ended ~~June~~March 3031, ~~2008~~2009, inan ~~connection~~increase ~~with the~~of ~~interest rate cap it had entered into in April 2007~~$2.1 ~~For information on this interest rate cap~~million, ~~see~~or ~~“Item 3~~15. ~~Quantitative and Qualitative Disclosures about Market Risk.” During the quarter ended June 30~~8%, ~~2007, a payment scheduled for~~ ~~owner-furnished~~as ~~items~~compared ~~relative~~ to ~~the fifth ATB being constructed was deferred until December 2007, which was beyond the expiration date of the related foreign currency forward contract, resulting in a gain of~~ $013.27 million~~. Additionally,~~ for the ~~Joint~~three ~~Venture~~months ~~recorded~~ended aMarch ~~gain~~31, ~~of $0~~2008.~~7 million in connection with its interest rate cap.~~

~~Provision for Income Taxes.~~ The ~~benefit~~ ~~for~~addition ~~income~~of ~~taxes~~the ~~was~~ATB ~~$1.5~~Brownsville, ~~million~~placed ~~for~~in ~~the~~service ~~three~~in ~~months~~late ~~ended~~November ~~June 30,~~ 2008, ~~compared~~contributed ~~to a provision for income taxes of~~ $0.29 million ~~for~~in ~~the~~additional ~~three~~voyage ~~months ended June 30, 2007~~expenses. The ~~benefit~~remainder ~~recorded~~of in the increase, ~~second~~$1.2 ~~quarter~~million, consisted of ~~2008 is primarily due to~~ a ~~benefit~~net increase of $53.73 million ~~recorded~~in ~~upon~~grain related ~~the~~voyage ~~transfer~~expenses ofrelated ~~the ownership~~to ~~interests in~~ the ~~limited~~two ~~liability~~grain ~~companies~~voyages that ~~own~~commenced in the fourth ~~ITB~~quarter ~~Groton,~~of ~~ITB~~2008 ~~New York, ITB Jacksonville,~~ and ~~ITB~~discharged ~~Baltimore~~in to the ~~corporate~~first ~~entity~~quarter ~~USCS~~of ~~Chemical Pioneer Inc. In addition~~2009, apartially ~~provision~~offset ofby ~~$2.8~~decreased ~~million~~fuel ~~was~~costs ~~recorded to provide a valuation allowance against deferred tax assets created during the period as a result~~ of ~~the~~approximately ~~transfer of these subsidiaries. Further~~ $02.1 million. ofGrain ~~tax provision~~ related to ~~unrecognized~~voyage ~~tax~~expenses ~~benefits was~~ recorded ~~during~~in the ~~second~~first ~~quarter~~quarters of ~~2008. Offsetting~~2009 ~~the~~and ~~benefit~~2008 for ~~income~~grain ~~taxes was a tax provision of $0.8 million~~voyages ~~related~~that tocommenced in the ~~current~~respective ~~period~~previous ~~operating~~year’s ~~results~~fourth atquarter ~~the~~were ~~various corporate~~$5.1 ~~subsidiaries,~~million and ~~a deferred tax provision of~~ $01.58 million. ~~related~~The toaddition ~~the revision~~ of the ~~deferred~~ATB ~~tax~~Galveston ~~assets~~and ~~for~~the ~~USCS~~Golden State ~~Sea~~did ~~Venture~~not ~~LLC.~~affect ~~For~~voyage ~~the comparable period in 2007~~expenses, ~~only~~as the ~~Chemical~~ ~~Pioneer~~voyage ~~was~~expenses ~~owned~~for bythose avessels ~~corporate subsidiary subject to federal, state~~are ~~and~~borne ~~local~~by ~~income~~the ~~taxes~~customer.

~~Noncontrolling~~General and ~~Interest~~Administrative ~~in Joint Venture~~Expenses. ~~For~~General ~~the~~and ~~three~~administrative ~~months~~expenses ~~ended~~were ~~June~~$6.0 ~~30,~~million ~~2008,~~for wethe ~~recorded~~three ~~noncontrolling interest~~months inended ~~Joint~~March ~~Venture~~31, ~~income~~2009 ~~of $0.2 million~~ compared to $0.4.0 million for the three months ended ~~June 30~~March 31, ~~2007~~2008, ~~relating~~an toincrease ~~the 60%~~ of ~~the~~$2.0 ~~Joint~~million ~~Venture~~or ~~owned by third parties~~50%.

- The increase 37of -$2.0 million in general and administrative expenses is due to an increase in professional fees of $2.2 million, consisting of legal and consulting fees related to our review of strategic alternatives, negotiations with our lenders and bankruptcy planning. A decrease in wages and benefits of $0.3 million was partially offset by other expense increase of $0.1 million.

~~Net~~Depreciation and ~~Loss~~Amortization. ~~The~~Depreciation ~~net~~and ~~loss~~amortization ~~for the three months ended June 30, 2008~~ was $28.~~7 million, a decrease of $5.1 million,~~0 ~~compared to net income of $2.4~~ million for the three months ended ~~June~~March 3031, ~~2007.~~ ~~The decrease in operating income of $4.6 million~~2009, a decrease ~~in net interest income~~ of $2.15 million, or ~~and~~24%, ~~reduced~~compared ~~gains~~to of $010.35 million onfor ~~financial instrument derivatives drove this decrease. This decrease was offset by $1.7 million favorable tax variance from~~ the three months ended ~~June~~March 3031, ~~2007~~2008. ~~Additionally there was a $0.3 million favorable variance on the non controlling interest in the Joint Venture.~~

~~Six~~ The decrease ~~Months~~in ~~Ended~~depreciation and amortization is primarily due to a decrease in ~~June~~depreciation 30expense of $2.3 million due to vessel impairments on the four ITBs remaining in our fleet and the Sea Venture recorded in the third and fourth quarters of 2008, respectively, a decrease of $1.8 million due to sale of both the ITB Jacksonville and the ITB Groton in the fourth quarter of 2008 ~~Compared~~and a $0.8 million decrease in dyrdock amortization due to ~~Six~~the ~~Months~~timing ~~Ended~~of ~~June~~drydocks, partially 30offset by a $1.2 million increase in depreciation related to the Golden State, ~~2007~~placed in service in January 2009, as well as depreciation of $1.2 million related to the ATB Galveston and the ATB Brownsville, placed into service in August 2008 and November 2008, respectively.

~~The~~Impairment ~~six~~charges. ~~month~~There ~~period~~were no impairment charges for the three months ended ~~June~~March 3031, 2009 compared to $5.7 million for the three months ended March 31, 2008. isThe ~~one~~2008 impairment ~~day~~charges ~~greater~~reflect ~~than~~the cancellation of the ~~six~~in ~~month~~process construction of ~~period~~an ~~ended~~ATB ~~June~~and ~~30,~~the ~~2007~~write-down of its value to zero.

~~Voyage Revenue~~Interest Expense. Interest ~~Voyage~~expense ~~revenue~~ was $~~101~~16.3 million for the ~~six~~three months ended ~~June~~March 3031, ~~2008~~2009, an increase of $138.64 million, or 16107%, from $87.7 million for the six months ended June 30, 2007. The increase in voyage revenue was primarily the result of the addition of the ATB Freeport, which was placed in service in July 2007, as well as higher spot market rates compared to time charter rates given that spot market rates include an amount to cover voyage expenses whereas time charter rates do not include this amount because the customer is responsible for payment of these expenses$7.9 ~~These~~million ~~increases in revenues were partially offset by more offhire days due to reduced demand~~ for ~~our ITBs as well as~~ the ~~impact related to the difference in revenue recognition policies~~three for grain voyages compared to our other voyages. Revenues are affected by several factors, such as the mix of charter types; the charter rates attainable in the market; fleet utilization and other items such as fuel surcharges. Certain charters, including contracts of affreightment and consecutive voyage charters generally provide for fuel escalation charges that are designed to protect us against increases in fuel prices; however, these surcharges do not protect us fully when the price of fuel increases. These charges generally increase revenue, but only serve to offset the increase in fuel expenses. Revenue for the six months ended ~~June~~March 3031, 2008 ~~included $9~~.5 ~~million of fuel surcharges, compared to $4.3 million for the six months ended June 30, 2007.~~

~~For~~The ~~the~~increase ~~six~~is ~~months~~primarily ~~ended~~attributable ~~June~~to ~~30, 2008, revenues from our chemical fleet were $39.5 million,~~ an increase ofin ~~$10.6~~interest ~~million~~rate ~~over~~margin effected ~~the~~by ~~six~~our ~~months~~October ~~ended~~2008 ~~June~~bank 30amendment, ~~2007. The~~higher ~~ATB~~amortization ~~Freeport~~of ~~contributed $8.7~~deferred ~~million~~financing offees ~~this increase; the remainder~~ of ~~this~~approximately ~~increase~~$1.8 ~~was~~million due to ~~increased charter~~the ~~rates~~acceleration ~~and~~of ~~fuel surcharges. Revenue related to~~ the ~~Partnership’s ITB~~ ~~fleet~~amortization ~~and~~period ~~the~~for ~~product~~deferred ~~tanker~~financing ~~Houston~~costs ~~were~~under ~~$61.8~~our ~~million~~senior ~~for the six months~~credit ~~ended~~facility ~~June~~to ~~30,~~January ~~2008~~31, an2009 ~~increase~~and ~~of approximately $3.0 million from~~ the ~~comparable~~fact ~~period~~that inwe ~~2007.~~are ~~The~~no ~~increase~~longer incapitalizing ~~revenue~~interest ~~for~~on the ~~ITB~~loans ~~fleet~~related ~~revenue for~~to the construction ~~first half~~ of ~~2008~~the ~~was~~ATB ~~due~~Galveston ~~primarily~~and ~~to approximately $3.0 million of revenue from a grain voyage~~ the ~~recognition~~ATB ofBrownsville, ~~which~~placed ~~was deferred until the grain~~in ~~reached~~service ~~its~~in ~~final~~August ~~destination~~2008 inand ~~February~~November 2008., ~~Furthermore~~respectively, by the Partnership ~~experienced~~ ~~increased revenues from obtaining higher rates than it would have~~as ~~received~~well ifas the ~~vessels~~Golden State, ~~had~~placed ~~been~~into ~~operating~~service onin ~~time~~January ~~charters,~~2009 asby the ~~Partnership was~~Joint ~~responsible for the payment of voyage expenses~~Venture. ~~These increases were~~The ~~partially offset by an~~ increase in ~~the~~interest ~~number~~expense ofwas ~~offhire~~partially offset ~~days~~by ~~for~~lower ~~the~~LIBOR ~~ITBs~~and inbase ~~the~~rates. ~~first~~The ~~half~~Partnership’s ofaverage ~~2008~~effective ~~compared~~interest torate ~~the~~for ~~first half of 2007 and~~ the ~~deferral~~three ofmonths ~~recognition~~ended ofMarch ~~$5.5~~31, ~~million~~2009 ofwas ~~revenue~~13.1% ~~attributable~~compared to ~~two~~9.7% ~~grain~~for ~~voyages that commenced in~~ the ~~second~~three ~~quarter~~months ~~of 2008 that will be recognized in the third~~ended ~~quarter~~March of31, 2008, ~~when~~and the ~~grain~~Joint ~~reached~~Venture’s ~~its~~average ~~final~~effective ~~destination.~~interest Atrate ~~June~~for ~~30,~~the ~~2008,~~three ~~total~~months ~~deferred~~ended ~~costs~~March ~~for~~31, ~~these~~2009 ~~grain~~was ~~voyages~~5.1% ~~were~~compared ~~approximately~~to $20.~~3 million.~~0% ~~Revenue~~for ~~related to~~ the ~~Partnership’s~~three months ~~chemical~~ended ~~fleet~~March ~~(other~~31, ~~than~~2008 ~~the~~given ~~ATB~~all ~~Freeport~~interest ~~increased~~had bybeen ~~$1.9~~capitalized ~~million from~~during ~~the comparable~~ this period inon ~~2007~~the ~~due~~Joint ~~to increased charter rates~~Venture.

~~Vessel Operating Expenses~~Interest Income. ~~Vessel~~ ~~operating~~Interest ~~expenses~~income, ~~were~~consisting ~~$33.4~~of ~~million~~interest ~~for~~earned ~~the~~on ~~six~~our ~~months~~invested ~~ended June 30~~balances, ~~2008,~~was ~~an increase of~~ $10.1 million, ~~or 3%, as compared to $32.3 million~~ for the ~~six~~ three months ended ~~June~~March 3031, ~~2007.~~2009, Wecompared ~~are responsible for vessel operating expenses regardless of the type of charter under which we are operating. The increase is primarily due~~ to ~~the addition of the ATB Freeport, which increased vessel operating expenses by~~ $21.~~4 million.~~0 ~~Additionally, crew wages and benefits increased by $.9~~ million ~~and~~for ~~all other vessel operating expenses increased by $0.2 million. The increase in crew wages and benefits resulted from new collective bargaining agreements with~~ the ~~unions that~~three ~~cover~~months ~~the~~ended ~~crew~~March ~~members and officers of our vessels effective in the second and third quarters of 2007~~31, ~~respectively~~2008. ~~These increases were offset by a $2.4 million decrease in expenditures for supplies, repairs and maintenance and a $0.2 million net increase in all other vessel operating expenses.~~

- The decrease 38is -primarily attributable to a decrease in invested balances in the funds held in escrow accounts to fund the construction of our ATBs and to fund our remaining commitment to the Joint Venture.

~~Voyage~~Net Loss ~~Expenses.~~(Gain) ~~Voyage~~on ~~expenses~~Derivative ~~increased by~~Financial ~~$14~~Instruments.9 ~~million,~~During ~~or 92%, over~~ the ~~prior~~three ~~year~~months ~~due to the addition of the ATB Freeport, which contributed $3.0~~ended ~~million~~March ~~in additional voyage expenses~~31, ~~along with increases in fuel~~2009, ~~port,~~we ~~and commission~~recorded ~~costs~~a ongain ~~the remaining fleet~~ of ~~approximately~~ $71.31 million~~. Approximately~~ ~~$6.2 million of this $7.3 million increase~~ related to ~~increased~~derivative ~~fuel~~financial ~~costs,~~instruments ~~which~~as ~~were~~compared ~~partially~~to ~~offset~~a bygain ~~the~~of $30.24 million offor ~~increased~~the ~~fuel~~three ~~surcharge~~months ~~revenue.~~ended InMarch ~~addition~~31, ~~grain voyage related expenses, including tank cleaning, increased voyage expenses by $4~~2008.6 ~~million~~In ~~for the ITB Philadelphia~~2006, ~~ITB Jacksonville, and ITB Baltimore in~~ the ~~first~~Partnership ~~half~~entered ofinto ~~2008.~~two interest ~~The~~rate ~~significant~~swap ~~increase~~agreements inthat ~~voyage~~effectively ~~expenses~~converted isa ~~due~~portion toof the ~~expiration of time~~LIBOR-based ~~charters~~payments ~~for two~~ of our ~~ITBs~~credit infacility ~~2008,~~to ~~resulting~~a infixed ~~the~~rate. ~~Partnership~~As ~~incurring voyage~~a ~~expenses~~result ~~that~~of the ~~customer~~October ~~paid directly under time charters. The impact~~20, of2008 ~~these~~amendment ~~additional~~to ~~voyage~~the ~~expenses~~senior ~~increased~~credit ~~revenues~~facility, aswe ~~rates~~determined ~~are~~that ~~higher to~~these ~~compensate~~contracts ~~for these voyage expenses that~~ were ~~previously~~no ~~incurred~~longer byeffective ~~the customer,~~as ~~rather than us, under~~ a ~~time~~hedge ~~charter.~~and ~~Because~~ we dorecorded ~~not~~a ~~recognize voyage~~gain ~~expenses~~of ~~related to our grain voyages until the grain is delivered to its final destination, voyage expenses for the six months ended June 30, 2008 do not include approximately~~ $20.3 9 million ofrelated ~~expenses~~to ~~deferred~~these incontracts ~~connection with grain voyages commenced~~ in the ~~second~~first quarter of ~~2008 that were completed in July 2008~~2009.

General and Administrative Expenses. General and administrative expenses were $8.0 million for the six month periods ended June 30, 2008 and June 30, 2007. An increase in professional fees, consisting of legal, accounting and consulting fees, and directors fees of $1.0 million were offset by a net decrease in personnel expenses of $1.0 million.33

~~Depreciation and Amortization. Depreciation~~Additionally, ~~and amortization was $20.9 million for~~ the ~~six~~Joint ~~months~~Venture ~~ended~~recorded ~~June~~a ~~30,~~gain ~~2008, an increase~~ of $20.82 million, orduring ~~16%, compared to $18.1 million for~~ the ~~six~~three months ~~ended~~ ~~June 30, 2007. The increase is primarily due to additional amortization~~ended ofMarch ~~drydock expenditures of $2.0 million~~31, ~~principally~~2009 ~~resulting from drydocks completed~~ in ~~2007,~~connection ~~and~~with ~~$1.6 million attributable to~~ the ~~addition~~interest ofrate ~~the~~cap ~~ATB~~it ~~Freeport.~~had ~~These~~entered ~~increases~~into ~~to depreciation and amortization expense were offset by a decrease of $0.7 million, resulting from an adjustment to the values assigned to the vessels~~ in ~~the~~ ~~original~~April ~~purchase of the ITBs due to net payments made to us under the Hess Support Agreement, which under GAAP were considered an adjustment to the original purchase price~~2007.

~~Other expense (income). Other expense in~~For the ~~six~~three months ended ~~June~~March 3031, 2008, ~~reflects~~the anPartnership ~~impairment~~recorded ~~loss of $5.7 million and~~ a ~~loss~~gain of $0.1 7 million ~~related~~in toconnection ~~the~~with ~~sale~~its offoreign ~~surplus~~currency ~~equipment.~~forward ~~We previously~~contracts entered into for ~~contracts~~the topurchase ~~construct~~of ~~four~~owner-furnished ~~additional~~items ~~ATB~~relative ~~units similar~~ to the newbuild ATB ~~Freeport, each~~series. ofDue ~~which is specified~~ to ~~have~~the aacceleration ~~carrying~~or ~~capacity~~deferral of ~~approximately~~certain ~~156,000 barrels~~payments atscheduled ~~98%~~for owner-furnished ofitems ~~capacity.~~relative ~~The~~to ~~Partnership exercised its cancellation option for~~ the ~~fourth~~ATBs ~~ATB~~being ~~unit. Accordingly~~constructed, wea ~~have~~portion ~~assessed the fair value~~ of the ~~construction~~foreign incurrency ~~progress~~contracts ofwere ~~the~~ineffective ~~fourth~~as ~~ATB~~a ~~unit~~hedge. atDue ~~zero,~~to ~~resulting~~this inhedge ineffectiveness, a ~~non-cash~~ ~~impairment~~gain ~~charge~~on ofderivative ~~$5.7~~financial ~~million~~instruments ~~which~~was ~~includes~~recognized ~~$3.8 million~~in ~~previously~~our ~~paid~~Consolidated ~~for~~Statement ~~construction~~ of ~~the~~Operations. ~~barge~~This ~~portion~~gain ofwas ~~this~~partially ~~ATB~~offset ~~unit,~~by ~~$1.4~~a ~~million~~loss ~~for~~of ~~deposits on certain owner furnished equipment, and~~ $0.53 million ~~of capitalized~~recorded ~~interest~~by ~~costs.~~the ~~For~~Joint Venture in the ~~six~~three months ended March ~~June 30~~31, ~~2007,~~2008 ain ~~$3.5 million~~connection ~~contract~~with ~~settlement~~the ~~was~~interest ~~paid~~rate tocap ~~us,~~it ~~resulting~~had inentered ~~other~~into ~~income for the~~in ~~period~~April 2007.

~~Interest Expense. Interest expense was~~For ~~$14.8~~information ~~million~~on ~~for~~our ~~the~~interest ~~six~~rate ~~months~~swaps ~~ended~~and ~~June~~Joint ~~30,~~Venture 2008, an increase of $1.2 million, or 9%, compared to $13.6 million for the six months ended June 30, 2007. The increase is primarily attributable to a higher average outstanding debt balance during the 2008 quarter partially offset by a decrease in interest ~~rates.~~ ~~The average effective interest~~ rate ~~for the six months ended June 30~~cap, see ~~2008~~“Item ~~was 9~~3.5% ~~compared~~Quantitative toand ~~10.0%~~Qualitative ~~for~~Disclosures ~~the~~about ~~same~~Market ~~period in 2007~~Risk.”

~~Interest~~Provision for Income Taxes. ~~Interest income,~~The ~~consisting~~provision offor ~~interest~~income ~~earned~~taxes ~~on our invested balances,~~ was $10.71 million for the ~~six~~three months ended ~~June 30~~March 31, ~~2008~~2009, acompared ~~decrease~~to ofa ~~$3.6~~provision ~~million,~~for orincome ~~68%, compared~~taxes toof $50.23 million for the three ~~six~~ months ended ~~June~~March 3031, ~~2007~~2008. The decrease is primarily attributable to a decrease in invested balances in the funds held in escrow accounts to fund the construction of our ATBs and to fund our remaining commitment to the Joint Venture. As these funds are used, interest income will continue to decrease.

- A tax 39provision -of $0.1 million related to unrecognized tax benefits was recorded for the three months ended March 31, 2009. For the comparable period in 2008, the provision recorded in the first quarter of 2008 is primarily due to a provision of $0.1 million recorded upon the election to treat the owners of the Sea Venture and ITB Philadelphia as corporations for tax purposes, a provision of $1.1 million recorded to reserve for deferred tax assets created during the period as a result of net operating losses generated and $0.1 million of unrecognized tax benefits recorded during the first quarter of 2008. Offsetting these items were losses at the various corporate subsidiaries generating a tax benefit of $1.0 million.

~~Net~~ Noncontrolling Interest ~~Gains~~in onJoint ~~Derivative Financial Instruments~~Venture. WeThis ~~recorded~~represents athe ~~gain~~Noncontrolling ~~and received~~interest ~~proceeds~~holders’ share of ~~$0.7~~the ~~million~~gain/loss in ~~connection with~~ the ~~sale~~Joint ofVenture’s ~~foreign~~net ~~currency forward~~income ~~contracts~~or ~~that~~loss. weThe net ~~entered~~gain ~~into~~ for the ~~purchase~~three ofmonths ~~owner-furnished items~~ended ~~relative~~March to31, ~~our~~2009 ~~newbuild~~is ~~ATB~~largely ~~series.~~attributable ~~Due~~ to the operating ~~acceleration~~performance ~~or deferral~~ of ~~certain~~the ~~payments~~Golden ~~scheduled~~State ~~for~~placed ~~owner-furnished~~into ~~items~~service ~~relative~~in toJanuary ~~the~~2009 ~~ATBs~~while ~~being~~the ~~constructed,~~loss afor ~~portion of~~ the ~~foreign~~three ~~currency~~months ~~contracts~~ended ~~were~~March ~~ineffective as a hedge. Due to this hedge ineffectiveness~~31, a2008 ~~gain on derivative financial instruments~~ was ~~recognized~~largely indue ~~our~~to ~~Consolidated~~general ~~Statement~~and administrative offees ~~Operations.~~incurred ~~For information~~ on ~~our foreign currency forward contracts, see “Item 3. Quantitative and Qualitative Disclosures about Market Risk.” Additionally,~~ the Joint Venture ~~recorded a gain of $0~~.3 ~~million~~In in the ~~six~~three months ended ~~June~~March 3031, 2008, ~~in connection~~we ~~with~~allocated ~~the~~60% ~~interest~~of ~~rate~~the ~~cap~~losses itto ~~had~~our ~~entered~~Joint ~~into~~Venture inpartners ~~April~~based ~~2007.~~on ~~For~~their ~~information~~ownership onof ~~this~~60% ~~interest~~of ~~rate~~the ~~cap,~~equity ~~see~~in ~~“Item~~the 3.Joint ~~Quantitative and~~Venture. ~~Qualitative~~ ~~Disclosures about Market Risk.” During the second quarter ended~~Subsequent ~~June~~to 30March 31, ~~2007~~2008, awe ~~payment scheduled~~determined ~~for~~that ~~owner-furnished~~all ~~items~~losses ~~relative~~from to the ~~fifth~~Joint ~~ATB~~Venture ~~being~~are ~~constructed~~allocated to ~~was~~the ~~deferred~~Partnership ~~until~~and ~~December~~all ~~2007,~~gains ~~which~~from ~~was~~the ~~beyond~~Joint ~~the~~Venture ~~expiration~~are ~~date~~allocated ofto the Noncontrolling ~~related~~interest ~~foreign~~holder. If ~~currency~~we ~~forward~~had ~~contract,~~followed ~~resulting~~this policy in athe ~~gain~~first quarter of ~~$0.2~~2008, ~~million.~~we ~~Additionally,~~would ~~the~~have ~~Joint~~been ~~Venture~~allocated ~~recorded~~an aadditional ~~gain of~~ $0.74 million in ~~connection with its interest rate cap~~losses.

~~Provision~~Net ~~for Income Taxes~~Loss. The ~~benefit~~ ~~for~~net ~~income~~loss ~~taxes was $1.2 million~~ for the ~~six~~three months ended ~~June~~March 3031, ~~2008~~2009 was $13.7 ~~The~~million, an ~~benefit~~increase ~~recorded~~ in ~~the~~net ~~first~~loss ~~half~~ of ~~2008~~$7.9 ismillion, ~~primarily~~compared ~~due~~ to a ~~benefit~~net loss of $5.08 million ~~recorded upon the transfer of the ownership interest in the~~ for ~~limited liability companies that own~~ the ~~ITB Groton,~~three ~~ITB~~months ~~New~~ended ~~York,~~March ~~ITB Jacksonville~~31, ~~and~~2008. ~~ITB~~The ~~Baltimore~~increase toof ~~the~~$7.9 ~~corporate~~million in ~~entity~~net ~~USCS~~losses ~~Chemical~~was ~~Pioneer~~due ~~Inc and the election~~ to ~~treat~~an ~~the~~increase ~~ITB Philadelphia LLC and USCS Sea Venture LLC as corporations for tax purposes. Additionally, a provision~~ of $39.74 million ~~was~~in ~~recorded~~net tointerest ~~provide~~expense and a ~~valuation allowance~~decrease ~~against~~in ~~deferred~~income ~~tax~~on ~~assets created during~~ the ~~period~~noncontrolling asinterest ain ~~result~~Joint Venture of ~~these~~$0.8 ~~transfers~~million ~~and~~partially ~~tax~~offset ~~elections~~by ~~and~~an ~~net~~increase in operating ~~losses~~income ~~generated~~of ~~in earlier periods~~$1.4 million, Aan ~~provision~~increase of $0.27 million ~~for~~in ~~unrecognized~~gains ~~tax~~on ~~benefits~~derivative ~~was also~~financial ~~recorded~~instruments ~~during~~and ~~the second quarter 2008. Offsetting these items were losses at the various corporate subsidiaries generating~~ a ~~tax benefit of~~ $0.12 million~~. For~~ ~~the~~decrease ~~comparable period~~ in ~~2007, only~~ the ~~Chemical~~provision ~~Pioneer~~for ~~was owned by a corporate subsidiary subject to federal, state and local~~ income taxes.

Noncontrolling Interest in Joint Venture. For the six months ended June 30, 2008, we recorded noncontrolling interest in Joint Venture losses of $0.2 million compared to $0.4 million in Joint Venture income for the six months ended June 30, 2007, relating to the 60% of the Joint Venture owned by third parties.

Net Loss. The net loss for the six months ended June 30, 2008 was $8.5 million, a decrease of $16.6 million, compared to net income of $8.2 million for the six months ended June 30, 2007. The decrease in operating income of $14.5 million (which includes a $5.7 million non-cash impairment charge), and the decrease in net interest income of $4.8 million, were the primary reasons for the decrease. This decrease was offset primarily by a $1.8 million favorable variance on the income tax benefit from the six months ended June 30, 2007. Additionally, there was a $0.7 million favorable variance in the noncontrolling interest in the Joint Venture and an increase of $0.1 million from the gains on derivative financial instruments.

Liquidity and Capital Resources

Operating Cash Flows

Net cash provided by operating activities was $131.43 million and $193.25 million for the three ~~six~~ months ended ~~June~~March 3031, ~~2008~~2009 and ~~2007~~2008, respectively. The decrease in operating cash flows of $2.2 million in the three months of 2009 compared to the three months of 2008 is the result of the increase in net loss of $7.9 million, a decrease of $5.2 million in non-cash items partially offset by an improvement in working capital net assets of $10.9 million.

The decrease in ~~operating~~ non-cash ~~flows~~charges of $5.92 million infor the ~~first~~three ~~six~~ months ofended March ~~2008~~31, 2009 compared to the ~~first~~three ~~six~~ months ofended ~~2007~~March is31, ~~the~~2008 ~~result~~is ofdue ~~the decrease in~~primarily ~~net~~to ~~income~~the of $165.67 million. ~~This~~impairment ~~decrease~~related into ~~net~~the ~~income~~cancellation ~~was~~of ~~offset~~the byin ~~non-cash~~progress ~~items~~construction of ~~$7.0~~an ~~million,~~ATB afor ~~reduction~~the inthree ~~capitalized~~months ~~drydock~~ended ~~cost~~March of31, ~~$3.1~~2008 ~~million~~partially ~~and~~offset anby ~~increase~~$0.5 million in the net ~~operating~~changes ~~assets~~in ofvarious ~~$0.6~~other ~~million~~non-cash charges.

Although no vessels underwent drydockings in the six months ended June 30, 2008 or June 30, 2007, there were expenditures for drydockings related to accrued expenses for drydockings that took place in previous periods. Three vessels are scheduled for drydocking in 2008, and two ITBs are scheduled for UWILD surveys. As a result, we expect operating cash flows to be negatively impacted in 2008 as compared to 2007, due to increased drydocking expenditures and reduced revenues due to increased days off-hire as a result of such drydocks and UWILD surveys.34

- Our working 40capital requirements improved by $10.9 million for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008. This improvement was largely due to an increase in our accrued expenses and other liabilities of $10.8 million largely related to the Partnership’s non payment of interest under its senior credit facility and non-payment of interest on $91.29 million on its senior notes in the first quarter of 2009 of $6.2 million, as well as a decrease in prepaid expenses and other current assets of $6.4 million, largely related to the timing and discharge of grain voyages. This improvement was partially offset by an increase of $0.8 million in capitalized drydocking expenditures and an $5.5 million increase in other working capital requirements. Working capital requirements are affected by the level of our participation in the spot markets and the timing of our grain voyages and related impact of the accounting policies for grain voyages. Participation in the spot market requires us to carry higher amounts of working capital, as under spot charters fuel costs are our responsibility and are not realized economically until payment is made to us by the customer. Additionally, recognition of grain related freight revenue and its related recording of accounts receivable is at voyage completion with the related payments generally received at the completion of a voyage for grain voyages, compared to time charters, where payment is generally due at the beginning of a fixed period of time, such as a month. Additionally, grain voyages tend to be substantially longer than refined petroleum product voyages thus incurring a significant amount of deferred grain expenses that are not expensed until voyage completion.

~~The~~Capitalized ~~change~~drydocking inexpenditures ~~non-cash~~increased ~~items of~~ $7.0.8 million infor the ~~six~~three months ended ~~June 30~~March 31, ~~2008~~ 2009 as compared to the ~~six~~three months ended ~~June~~March 3031, ~~2007~~2008 ~~was~~largely due ~~primarily~~ to the ~~$5.7 million~~timing, ~~write-off~~completion ofstatus ~~the~~and ~~capitalized~~actual ~~costs~~cash ~~incurred~~payments as of ~~June~~drydockings ~~30,~~at ~~2008 related~~ the respective ~~Partnership’s~~year-ends. ~~exercised~~In ~~option~~2008, tothe ~~cancel~~Chemical Pioneer, the ~~construction~~Houston ofand the ~~fourth ATB~~Charleston inunderwent ~~our~~drydockings ~~current~~in ~~ATB~~the ~~newbuild~~fourth ~~series~~quarter, anwith ~~increase~~the inCharleston’s ~~depreciation and~~drydocking ~~amortization~~being ofonly ~~$2.9~~partially ~~million,~~completed anat ~~increase~~December in31, ~~costs~~2008. ~~for~~Drydocking ~~stock issued to~~expenditures ~~directors~~for ~~of $0.1 million, and a loss on~~ the ~~sale~~three ofmonths ~~surplus~~ended ~~equipment~~March of31, ~~$0.1 million.~~2008 ~~These items~~ were ~~partially offset by a decrease in our deferred tax liabilities of~~ $12.30 million, awhich ~~decrease in the non-controlling interest in~~consisted ~~Joint~~largely ~~Venture (income) loss~~ of ~~$0.6~~expenditures ~~million,~~for adrydockings ~~decrease~~related into ~~the~~accrued ~~provision~~expenses for ~~accounts~~drydockings ~~receivable~~that oftook ~~$0.3~~place ~~million and a decrease~~ in ~~net gains on derivative financial instruments of $0~~2007.1 ~~million.~~

Increased working capital cash requirements of $0.6 million are due to overall higher net operating assets primarily affected by the addition of the ATB Freeport, which drove receivables and other current assets higher compared to June 30, 2007, and the employment of five of our ITBs in the spot market in 2008. Participation in the spot market requires us to carry higher amounts of working capital, as under spot charters fuel costs are our responsibility, and not realized economically until payment is made to us by the customer. Additionally, payment dates are generally at the completion of a voyage, compared to time charters, where payment is generally due at the beginning of a fixed period of time, such as a month. In addition, grain voyages, where we are paid following delivery of the grain to its final destination, tend to be substantially longer than refined petroleum product voyages. As we add two additional vessels in 2008 and our ITBs participate more in the spot market, we expect our working capital requirements to increase.

Investing Cash Flows

Net cash used in investing activities totaled $7766.49 million for the ~~six~~three months ended ~~June~~March 3031, ~~2008~~2009, an increase of $4123.09 million compared to net cash used of $3643.40 million for the ~~six~~three months ended ~~June~~March 3031, ~~2007~~2008. For the ~~six~~three months ~~ended~~ ~~June~~ended 30March 31, ~~2008~~2009, ~~we made $48.3 million of payments toward~~ the ~~construction~~Partnership ~~of the ATBs and the Joint Venture~~ made $~~105~~6.92 million of payments toward the construction of the ~~product tankers. Of the $154.2 million spent for the construction of~~ ATBs ~~and tankers~~, ~~$75.8 million was funded from our restricted cash accounts; the remainder,~~ all of which was ~~for the tankers being constructed by the Joint Venture, was~~ funded ~~by equity contributions~~ from ~~the other~~our ~~Joint~~restricted ~~Venture Investors and borrowings under the Joint Venture’s revolving credit facility. Additionally, in the six months ended June 30, 2008, we received $0.7 million of~~ cash ~~related to the cash flow hedges that were~~ ~~terminated~~accounts ~~given that the related underlying contract payments were canceled,~~ and ~~received $0.3 million related to~~ the ~~sale of some surplus equipment. For the six months ended June 30, 2007, we made $49.8 million of payments toward the construction of the ATBs and the~~ Joint Venture made $1067.76 million of payments toward the construction of ~~the~~ product tankers~~. Of the $60.5 million spent for the construction of ATBs and tankers~~, ~~$26.3 million was funded from our restricted cash accounts; the remainder,~~ all of which was ~~for the tankers being constructed by the Joint Venture, was~~ funded ~~by equity contributions~~ from ~~the other Joint Venture Investors and~~ borrowings under the Joint Venture’s revolving credit facility. Additionally, in the six months ended June 30, 2007, the Joint Venture purchased a nine year interest rate cap with a notional amount of $100.0 million effective April 1, 2007 for $1.9 million, including transaction fees.

~~The~~For ~~amounts received from or paid to Hess pursuant to~~ the ~~Hess~~three ~~support~~months ~~agreement were~~ended ~~not~~March ~~recognized~~31, as2008, ~~revenue~~we ormade ~~expense~~$22.8 ~~but~~million ~~were~~of ~~deferred~~payments ~~for accounting~~toward ~~purposes throughout~~ the ~~term~~construction of the ~~support~~ATBs, ~~agreement~~all ~~and reflected as a decrease to the purchase price~~ of ~~the ITBs in September 2007,~~ which was ~~the~~funded ~~end of~~from ~~the~~our ~~Hess~~restricted ~~support agreement. Prior to such adjustment~~cash accounts, ~~they~~and ~~were~~the ~~included~~Joint ~~in cash~~Venture ~~flows~~made ~~from~~$59.4 ~~investing~~million ~~activities~~of ~~as advances from (~~payments ~~to)~~toward ~~Hess. If~~ the construction ~~rate~~of ~~for an ITB was less than~~ the ~~support~~product ~~rate set forth in the support agreement~~tankers, ~~Hess~~of ~~paid~~which ~~the~~$11.9 ~~difference~~million ~~between~~was ~~the~~funded ~~two~~from ~~rates to us. If the rate~~our ~~for~~restricted ancash ~~ITB~~accounts, ~~exceeded~~$17.8 ~~the~~million ~~support~~was ~~rate~~funded ~~set~~by ~~forth in~~ the ~~support~~Joint ~~agreement, we~~Venture ~~paid~~Investors ~~the~~and ~~excess~~$29.7 tomillion ~~Hess~~was tofunded ~~reimburse~~from ~~Hess~~borrowings ~~for~~under ~~any~~the ~~payments made to us by Hess~~Joint ~~under~~Venture’s ~~the~~revolving ~~support~~credit ~~agreement~~facility. IfAdditionally, ~~Hess~~in ~~had~~the ~~been~~three ~~fully~~months ~~reimbursed for all payments~~ended ~~made~~March ~~under~~31, ~~the support agreement~~2008, we ~~would~~sold ~~have~~some ~~been obligated to pay Hess 50%~~ of ~~any~~our ~~remaining~~surplus ~~excess.~~equipment ~~Payments~~for toproceeds ~~Hess, net~~ of ~~payments received from Hess, under the support agreement were~~ $0.~~4 million for the six months ended June 30,~~1 ~~2007~~million.

- 41 -

Financing Cash Flows

For the ~~six~~three months ended ~~June~~March 3031, ~~2008~~2009, net cash provided by financing activity ~~was~~ was $8068.64 million. The Joint Venture received a total of $8568.34 million from ~~the~~ ~~Joint~~borrowings Venture Investors, of which $32.0 million was equity contributions, and $53.3 million was pursuant the Joint Venture’s credit facility. Amounts received from the Joint Venture Investors will increase substantially as the Joint Venture continues to construct the product tankers, but are limited to total equity contributions of $105.0 million and total debt of $325.0 million. Due to the recent acceleration of the construction of the product tankers, it is possible that these limits may be reached prior to completion of all five vessels, as having multiple vessels under ~~construction in~~ the Joint Venture ~~simultaneously on an accelerated basis will increase the Joint Venture~~’s ~~capital~~ ~~requirements.~~revolving ~~Additionally, in the six months ended June 30, 2008 we borrowed $7.0 million under our~~ credit facility~~, made scheduled debt payments of $1~~.6 million in the six months ended June 30, 2008, and distributed $10.2 million to our holders of common units (but not our subordinated unit holders or our general partner) in respect to the first quarter of 2008 and the fourth quarter of 2007. Distributions to partners will decrease in 2008 as compared to 2007 as we do not expect to make distributions to any of our unitholders in the second half of 2008. Distributions to our common and subordinated unitholders and our general partner in the second half of 2007 totaled $16.7 million.

~~Net~~For ~~cash~~the ~~provided~~three bymonths ~~financing~~ended ~~activities~~March ~~was~~31, ~~$16.9 million~~2008, ~~for~~net ~~the~~cash ~~six~~provided ~~months ended~~by ~~June~~financing ~~30,~~activity was ~~2007. We borrowed~~ $2542.0 million ~~under our credit facility~~. Our Joint Venture received a total of $1047.08 million from the Joint Venture Investors, of which $417.59 million was equity contributions, and $529.59 million was pursuant to the Joint Venture’s revolving credit facility. We also made scheduled debt payments of $10.48 million in the ~~period~~first quarter of 2008 and we distributed $165.71 million to our ~~partners~~ ~~(including~~ holders of ~~our~~common ~~subordinated~~ units) in respect to ~~the first~~ ~~quarter of 2007 and~~ the fourth quarter of ~~2006~~2007.

~~Payments~~Liquidity ~~of Distributions~~

InThe ~~July~~liquidity ~~2008,~~pressures ~~the~~faced ~~Board~~by ofthe ~~Directors~~Partnership ofdescribed ~~the~~in ~~general~~its ~~partner~~Form ~~determined~~10-K ~~not~~for tothe ~~declare~~year aended ~~distribution~~December in31, ~~respect~~2008 ofcontinued in the ~~second~~first quarter of ~~2008~~2009 onand ~~any~~led to the Partnership, together with all of its wholly-owned subsidiaries, ~~outstanding~~USSGP ~~common~~and ~~units~~USS Vessel Management LLC (collectively, ~~subordinated~~the ~~units~~“Company”) ~~and~~filing for ~~general~~bankruptcy ~~partner~~on ~~units~~April 29, 2009. See “—Proceedings Under Chapter 11” above for additional information.

On May 12, 2008, the Board of Directors of our general partner declared our regular cash distribution for the first quarter of 2008 of $0.45 per common unit. The distribution was paid on all common units on May 21, 2008 to all common unitholders of record on May 16, 2008. The aggregate amount of the distribution was $5.1 million.35

The ~~Board~~ability of ~~Directors~~the ~~also~~Partnership ~~declared~~to continue as a ~~quarterly~~going ~~distribution~~concern is dependent upon, among other things, (i) the Partnership’s ability to ~~unitholders~~comply ofwith the terms ~~$0.45~~and ~~per~~conditions ~~common~~of ~~unit~~the cash collateral order entered by the Bankruptcy Court in connection ~~respect~~with tothe Bankruptcy Cases; (ii) the ~~quarter~~ability ~~ended~~of ~~December~~the ~~31,~~Partnership to ~~2007~~generate cash from operations; (iii) the ability of the Partnership to ~~common~~obtain ~~unitholders~~confirmation of ~~record~~and onto ~~February~~consummate 12the Plan or another plan of reorganization under the Bankruptcy Code; and (iv) the cost, ~~2008~~duration and outcome of the reorganization process. ~~The~~Uncertainty ~~distribution~~as ~~was~~to ~~paid~~the outcome of these factors raises substantial doubt about the Partnership’s ability to continue as ~~all~~a ~~common~~going ~~unitholders~~concern. onWe ~~February 15~~are currently evaluating various courses of action to address the operational and liquidity issues the Partnership is facing, ~~2008~~and formulating plans for improving operations. ~~The~~There ~~aggregate~~can ~~amount~~be no assurance that any of these efforts will be successful. These unaudited consolidated financial statements do not include any adjustments that might result should the ~~distribution~~Partnership ~~was~~be $5unable to continue as a going concern.1 ~~million~~Consistent with generally accepted accounting principles preparing these unaudited consolidated financial statements on a going concern basis contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

~~The~~ We are ~~Board~~dependent ofsolely ~~Directors~~on ~~did~~our ~~not~~cash ~~declare~~flow afrom ~~dividend~~operations onto meet our ~~subordinated~~operating, ~~units~~debt service and working capital requirements. Our cash flow from operations ~~general~~fluctuates ~~partner~~from ~~units~~quarter into ~~May~~quarter ~~2008~~based oron, ~~February~~among ~~2008.~~other things:

~~Ongoing~~· ~~Capital Expenditures~~the level of consumption of refined petroleum, petrochemical and commodity chemical products in the markets in which we operate; · the level of demand for overseas transportation of grain for humanitarian organizations; · the prices we obtain for our services; · the level of demand for our vessels; · the level of our operating costs; · delays in the delivery of newbuilds and the resulting delay in receipt of revenue from those vessels; · the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business; · the level of unscheduled off-hire days and the timing of, and number of days required for, scheduled drydockings of our vessels; · prevailing economic and competitive conditions; · the level of capital expenditures we are required to make, including for drydockings for repairs, newbuildings and compliance with new regulations; · fluctuations in our working capital needs; · the refusal of certain of our vendors to extend trade credit to us; and · the costs incurred in connection with our Bankruptcy Cases.

Marine transportation of refined petroleum, petrochemical and commodity chemical products is a capital intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance. Both domestic (U.S. Coast Guard) and international (International Maritime Organization) regulatory bodies require that our vessels be drydocked for major repair and maintenance at least twice every five years. To date, our ITBs have been able to participate in the UWILD Program, which allows our ITBs to be drydocked once every five years, with a mid-period underwater survey in lieu of a drydock. If we are required to conduct a second drydock in each five year period rather than rely on an underwater survey, we estimate that our ITBs will be out of service for approximately 14 to 20 days and the second drydock will cost approximately $1.0 million to $2.0 million. This longer out of service period and increased drydock expenses as compared to the time required for and the cost of conducting an underwater survey, could adversely affect our business, financial condition, results of operations and our ability to pay the minimum quarterly distribution on our outstanding units. Because of the age of the ITBs, their continued participation in the UWILD Program is now conditioned on their undergoing an enhanced survey during the UWILD at a cost of $0.5 million, resulting in the vessel being off-hire, and not earning revenue, for an additional 12 days each time a survey is conducted; however, under maritime international maritime organization regulations, in order for an ITB to trade internationally (including grain voyages), it will have to undergo two drydockings in each five year period, rather than a drydocking and a UWILD. Additionally, vessels may have to be drydocked in the event of accidents or other unforeseen damage. Periodically, we make expenditures to acquire or construct additional tank vessel capacity and/or to upgrade our overall fleet efficiency, and in the future may make capital expenditures to retrofit vessels to meet the requirements of OPA 90.

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Three vessels employed in our chemical business are scheduled for drydocking in the fourth quarter. As a result, we expect our results of operations and operating cash flows to be negatively impacted in 2008 as compared to 2007, due to increased drydocking expenditures and reduced revenues due to increased days off-hire as a result of such drydocks and UWILD surveys.

The ITB Baltimore completed its regularly scheduled drydocking in August 2007, at a cost of $5.8 million, excluding damage repair costs. However, it remained out of service until October 2007 due to the time needed to repair the damages it sustained after leaving drydock during Hurricane Dean. The ITB Philadelphia completed its drydock in December 2007 at a cost of $5.6 million. For future drydockings, we estimate that drydocking the ITBs will cost approximately $6.0 million per vessel, the parcel tanker and Houston drydocks will cost approximately $2.6 million to $6.0 million per vessel, the ATB drydockings will cost between $1.0 million and $2.0 million per vessel and the new tanker drydocks will cost between $3.5 million and $4.0 million per vessel. While drydocked, each of our ITBs will be out of service for approximately 50 to 70 days, each parcel tanker and the Houston will be out of service for approximately 35 to 60 days, each ATB unit will be out of service for approximately 25 days and each new tanker will be out of service for approximately 35 to 40 days. If the U.S. Coast Guard does not allow our ITBs to continue in the UWILD Program, or if we chose to pursue international chartering opportunities that would preclude our continued participation in the UWILD Program, we estimate that the required second drydock will require our ITBs to be out of service for approximately 14-20 days and will cost approximately $1.0 million to $2.0 million. At the time we drydock these vessels, the actual cost and time of drydocking may be higher due to inflation and other factors, as well as the availability of shipyards to perform the drydock. In addition, vessels in drydock will not generate any income, which will reduce our revenue and cash available for distribution and to pay interest on, and principal of, debt.

In calculating cash available to pay distributions, our partnership agreement requires our general partner to deduct from basic surplus each quarter estimated maintenance capital expenditures as opposed to actual maintenance capital expenditures, in order to reduce disparities in basic surplus caused by fluctuating maintenance capital expenditures, such as retrofitting or drydocking. Our annual estimated maintenance capital expenditures for purposes of calculating basic surplus are $20.9 million in 2008, which is unchanged from 2007. This amount is based on our current estimates of the amounts of expenditures we will be required to make in the future, which we believe to be reasonable. The amount of estimated maintenance capital expenditures deducted from basic surplus is subject to review and change by the board of directors of our general partner at least once a year, with any change approved by the conflicts committee.

Liquidity Needs

During the first half of 2008, all but one of the Partnership’s ITBs began to operate in the spot market for the transportation of petroleum products, which has increased the volatility of our revenues and working capital requirements, and decreased the predictability of our cash flows. Beginning in late March 2008, market conditions in the spot market deteriorated substantially, due to overall declining economic activity and decreased demand for the domestic coastwise transportation of petroleum products. Additionally, refinery utilization has declined considerably, fuel prices for operating our vessels are at record levels and newbuilds have increased capacity serving the Jones Act market at a faster rate than demand, and the decrease in capacity due to the required phase-outs under OPA 90. Due to these market shifts, our ITBs have recently incurred idle periods greater than, and charter rates below, our expectations at the beginning of 2008. During the first half of 2008, we also experienced modest decreased demand for the domestic coastwise transportation of chemical products served by our chemical transporting vessels, which we believe was primarily due to our customers working off inventory levels due to the decline in economic activity. As a result, our cash flows and liquidity have come under increasing pressure due to the current difficult market conditions, which has substantially increased the likelihood that we will not be able to remain in compliance with certain financial covenants relating to leverage (debt to EBITDA) and fixed charge and interest coverage under our Senior Credit Facility as early as the end of the third quarter of 2008. We were in compliance with all of our financial covenants as of the end of the second quarter of 2008, and expect to generate sufficient cash that, together with borrowings under our revolving credit facility, will allow us to make scheduled interest and principal payments on our debt.

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If a covenant breach occurs, we will be prohibited from making distributions on our common units until we have cured such breach (although any unpaid distributions will accrue). In addition, a breach of our loan covenants would give the lenders under the Senior Credit Facility the right to refuse to make funds available under the revolving credit facility and to demand immediate payment of our loans under the Senior Credit Facility and cause cross defaults under our other debt agreements. If all such outstanding indebtedness were declared to be immediately due and payable, we would not have the financial resources to repay immediately in full all outstanding borrowings under our various debt agreements. As such, we would be required to either amend the Senior Credit Facility or replace it with an alternate credit facility. In addition, the lenders under the senior credit facility could prohibit us from paying interest on the senior notes.

In response to these issues, we have retained Greenhill & Co. LLC and Jefferies & Company, Inc. to assist us in exploring strategic alternatives, including either the possible sale of the business or the sale of new equity, and other ways to increase liquidity and strengthen our financial resources. In order to give us adequate time to pursue strategic alternatives, we have entered into negotiations with our lenders to amend certain financial ratio covenants under the Senior Credit Facility.

Consistent with generally accepted accounting principles, the condensed consolidated financial statements included herein have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Assuming that our debt is not accelerated, we believe that we will have sufficient liquidity to meet ongoing operations for the remainder of 2008. Our lenders’ right to demand immediate payment of our outstanding indebtedness upon the occurrence of a default under the Senior Credit Facility, coupled with a substantial doubt about our ability to repay this indebtedness immediately and, accordingly, in such circumstances to continue as a going concern, leads to the need to successfully renegotiate our existing, or secure alternative, financing arrangements. Although there can be no assurance, we believe we will be successful in renegotiating the Senior Credit Facility.

Please see “Risk Factors—Risks Inherent in Our Business” in our Annual Report on Form 10-K dated December 31, 2007 for a detailed discussion of our liquidity requirements and the events that could impact our liquidity.

Please see the section titled “Cash Distribution Policy” in Part II, Item 5., “Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities”, in our Annual Report on Form 10-K dated December 31, 2007 for a detailed discussion of our policies and conditions regarding cash distributions and the conversion of subordinated units into common units.

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Contractual Commitments and Contingencies

In 2006, we entered into a contract with Manitowoc Marine Group (“MMG”) for the construction of four barges, each of which is specified to have a carrying capacity of approximately 156,000 barrels at 98% of capacity, although the Partnership had an option to cancel the last barge, which it exercised immediately prior to its expiration on June 30, 2008. In 2006, we entered into a contract for the construction of three tugs with Eastern Shipbuilding Group, Inc. (“Eastern”), which will be joined with the barges to complete three new ATB units. The contract with Eastern included an option to construct and deliver an additional tug which would have been combined with the fourth barge referenced above; however, we let this option expire in connection with our cancellation of the contract to construct the fourth barge. The total construction cost anticipated for the first three new ATB units is approximately $67.0 million to $69.0 million per unit (subject to modifications and changes in the cost of steel), in each case inclusive of owner furnished equipment, but exclusive of capitalized interest. The capitalized interest as of June 30, 2008 relating to the first three ATB units is $12.8 million. The tug for the first Eastern ATB was delivered in July 2008, and is currently enroute to Wisconsin, where it will be coupled with the first MMG barge. We expect this first new ATB to be placed in service during the second half of August 2008, the second ATB unit to be completed in November 2008, and the third ATB unit to be completed in August 2009. As of June 30, 2008, we made payments totaling $146.2 million related to the first three newbuilds and had in escrow approximately $31.0 million, plus $26.4 million of funds drawn from the escrow account in anticipation of payments due in the third quarter of 2008. These escrowed amounts and funds drawn represent our estimated cost to substantially complete construction of the first three ATBs under construction at Manitowoc and Eastern. We estimate the total cost (excluding capitalized interest) for this first ATB to be approximately $66.6 million. The cost increase over the originally estimated amount of $65.0 million was principally due to contractually provided cost increases related to increases related to major components and change orders.

During the quarter ended March 31, 2008, we determined that the fourth ATB unit referenced above was impaired, and assessed the fair value of the construction in progress of the this ATB at zero, which includes $3.8 million previously paid for construction of the barge portion of this ATB unit, $1.4 million for deposits on certain owner furnished equipment, and $0.5 million of capitalized interest costs. In addition, we may be required to make additional payments for certain owner furnished equipment.

We, through our subsidiary Product Carriers, entered into a contract with the National Steel and Shipbuilding Company (“NASSCO”), a subsidiary of General Dynamics Corporation (“General Dynamics”), for the construction of nine 49,000 deadweight tons (“dwt”) double-hulled tankers. General Dynamics provided a performance guarantee to Product Carriers in respect of the obligations of NASSCO under the construction contract. NASSCO is currently scheduled to deliver the first tanker in the second quarter of 2009, the second tanker later in 2009, two tankers in 2010, one tanker in 2011, one tanker in 2012, two tankers in 2013 and the last tanker in 2014. We currently expect the cost to construct these nine tankers to aggregate approximately $1.2 billion (including an estimate for price escalation based on projected increases in certain published price indexes), exclusive of capitalized interest. In addition, NASSCO and Product Carriers share in any cost savings achieved measured against the original contract price based on the terms of the construction contract.

On August 7, 2006, Product Carriers entered into the Joint Venture to finance the construction of the first five tankers. We manage and own a 40% interest in the Joint Venture and the Joint venture Investors own the remaining 60% interest. However, due to our control of the Joint Venture, as well as other aspects of the joint venture agreement, the financial statements of the Joint Venture are consolidated with ours for financial reporting purposes. We present in our consolidated financial statements the debt of the Joint Venture, but we have no obligation for the liabilities of the Joint Venture in excess of our $70.0 million capital commitment, of which approximately $51.5 million has already been made and the remainder is in escrow and our obligation to make the remaining capital commitment is supported by a letter credit. The portion of the net income or loss of the Joint Venture attributable to the 60% owners of the Joint Venture is set forth under the caption “Noncontrolling interest in Joint Venture loss (income)” on the Consolidated Statements of Operations and Comprehensive Income.

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As tankers are constructed, we will have the right (except in certain limited circumstances) to purchase completed tankers from the Joint Venture at specified prices subject to adjustment, provided that such prices are within the range of fair values as determined by appraisal. If we do not elect to purchase a tanker within a specified time period, the Joint Venture may sell the tanker to a third party; however, the Joint Venture must first allow us to make an offer to purchase the tanker (except in certain limited circumstances). Our ability to purchase vessels from the Joint Venture will depend on our financial condition and liquidity at the time the Joint Venture offers such vessels for sale. The Joint Venture will use the proceeds from the sale of the tankers to us, or to third parties if we do not exercise our purchase options, to, among other things, repay debt and to fund future milestone payments to NASSCO relating to the construction of the remaining tankers and ultimately to make distributions to the Joint Venture’s equity holders, first to the third party equity investors, until they receive a specified return, then to Product Carriers until it receives a specified return, and then on a shared basis dependent on the returns generated. We anticipate that the $500.0 million of capital committed to the Joint Venture, together with anticipated proceeds from the sale of tankers by the Joint Venture to us or to third parties, will be sufficient to fund the construction of all of the tankers constructed by the Joint Venture. The financing arrangements of the Joint Venture require continued reinvestment of proceeds received from the sale of completed product tankers to us or to third parties to finance the construction of subsequent product tankers. The acceleration of the tankers’ construction may require additional capital at certain periods of time during the construction period, as the overlapping vessels under construction but not yet sold will need to be financed simultaneously by the Joint Venture, at levels above current commitments.

Upon formation of the Joint Venture, Product Carriers assigned its rights and obligations with respect to the construction of the first five tankers to the Joint Venture Investors and we received an arrangement fee of $4.5 million. The Joint Venture has the right to elect to have rights and obligations under the NASSCO contract to construct up to four additional tankers assigned to the Joint Venture at specified times. NASSCO released Product Carriers from any obligation under the construction contract relating to the first five tankers and will release Product Carriers from any obligation under the construction contract relating to tankers six through nine to the extent the rights with respect to such tankers are also assigned to the Joint Venture. If the Joint Venture elects not to construct the last four tankers, Product Carriers would be obligated to obtain alternative financing for their construction or to transfer the shipyard slots. In such event, it is possible that Product Carriers will not be able to obtain the necessary financing on acceptable terms or at all. If Product Carriers is unable to obtain the financing for these four tankers, it is obligated to reimburse NASSCO for any damages incurred by NASSCO as a result of these tankers not being constructed, or if they are transferred to a third party at a loss to NASSCO, up to a maximum of $10.0 million (plus costs and expenses incurred by NASSCO) for each such tanker, with such amounts being funded solely out of monies received by Product Carriers in respect of its equity investment in the first five vessels constructed by the Joint Venture. In June 2008 the Partnership extended until September 21, 2008 the expiration date of the option for the Joint Venture Investors to elect to finance the construction of the sixth and seventh vessels to be constructed under the Partnership’s contract with NASSCO.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) Statement No. 157, “Fair Value Measurement,” (“FAS 157”) effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but simplifies and codifies related guidance within generally accepted accounting principles. FAS 157 applies under other accounting pronouncements that require or permit fair value measurements. Relative to FAS 157, the FASB issued FASB Staff Position (“FSP”) 157-2, which defers the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. We have adopted FAS 157 as of January 1, 2008 related to financial assets and financial liabilities. We are currently evaluating the impact of FAS 157 related to nonfinancial assets and nonfinancial liabilities on our financial statements.

In February 2007, the FASB issued FAS Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FAS Statement No. 115,” (“FAS 159”) effective as of the beginning of fiscal years beginning after November 15, 2007. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option:

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1. May be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method 2. Is irrevocable (unless a new election date occurs) 3. Is applied only to entire instruments and not to portions of instruments.

We have not elected fair value treatment for any financial instruments as of June 30, 2008.

In December 2007, the FASB issued FAS Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” effective as of the beginning of fiscal years beginning after December 15, 2008. This pronouncement, among other requirements, requires entities with noncontrolling interests to classify noncontrolling interests as components of equity. This pronouncement requires entities to be viewed for reporting purposes from an economic unit perspective rather than a controlling interest perspective. This pronouncement will impact our financial statement presentation for the 60% noncontrolling interest of our Joint Venture.

In December 2007, the FASB issued FAS Statement No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”), which replaces FAS 141, “Business Combinations.” FAS 141(R) retains the underlying concepts of FAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but FAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. FAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. FAS 141(R) amends FAS 109, “Income Taxes,” such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of FAS 141(R) would also apply the provisions of FAS 141(R). Early adoption is not allowed. We will evaluate the impact of this pronouncement on any future acquisitions.

In March 2008, the Emerging Issues Task Force reached a consensus on EITF 07-4, “Application of the Two-Class Method under FASB Statement No. 128, Earnings per Share, to Master Limited Partnerships.” EITF 07-4 requires master limited partnerships with incentive distribution rights (“IDRs”), to measure earnings per unit as it relates to IDRs consistent with the two-class method of measuring earnings per unit. This issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We are evaluating the impact of this pronouncement.

In March 2008, the FASB issued FAS Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133” (“FAS 161”). FAS 161 expands the current disclosure requirements of FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”), such that entities must now provide enhanced disclosures on a quarterly basis regarding how and why the entity uses derivatives, how derivatives and related hedged items are accounted for under FAS 133 and how derivatives and related hedged items affect the entity’s financial position, performance and cash flow. Pursuant to the transition provisions of the Statement, we will adopt FAS 161 in fiscal year 2009 and will present the required disclosures in the prescribed format on a prospective basis. This Statement will not impact our financial statements as it is disclosure-only in nature.

FORWARD-LOOKING STATEMENTS

Statements included in this report which are not historical facts (including statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward-looking statements. In addition, we may from time to time make other oral or written statements which are ~~also~~ forward-looking statements.

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Forward-looking statements appear in a number of places and include statements with respect to, among other things:

· forecasts of our ability to ~~make~~successfully ~~cash~~reorganize ~~distributions on our units~~ and toemerge ~~pay~~from ~~interest on, and principal of, our indebtedness~~bankruptcy; · our ability to remain in compliance with our debt agreements, including by amendment of the financial covenants contained therein; · our ability to maximize the use of our vessels; · planned capital expenditures and availability of capital resources to fund capital expenditures; · future supply of, and demand for, refined petroleum products; · potential reductions in the supply of tank vessels due to restrictions set forth by OPA 90 and increasingly stringent industry vetting standards used by our customers; · increases in domestic refined petroleum product consumption; · the likelihood of a repeal of, or a delay in the phase-out requirements for, single-hull vessels mandated by OPA 90; · our ability to enter into and maintain long-term relationships with major oil and chemical companies; · the absence of disputes with our customers; · expected financial flexibility to pursue acquisitions and other expansion opportunities; · our expected cost of complying with OPA 90 and our ability to finance such costs, including our ability to replace or retrofit our existing vessels that must be phased out under OPA 90; · our ability to acquire existing vessels and/or to construct new vessels, including our ability to finance such acquisitions or construction; · estimated future maintenance capital expenditures; · the absence of future labor disputes or other disturbances; · expected demand in the domestic tank vessel market in general and the demand for our tank vessels in particular; · expected increases in charter rates; · future consolidation in the domestic tank vessel industry; · customers’ increasing emphasis on environmental and safety concerns; · continued outsourcing of non-strategic functions, such as domestic tank vessel operations, by companies in the oil and chemical industries; · our percentage of “qualifying income,” as defined by the IRS; · our ability to maintain our “qualifying income” at levels sufficient to maintain our status as a “publicly-traded partnership;” · our future financial condition or results of operations and our future revenues, expenses and liquidity; ~~and~~ · our business strategy and other plans and objectives for future operations.;

These forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.36


	·	planned capital expenditures and availability of capital resources to fund capital expenditures;

	·	our ability to maximize the use of our vessels, particularly those trading in the spot market;

	·	expected demand in the domestic tank vessel market in general and the demand for our tank vessels in particular;

	·	increasing supply of newly built tank vessels;

	·	expected charter rates;

	·	our ability to enter into and maintain long-term relationships with major oil and chemical companies;

	·	future supply of, and demand for, refined petroleum products;

	·	increasingly stringent industry vetting standards used by our customers;

	·	increases in domestic refined petroleum product consumption;

	·	the likelihood of a repeal of, or a delay in the phase-out requirements for single-hull vessels mandated by, the Oil Pollution Act of 1990 (“OPA 90”);

	·	the absence of disputes with our customers; and

	·	our expected cost of complying with OPA 90 and our ability to finance such costs, including our ability to replace our existing vessels that must be phased out under OPA 90.

These forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs in light of our experience and our perception of historical trends, current conditions and expected future developments. Such forward looking information is subject to known and unknown risks and uncertainties which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such information. We caution that forward-looking statements are not guarantees.

Important factors that could cause our actual results of operations or our actual financial condition to differ include, but are not necessarily limited to:

· ~~insufficient~~the ~~cash~~time ~~from~~period ~~operations;~~required ~~· a decline in demand~~ for ~~refined~~us ~~petroleum,~~to ~~petrochemical~~reorganize and ~~commodity~~emerge ~~chemical~~from ~~products~~bankruptcy; · athe ~~decline~~terms inof ~~demand~~our ~~for~~reorganization; ~~overseas~~· ~~transportation~~insufficient ofcash ~~grain~~from ~~for~~operations; ~~humanitarian~~· ~~purposes~~our liquidity; · a decline in demand for orour tank vessels; · an increase in competitive tank vessel capacity; · ~~intense~~our ~~competition~~levels inof ~~the~~indebtedness ~~domestic~~and ~~tank~~our ~~vessel~~ability ~~industry~~to obtain credit on satisfactory terms; · ~~the~~our ~~occurrence~~ITBs ofremaining ~~marine~~eligible ~~accidents~~to orparticipate ~~other~~in ~~hazards~~the UWILD Program; · failure to comply with the ~~loss~~Merchant ofMarine ~~any~~Act of ~~our~~1920 ~~largest~~(the ~~customers~~“Jones Act”); · intense competition in the domestic tank vessel industry; · fluctuations in voyage charter rates; · the ~~availability~~effect of, ~~and~~ our ~~ability~~ceasing to ~~consummate,~~be ~~vessel~~the ~~acquisitions;~~manager ·of ~~insufficient~~the ~~funds~~vessels being constructed by the joint venture formed to finance the construction of ~~new~~up ~~vessels~~to wenine ~~are~~product ~~committed to construct~~tankers; · ~~delays~~a ordecline ~~cost overruns~~ in ~~the~~demand ~~construction~~for ofrefined ~~new~~petroleum, ~~vessels~~petrochemical orand ~~the~~commodity ~~retrofitting~~chemical ~~or modification of older vessels~~products;

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· ~~adverse events affecting~~ the ~~joint~~occurrence ~~venture formed to construct up to nine product tankers, including replacement~~ of usmarine asaccidents ~~manager of,~~ or ~~our~~other ~~loss~~hazards; of· ~~control of~~ the ~~board~~loss of ~~directors~~any of, ~~such joint venture; ·~~ our ~~levels~~largest ~~of indebtedness and our ability to obtain credit on satisfactory terms~~customers; · ~~our ability to amend our Senior Credit Facility on economically acceptable terms; ·~~ increases in interest rates~~, including as a result of amending our Senior Credit Facility~~; · ~~the effect of amending our Senior Credit Facility, including limitations imposed on our operations and adverse effects on our interest rate hedges due a change in interest rates; · our liquidity; ·~~ weather interference with our customers’ or our business operations; · ~~changes~~delays inor ~~international~~cost ~~trade~~overruns ~~agreements;~~in, ·or ~~our~~insufficient ~~ITBs~~funds ~~remaining eligible~~ to ~~participate~~finance, in the ~~UWILD~~construction ~~Program~~of new vessels; · ~~failure~~changes toin ~~comply~~international ~~with~~trade ~~the Merchant Marine Act of 1920 (the “Jones Act”)~~agreements; · modification or elimination of the Jones Act; and · adverse developments in our marine transportation business.

Please ~~read~~ read Risk Factors in Item 1A ~~in Part II~~ of ~~this report and in~~ our ~~Quarterly Report on Form 10-Q for the Quarter ended March 31, 2008, as well as in Item 1A of our~~ Annual Report on Form 10-K for the year ended December 31, ~~2007,~~2008 for a discussion of the factors that could cause our actual results of operations or our actual financial condition to differ from our expectations. Except as required by applicable securities laws, we do not intend to update these forward looking statements and information.

ITEM 3. Quantitative ~~and~~And Qualitative Disclosures ~~about~~About Market Risk

Our market risk is affected primarily by changes in interest rates. We are exposed to the impact of interest rate changes primarily through our variable-rate borrowings under our credit facility. Significant increases in interest rates could adversely affect our profit margins, results of operations and our ability to service our indebtedness. Based on our average variable interest rate and based on our outstanding debt balance for that portion of our debt outstanding ~~during~~that is not subject to the ~~six~~effects ~~months~~of ~~ended~~our ~~June~~hedge ~~30,~~contracts ~~2008,~~in place, a 1% change in our variable interest rates would have increased our interest expense by approximately $1.0 2 million for the ~~six~~three months ended ~~June~~March 3031, ~~2008, after taking into effect the~~ ~~interest rate swap agreements we had in effect as described below~~2009.

We ~~utilize~~utilized interest rate swaps to reduce our exposure to market risk from changes in interest rates. The principal objective of such contracts is to minimize the risks and/or costs associated with our variable rate debt. These derivative instruments ~~are~~were originally designated as hedges and, accordingly, the gains and losses from changes in derivative fair values are recognized as comprehensive income as required by FAS Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”, (“FAS 133”), as amended. Gains and losses ~~are~~ were recognized in the statement of operations in the same period that ~~the~~ the underlying cash flow impacts the statement of operations. As a result of the October 20, 2008 amendment to our senior credit facility, we determined that as of October 1, 2008, these contracts no longer met the hedge effectiveness requirements and, accordingly, discontinued the hedge accounting treatment. Any subsequent gains or losses due to change in fair value of the contracts beginning October 1, 2008 were recorded to earnings. The fair value of these contracts at September 30, 2008 is reflected in other comprehensive income in the accompanying financial statements. We are exposed to credit-related losses in the event of nonperformance by counterparties to these ~~financial~~ financial instruments;. ~~however,~~The ~~counterparties~~counterparty to ~~these~~one ~~agreements~~of ~~are~~the ~~major financial~~interest ~~institutions,~~rate ~~and~~swap ~~the~~covering ~~risk~~$97.8 million ofnotional ~~loss~~amount ~~due~~of toour ~~nonperformance~~debt is Lehman Brothers Special Financing, Inc., ~~considered~~which byhas ~~management~~filed tofor beprotection ~~minimal~~under the U.S. bankruptcy laws. We do not hold or issue interest rate swaps for trading purposes.

We had two interest rate swap agreements as of ~~June~~March 3031, ~~2008~~2009. The intent of these agreements is to reduce interest rate risk by swapping an unknown variable interest rate, three month LIBOR, reset quarterly, for a fixed rate. As of ~~June~~ 30March 31, ~~2008~~2009 the fair market values of our two interest rate swaps were a loss of $68.06 million and a loss $36.10 million.

~~- 49 -~~38

The following is a summary of the economic terms of these agreements at ~~June~~March 3031, ~~2008~~2009 (dollars in thousands):

Notional amount	$	~~122~~121,~~500~~875
Fixed rate paid		5.355	%
Variable rate received		21.~~801~~459	%
Effective date		8/15/2006
Expiration date		8/6/2012
Fair Value	($	58,~~998~~575	)
Notional amount	$	9897,~~000~~750
Fixed rate paid		4.899	%
Variable rate received		21.~~801~~459	%
Effective date		12/12/2006
Expiration date		8/6/2012
Fair Value	($	36,~~144~~028	)

WeImmediately ~~have~~following ~~entered~~our ~~into~~filing ~~contracts~~ for ~~the~~bankruptcy ~~purchase~~in ofApril ~~owner-furnished items relative to our newbuild ATB series~~2009, ~~denominated in Euros, costing approximately $14.4 million. To hedge~~ the ~~exposure~~counterparties to ~~foreign currency, we have entered into a~~these ~~series~~interest ~~of foreign currency forward contracts with an average exchange~~ rate ~~of $1.25~~swap ~~per~~agreements ~~Euro.~~elected Asto ofearly ~~June~~terminate ~~30, 2008~~ the ~~fair~~interest ~~value~~rate ~~of the foreign currency~~swap ~~hedge was approximately $0~~agreements.8 million. At June 30, 2008, a portion of these contracts were no longer designated as cash flow hedges, and the portion of the gain related to the undesignated contracts has been recognized in earnings currently.

The contracts to construct our ATBs with MMG and Eastern are primarily fixed; however, there is an escalator clause related to the price of steel and certain other equipment. The contract is priced utilizing a steel cost of $900/ton for steel plate and $1,100/ton for steel shape. The impact of an increase in steel prices of $100/ton would increase the cost of construction by $0.4 million per vessel.

Joint Venture Hedging

On February 27, 2007, the Joint Venture purchased a $100.0 million notional amount nine year interest rate cap effective April 1, 2007 for $1.9 million, including transaction fees. This interest rate cap of the three month U.S. Dollar LIBOR of 6% is part of a hedging strategy in place at the Joint Venture to protect ~~the~~ the value of its vessels and the chartering contracts thereon. Upon the ~~completion~~ completion of the construction of each vessel, the Joint Venture expects to sell the vessel together with any chartering contract that may be in place on ~~such~~ such vessel. Since the long-term chartering contracts entered into by the Joint Venture will result in a fixed stream of cash flows over a multi-year period, the value that the Joint Venture may be able to obtain upon the sale of the combined vessel and chartering contract is subject to volatility based upon how interest rates fluctuate. The Joint Venture is utilizing the interest rate cap to reduce the potential negative impacts to the Joint Venture’s cash flows that could result in movements in interest rates between the date a chartering contract is entered into for the first product tanker and the anticipated sale date of such combined vessel and chartering contract. The Joint Venture does not plan to hold or issue derivative financial instruments for trading purposes, but has not performed the activities necessary to qualify the contract for hedge accounting treatment under FAS 133, as amended. The fair market value of the interest rate cap at ~~June~~March 3031, ~~2008~~2009 was $21.30 million. Changes in the fair value of those instruments are reported in earnings.

The following is a summary of the economic terms of this agreement at ~~June~~March 3031, ~~2008~~ 2009 (dollars in thousands):

Notional amount	$	100,000
Interest rate cap		6.00	%
Effective date		4/1/2007
Expiration date		4/1/2016
Fair Value	$	~~2,296~~965

-ITEM 4. 50Controls And Procedures-

~~ITEM~~Evaluation 4.of Disclosure Controls and Procedures

In accordance with Securities Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of ~~the~~ the period covered by this report. Based on that evaluation, our Chief ~~Executive~~ Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June~~March 3031, ~~2008~~2009 to provide reasonable assurance that information required to be disclosed in ~~our~~the reports that ~~filed~~we file or ~~submitted~~ submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and such information is accumulated and communicated to management as appropriate to make timely decisions regarding required disclosures.

There has been no change in our internal control over financial reporting that occurred during the three months ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.39

-Changes 51in -Internal Control Over Financial Reporting

~~PART~~ There has ~~II—OTHER~~been no change in our internal control over financial reporting that ~~INFORMATION~~occurred during the three months ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION


ITEM 1.	Legal Proceedings

We are ~~subject~~a party to ~~various~~routine, marine-related claims, lawsuits and ~~lawsuits~~labor arbitrations arising in the ordinary course of business ~~for monetary relief, principally from personal injuries, collision or other casualty and to claims arising under vessel charters~~. ~~Although~~All ~~the outcome~~ of ~~any~~ ~~individual~~these ~~claim~~claims oragainst ~~action~~us ~~cannot be predicted with certainty, we believe~~are ~~that any adverse outcome, individually or in the aggregate, would be~~ substantially mitigated by ~~applicable~~ insurance ~~or indemnification from previous owners of our assets~~, ~~and would not have a material adverse effect on our financial position, results of operations or cash flows. We are~~ subject to deductibles ~~with~~ranging ~~respect to our insurance coverage which range~~ up to $0.152 million per ~~incident,~~claim. ~~and~~We we provide onfor aamounts ~~current~~we ~~basis~~expect ~~for~~to ~~estimated payments thereunder~~pay.

On July 10, 2009, the Partnership and its wholly-owned subsidiaries USS Product Carriers LLC (“Product Carriers”), Product Manager and USS PC Holding Corp. (collectively the “USS Entities”) entered into a settlement agreement with the Joint Venture Investors and the Joint Venture Lenders (such investors and lenders collectively the “Blackstone/Cerberus Entities”), to settle litigation relating to control of the operations of the Joint Venture. Under the terms of the settlement, which was approved by the Bankruptcy Court on July 17, 2009 and effective on July 28, 2009 (the “Effective Date”):


(i)	on the Effective Date Product Carriers transferred its Class B member interest to the Joint Venture Investors for one dollar and no longer has an interest in, or the right to act as managing member of, the Joint Venture;

(ii)	in consideration of the termination of Product Manager’s right to manage the operations of the Joint Venture:

		(a)	the Blackstone/Cerberus Entities will pay Product Manager an aggregate of $14 million, of which $9 million was paid on the Effective Date, $2.3 million will be paid 40 days after the orderly transition of management of the vessels from Product Manager to a replacement manager appointed by the Blackstone/Cerberus Entities, and $2.7 million will be paid in equal monthly installments through December 2010;

		(b)	the Joint Venture will pay to Product Manager 50% of the first $1 million of any cost savings received by the Joint Venture in respect of the three vessels still under construction if those vessels are delivered under the contracted cost; and

		(c)	the Joint Venture will pay to Product Manager 50% of the first $500,000 of any cost savings received by the Joint Venture in respect of the last vessel still under construction if that vessel is delivered under the contracted cost, provided that this amount will only be paid to the extent the cost savings were not used to pay the amount due under clause (ii)(b) above;

(iii)	the USS Entities have a right of first offer to purchase the Joint Venture’s vessels to the extent the Joint Venture determines to offer all or any portion of them for sale in the future, although the Joint Venture has no obligation to accept any offer;

(iv)	the contracts between the USS Entities or their affiliates and the Joint Venture are being terminated;

(v)	the USS Entities and the Blackstone/Cerberus Entities have exchanged broad, global releases; and

(vi)	on the Effective Date, all the litigation between the USS Entities and the Blackstone/Cerberus Entities was dismissed with prejudice.


ITEM 1A.	*Risk Factors*

~~The following information updates the risk factors set forth in Item 1A~~None. ~~of our Annual Report on Form 10-K for the year ended December 31, 2007 and Item 1A. of Part II of our Quarterly Report of Form 10-Q for the quarter ended March 31, 2008:~~

We may not have sufficient available cash to enable us to pay the minimum quarterly distribution following establishment of cash reserves and payment of fees and expenses, including payments to our general partner.

We may not have sufficient available cash each quarter to pay the minimum quarterly distribution. The amount of cash we can distribute on our common units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:

	· the level of consumption of refined petroleum, petrochemical and chemical products in the markets in which we operate;
	· the level of demand for overseas transportation of grain for humanitarian organizations;
	· the prices we obtain for our services;
	· the level of demand for our vessels;
	· the level of our operating costs, including payments to our general partner;
	· delays in the delivery of newbuilds and the resulting delay in receipt of revenue from those vessels;
	· the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business;
	· the level of unscheduled off-hire days and the timing of, and number of days required for, scheduled drydockings of our vessels; and
	· prevailing economic and competitive conditions.
In addition, the actual amount of cash we will have available for distribution each quarter will depend on other factors such as:
	· the level of capital expenditures we make, including for acquisitions, drydockings for repairs, repurposing or retrofitting of vessels to comply with OPA 90, newbuildings, and compliance with new regulations;
	· the restrictions contained in our debt instruments and our debt service requirements;
	· fluctuations in our working capital needs;
	· our ability to make working capital or other borrowings, including borrowings to pay distributions to unitholders; and
	· the amount of reserves, including reserves for future capital expenditures and other matters, established by our general partner.

- 52 -

The agreements governing our indebtedness prohibit us from paying distributions following a default, including without limitation any failure to satisfy the financial covenants in our credit agreement. In addition, the indenture under which our senior notes were issued provides that whenever our fixed charge coverage ratio (as defined in the indenture) is less than 1.75 to 1 for the last year, we cannot pay distributions that in aggregate during any period when our fixed charge coverage ratio is less than 1.75 to 1 an amount in excess of $50.0 million plus the proceeds of certain equity issuances. The minimum quarterly distributions we have historically paid on our common units (excluding our subordinated and general partner units) are $5.1 million. Accordingly, we will be prohibited by the indenture from paying distributions, except out of proceeds of certain equity issuances, if our fixed charge coverage ratio is less that 1.75 to 1 for more than nine quarters (five quarters if the minimum quarterly distributions on our subordinated and general partner units are also paid).

We are facing difficult current market conditions. Demand in the spot market, where five of our six ITBs are currently operated, deteriorated significantly beginning in late March 2008 due to overall declining economic activity and decreased demand for the domestic coastwise transportation of petroleum products. Refinery utilization has declined significantly, fuel prices for operating our vessels are at record levels and increased industry capacity from newbuilds has created significant competitive pressures. Due to these market shifts, our ITBs have recently incurred idle periods greater than, and chartering rates below, our expectations at the beginning of 2008. Additionally, during the first half of 2008, we have observed modest decreased demand for the domestic coastwise transportation of chemical products served by our chemical transporting vessels, which we believe was due to our customers working off inventory levels.

As a result, our earnings before interest, taxes and depreciation and amortization (“EBITDA”) and liquidity have come under increasing pressure due to the current difficult market conditions, which has significantly increased the likelihood that we will not be able to remain in compliance with certain financial ratio covenants under our senior credit facility as early as the end of the third quarter. If we are not in compliance with our financial covenants, our lenders have a number of remedies, including declaring all outstanding borrowings to be immediately due and payable and refusing to make funds available under the revolving credit facility. In addition, we would be prohibited from making distributions on our common units until we are again in compliance, although any unpaid distributions will continue to accrue on the common units. In addition, the lenders under the senior credit facility could prohibit us from paying interest on the senior notes. Our lenders’ right to demand immediate payment of our outstanding indebtedness upon the occurrence of a default under the Senior Credit Facility, coupled with a substantial doubt about our ability to repay this indebtedness immediately and accordingly in such circumstances to continue as a going concern, leads to the need to successfully renegotiate our existing, or secure alternative, financing arrangements. There can be no assurance that we will be successful in renegotiating our existing, or securing alternative financing arrangements.

If the Joint Venture elects not to construct the remaining four tankers, Product Carriers will be obligated to arrange financing for the construction of the tankers or assign the contract to a third party. If we provide capital to Product Carriers for such purpose, this will limit the cash we have available to make quarterly distributions on the units. Our ability to provide capital to Product Carriers and, therefore, the Joint Venture will be limited to an extent by our debt agreements.

- 53 -

We are dependent on our cash flow and borrowings under our revolving credit facility to meet our operating debt service and working capital requirements.

We are dependent on our cash flow from operations and borrowing under our revolving credit facility to meet our operating debt service and working capital requirements. Our cash flow from operations has come under increasing pressure due to the current market conditions. In addition, participation in the spot market requires us to carry higher amounts of working capital, as under spot charters fuel costs are our responsibility and are paid at the time fuel is delivered, and not realized economically until payment is made to USS by the customer. Additionally, payment generally occurs at the completion of a voyage, compared to time charters, where payment is generally made by the customer at the beginning of a fixed period of time, such as a month. In addition, grain voyages, where we are paid following the grain voyage reaching its final destination, tend to be substantially longer in duration than refined petroleum product voyages. As we add two additional vessels in 2008 and our ITBs participate more in the spot market, USS expects its working capital requirements to increase. We have limited availability under our credit facility to finance this increase in working capital requirements, and there can be no assurance that our lenders under the revolving credit facility will make advances to us when requested. Our ability to pay the August 15, 2008 interest payment of $6.5 million on the senior notes will depend in part on our ability to borrow under our revolving credit facility.

An increase in the price of fuel has adversely affected our business and results of operations.

The cost of fuel for our vessels is a significant component of our voyage expenses under our voyage charters, and we have recently experienced significant increases in the cost of fuel used in our operations. While we have been able to pass a portion of these increases on to our customers pursuant to the terms of our charters, there can be no assurances that we will be able to pass on any future increases in fuel prices. The overall decrease in demand for waterborne transportation of petroleum, petro-chemical and chemical products has made it more difficult for us to pass on to our customers the significant increase in fuel prices we have recently experienced while remaining competitive on charter rates with our competitors. Our fuel costs for the six months ended June 30, 2008 (excluding fuel costs for the ATB Freeport) increased $6.2 million over our fuel costs in the first half of 2007, of which only $3.2 million was covered by fuel surcharges. If fuel prices continue to increase and we are not able to pass such increases on to our customers, our business, results of operations, financial condition and ability to make cash distributions and to pay interest on, and principal of, our indebtedness may be adversely affected.

Our results of operations are dependent in part on grain voyages, which have different characteristics than our historical voyages and make a comparison of our present results with our prior results less meaningful. We have limited experience in grain voyages, which are subject to risks that differ from the risks of transportation of refined petroleum, petrochemical and commodity chemical products. In addition, there can be no assurance these grain voyages will continue.

During 2008 we have been successful in employing three of our ITBs that might otherwise have been idle in the overseas transportation of grain for humanitarian organizations. These voyages have different characteristics than our transportation of refined petroleum products, including longer voyages, voyages overseas and different revenue and expense recognition policies. These different characteristics make a comparison of our present results with our prior results less meaningful. In addition, we do not have any long-term contracts to transport grain and there can be no assurance that we will be able to continue to obtain these grain voyages, either due to increased competition or reduced demand. The grain voyages are financed by the U.S. government and are subject to annual budget appropriations and, therefore, subject to the vagaries that surround annual governmental appropriations.

We have limited experience in grain voyages, which are subject to risks that differ from the risks of transportation of refined petroleum, petrochemical and commodity chemical products. These risks include, among others, travel overseas, reliance on third parties to load and unload grain, and delivery of grain to countries that have not always had stable relationships with the United States.

Furthermore, to the extent more of our activities involve the transportation of products that do not generate “qualifying income,” it will be more difficult for us to insure that at least 90% of our revenue is “qualifying income.” If less than 90% of our revenue is “qualifying income,” we will be taxed as a corporation rather than a partnership, which may result in a significant reduction in the amount of cash available for distribution to unitholders.

- 54 -

Our general partner and its affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to the detriment of our unitholders.

United States Shipping Master LLC (“Shipping Master”) currently indirectly owns the 2% general partner interest and directly owns an approximately 37% limited partner interest in us and owns and controls our general partner. Conflicts of interest may arise between our general partner and its affiliates, on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders, including in connection with any strategic alternative undertaken by us. These conflicts include, among others, the following situations:

· our general partner is allowed to take into account the interests of parties other than us, such as our affiliates, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders; · our general partner has limited its liability and reduced its fiduciary duties under Delaware law and has also restricted the remedies available to our unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty and, by purchasing common units, unitholders will be deemed to have consented to some actions and conflicts of interest that might otherwise constitute a breach of fiduciary or other duties under applicable law; · our general partner determines the amount and timing of asset purchases and sales, capital expenditures (including, based on the applicable facts and circumstances, whether a capital expenditure is classified as a maintenance capital expenditure, which reduces basic surplus, or an expansion capital expenditure, which does not reduce basic surplus), borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available for distribution to our unitholders and to pay interest on, and principal of, our indebtedness; · in some instances, our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units or to make incentive distributions; · our general partner determines which costs incurred by it and its affiliates are reimbursable by us; · our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered on terms that are fair and reasonable to us or entering into additional contractual arrangements with any of these entities on our behalf; · our general partner controls the enforcement of obligations owed to us by it and its affiliates; and · our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

Our partnership agreement limits our general partner’s fiduciary duties to unitholders and restricts the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement:

· permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner or unitholder. Decisions made by our general partner in its individual capacity will be made by its sole owner, Shipping Master, and not by the board of directors of our general partner. Examples include the exercise of its limited call right, its rights to transfer or vote the units it owns and its determination whether or not to consent to any merger or consolidation of the Partnership or amendment of the partnership agreement; · provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as general partner so long as it acted in “good faith,” meaning that it reasonably believed that the decision is in our best interests; · generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable,” our general partner may consider the totality of the relationships between the parties involved, including other transactions that may not be particularly advantageous or beneficial to us;

- 55 -

· provides that in resolving conflicts of interest, it will be presumed that in making its decision the general partner or its conflicts committee acted in good faith, and in any proceeding brought by or on behalf of any limited partner or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption; and · provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or engaged in fraud, willful misconduct or gross negligence.

We have subsidiaries that are treated as corporations for federal income tax purposes and subject to corporate-level income taxes.

We attempt to maintain the required level of qualifying income by conducting the operations of our vessels the Chemical Pioneer, the ATB Freeport, the ITB Philadelphia, the ITB Groton, the ITB Jacksonville, the ITB Baltimore, the ITB New York and the Sea Venture through subsidiaries that are taxed as corporations. The operation of these vessels in subsidiaries taxed as corporations generally reduces the amount of cash available for payment of distributions on our units and the payment of principal of, and interest on, our outstanding debt. Due to the reduced demand in the spot market for transportation of refined petroleum products, we have employed more of our ITBs in the transportation of products that do not generate “qualifying income,” thereby requiring us to operate five of our six ITBs through subsidiaries taxed as corporations in order to remain in compliance with the “qualifying income” test necessary to retain our status as a publicly-traded master limited partnership. We may elect to, or be required to, conduct additional operations through these or other corporate subsidiaries in the future. We may be required to place other of our vessels, including one or more of our ATB units under construction, in subsidiaries taxed as corporations. In addition, we have three other subsidiaries organized as corporations: U.S. Shipping Finance Corp., which is co-issuer of our senior notes, USS PC Holding Corp. and USS JV Manager, Inc. USS JV Manager, Inc. receives management and other fees from the Joint Venture. These corporate subsidiaries are subject to corporate-level tax, which may reduce the cash available for distribution to unitholders. If the IRS were to successfully assert that these corporations have more tax liability than we anticipate, or legislation was enacted that increased the corporate tax rate, our cash available for distribution to unitholders would be further reduced.

To the extent more of our activities involve the transportation of products that do not generate “qualifying income,” it will be more difficult for us to insure that at least 90% of our revenue is “qualifying income.” If less than 90% of our revenue is “qualifying income,” we will be taxed as a corporation rather than a partnership, which may result in a significant reduction in the amount of cash available for distribution to unitholders. We may be required, or may elect, in the future to be taxed as a corporation rather than a partnership, which could have adverse tax consequences for some or all of our partners.


ITEM 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

~~On April 1, 2007, we issued to each of Messrs~~None. ~~Ganz, Kearns, Luterman and O’Kelley 3,065 common units under our Long-Term Incentive Plan.~~


ITEM 3.	*Defaults Upon Senior Securities*

~~Not~~Pursuant to ~~applicable~~forbearance agreements entered into with a majority-in-interest of the lenders under the Senior Credit Facility, we did not make the December31, 2008 and March 31, 2009 principal and interest payments due under the Senior Credit Facility. In addition, we were in default under certain financial covenants in the Senior Credit Facility.

The Partnership did not make the $6.5 million interest payment due on February 15, 2009 in respect of its Second Lien Notes. Under the terms of the indenture governing the Second Lien Notes, the Partnership had a grace period of 30 days from the payment due date with respect to the interest payment before the nonpayment became an event of default under the indenture. In February 2009, holders of $91.3 million of the Second Lien Notes, representing 91.3% of the Second Lien Notes, delivered letters to the Partnership waiving their February 15, 2009 interest payment on the Second Lien Notes, and all future interest payments on the Second Lien Notes, until the earlier of six months following repayment in full of all amounts outstanding under the senior credit facility and the Partnership seeking bankruptcy protection. On March 17, 2009, the Partnership provided $0.6 million to the Trustee to pay the interest due on the $8.7 million principal amount of Second Lien Notes for which the February 15, 2009 interest payment was not waived.

As a result of our bankruptcy filing, all amounts due under our Senior Credit Facility and in respect of the Second Lien Notes became immediately due and payable.


ITEM 4.	*Submission of Matters to a Vote of Security Holders*

None.

- 56 -


ITEM 5.	*Other Information*

~~On August~~First 8,Amended ~~2008,~~Joint ~~Ronald~~Plan ~~L. O’Kelley, a director~~ of the general partner of the Partnership, was elected President & Chief Executive Officer of the Partnership. Mr. Paul Gridley, who has served as the Partnership’s chairman and chief executive officer, has relinquished his role as Chief Executive Officer, although he will remain as Chairman of the Board of Directors. Reorganization

~~Compensation arrangements~~On ~~for~~August ~~Mr.~~6, ~~O’Kelley are being finalized. In addition~~2009, the ~~Compensation~~Company ~~Committee~~filed ofits ~~the~~First ~~Board~~Amended ofJoint ~~Directors~~Plan isof ~~developing~~Reorganization anwith ~~incentive~~the Bankruptcy ~~compensation~~Court ~~plan~~(the ~~for Mr~~“Plan”). ~~O’Kelley.~~Under the Plan:

Ronald L. O’Kelley joined the board of directors of our general partner in October 2004. Mr. O’Kelley is chairman and chief executive officer of Atlantic Coast Venture Investments Inc., a private investment company. Mr. O’Kelley served as executive vice president, chief financial officer and treasurer of State Street Corporation from 1995 to 2002, as chief financial officer at Douglas Aircraft Company from 1991 to 1995 and as chief financial officer at Rolls Royce Inc. from 1983 to 1991. He served in senior financial positions at Citicorp from 1975 to 1983 and at Texas Instruments Incorporated from 1969 to 1975. Mr. O’Kelley is a director of Selective Insurance Group, Inc. Mr. O’Kelley serves as an advisor to the Donald Jones Center for Entrepreneurship at the Tepper School of Business and is a member of the National Association of Corporate Directors. Compensation arrangements for Mr. O’Kelley are being finalized.


·	The Senior Secured Lenders will receive:

	(i)	new senior secured term notes issued by reorganized USSP (“Reorganized USSP”) in an aggregate principal amount equal to $240 million and guaranteed by the other reorganized debtors. The senior secured term notes will:

		(A)	be secured by a first priority lien on substantially all of the assets of the reorganized debtors;

		(B)	require quarterly mandatory prepayment from excess cash flow (as defined in the Plan) once the reorganized debtors have achieved a $25 million cash balance in the first year following the Company’s emergence from bankruptcy and a $20 million (subject to adjustment under certain circumstances) cash balance thereafter;

		(C)	amortize at the annual rate of 1% of the aggregate amount of the new senior secured term notes beginning in the first full year following the Company’s emergence from bankruptcy;

		(D)	have a final maturity date of August 7, 2013;

		(E)	bear interest at a rate of LIBOR plus 7.20%, subject to a 2% LIBOR floor; and

		(F)	be subject to certain customary covenants, including without limitation an interest coverage test (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage ratio to be determined (but consistent with the interest coverage test and the projections provided by the Partnership to the Senior Secured Lenders).

	(ii)	new junior secured term notes issued by Reorganized USSP in an aggregate principal amount equal to $60 million and guaranteed by the other reorganized debtors. The junior secured term notes will:

		(A)	be secured by a second priority lien on substantially all of the assets of the reorganized debtors;


		(B)	require, after the senior secured term notes are repaid in full, quarterly mandatory prepayment from excess cash flow (as defined in the Plan once the reorganized debtors have achieved a $25 million cash balance in the first year following the Company’s emergence from bankruptcy and a $20 million (subject to adjustment under certain circumstances) cash balance thereafter;

		(C)	amortize, after the senior secured term notes are repaid in full, at the annual rate of 1% of the aggregate amount of the new junior secured term notes;

		(D)	have a final maturity date of August 7, 2013;

		(E)	bear interest at a rate of LIBOR plus 0.50%, subject to a 2% LIBOR floor; and

		(F)	be subject to certain customary covenants, including without limitation an interest coverage test (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage ratio to be determined (but consistent with the interest coverage test and the projections provided by the Partnership to the Senior Secured Lenders).

	(iii)	all of Reorganized USSP’s Class A Common Stock, representing fifty percent (50%) of Reorganized USSP’s common stock on a fully diluted basis before giving effect to the Class B Common Stock to be issued pursuant to a management equity plan described below, provided that Senior Secured Lenders that are not U.S. Citizens for U.S. Coastwise Trade Law purposes will receive a combination of Class A Common Stock and warrants to purchase Class A Common Stock (“Class A Warrants”).

·	The holders of the Second Lien Notes will receive shares of Class B Common Stock representing, on a fully diluted basis, fifty percent (50%) of the common stock of Reorganized USSP, before giving effect to the Class B Common Stock to be issued pursuant to a management equity plan described below, provided that holders of the Second Lien Notes that are not U.S. Citizens for U.S. Coastwise Trade Law purposes will receive a combination of Class B Common Stock and warrants to purchase Class B Common Stock. The Second Lien Notes will be cancelled.

·	The Class A Common Stock and the Class B Common Stock will have the same ownership and voting rights, provided that dividends and other distributions declared in respect of Reorganized USSP’s common stock will first be distributed in respect of the Class A Common Stock in an amount equal to, in aggregate, approximately $54 million (dependent on the termination value of our interest rate swaps)), the unpaid portion of which will increase by four percent (4%) per year (non-compounded) (the “Priority Distribution Amount”). The Class A Warrants will provide that in the event Reorganized USSP makes a distribution to holders of Class A Common Stock in respect of the Priority Distribution Amount, each holder of such Class A Warrant will receive a cash payment equal to the amount it would have received had it exercised its Class A Warrant immediately prior to such distribution being made and owned Class A Common Stock as the time such distribution was being made.

·	In no event will persons who are not U.S. Citizens for U.S. Coastwise Trade Law be issued common stock of Reorganized USSP representing in aggregate more than 23% of the common stock to be outstanding on the date the Company emerges from bankruptcy.

Filing Compare · U.S. Shipping Partners L.P.