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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June 30, 2009ORo

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


Commission file number 001-31920

K-SEA TRANSPORTATION PARTNERS L.P.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction
of incorporation or organization)

20-0194477(I.R.S. Employer
Identification No.)One Tower Center Boulevard, 17th Floor
East Brunswick, New Jersey 08816(Address of principal executive offices and zip code)(732) 565-3818(Registrant's telephone number, including area code)


Securities
registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registeredCommon Units

New York Stock Exchange


Securities
registered pursuant to section 12(g) of the Act:None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o    No ý

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 ý    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.

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


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

The aggregate market value of the registrant's Common Units held by non-affiliates of the registrant was approximately $147.4 million as of
December 31, 2008 based on $12.90 per Common Unit, the closing price of the Common Units on the New York Stock Exchange on such date.

At
September 14, 2009, 19,087,983 Common Units were outstanding.

Documents
Incorporated by Reference:None



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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

2009 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS



PAGEPART IITEMS 1 and 2.

BUSINESS AND PROPERTIES

1ITEM 1A

RISK FACTORS

21ITEM 1B

UNRESOLVED STAFF COMMENTS

39ITEM 3.

LEGAL PROCEEDINGS

39ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

40PART IIITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SECURITYHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

41ITEM 6.

SELECTED FINANCIAL DATA

43ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

45ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

71ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

72ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

72ITEM 9A.

CONTROLS AND PROCEDURES

72ITEM 9B.

OTHER INFORMATION

72PART IIIITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

73ITEM 11.

EXECUTIVE COMPENSATION

77ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITYHOLDER MATTERS

87ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

91ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

94PART IVITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

95


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FORWARD-LOOKING STATEMENTS

Statements included in this report that are not historical facts are forward-looking statements. In addition, we may from time to time
make other oral or written statements that are also forward-looking statements. Forward-looking statements may include words such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," "should" and other words and terms of similar meaning.

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



These
forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events and, therefore, involve a
number of risks and uncertainties. Forward-looking statements are not guarantees and actual results could differ materially from those expressed or implied in the forward-looking statements. Please
read "Item 1A. Risk Factors" for a list of important factors that could cause our actual results of operations or financial condition to differ from our expectations.

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PART I

ITEMS 1 and 2.    BUSINESS and PROPERTIES.

Our Partnership

We are a leading provider of marine transportation, distribution and logistics services for refined petroleum products in the United
States. As of September 1, 2009, we operated a fleet of 69 tank barges and 66 tugboats that serves a wide range of customers, including major oil companies, oil traders and refiners. With
approximately 4.1 million barrels of capacity, we believe we operate the largest coastwise tank barge fleet in the United States.

For
the fiscal year ended June 30, 2009, our fleet transported approximately 150 million barrels of refined petroleum products for our customers, including BP,
ConocoPhillips, ExxonMobil and Tesoro. These four customers have been doing business with us for approximately 18 years on average. We do not assume ownership of any of the products we
transport. During fiscal 2009, we derived approximately 80% of our revenue from longer-term contracts that are generally for periods of one year or more.

We
believe we have a high-quality, well-maintained fleet. As of September 1, 2009, approximately 83% of our barrel-carrying capacity was double-hulled.
Furthermore, we will be permitted to continue to operate our single-hull tank vessels until January 1, 2015 in compliance with the Oil Pollution Act of 1990, or OPA 90, which
mandates the phase-out of all single-hull tank vessels transporting petroleum and petroleum products in U.S. waters. As of September 1, 2009, all of our tank vessels,
except two, operated under the U.S. flag, and all but three were qualified to transport cargo between U.S. ports under the Jones Act, the federal statutes that restrict foreign owners from operating
in the U.S. maritime transportation industry.

Our
strategy to expand our business and increase our distributable cash flow includes the expansion of our fleet through the building of new equipment and strategic acquisitions. On
August 14, 2007, we acquired all of the equity interests in Smith Maritime, Ltd., Go Big Chartering, LLC, and Sirius Maritime, LLC, which we refer to collectively as the
"Smith Maritime Group". The Smith Maritime Group provides marine transportation and logistics services to major oil companies, oil traders and refiners in Hawaii and along the West Coast of the United
States. On a combined basis, the petroleum transportation operations of these companies added 11 petroleum tank barges and 14 tugboats to our fleet, aggregating 777,000 barrels of capacity, of which
669,000 barrels, or 86%, are double-hulled. The aggregate purchase price for the Smith Maritime Group was $203.7 million, comprising $168.9 million in cash, $23.5 million in
assumed debt, and common units representing limited partner interests valued at $11.3 million.

On
October 18, 2005, we acquired all of the membership interests in Sea Coast Transportation LLC, or Sea Coast, from Marine Resources Group, Inc., or MRG. Also on
October 18, 2005, Sea Coast acquired four tugboats from MRG. Sea Coast is a provider of marine transportation and logistics services to major oil companies, oil traders and refiners along the
West Coast of the United States and Alaska.
The aggregate purchase price for Sea Coast and the four tugboats was $82.4 million, comprising $78.0 million in cash and common units representing limited partner interests valued at
$4.4 million.

We
also have grown our fleet through acquisitions of individual vessels and through a robust vessel newbuilding program. Since our initial public offering in January 2004, we have
purchased or retrofitted six existing double-hulled tank barges, with aggregate capacity of 634,000 barrels. Also since our initial public offering we have taken delivery of fourteen newly built
double-hulled tank barges with aggregate capacity of 770,000 barrels, and we have entered into agreements with shipyards to construct two more double-hulled tank barges with an aggregate capacity of
285,000 barrels, including an 185,000 barrel articulated tug-barge unit. Both of our newbuild vessels are scheduled to be delivered by the end of fiscal 2010. These vessels are expected to
cost, in the aggregate and after the addition of certain special

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equipment,
approximately $101.0 million. We expect to finance construction of these new vessels with borrowings, proceeds from equity offerings and cash from operations. In addition we have
entered into an agreement with a shipyard to lease two more double hulled tank barges with an aggregate capacity of 100,000 barrels, one of which is scheduled to be delivered in the third fiscal 2010
quarter and the other in the third fiscal 2011 quarter. In June 2008, we purchased eight tugboats from Roehrig Maritime for $41.5 million in cash. These tugboats have reduced our outside towing
costs or are chartered out under existing contracts; additionally, they will also provide sufficient power for our newbuild barges to be delivered by the end of 2010. To enhance productivity and
reduce reliance on chartered-in towing, we also purchased three additional tugboats during fiscal 2008 at a total cost of approximately $9.8 million.

Our
primary business objective is to increase distributable cash flow to unitholders by executing the following strategies:



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We
are a publicly traded Delaware limited partnership. Our business activities are conducted through our subsidiary, K-Sea Operating Partnership L.P., a Delaware
limited partnership which we refer to as the operating partnership, and the subsidiaries of the operating partnership. Our general partner, K-Sea General Partner L.P., is a Delaware
limited partnership whose general partner is K-Sea General Partner GP LLC, a Delaware limited liability company. K-Sea General Partner GP LLC has
ultimate responsibility for managing our business.

Our
principal executive office is located at One Tower Center Boulevard, 17th Floor, East Brunswick, New Jersey 08816, and our telephone number at that address is
(732) 565-3818.

Our Industry

Introduction

Tank vessels, which include tank barges and tankers, are a critical link in the refined petroleum product distribution chain. Tank
vessels transport gasoline, diesel fuel, heating oil, asphalt and other products from refineries and storage facilities to a variety of destinations, including other refineries, distribution
terminals, power plants and ships.

Among
the laws governing the domestic tank vessel industry is the one commonly referred to as the Jones Act, the federal statute that restricts foreign competition in the U.S. maritime
transportation industry. Under the Jones Act, marine transportation of cargo between points in the United States, generally known as U.S. coastwise trade, is limited to U.S.-flag vessels
that were built in the United States and are owned, manned and operated by U.S. citizens. As of September 1, 2009, all of our tank vessels, except two, operated under the U.S. flag, and all but
three were qualified to transport cargo between U.S. ports under the Jones Act.

OPA
90 mandates, among other things, the phase-out of all single-hull tank vessels transporting petroleum and petroleum products in U.S. waters at varying times
by January 1, 2015. The effect of this legislation has been, and is expected to continue to be, the replacement of domestic single-hulled tank vessel capacity with double-hulled newbuildings
and retrofitting of existing single-hulled tank vessels.

The
demand for domestic tank vessels is driven primarily by U.S. demand for refined petroleum products, which can be categorized as either clean oil products or black oil products. Clean
oil products include motor gasoline, diesel fuel, heating oil, jet fuel and kerosene. Black oil products, which are what remain after clean oil products have been separated from crude oil, include
residual fuel oil in the refining process, asphalt, petrochemical feedstocks and bunker fuel. The demand for clean oil products is impacted by vehicle usage, air travel and prevailing weather
conditions, while demand for black oil products varies depending on the type of product transported and other factors, such as oil refinery requirements and turnarounds, asphalt use, the use of
residual fuel oil by electric utilities and bunker fuel consumption.

Transportation of Refined Petroleum Products

Refined petroleum products are transported by pipelines, water carriers, motor carriers and railroads. Tank vessels are used frequently
to continue the transportation of refined petroleum products along the distribution chain after these products have first been transported by another method of transportation, such as a pipeline. For
example, many areas have access to refined petroleum products only by using marine transportation as the last link in their distribution chain. In addition, tank vessel transportation is generally a
more cost-effective and energy-efficient means of transporting bulk commodities such as refined petroleum products than transportation by rail car or truck. The carrying capacity of a
100,000-barrel tank barge is the equivalent of approximately 162 average-size rail tank cars and approximately 439 average-size tractor trailer tank trucks.

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Types of Tank Vessels

The domestic tank vessel fleet consists of tankers, which have internal propulsion systems, and tank barges, which do not have internal
propulsion systems and are instead pushed or towed by a tugboat. Tank barges generally move at slower speeds than comparably sized tankers, but are less expensive to build and operate. Although tank
barge configuration varies, the bow and stern of most tank barges are square or sloped, with the stern of many tank barges having a notch of varying depth to permit pushing by a tugboat. While a
larger tank vessel may be able to carry more cargo, some voyages require a tank vessel to go through a lock, bridge opening or narrow waterway, which limit the size of vessels that may be used. In
addition, some loading and discharge facilities have physical limitations that prevent larger tank vessels from loading or discharging their cargo. Tank barges
are often able to navigate the shallower waters of the inland waterway system and the waters along the coast. Tankers, however, are often confined to the deeper waters offshore due to their size.

Tank
vessels can be categorized by:



Tank
vessels can also be categorized into the following fleets based on the primary waterway system typically navigated by the vessel:



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Tugboats

Tugboats are equipped to push, pull or tow tank barges alongside. The amount of horsepower required to handle a barge depends on a
number of factors, including the size of the barge, the amount of product loaded, weather conditions and the waterways navigated. A typical tugboat is manned by six people: a captain, a mate, an
engineer, an assistant engineer and two deckhands. These individuals perform the duties and tasks required to operate the tugboat, such as standing navigational watches, maintaining and repairing
machinery, rigging and line-handling, and painting and other routine maintenance. A standard work schedule for a tugboat crew is 14 days on, 14 days off. While on duty, the
crew members generally work two six-hour shifts each day.

Integrated Tug-Barge Units

Tugboats can also be integrated into a barge utilizing a notching system that connects the two vessels. An integrated
tug-barge unit, or ITB, has certain advantages over other tug-barge combinations, including higher speed and better maneuverability. In addition, an ITB can operate in certain
sea and weather conditions in which conventional tug-barge combinations cannot.

Articulated Tug-Barge Units

An articulated tug barge unit, or ATB, similar to ITBs, consist of a tugboat (which provides propulsion) and a cargo carrying barge
using a coupling system that connects the two vessels. Unlike the rigid connection found on ITBs, an ATB uses a hinged connection. ATBs offer the additional advantage of substitutability, because the
barge and tug may be decoupled. This offers operational and commercial flexibility, allowing the barge unit to be towed by a third party tug in certain situations.

Our Customers

We provide marine transportation services primarily to major oil companies, oil traders and refiners in the East, West and Gulf Coast
regions of the United States, including Alaska and Hawaii. We monitor the supply and distribution patterns of our actual and prospective customers and focus our efforts on providing services that are
responsive to the current and future needs of these customers.

The
following chart sets forth our major customers and the number of years each of them has been a customer:

K-Sea Transportation Partners L.P.
Major Customers

Major Customers

Years as
CustomerBP


36ConocoPhillips


13ExxonMobil


13Tesoro


11


Our
two largest customers in fiscal 2009, based on gross revenue, were ConocoPhillips and Tesoro, each of which accounted for more than 10% of our fiscal 2009 consolidated revenue.

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Our Vessels

Tank Vessel Fleet

At September 1, 2009, our fleet consisted of the following tank vessels:

K-Sea Transportation Partners L.P. Tank Vessel Fleet

Vessel(1)

Year
Built

Capacity
(barrels)

Gross
Tons

OPA 90
Phase-OutDouble-Hull BargesDBL 155(2)


2004


165,882


12,152


N.A.DBL 151


1981


150,000


8,710


N.A.DBL 140


2000


140,000


10,303


N.A.DBL 134(3)


1994


134,000


9,514


N.A.DBL 105(4)(7)


2004


105,000


11,438


N.A.DBL 101


2002


102,000


6,774


N.A.DBL 102


2004


102,000


6,774


N.A.DBL 103


2006


102,000


6,774


N.A.DBL 104


2007


102,000


6,774


N.A.Lemon Creek(5)


1987


89,293


5,736


N.A.Spring Creek(5)(8)


1987


89,293


5,736


N.A.Nale


2007


86,000


6,508


N.A.McCleary's Spirit(6)(8)


2001


85,000


6,554


N.A.Antares


2004


84,000


5,855


N.A.Deneb


2006


84,000


5,855


N.A.DBL 81


2003


82,000


5,667


N.A.DBL 82


2003


82,000


5,667


N.A.Capella(7)


2002


81,751


5,159


N.A.Leo


2003


81,540


5,954


N.A.Pacific


1993


81,000


5,669


N.A.Rigel


1993


80,861


5,669


N.A.Sasanoa


2001


81,000


5,790


N.A.DBL 78


2000


80,000


5,559


N.A.DBL 77(7)


2008


80,000


5,235


N.A.DBL 76(7)


2008


80,000


5,813


N.A.DBL 79(7)


2008


80,000


6,149


N.A.DBL 70


1972


73,024


5,248


N.A.Kays Point(7)


1999


67,000


4,720


N.A.Noa


2002


67,000


4,826


N.A.Cascades(7)


1993


67,000


4,721


N.A.Columbia(7)


1993


58,000


4,286


N.A.Na-Kao


2005


52,000


4,076


N.A.Ne'ena


2004


52,000


4,076


N.A.DBL 53


1965


53,000


4,543


N.A.DBL 31


1999


30,000


2,146


N.A.DBL 32


1999


30,000


2,146


N.A.DBL 28


2006


28,000


2,146


N.A.DBL 29


2006


28,000


2,146


N.A.DBL 26


2006


28,000


2,146


N.A.DBL 27


2007


28,000


2,146


N.A.DBL 22


2007


28,000


2,146


N.A.DBL 23


2007


28,000


2,146


N.A.


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Vessel(1)

Year
Built

Capacity
(barrels)

Gross
Tons

OPA 90
Phase-OutDBL 24(7)


2007


28,000


2,146


N.A.DBL 25(7)


2007


28,000


2,146


N.A.Puget Sounder


1992


25,000


1,870


N.A.DBL 2202


1962


22,000


1,830


N.A.DBL 20


1991


20,127


1,480


N.A.DBL 16


1954


20,000


1,420


N.A.DBL 17


1998


18,000


1,499


N.A.DBL 18


1998


18,000


1,499


N.A.DBL 19


1998


18,000


1,499


N.A.DBL 10


1998


10,000


806


N.A.Subtotal





3,434,771


247,647




Vessel(1)

Year
Built

Capacity
(barrels)

Gross
Tons

OPA 90
Phase-OutSingle-Hull BargesKTC 80


1981


82,878


4,576


2015SCT 340


1983


75,000


4,395


2015Noho Hele


1982


67,880


4,185


2015KTC 60


1980


61,638


3,824


2015KTC 55


1972


53,012


3,113


2015KTC 50


1974


54,716


3,367


2015SCT 280


1977


48,000


3,081


2015SCT 282


1978


48,000


3,081


2015Washington(7)


1980


32,000


2,062


2015DBL 3201


1968


31,000


2,033


2015Wallabout Bay


1986


28,330


1,687


2015PM 230(7)


1983


25,000


1,610


2015KTC 21


1961


20,000


1,214


2015KTC 20


1980


20,000


1,065


2015SCT 180


1980


16,250


1,053


2015SEA 76


1969


13,313


830


2015KTC 14


1941


13,000


820


2015Subtotal





690,017


41,996Total Fleet





4,124,788


289,643


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Integrated Tug-Barge Units

As of September 1, 2009, we operated 24 ITBs, which represented approximately 46% of the barrel-carrying capacity of our tank
barge fleet.

Newbuildings

The following sets forth the size and expected delivery date for vessels in our newbuilding program and vessels to be leased:

Vessels

Expected DeliveryOne 185,000-barrel articulated tug-barge unit

2nd Quarter fiscal 2010One 100,000-barrel tank barge

3rd Quarter fiscal 2010Two 50,000-barrel tank barges(1)

3rd Quarter fiscal 2010 and 3rd Quarter fiscal 2011






The
total cost of the 185,000-barrel and 100,000-barrel newbuild barges described above, in the aggregate and after the addition of certain special equipment, is
approximately $101.0 million, of which approximately $66.7 million has been spent as of June 30, 2009. Please read "Management's Discussion and Analysis of Financial Condition and
Results of OperationsLiquidity and Capital ResourcesOngoing Capital Expenditures" in Item 7 of this report.

Tugboat Fleet

We use tugboats as the primary means of propelling our tank barge fleet. Therefore, we seek to maintain the proper balance between the
number of tugboats and the number of tank barges in our fleet. This balance is influenced by a variety of factors, including the condition of the vessels in our fleet, the mix of our coastwise
business and our local business and the level of longer-term contracts versus shorter-term business. We are also able to maintain a proper balance between tugboats and tank
barges by analyzing the historical trading patterns of our customers and the nature of their cargoes. While a tank barge is unloading, we often dispatch its tugboat to perform other work.

At
September 1, 2009, we operated the following tugboats:

K-Sea Transportation Partners L.P. Tugboat Fleet

Name(1)

Year Built

Horsepower

DimensionsLincoln Sea


2000


8000


119' × 40' × 22'Rebel


1975


7200


150' × 46' × 22'Yankee


1976


7200


150' × 46' × 22'Jimmy Smith


1976


7200


150' × 40' × 22'Barents Sea


1976


6200


136' × 40' × 16'McKinley Sea


1981


6000


136' × 37' × 20'Aegean Sea


1978


6000


136' × 37' × 20'Irish Sea


1969


5750


135' × 35' × 18'Sirius


1974


5750


135' × 38' × 19'Nakolo


1974


5750


125' × 38' × 14'El Lobo Grande


1978


5750


128' × 36' × 19'Nakoa


1976


5500


118' × 34' × 17'Volunteer


1982


4860


120' × 37' × 18'Adriatic Sea(2)


2004


4800


126' × 34' × 15'


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Name(1)

Year Built

Horsepower

DimensionsJava Sea(3)


2005


4800


119' × 34' × 15'Namahoe


1997


4400


105' × 34' × 16'Pacific Freedom(4)


1998


4500


120' × 31' × 15'Viking


1972


4300


133' × 34' × 18'Beaufort Sea


1971


4300


113' × 32' × 16'North Sea


1982


4200


126' × 34' × 16'Greenland Sea


1990


4200


117' × 34' × 17'Pacific Wolf


1975


4100


111' × 24' × 13'William J. Moore


1970


4000


135' × 35' × 20'Niolo


1982


4000


117' × 34' × 17'Nokea


1975


4000


105' × 30' × 14'Nunui


1978


4000


185' × 40' × 12'Tasman Sea


1976


3900


124' × 34' × 16'Norwegian Sea(5)


2006


3900


133' × 34' × 17'Sea Hawk(6)


2006


3900


112' × 32' × 15'John Brix(7)


1999


3900


141' × 35' × 8'Pacific Avenger


1977


3900


140' × 34' × 17'Altair


1981


3800


106' × 33' × 17'Kara Sea


1974


3520


111' × 32' × 14'Ross Sea


2003


3400


95' × 32' × 14'Bismarck Sea


1978


3300


95' × 28' × 13'Solomon Sea


1965


3300


105' × 32' × 14'Coral Sea


1973


3280


111' × 32' × 14'Nathan E. Stewart


2001


3200


95' × 32' × 14'Maryland


1962


3010


110' × 28' × 14'Baltic Sea


1973


3000


101' × 30' × 13'Pacific Challenger


1976


3000


118' × 34' × 16'Paragon


1978


3000


99' × 32' × 15'Pacific Raven


1970


3000


112' × 31' × 14'Na Hoku


1981


3000


105' × 34' × 17'Nalani


1981


3000


105' × 34' × 17'Nohea


1983


3000


98' × 30' × 14'Pacific Pride(8)


1989


2500


84' × 28' × 13'Sargasso Sea


1972


2460


105' × 30' × 15'Labrador Sea


2002


2400


82' × 26' × 12'Siberian Sea


1980


2400


85' × 24' × 10'Caribbean Sea


1961


2400


85' × 24' × 10'Bering Sea


1975


2250


105' × 29' × 13'Caspian Sea


1981


2000


65' × 24' × 9'Inland Sea


2000


2000


76' × 26' × 10'Pacific Patriot


1981


2000


77' × 27' × 12'Davis Sea


1982


2000


77' × 26' × 9'Pacific Eagle(9)


2001


2000


98' × 27' × 13'Tiger


1966


2000


88' × 27' × 12'Chukchi Sea


1979


2000


92' × 26' × 9'Houma


1970


1950


90' × 29' × 11'Timor Sea


1960


1920


80' × 24' × 10'Odin


1982


1860


72' × 28' × 12'Taurus


1979


1860


79' × 25' × 12'Falcon


1978


1800


80' × 25' × 12'


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Name(1)

Year Built

Horsepower

DimensionsNaupaka


1983


1800


75' × 26' × 10'Fidalgo


1973


1400


98' × 25' × 8'


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Bunkering

For over 30 years, we have specialized in the shipside delivery of fuel, known as bunkering, for the major and independent
bunker suppliers in New York Harbor. We also provide bunkering services in Virginia and Hawaii. Demand for bunkering services is driven primarily by the number of ship arrivals. A ship's time in port
generally is limited, and the cost of delaying sailing due to bunkering or other activities can be significant. Therefore, we continually strive to improve the level of service and on-time
deliveries to our customers.

The
majority of our bunker delivery tank vessels are equipped with advanced, whole-load sampling devices to provide the supplier and receiver a representative sample. Our
bunker delivery tank barges are also equipped with extended booms for hose handling ease alongside ships, remote pump engine shut-offs, spill rails, spill containment equipment and
supplies, VHF and UHF radio communication and fendering.

Preventative Maintenance

We have a computerized preventative maintenance program that tracks U.S. Coast Guard and American Bureau of Shipping inspection
schedules and establishes a system for the reporting and handling of routine maintenance and repair.

Vessel
captains submit monthly inspection reports, which are used to note conditions that may require maintenance or repair. Vessel superintendents are responsible for reviewing these
reports, inspecting identified discrepancies, assigning a priority classification and generating work orders. Work orders establish job type, assign personnel responsible for the task and record
target start and completion dates. Vessel superintendents inspect repairs completed by the crew, supervise outside contractors as needed and conduct quarterly inspections following the same criteria
as the captains. Drills and training exercises are conducted in conjunction with these inspections, which are typically more comprehensive in scope. In addition, an operations duty officer is
available on a 24-hour basis to handle any operational issues. The operations duty officer is prepared to respond on scene whenever required and is trained in technical repair issues,
spill control and emergency response.

The
American Bureau of Shipping and the U.S. Coast Guard establish drydocking schedules. Typically, we drydock our vessels twice every five years. Prior to sending a vessel to a
shipyard, we develop comprehensive work lists to ensure all required maintenance is completed. Repair facilities bid on these work lists, and jobs are awarded based on quality, price and time to
complete. Vessels then report to a cleaning facility to prepare for shipyard. Once the vessel is gas-free a certified marine

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chemist
issues paperwork certifying that no dangerous vapors are present. The vessel proceeds to the shipyard where the vessel superintendent and certain crewmembers assist in performing the
maintenance and repair work. The planned maintenance period is considered complete when all work has been tested to the satisfaction of American Bureau of Shipping or U.S. Coast Guard inspectors or
both.

Safety

General

We are committed to operating our vessels in a manner that protects the safety and health of our employees, the general public and the
environment. Our primary goal is to minimize the number of safety- and health-related accidents on our vessels and our property. Our primary concerns are to avoid personal injuries and to reduce
occupational health hazards. We want to prevent accidents that may cause damage to our personnel, equipment or the environment, such as fire, collisions, petroleum spills and groundings of our
vessels. In addition, we are committed to reducing overall emissions and waste generation from each of our facilities and vessels and to the safe management of associated cargo residues and cleaning
wastes.

Our
policy is to follow all laws and regulations as required, and we are actively participating with government, trade organizations and the public in creating responsible laws,
regulations and standards to safeguard the workplace, the community and the environment. Our Operations Department is responsible for coordinating all facets of our health and safety program and
identifying areas that may require special emphasis, including new initiatives that evolve within the industry. Our Human Resources Department is responsible for all training, whether conducted
in-house or at a training facility. Supervisors are responsible for carrying out and monitoring compliance with all of the safety and health policies on their vessels.

Tank Barge Characteristics

To protect the environment, today's tank barge hulls are required not only to be leak-proof into the body of water in which
they float but also to be vapor-tight to prevent the release of any fumes or vapors into the atmosphere. Our tank barges that carry light products such as gasoline or naphtha have alarms that indicate
when the tank is full (95% of capacity) and when it is overfull (98% of capacity). Each tank barge also has a vapor recovery system that connects the cargo tanks to the shore terminal via pipe and
hose to return to the plant the vapors generated while loading.

The
majority of our bunker delivery tank barges are equipped with advanced, whole-load sampling devices to provide the supplier and receiver a representative sample. Our
bunker delivery tank barges are also equipped with extended booms for hose handling ease alongside ships, remote pump engine shut-offs, spill rails, spill containment equipment and
supplies, VHF and UHF radio, satellite and internet communication.

Safety Management Systems

We belong and adhere to the recommendations of the American Waterways Operators ("AWO") Responsible Carrier Program. The program is
designed as a framework for continuously improving the industry's and member companies' safety performance. The program complements and builds upon existing government regulations, requiring company
safety and training standards that in many instances exceed those required by federal law or regulation.

Developed
by the AWO, the Responsible Carrier Program incorporates best industry practices in three primary areas:



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The
Responsible Carriers Program has been recognized by many groups, including the U.S. Coast Guard and shipper organizations. We are periodically audited by an AWO-certified
auditor to verify compliance. We were last audited in early 2007, and our Responsible Carrier Program certificate remains in effect until March 2010.

We
are also certified to the standards of the International Safety Management, or ISM, system. The ISM standards were promulgated by the International Maritime Organization, or IMO, and
have been adopted through treaty by many IMO member countries, including the United States. Although ISM is not required for coastal tug and barge operations, we have determined that an integrated
safety management system including the ISM and Responsible Carriers Program standards promotes safer operations and provides us with necessary operational flexibility as we continue to grow.

Ship Management, Crewing and Employees

We maintain an experienced and highly qualified work force of shore-based and seagoing personnel. As of June 30, 2009, we
employed 992 persons, comprising 168 shore staff and 824 fleet personnel. Our tug and tanker captains are non-union management supervisors. Effective July 1, 2008, we agreed on a
new two-year collective bargaining agreement with our maritime union covering certain of our seagoing personnel comprising 44% of our workforce. The collective bargaining agreement
provides for wage increases, and requires us to make contributions to certain pension and other welfare programs. No unfunded pension liability exists under any of these programs. Our vessel employees
are paid on a daily or hourly basis and typically work 14 days on and 14 days off. Our shore-based personnel are generally salaried and most are located at our headquarters in East
Brunswick, New Jersey or our facilities in Staten Island, New York;
Seattle, Washington; Honolulu, Hawaii; Norfolk, Virginia and Philadelphia, Pennsylvania. We believe that our relations with our employees are satisfactory.

Our
shore staff provides worldwide support for all aspects of our fleet and business operations, including sales and scheduling, crewing and human resources functions, engineering,
compliance and technical management, financial, legal and insurance services, and information technology. A staff of dispatchers and schedulers maintain a 24-hour duty rotation to monitor
communications and to coordinate fleet operations with our customers and terminals. Communication with our vessels is accomplished by various methods, including wireless data links, cellular
telephone, VHF, UHF and HF radio.

Our
crews regularly inspect each vessel, both at sea and in port, and perform most of the ordinary course maintenance. Our procedures call for a member of our shore-based staff to
inspect each vessel at least once each fiscal quarter, making specific notations and recommendations regarding the overall condition of the vessel, maintenance, safety and crew welfare. In addition,
selected vessels are inspected each year by independent consultants. Most of the vessels that are on bareboat charters to third parties are managed and operated by the customer.

Classification, Inspection and Certification

Most of our coastwise vessels have been certified as being "in class" by the American Bureau of Shipping and, in the case of one
vessel, by Lloyds of London. A vessel certified as being "in class" verifies that the vessel conforms to designated standards at a specified time. Other vessels, primarily in our West Coast
operations, have the required "loadline" certification. The purpose of a "loadline" certification is to ensure that a ship is not overloaded and thus has sufficient reserve buoyancy. The American
Bureau of Shipping is one of several internationally recognized classification societies that inspect vessels at regularly scheduled intervals to ensure compliance with American Bureau of Shipping

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classification
rules and some applicable federal safety regulations. Most insurance underwriters require at least a "loadline" certification by a classification society before they will extend
coverage to a coastwise vessel. The classification society certifies that the pertinent vessel has been built and maintained in accordance with the rules of the society and complies with applicable
rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. Inspections are conducted on the pertinent vessel by a surveyor of the
classification society in three surveys of varying frequency and thoroughness: annual surveys each year, an intermediate survey every two to three years and a special survey every four to five years.
As part of the intermediate survey, a vessel may be required to be drydocked every 24 to 30 months for inspection of its underwater parts and for any necessary repair work related to such
inspection.

Our
vessels are also inspected at periodic intervals by the U.S. Coast Guard to ensure compliance with Federal safety regulations. All of our tank vessels carry Certificates of
Inspection issued by the U.S. Coast Guard.

Our
vessels and shoreside operations are also inspected and audited periodically by our customers, in some cases as a precondition to chartering our vessels. We maintain all necessary
approvals required for our vessels to operate in their normal trades. We believe that the high quality of our vessels, our crews and our shore side staff are advantages when competing against other
vessel operators for long-term business.

Insurance Program

We maintain insurance coverage consistent with industry practice that we believe is adequate to protect against the accident-related
risks involved in the conduct of our business and risks of liability for environmental damage and pollution. Nevertheless, we cannot provide assurance that all risks are adequately insured against,
that any particular claims will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.

Our
hull and machinery insurance covers risks of actual or constructive loss from collision, tower's liabilities, fire, grounding and engine breakdown up to an agreed value per vessel.
Our war-risks insurance covers risks of confiscation, seizure, capture, vandalism, sabotage and other war-related risks. While some tanker owners and operators obtain
loss-of-hire insurance covering the loss of revenue during extended tanker off-hire periods, we do not have this type of coverage. We believe that, given our
diversified marine transportation operations and high utilization rate, this type of coverage is not economical and is of limited value to us. However, we evaluate the need for such coverage on an
ongoing basis taking into account insurance market conditions and the employment of our vessels.

Our
protection and indemnity insurance covers third-party liabilities and other related expenses from, among other things, injury or death of crew, passengers and other third parties,
claims arising from collisions, damage to cargo, damage to third-party property, asbestos exposure and pollution arising from oil or other substances. Our current protection and indemnity insurance
coverage for pollution is $1 billion per incident and is provided by West of England Ship Owners Insurance Services Ltd. ("West of England"), a mutual insurance association. West of
England is a member of the International Group of protection and indemnity mutual assurance associations. The protection and indemnity associations that comprise the International Group insure
approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. Each protection and indemnity association has capped its
exposure to this pooling agreement at approximately $5.4 billion per non-pollution incident. As a member of West of England, we are subject to calls payable to the association based
on our claim records, as well as the claim records of all other members of the individual associations and members of West of England.

We
are not currently the subject of any claims alleging exposure to asbestos or second-hand smoke, although such claims have been brought against our predecessors in the past
and may be brought against us in the future. Our predecessor company, EW Transportation LLC, has contractually

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agreed
to retain any such liabilities that occurred prior to our initial public offering in January 2004, will indemnify us for up to $10 million of such liabilities until January 2014, and
will make available to us the benefit of certain indemnities it received in connection with the purchase of certain vessels. If, notwithstanding the foregoing, we are ultimately obligated to pay any
asbestos-related or similar claims for any reason, we believe that we or EW Transportation LLC would have adequate insurance coverage for periods after March 1986 to pay such claims. However,
EW Transportation LLC and its predecessors may not have insurance coverage prior to March 1986. If we were subject to claims related to that period, including claims from current or former
employees, EW Transportation LLC may not have insurance to pay the liabilities, if any, that could be imposed on us. If we had to pay claims solely out of our own funds, it could have a
material adverse effect on our financial condition. Furthermore, any claims covered by insurance would be subject to deductibles, and because it is possible that a large number of claims could be
brought, the aggregate amount of these deductibles could be material. Please read "Legal Proceedings" in Item 3 of this report.

We
may not be able to obtain insurance coverage in the future to cover all risks inherent in our business, and insurance, if available, may be at rates that we do not consider
commercially reasonable. In addition, as more single-hull vessels are retired from active service, insurers may be less willing to insure, and customers less willing to hire,
single-hull vessels.

Competition

The domestic tank vessel industry is highly competitive. The Jones Act restricts U.S. point-to-point maritime
shipping to vessels built in the United States, owned and operated by U.S. citizens and manned by U.S. crews. In our market areas, our primary direct competitors are the operators of
U.S.-flag ocean-going tank barges and U.S.-flag refined petroleum product tankers, including the captive fleets of major oil companies.

In
the voyage and short-term charter market, our vessels compete with all other vessels of a size and type required by a charterer that can be available at the date
specified. In the voyage market, competition is based primarily on price and availability, although charterers have become more selective with respect to the quality of vessels they hire, with
particular emphasis on factors such as age, double-hulls and the reliability and quality of operations. Increasingly, major charterers are
demonstrating a preference for modern vessels based on concerns about the environmental risks associated with older vessels. Consequently, we believe that owners of large modern fleets have been able
to gain a competitive advantage over owners of older fleets.

U.S.-flag
tank vessels also compete with petroleum product pipelines and are affected by the level of imports on foreign flag products carriers. The Colonial Pipeline system,
which originates in Texas and terminates at New York Harbor, the Plantation Pipe Line system, which originates in Louisiana and terminates in Washington D.C., and smaller regional pipelines between
Philadelphia and New York, carry refined petroleum products to the major storage and distribution facilities that we currently serve. We believe that high capital costs, tariff regulation and
environmental considerations make it unlikely that a new refined product pipeline system will be built in our market areas in the near future. It is possible, however, that new pipeline segments,
including pipeline segments that connect with existing pipeline systems, could be built or that existing pipelines could be converted to carry refined petroleum products. Either of these occurrences
could have an adverse effect on our ability to compete in particular locations.

Regulation

Our operations are subject to significant federal, state and local regulation, including those described below.

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Environmental

General.Government regulation significantly affects the ownership and operation of our tank vessels. Our tank vessels are subject to
international
conventions, federal, state and local laws and regulations relating to safety and health and environmental protection, including the generation, storage, handling, emission, transportation, and
discharge of hazardous and non-hazardous materials. Although we believe that we are in substantial compliance with applicable environmental laws and
regulations, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our tank vessels. The recent trend in
environmental legislation is toward stricter requirements, and this trend will likely continue. In addition, a future serious marine incident occurring in U.S. waters, or internationally, that results
in significant oil pollution or causes significant environmental impact could result in additional legislation or regulation that could affect our profitability.

Various
governmental and quasi-governmental agencies require us to obtain permits, licenses and certificates for the operation of our tank vessels. While we believe that we are in
substantial compliance with applicable environmental laws and regulations and have all permits, licenses and certificates necessary for the conduct of our operations, frequently changing and
increasingly stricter requirements, future non-compliance or failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend operation
of one or more of our tank vessels.

We
maintain operating standards for all our tank vessels that emphasize operational safety, quality maintenance, continuous training of our crews and officers, care for the environment
and compliance with U.S. regulations. Our tank vessels are subject to both scheduled and unscheduled inspections by a variety of governmental and private entities, each of which may have unique
requirements. These entities include the local port authorities (U.S. Coast Guard, harbor master or equivalent), classification societies, flag state administration and charterers, particularly
terminal operators and oil companies.

Finally,
we manage our exposure to losses from potential discharges of pollutants through the use of well maintained and well managed facilities, well maintained and well equipped
vessels and safety and environmental programs, including a maritime compliance program and our insurance program. Moreover, we believe we will be able to accommodate reasonably foreseeable
environmental regulatory changes. However, the risks of substantial costs, liabilities, and penalties are inherent in marine operations. As a result, there can be no assurance that any new regulations
or requirements or any discharge of pollutants by us will not have a material adverse effect on us.

The Oil Pollution Act of 1990.The Oil Pollution Act of 1990, or OPA 90, affects all vessels trading in U.S. waters, including the
exclusive economic
zone extending 200 miles seaward. OPA 90 sets forth various technical and operating requirements for tank vessels operating in U.S. waters. Existing single-hull, double-sided and
double-bottomed tank vessels are to be phased out of service at varying times based on their tonnage and age, with all such vessels being phased out by January 2015. As of September 1, 2009, we
had 17 single-hulled tank vessels that will be precluded from transporting petroleum products as of January 1, 2015.

Under
OPA 90, owners or operators of tank vessels and certain non-tank vessels operating in U.S. waters must file vessel spill response plans with the U.S. Coast Guard and
operate in
compliance with the plans. These vessel response plans must, among other things:



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Our
vessel response plans have been approved by the U.S. Coast Guard, and all of our tankermen have been trained to comply with OPA 90 requirements. In addition, we conduct regular
oil-spill response drills in accordance with the guidelines set out in OPA 90. We believe that all of our vessels are in substantial compliance with OPA 90.

Environmental Spill and Release Liability.OPA 90 and various state laws substantially increased over historic levels the statutory
liability of
owners and operators of vessels for the discharge or substantial threat of a discharge of oil and the resulting damages, both regarding the limits of liability and the scope of damages. OPA 90 imposes
joint and several strict liability on responsible parties, including owners, operators and bareboat charterers, for all oil spill and containment and clean-up costs and other damages
arising from spills attributable to their vessels. A complete defense is available only when the responsible party establishes that it exercised due care and took precautions against foreseeable acts
or omissions of third parties and when the spill is caused solely by an act of God, act of war (including civil war and insurrection) or a third party other than an employee or agent or party in a
contractual relationship with the responsible party. These limited defenses may be lost if the responsible party fails to report the incident or reasonably cooperate with the appropriate authorities
or refuses to comply with an order concerning clean-up activities. Even if the spill is caused solely by a third party, the owner or operator must pay removal costs and damage claims and
then seek
reimbursement from the third party or the trust fund established under OPA 90. Finally, in certain circumstances involving oil spills, OPA 90 and other environmental laws may impose criminal liability
on personnel and/or the corporate entity.

OPA
90 limits the liability of each responsible party for oil pollution from vessels, and these limits were increased substantially in 2006. The limits of liability are subject to
periodic increases to account for inflation, and the U.S. Coast Guard completed an adjustment for inflation by interim rule effective July 21, 2009. The limits for a tank vessel without a
qualifying double hull are the greater of (1) $3,200 per gross ton or (2) $23,496,000 for a tank vessel of greater than 3,000 tons or $6,408,000 for a tank vessel of 3,000 gross tons or
less. The limits for a tank vessel with a qualifying double hull are the greater of (1) $2,000 per gross ton or (2) $17,088,000 for a tank vessel of greater than 3,000 gross tons or
$4,272,000 for a tank vessel of 3,000 gross tons or less. The limits for any vessel other than a tank vessel are the greater of $1,000 per gross ton or $854,000. These limits do not apply where, among
other things, the spill is caused by gross negligence or willful misconduct of, or a violation of an applicable federal safety, construction or operating regulation by, a responsible party or its
agent or employee or any person acting in a contractual relationship with a responsible party. In addition to removal costs, OPA 90 provides for recovery of damages,
including:



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OPA 90 requires owners and operators of vessels operating in U.S. waters to establish and maintain with the U.S. Coast Guard evidence of their financial
responsibility sufficient to meet their potential liabilities imposed by OPA 90. Under the regulations, we may provide evidence of insurance, a surety bond, a guarantee, letter of credit,
qualification as a self-insurer or other evidence of financial responsibility. We have qualified as a self-insurer under the regulations and have received Certificates of
Financial Responsibility from the U.S. Coast Guard for all of our vessels subject to this requirement.

OPA
90 expressly provides that individual states are entitled to enforce their own oil pollution liability laws, even if such laws are inconsistent with or imposing greater liability
than OPA 90. There is no uniform liability scheme among the states. Some states have schemes similar to OPA 90 that limit liability to various amounts, some rely on common law fault-based remedies and
others impose strict and/or unlimited liability on an owner or operator. Virtually all coastal states have enacted their own pollution prevention, liability and response laws, whether statutory or
through court decisions, with many providing for some form of unlimited liability. We believe that the liability provisions of OPA 90 and similar state laws have greatly expanded potential liability
in the event of an oil spill, even in instances where we did not cause the spill. Some states have also established their own requirements for financial responsibility. However, at least two states
have repealed regulations concerning the operation, manning, construction or design of tank vessels as a result of the U. S. Supreme Court's 2000 ruling in United States v. Locke ("Locke"). In Locke,
the Court held that the regulation of maritime commerce is generally a federal responsibility because of the need for national and international uniformity.

Parties
affected by oil pollution that do not fully recover from a responsible party may pursue relief from the Oil Spill Liability Trust Fund. Responsible parties may seek reimbursement
from the fund for costs incurred that exceed the liability limits of OPA 90. In order to obtain reimbursement of excess costs, the responsible party must establish that it is entitled to a statutory
limitation of liability as discussed above. If we are deemed a responsible party for an oil pollution incident and are ineligible for reimbursement of excess costs, the costs of responding to an oil
pollution incident could have a material adverse effect on our results of operations, financial condition and cash flows. We presently maintain oil pollution liability insurance in an amount in excess
of that required by OPA 90. Through West of England, our current coverage for oil pollution is $1 billion per incident. It is possible, however, that our liability for an oil pollution incident
may be in excess of the insurance coverage we maintain.

We
are also subject to potential liability arising under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, which applies to the discharge of
hazardous substances, whether on land or at sea. Specifically, CERCLA provides for liability of owners and operators of vessels for cleanup and removal of hazardous substances. Liability under CERCLA
for releases of hazardous substances from vessels is limited to the greater of $300 per gross ton or $5 million per incident unless attributable to willful misconduct or neglect, a violation of
applicable standards or rules, or upon failure to provide reasonable cooperation and assistance. CERCLA liability for releases from facilities other than vessels is generally unlimited.

We
are required to show proof of insurance, surety bond, self insurance or other evidence of financial responsibility to pay potential liabilities up to specified limits under both OPA
90 and CERCLA. We have satisfied these requirements and obtained a U.S. Coast Guard Certificate of Financial Responsibility for each of our tank vessels. OPA 90 and CERCLA each preserve the right to
recover damages under other existing laws, including maritime tort law.

Water.The federal Clean Water Act (CWA) imposes restrictions and strict controls on the discharge of pollutants into navigable waters,
and such
discharges generally require permits. The CWA provides for civil, criminal and administrative penalties for any unauthorized discharges and imposes

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substantial
liability for the costs of removal, remediation and damages. State laws for the control of water pollution also provide varying civil, criminal and administrative penalties and liabilities
in the case of a discharge of petroleum, its derivatives, hazardous substances, wastes and pollutants into state waters.

Other
federal water quality statutes also potentially affect our operations. The Coastal Zone Management Act authorizes state implementation and development of programs of management
measures for non-point source pollution to restore and protect coastal waters. The Nonindigenous Aquatic Nuisance Prevention and Control Act of 1990 and the National Invasive
Species Act of 1996 authorize the U.S. Coast Guard to regulate the ballast water management practices of vessels operating in U.S. waters.

On
July 23, 2008, the U.S. Ninth Circuit Court of Appeals affirmed the district court decision inNorthwest Environmental Advocates v.
EPAthat vacated an Environmental Protection Agency's (EPA) regulation that exempted certain discharges of effluent from vessels, including discharges of ballast water, from
permitting requirements under the National Pollutant Discharge Elimination System (NPDES) program. In response to the court decision, EPA issued a General Permit for Discharges Incidental to the
Normal Operation of a Vessel on December 18, 2008. The General Permit imposes effluent limitations on discharges from vessels and includes best management practice, inspection, reporting, and
record-keeping requirements. We believe that any financial impacts resulting from the repeal of the permitting exemption for ballast water discharge and the resulting general permit for such
discharges will not be material.

On
August 17, 2009, the U.S. Coast Guard proposed to amend its regulations on ballast water management by establishing standards for the allowable concentration of living
organisms in ballast water discharged in U.S. waters and requiring the phase-in of Coast Guard-approved ballast water management systems (BWMS). Under the Coast Guard's August 17,
2009 proposal, crude oil tankers would be exempt from requirements to install approved BWMS.

Solid Waste.Our operations occasionally generate and require the transportation, treatment and disposal of both hazardous and
non-hazardous solid wastes that are subject to the requirements of the federal Resource Conservation and Recovery Act, or RCRA, and comparable state and local requirements. In addition, in
the course of our tank vessel operations, we engage contractors to remove and dispose of waste material, including tank residue. In the event that such waste is found to be "hazardous" under either
RCRA or the CWA, and is disposed of in violation of applicable law, we could be found jointly and severally liable for the cleanup costs and any resulting damages. Finally, the EPA does not currently
classify "used oil" as "hazardous waste," provided certain recycling standards are met. However, some states in which we operate have classified "used oil" as "hazardous" under state laws patterned
after RCRA. The cost of managing wastes generated by tank vessel operations has increased in recent years under stricter state and federal standards. Additionally, from time to time we arrange for the
disposal of hazardous waste or hazardous substances at offsite disposal facilities. If such materials are improperly disposed of by third parties, we could be liable for cleanup costs under CERCLA or
the equivalent state laws. We use only certified haulers for this work.

Air Emissions.The federal Clean Air Act (CAA) authorizes the EPA to promulgate standards applicable to emissions of certain air
contaminants that
are emitted by our vessels, including volatile organic compounds, oxides of nitrogen, particulate matter, and sulfur dioxide. Our vessels are subject to vapor control and recovery requirements for
certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. A majority of our tank barges are equipped with vapor control systems that
satisfy these requirements. In addition, the EPA has, in recent years, issued a series of rules imposing increasingly stringent emissions standards for various classes of marine diesel engines. While
EPA's marine diesel rules do not impose immediate requirements on

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existing
vessels, the new standards are potentially applicable to re-manufactured engines and may therefore impose added compliance costs on our operations.

The
CAA also requires states to draft State Implementation Plans (SIPs) designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial
areas. Where states fail to present approvable SIPs or SIP revisions by certain statutory deadlines, the federal government is required to draft a Federal Implementation Plan. Several SIPs regulate
emissions resulting from barge loading and degassing operations by requiring the installation of vapor control equipment. As stated above, a majority of our tank barges are already equipped with vapor
control systems that satisfy these requirements. Although a risk exists that new regulations could require significant capital expenditures and otherwise increase our costs, we believe, based upon the
regulations that have been proposed to date, that no material capital expenditures beyond those currently contemplated and no material increase in costs are likely to be required. Certain States are
considering, or have already implemented, regulations to control emissions from marine diesel engines on barges and towing vessels when operating in State waters. In the absence of regulatory relief,
the most stringent of these regulations will require replacement of engines on existing vessels, which may require significant capital investment or modification of operations in certain geographic
areas to remain in compliance.

Coastwise Laws

A substantial portion of our operations are conducted in the U.S. domestic trade, which is governed by the coastwise laws of the United
States. The U.S. coastwise laws reserve marine transportation between points in the United States, including harbor tug services, to vessels built in and documented under the laws of the United States
(U.S.-flag) and owned and manned by U.S. citizens. Generally, an entity is deemed a U.S. citizen for these purposes so long as:



Because
we could lose the privilege of operating our vessels in the U.S. coastwise trade if non-U.S. citizens were to own or control in excess of 25% of our outstanding
interests, our limited partnership agreement restricts foreign ownership and control of our common units to not more than 15% of our outstanding interests.

There
have been repeated efforts aimed at repeal or significant change of the Jones Act. Although we believe it is unlikely that the Jones Act will be substantially modified or repealed,
Congress could substantially modify or repeal such laws. Such changes could have a material adverse effect on our operations and financial condition.

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Other

Our vessels are subject to the jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board, the U.S. Customs and
Border Protection (CBP) and the U.S. Maritime Administration, as well as subject to rules of private industry organizations such as the American Bureau of Shipping. These agencies and organizations
establish safety standards and are authorized to investigate vessels and accidents and to recommend improved maritime safety standards. Moreover, to ensure compliance with applicable safety
regulations, the U.S. Coast Guard is authorized to inspect vessels at will.

Occupational Health Regulations

Our shore side facilities are subject to occupational safety and health regulations issued by the U.S. Occupational Safety and Health
Administration, or OSHA, and comparable state programs. These regulations currently require us to maintain a workplace free of recognized hazards, observe safety and health regulations, maintain
records, and keep employees informed of safety and health practices and duties. Our vessel operations are also subject to occupational safety and health regulations issued by the U.S. Coast Guard and,
to an extent, OSHA. These regulations currently require us to perform monitoring, medical testing and recordkeeping with respect to mariners engaged in the handling of the various cargoes that are
transported by our tank vessels.

Vessel Condition

Our vessels are subject to periodic inspection and survey by, and drydocking and maintenance requirements of, the U.S. Coast Guard
and/or the American Bureau of Shipping. We believe we are currently in compliance in all material respects with the environmental and other laws and regulations, including health and safety
requirements, to which our operations are subject. We are unaware of any pending or threatened litigation or other judicial, administrative or arbitration proceedings against us occasioned by any
alleged non-compliance with such laws or regulations. The risks of substantial costs, liabilities and penalties are, however, inherent in marine operations, and there can be no assurance
that significant costs, liabilities or penalties will not be incurred by or imposed on us in the future.

Seasonality

We operate our tank vessels in markets that exhibit seasonal variations in demand and, as a result, in charter rates. For example,
movements of clean oil products, such as motor fuels, generally increase during the summer driving season. In certain regions, movements of black oil products and distillates, such as heating oil,
generally increase during the winter months, while movements of asphalt products generally increase in the spring through fall months. Unseasonably cold winters result in significantly higher demand
for heating oil in the northeastern United States. Meanwhile, our operations along the West Coast and in Alaska historically have been subject to seasonal variations in demand that vary from those
exhibited in the East Coast and Gulf Coast regions. The summer driving season can increase demand for automobile fuel in all of our markets and, accordingly, the demand for our services. A decline in
demand for, and level of consumption of, refined petroleum products could cause demand for tank vessel capacity and charter rates to decline, which would decrease our revenues and cash flows. Our West
Coast operations provide seasonal diversification primarily as a result of services to our Alaskan markets, which experience the greatest demand for petroleum products in the summer months, due to
weather conditions. Considering the above, we believe seasonal demand for our services is lowest during our third fiscal quarter. We do not see any significant seasonality in the Hawaiian market.

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Properties

We lease pier facilities and office space in Staten Island, New York. The lease expires in April 2019; however, we have the option to
renew it for one additional ten-year period.

We
lease pier facilities, a water treatment facility and office space in Norfolk, Virginia. This lease expires in January 2010, and we have an option to purchase the facility.

We
lease office space for our principal executive office in East Brunswick, New Jersey, for which the lease expires in December 2013.

We
lease pier and wharf facilities and office and warehouse space in Seattle, Washington and Philadelphia, Pennsylvania. These leases expire in 2013 and 2018, respectively.

We
also lease a parcel of land, pier facilities and office and warehouse space, on a month to month basis, in Honolulu, Hawaii.

SEC Reporting

We file annual, quarterly and current reports and other materials with the SEC. You may read and copy any materials we file with the
SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information regarding the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a website atwww.sec.govthat contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC.

We
also provide electronic access to our periodic and current reports on our website,www.k-sea.com, free of charge. These
reports are available on our website as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. Information on our website or any other website is
not incorporated by reference into this report and does not constitute a part of this report.

ITEM 1A.    RISK FACTORS.

Risks Inherent in Our Business

Marine transportation is an inherently risky business.

Our vessels and their cargoes are at risk of being damaged or lost because of events such as:



All
of these hazards can result in death or injury to persons, loss of property, environmental damages, delays or rerouting. If one of our vessels were involved in an accident, with the
potential risk of environmental contamination, the resulting media coverage could have a material adverse effect on our business, financial condition and results of operations.

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Our
affiliate, EW Transportation LLC, and its predecessors have been named, together with a large number of other companies, as co-defendants in 39 civil actions by
various parties alleging unspecified damages from past exposure to asbestos and second-hand smoke aboard some of the vessels that it contributed to us in connection with the initial public
offering of our common units. EW Transportation LLC and its predecessors have been dismissed from 38 of these lawsuits for an aggregate sum of approximately $47,000. The remaining case has been
administratively dismissed, which effectively means that it remains active for routine matters not requiring a formal hearing. We may be subject to litigation in the future involving these plaintiffs
and others alleging exposure to asbestos due to alleged failure to properly encapsulate friable asbestos or remove friable asbestos on our vessels, as well as for exposure to second-hand
smoke and other matters.

A decline in demand for, and level of consumption of, refined petroleum products could cause demand for tank vessel capacity and charter rates to decline, which would
decrease our revenues and profitability.

The demand for tank vessel capacity is influenced by the demand for refined petroleum products and other factors
including:



In
addition, a long-term global recession could reduce the demand for domestic refined petroleum transportation services and charter and freight rates, and could increase
costs, thus adversely affecting the results of our operations. Any of these factors could adversely affect the demand for tank vessel capacity and charter rates. Any decrease in demand for tank vessel
capacity or decrease in charter rates could adversely affect our business, financial condition and results of operations.

In
addition, we operate our tank vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. For example, movements of certain
clean oil products, such as motor fuels, generally increase during the summer driving season. In those same regions, movements of black oil products and certain clean oil products, such as heating
oil, generally increase during the winter months, while movements of asphalt products generally increase in the spring through fall months. Unseasonably mild winters can result in significantly lower
demand for heating oil in the northeastern United States. Meanwhile, our operations along the West Coast and in Alaska historically have been subject to seasonal variations in demand that vary from
those exhibited in the East Coast and Gulf Coast regions. In addition, unpredictable weather patterns and variations in oil reserves disrupt vessel scheduling. Seasonality could materially affect our
business, financial condition and results of operations in the future.

Our business would be adversely affected if we failed to comply with the Jones Act provisions on coastwise trade, or if those provisions were modified, repealed or waived.

We are subject to the Jones Act and other federal laws that restrict maritime transportation between points in the United States to
vessels built and registered in the United States and owned and manned by U.S. citizens. We are responsible for monitoring the ownership of our common units and other partnership interests. If we do
not comply with these restrictions, we would be prohibited from

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operating
our vessels in U.S. coastwise trade, and under certain circumstances we would be deemed to have undertaken an unapproved foreign transfer, resulting in severe penalties, including permanent
loss of U.S. coastwise trading rights for our vessels, fines or forfeiture of the vessels. For information about the Jones Act and other maritime laws, please read "RegulationCoastwise
Laws" in Item 1 of this report.

In
the past, interest groups have lobbied Congress to repeal the Jones Act to facilitate foreign flag competition for trades and cargoes currently reserved for U.S.-flag
vessels under the Jones Act and cargo preference laws. We believe that interest groups may continue efforts to modify or repeal the Jones Act and cargo preference laws currently benefiting
U.S.-flag vessels. If these efforts are successful, it could result in increased competition, which could reduce our revenues and cash available for distribution.

The
Secretary of the Department of Homeland Security is vested with the authority and discretion to waive the coastwise laws to such extent and upon such terms as he may prescribe
whenever he deems that such action is necessary in the interest of national defense. In response to the effects of Hurricanes Katrina and Rita, the Secretary of the Department of Homeland Security
waived the coastwise laws generally for the transportation of petroleum products from September 1 to September 19, 2005 and from September 26, 2005 to October 24, 2005. In
the past, the Secretary of the Department of Homeland Security has waived the coastwise laws generally for the transportation of petroleum released from the Strategic Petroleum Reserve undertaken in
response to circumstances arising from major natural disasters. Any waiver of the coastwise laws, whether in response to natural disasters or otherwise, could result in increased competition from
foreign tank vessel operators, which could reduce our revenues and cash available for distribution.

We may not be able to grow or effectively manage our growth or realize expected benefits from acquisitions. Growth through acquisitions may harm our business, financial
condition and operating results.

A principal focus of our strategy is to continue to grow by expanding our business in all coastal markets in the U.S. and also into
other geographic markets. Our future growth will depend upon a number of factors, some of which we can control and some of which we cannot. These factors include our ability
to:



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A
deficiency in any of these factors would adversely affect our ability to achieve anticipated levels of cash flows or realize other anticipated benefits. In addition, competition from
other buyers could reduce our acquisition opportunities or cause us to pay a higher price than we might otherwise pay. Any acquisition of a vessel or business may not be profitable and may not
generate returns sufficient to justify our investment. In addition, our acquisition growth strategy exposes us to risks that may harm our business, financial condition and operating results, including
the risks that we may:



Increased competition in the domestic tank vessel industry could result in reduced profitability and loss of market share for us.

Contracts for our vessels are generally awarded on a competitive basis, and competition in the markets we serve is intense. The process
for obtaining such contracts generally requires a lengthy and time consuming screening and bidding process that may extend for months. The most important factors determining whether a contract will be
awarded include:



Some
of our competitors may have greater financial resources and larger operating staffs than we do. As a result, they may be able to make vessels available more quickly and efficiently,
transition to double-hull barges from single-hull barges more rapidly, and withstand the effects of declines in charter rates for a longer period of time. They may also be
better able to weather a downturn in the oil and gas industry. As a result, we could lose customers and market share to these competitors.

Increased competition from pipelines could result in reduced profitability.

We also face competition from refined petroleum product pipelines. Long-haul transportation of refined petroleum products
is generally less costly by pipeline than by tank vessel. The construction of

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new
pipeline segments to carry petroleum products into our markets, including pipeline segments that connect with existing pipeline systems and the conversion of existing non-refined
petroleum product pipelines could adversely affect our ability to compete in particular locations.

We rely on a limited number of customers for a significant portion of our revenues. The loss of any of these customers could adversely affect our business and operating
results.

Our customers consist primarily of major oil companies, oil traders and refineries. The portion of our revenues attributable to any
single customer changes over time, depending on the level of relevant activity by the customer, our ability to meet the customer's needs and other factors, many of which are beyond our control. Two
customers accounted for 20% and 11%, respectively, of our consolidated total revenues for fiscal 2009. If we were to lose either of these customers or if either of them significantly reduced its use
of our services, our business and operating results could be adversely affected.

Voyage charters may not be available at rates that will allow us to operate our vessels profitably.

During fiscal 2009, we derived approximately 20% of our revenue from single voyage charters. Voyage charter rates fluctuate
significantly based on tank vessel availability, the demand for refined petroleum products and other factors. Increased dependence on the voyage charter market by us could result in a lower
utilization of our vessels and decreased profitability. Future voyage charters may not be available at rates that will allow us to operate our vessels profitably.

We may not be able to renew time charters, consecutive voyage charters, contracts of affreightment and bareboat charters when they expire.

We received approximately 80% of our revenue from time charters, consecutive voyage charters, contracts of affreightment and bareboat
charters during fiscal 2009. These arrangements, which are generally for periods of one year or more, may not be renewed, or if renewed, may not be renewed at similar rates. If we are unable to obtain
new charters at rates equivalent to those received under the old charters, our profitability may be adversely affected.

We must make substantial expenditures to maintain the operating capacity of our fleet, which will reduce our cash available for distribution.

Tank vessels are subject to the requirements of the Oil Pollution Act of 1990, or OPA 90. OPA 90 mandates that all
single-hull tank vessels operating in U.S. waters be removed from petroleum and petroleum product transportation services at various times by January 1, 2015, and provides a
schedule for the phase-out of the
single-hull vessels based on their age and size. As of September 1, 2009, approximately 83% of the barrel-carrying capacity of our tank vessel fleet was double-hulled in compliance
with OPA 90. The remaining 17% will be in compliance with OPA 90 until January 2015. The capacity of certain of our single-hull vessels has already been effectively replaced by
double-hull vessels placed into service in the past several years. We estimate that the current cost to replace our remaining single-hull capacity with newbuildings or by
retrofitting certain of our existing vessels totals $39.0 million. This capacity can also be replaced by acquiring existing double-hull tank vessels as opportunities arise. At the
time we make these expenditures, the actual cost could be higher due to inflation and other factors.

Marine
transportation of refined petroleum products is a capital intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance.
We estimate that, over the next five years, we will spend an average of approximately $22.7 million per year to drydock and maintain our fleet. In addition, we will deduct an additional
$1.0 million per year from the cash that we would otherwise distribute to our unitholders to contribute to the cost of replacing the

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operating
capacity of our single hull vessels when they phase-out under OPA 90 in January 2015. Periodically, we will also make expenditures to acquire or construct additional tank vessel
capacity and to upgrade our overall fleet efficiency.

Please
read "Risks Related to Our Common UnitsIn calculating our available cash from operating surplus each quarter, we are required to deduct estimated
maintenance capital expenditures, which may result in less cash available for distribution to unitholders than if actual maintenance capital expenditures were deducted" for information about our
requirement to deduct estimated maintenance capital expenditures in calculating our available cash from operating surplus.

Capital expenditures and other costs necessary to operate and maintain a vessel vary depending on the age of the vessel and changes in governmental regulations, safety or
other equipment standards.

Capital expenditures and other costs necessary to operate and maintain a vessel increase with the age of the vessel. In addition,
changes in governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements
or competition, may require us to make additional expenditures. For example, we may be required to make significant expenditures for alterations or the addition of new equipment to satisfy
requirements of the U.S. Coast Guard and the American Bureau of Shipping. In addition, we may be required to take our vessels out of service for extended periods of time, with corresponding losses of
revenues, in order to make such alterations or to add such equipment. In the future, market conditions may not justify these expenditures or enable us to operate our older vessels profitably during
the remainder of their economic lives.

In
order to fund these capital expenditures, we will either incur borrowings or raise capital through the sale of debt or equity securities. Our ability to access the capital markets for
future offerings may be limited by our financial condition at the time, by changes in laws and regulations (or interpretation thereof) and by adverse market conditions resulting from, among other
things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for necessary future capital expenditures would limit our ability
to continue to operate some of our vessels and could have a material adverse effect on our business and on our ability to make distributions to unitholders.

Our purchase of existing vessels carries risks associated with the quality of those vessels.

Our fleet renewal and expansion strategy includes the acquisition of existing vessels as well as the ordering of newbuildings. Unlike
newbuildings, existing vessels typically do not carry warranties with respect to their condition. While we generally inspect any existing vessel prior to purchase, such an inspection would normally
not provide us with as much knowledge of its condition as we would possess if the vessel had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels
are difficult to predict and may be more substantial than for vessels we have operated since they were built. These costs could decrease our profits and reduce our liquidity.

Delays or cost overruns in the construction of new vessels or the modification of existing vessels could adversely affect our business. Cash flows from new or retrofitted
vessels may not be immediate or as high as expected.

We are currently building two new vessels and completing other smaller projects at an estimated total cost of $101.0 million, of
which $66.7 million has been spent as of June 30, 2009. In addition we have entered into an agreement with a shipyard to lease two more double-hulled tank barges with an

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aggregate
capacity of 100,000 barrels. These projects are subject to the risk of delay or cost overruns caused by the following:



Significant
delays could also have a material adverse effect on expected contract commitments for these vessels and our future revenues and cash flows. We will not receive any material
increase in revenue or cash flow from new or modified vessels until they are placed in service and customers enter into binding arrangements for the use of the vessels. Furthermore, customer demand
for new or modified vessels may not be as high as we currently anticipate, and, as a result, our future cash flows may be adversely affected.

Decreased utilization of our vessels due to bad weather could have a material adverse effect on our operating results and financial condition.

Unpredictable weather patterns tend to disrupt vessel scheduling and supplies of refined petroleum products and our vessels and cargoes
are at risk of being damaged or lost because of bad weather. In addition, adverse weather conditions can cause delays in the delivery of newbuilds and in transporting cargoes. As a result, bad weather
conditions could have a material adverse effect on our operating results and financial condition.

We are subject to complex laws and regulations, including environmental regulations, that can adversely affect the cost, manner or feasibility of doing business.

Increasingly stringent federal, state and local laws and regulations governing worker health and safety and the manning, construction
and operation of vessels significantly affect our operations. Many aspects of the marine industry are subject to extensive governmental regulation by the U.S. Coast Guard, the Department of
Transportation, the Department of Homeland Security, the National Transportation Safety Board and the U.S. Customs and Border Protection (CBP), and to regulation by private industry organizations such
as the American Bureau of Shipping. The U.S. Coast Guard and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and recommend improved
safety standards. The U.S. Coast Guard is authorized to inspect vessels at will.

Our
operations are also subject to federal, state, local and international laws and regulations that control the discharge of pollutants into the environment or otherwise relate to
environmental protection. Compliance with such laws, regulations and standards may require installation of costly equipment or operational changes. Failure to comply with applicable laws and
regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Some environmental laws often impose strict liability for
remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA 90, owners, operators and
bareboat charterers are jointly and severally strictly liable for the discharge of oil within the internal and territorial waters of, and the 200-mile exclusive economic zone around, the
United States. Additionally, an oil spill could result in significant liability,

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including
fines, penalties, criminal liability and costs for natural resource damages. The potential for these releases could increase as we increase our fleet capacity. Most states bordering on a
navigable waterway have enacted legislation providing for potentially unlimited liability for the discharge of pollutants within their waters.

Our insurance may not be adequate to cover our losses.

We may not be adequately insured to cover losses from our operational risks, which could have a material adverse effect on our
operations. For example, a catastrophic oil spill or other disaster could exceed our insurance coverage. In addition, our affiliate, EW Transportation LLC, and its predecessors may not have
insurance coverage prior to March 1986. If we were subject to claims related to that period, including claims from current or former employees, EW Transportation LLC may not have insurance to
pay the liabilities, if any, that could be imposed on us. If we had to pay claims solely out of our own funds, it could have a material adverse effect on our financial condition. Furthermore, any
claims covered by insurance would be subject to deductibles, and
since it is possible that a large number of claims could be brought, the aggregate amount of these deductibles could be material.

We
may not be able to procure adequate insurance coverage at commercially reasonable rates in the future, and some claims may not be paid. In the past, stricter environmental regulations
have led to higher costs for insurance covering environmental damage or pollution, and new regulations could lead to similar increases or even make this type of insurance unavailable. In addition, our
insurance may be voidable by the insurers as a result of certain actions of ours.

We have received and may receive additional calls from our mutual insurance carrier, which would result in additional expense for us.

Because we obtain some of our insurance through protection and indemnity associations, we also may be subject to calls, or premiums, in
amounts based not only on our own claim records, but also the claim records of all other members of the protection and indemnity associations through which we receive insurance coverage for tort
liability, including pollution-related liability. Our payment of these calls could result in significant expenses to us, which could reduce our profits or cause losses. Moreover, the protection and
indemnity clubs and other insurance providers reserve the right to make changes in insurance coverage with little or no advance notice.

In
December 2008, we received an additional call from our mutual insurance carrier. The call was primarily retrospective for policy years covering February 2006 through February 2009.
The decision to make the call was based primarily on falling investment returns and projected underwriting losses. Our insurance carrier has the right to make these calls when it believes the level of
its reserves will be insufficient to meet certain regulatory requirements. The additional calls, which were based upon the information available in mid-November 2008, totaled approximately
$3.4 million. The call for the first policy year was paid in February 2009 and the call for the second policy year is expected to be paid in September 2009. The call for the last policy year is
scheduled for payment in January 2010 and August 2010. Our insurance carrier has scheduled these payments over this time period to reassess at various points whether the calls are necessary. Based on
the information provided by our mutual insurance carrier, our financial statements reflect additional insurance expense, included in vessel operating expenses, of approximately $2.5 million for
the year ended June 30, 2009. Such estimates may be subject to change in the future and additional liabilities may be recorded if market conditions or underwriting results should deteriorate.

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Terrorist attacks have resulted in increased costs and have disrupted our business. Continued hostilities in the Middle East or other sustained military campaigns may
adversely impact our results of operations.

After the terrorist attacks of September 11, 2001, New York Harbor was shut down temporarily, resulting in the suspension of our
local operations in the New York City area for four days and the loss of revenue related to these operations. The long-term impact that terrorist attacks and the threat of terrorist
attacks may have on the petroleum industry in general, and on us in particular, is not known at this time. Uncertainty surrounding continued hostilities in the Middle East or other sustained military
campaigns may affect our operations in unpredictable ways, including disruptions of petroleum supplies and markets, and the possibility that infrastructure facilities could be direct targets of, or
indirect casualties of, an act of terror.

Changes
in the insurance markets attributable to terrorist attacks may make certain types of insurance more difficult for us to obtain. Moreover, the insurance that may be available to
us may be significantly more expensive than our existing insurance coverage. Instability in the financial markets as a result of terrorism or war could also affect our ability to raise capital.

We depend upon unionized labor for the provision of our services in certain geographic areas. Any work stoppages or labor disturbances could disrupt our business in those
areas.

As of June 30, 2009, approximately 44% of our seagoing personnel were employed under a contract with a division of the
International Longshoreman's Association that expires on June 30, 2010. Any work stoppages or other labor disturbances could have a material adverse effect on our business, financial condition
and results of operations.

Our employees are covered by federal laws that may subject us to job-related claims in addition to those provided by state laws.

Some of our employees are covered by provisions of federal statutory and general maritime law. These laws typically operate to make
liability limits established by state workers' compensation laws inapplicable to these employees and to permit these employees and their representatives to pursue actions against employers for
job-related injuries in federal courts. Because we are not generally protected by the limits imposed by state workers' compensation statutes, we may have greater exposure for claims made
by these employees.

We depend on key personnel for the success of our business.

We depend on the services of our senior management team and other key personnel. In particular, our success depends on the continued
efforts of Mr. Timothy J. Casey, the President and Chief Executive Officer of K-Sea General Partner GP LLC, and other key employees. The loss of the services of any
key employee could have a material adverse effect on our business, financial condition and results of operations. We may not be able to locate or employ on acceptable terms qualified replacements for
senior management or key employees if their services were no longer available.

Due to our lack of asset diversification, adverse developments in our marine transportation business would reduce our ability to make distributions to our unitholders.

We rely exclusively on the revenues generated from our marine transportation business. Due to our lack of asset diversification, an
adverse development in this business would have a significantly greater impact on our business, financial condition and results of operations than if we maintained more diverse assets.

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Changes in international trade agreements could affect our ability to provide marine transportation services at competitive rates.

Currently, vessel trade or marine transportation between two points within the same country, generally known as cabotage or coastwise
trade, is not included in the General Agreement on Trade in Services or the North American Free Trade Agreement. In addition, the Jones Act restricts maritime cargo transportation between U.S. ports
to U.S.-flag vessels qualified to engage in U.S. coastwise trade. If maritime services were deemed to include cabotage and included in the General Agreement on Trade in Services, the North
American Free Trade Agreement or other multi-national trade agreements, transportation of maritime cargo between U.S. ports could be opened to foreign-flag vessels. Foreign vessels would
have lower construction costs and would generally operate at significantly lower costs than we do in U.S. markets, which would likely have a material adverse effect on our ability to compete.

Our credit agreement, our term loans and certain of our operating lease agreements contain restrictive covenants, including the requirement that we maintain defined ratios
of asset coverage, fixed charge coverage and total funded debt to EBITDA (as defined in the agreements). Our failure to comply with our financial covenants could result in an event of default. If a
default were to occur and we were unable to obtain a waiver, it could result in the related debt becoming immediately due and payable and the vessels under operating lease being seized by their
owners, which would have a material adverse effect on our business and financial condition.

The agreements governing the credit agreement, our term loans and our operating lease agreements contain restrictive covenants that,
among other things, (a) prohibit distributions under defined events of default, (b) restrict investments and sales of assets, and (c) require us to adhere to certain financial
covenants, including defined ratios of asset coverage as of the last day of each fiscal quarter of at least 1.25 to 1.00, fixed charge coverage of at least 1.85 to 1.00 and of total funded debt to
EBITDA (as defined in the agreements) of no greater than 3.75 to 1.00 after June 30, 2009.

In
the future, we may need to take certain actions to enhance cash generation and/or reduce debt, which may include entering into sale/leaseback transactions, refinancing existing
indebtedness, selling assets, reducing the level of cash distributions to unitholders, issuing additional common units or pursuing other financing alternatives. If it becomes necessary for us to take
such actions and we are unsuccessful or are otherwise unable to obtain waivers of our financial covenants, we may be in breach of such covenants, which could result in an event of default. If a
default were to occur and we were unable to obtain a waiver, it could result in the related debt becoming immediately due and payable and the vessels under operating lease being seized by their
owners, which would have a material adverse effect on our business and financial condition.

Risks Related to Our Common Units

We may not have sufficient cash from operations 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:



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Additionally,
the actual amount of cash we have available for distribution depends on other factors such as:



The
amount of cash we have available for distribution depends primarily on our cash flow, including cash flow from operations and working capital borrowings, and not solely on
profitability, which will be affected by non-cash items. As a result, we may make cash distributions during periods when we record losses and may not make cash distributions during periods
when we record net income.

K-Sea General Partner L.P. 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.

As of September 1, 2009, affiliates of our general partner indirectly owned a 1.05% general partner interest and a 22.11% limited
partner interest in us and own and control K-Sea General Partner GP LLC. Conflicts of interest may arise between K-Sea General Partner L.P. 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. These conflicts include, among others, the following situations:



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Even if unitholders are dissatisfied, they would have difficulty removing our general partner without its consent.

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and,
therefore, limited ability to influence management's decisions regarding our business. Unitholders did not elect our general partner or the board of directors of its general partner and will have no
right to elect our general partner or the board of directors of its general partner on an annual or other continuing basis. The board of directors of the general partner of our general partner is
chosen by its members.

Furthermore,
if the unitholders are dissatisfied with the performance of our general partner, they will have difficulty removing our general partner. The vote of the holders of at least
662/3% of all outstanding common units is required to remove our general partner.

Cause
is narrowly defined in our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our general partner
liable for actual fraud, gross negligence or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business.

Our general partner's discretion in establishing cash reserves may reduce the amount of cash available for distribution to unitholders.

Our partnership agreement gives our general partner broad discretion in establishing financial reserves for the proper conduct of our
business. These reserves also will affect the amount of cash available for distribution.

In calculating our available cash from operating surplus each quarter, we are required to deduct estimated maintenance capital expenditures, which may result in less cash
available for distribution to unitholders than if actual maintenance capital expenditures were deducted.

Our partnership agreement requires us to deduct estimated maintenance capital expenditures from operating surplus each quarter, as
opposed to actual maintenance capital expenditures, in order to reduce disparities in operating surplus caused by the fluctuating level of maintenance capital expenditures, such as drydocking. Because
of the capital expenditures we intend to make by January 1, 2015 to replace the operating capacity of our single-hull vessels, our
annual estimated maintenance capital expenditures for purposes of calculating operating surplus also includes an additional $1.0 million to contribute to the cost of replacing this operating
capacity.

The
amount of estimated maintenance capital expenditures we deduct from operating surplus is subject to review and change by the board of directors of K-Sea General
Partner GP LLC, with the concurrence of the conflicts committee of such board. In years when estimated maintenance capital expenditures are higher than actual maintenance capital
expenditures, the amount of cash available for distribution to unitholders will be lower than if actual maintenance capital expenditures were deducted from operating surplus.

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Please
read "Risks Inherent in Our BusinessWe must make substantial expenditures to maintain the operating capacity of our fleet, which will reduce our cash
available for distribution" for information regarding substantial expenditures that we must make to maintain the operating capacity of our fleet.

We may issue additional common units without the approval of unitholders, which would dilute unitholders' ownership interests.

We may issue an unlimited number of limited partner interests of any type without the approval of our unitholders. The issuance by us
of additional common units or other equity securities will have the following effects:



Our partnership agreement currently limits the ownership of our partnership interests by individuals or entities that are not U.S. citizens. This restriction could limit the
liquidity of our common units.

In order to ensure compliance with Jones Act citizenship requirements, the board of directors of K-Sea General
Partner GP LLC has adopted a requirement that at least 85% of our partnership interests must be held by U.S. citizens. This requirement may have an adverse impact on the liquidity or
market value of our common units, because unitholders will be unable to sell units to non-U.S. citizens. Any purported transfer of common units in violation of these provisions will be
ineffective to transfer the common units or any voting, dividend or other rights in respect of the common units.

Our general partner has a limited call right that may require unitholders to sell their common units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right,
but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their
then-current market price. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return on their investment.
Unitholders may also incur a tax liability upon a sale of their units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it
upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right.

Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

Our partnership agreement restricts unitholders' voting rights by providing that any units held by a person that owns 20% or more of
any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of the
general partner of our general partner, cannot vote on any matter. The partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information
about our operations, as well as other provisions limiting the unitholders' ability to influence the manner or direction of management.

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Cost reimbursements due our general partner and its affiliates will reduce cash available for distribution to unitholders.

Prior to making any distribution on the common units, we will reimburse our general partner and its affiliates for all expenses they
incur on our behalf, which will be determined by our general partner in its sole discretion. These expenses will include all costs incurred by the general partner and its affiliates in managing and
operating us, including costs for rendering corporate staff and support services to us. In addition, our general partner and its affiliates may provide us with other services for which the general
partner or its affiliates may charge us fees. The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates, could adversely affect our ability to pay cash
distributions to unitholders.

Unitholders may not have limited liability if a court finds that unitholder action constitutes control of our business.

As a limited partner in a partnership organized under Delaware law, a unitholder could be held liable for our obligations to the same
extent as a general partner if such unitholder participates in the "control" of our business. Our general partner generally has unlimited liability for the obligations of the partnership, such as its
debts and environmental liabilities, except for those contractual obligations of the partnership that are expressly made without recourse to our general partner. In addition,
Section 17-607 of the Delaware Revised Uniform Limited Partnership Act provides that, under some circumstances, a unitholder may be liable to us for the amount of a distribution for
a period of three years from the date of the distribution. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly
established in some of the other states in which we do business.

Restrictions in our debt agreements may prevent us from engaging in some beneficial transactions or paying distributions.

Our payment of principal and interest on our debt will reduce cash available for distribution on our units. Our credit agreement
prohibits the payment of distributions after the occurrence of the following events, among others, and receipt of notice from our lenders:



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Any
subsequent refinancing of our current debt or any new debt could have similar restrictions.

The control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of
its assets without the consent of the unitholders so long as the third party satisfies the citizenship requirements of the Jones Act. Furthermore, there is no restriction in the partnership agreement
on the ability of the partners of our general partner from transferring their respective partnership interests in our general partner to a third party that satisfies the citizenship requirements of
the Jones Act. The new partners of our general partner would then be in a position to replace the board of directors and officers of the general partner of our general partner with their own choices
and to control the decisions taken by the board of directors and officers.

Our affiliates may engage in activities that compete directly with us.

Pursuant to the omnibus agreement entered into in connection with the initial public offering of our common units, certain of our
affiliates have agreed not to engage, either directly or indirectly, in the business of providing marine transportation, distribution and logistics services for refined petroleum products in the
United States to the extent such business generates qualifying income for federal income tax purposes. The omnibus agreement does not prohibit the equity owners of our affiliates from owning assets or
engaging in businesses that compete directly or indirectly with us.

Tax Risks

Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by
individual states. If the Internal Revenue Service ("IRS") were to treat us as a corporation or if we were to become subject to a material amount of entity-level taxation for state or foreign tax
purposes, then our cash available for distribution to unitholders would be substantially reduced.

The anticipated after-tax economic benefit of an investment in us depends largely on our being treated as a partnership for
federal income tax purposes.
If less than 90% of our gross income for any taxable year is "qualifying income" from transportation or processing of crude oil, natural gas or products thereof, interest, dividends or similar
sources, we will be taxable as a corporation under Section 7704 of the Internal Revenue Code for federal income tax purposes for that taxable year and all subsequent years. The IRS has not
provided any ruling whether we are taxable as a partnership for federal income tax purposes.

If
we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our income at the corporate tax rate, which is currently a maximum of 35%, and
would likely pay state income tax at varying rates. Distributions would generally be taxed again to unitholders as corporate distributions and no income, gains, losses, or deductions would flow
through to unitholders. Because a tax would be imposed upon us as an entity, cash available for distribution to unitholders would be substantially reduced. Treatment of us as a corporation would
result in a material reduction in the anticipated cash flow and after-tax return to unitholders and thus would likely result in a substantial reduction in the value of the common units.

Current
law may change so as to cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to entity-level taxation. For example, because of
widespread state

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budget
deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation.
The partnership agreement provides that, if a law is enacted or an existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to
entity-level taxation for federal, state, or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts will be adjusted to reflect the impact of that law
on us.

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and
differing interpretations, possibly on a retroactive basis.

The present United States federal income tax treatment of publicly traded partnerships, including us, or an investment in our common
units may be modified by administrative, legislative or judicial interpretation at any time. Any modification to the United States federal income tax laws and interpretations thereof may or may not be
applied retroactively and could make it more difficult or impossible to meet the exception for us to be treated as a partnership for United States federal income tax purposes that is not taxable as a
corporation, affect or cause us to change our business activities, affect the tax considerations of an investment in us, change the character or treatment of portions of our income and adversely
affect an investment in our common units. For example, in response to certain recent developments, members of Congress are considering substantial changes to the definition of qualifying income under
the Internal Revenue Code Section 7704(d) and the treatment of certain types of income earned from profits interests in partnerships. It is possible that these efforts could result in changes
to the existing United States tax laws that affect publicly traded
partnerships, including us. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any such changes could negatively impact the value of an investment in
our common units.

If the IRS contests any of the federal income tax positions we take, the market for our common units may be adversely affected, and the costs of any contest will reduce our
cash available for distribution to unitholders.

The IRS has not provided any ruling with respect to our treatment as a partnership for federal income tax purposes. The IRS may adopt
positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some
or all of the positions we take. Any contest with the IRS may materially and adversely impact the market for our common units and the price at which they trade. In addition, the costs of any contest
with the IRS will be borne indirectly by our unitholders and our general partner because the costs will reduce our cash available for distribution.

Unitholders may be required to pay taxes on their share of our income even if they do not receive any cash distributions from us.

Because our unitholders will be treated as partners to whom we will allocate taxable income, which could be different in amount than
the cash we distribute, our unitholders will be required to pay any federal income taxes and, in some cases, state, local, and foreign income taxes on their share of our taxable income, even if they
receive no cash distributions from us. Unitholders may not receive cash distributions equal to their share of our taxable income or even the tax liability that results from that income.

Tax gain or loss on the disposition of our common units could be different than expected.

If a unitholder sells his common units, that unitholder will recognize gain or loss equal to the difference between the amount realized
and the unitholder's tax basis in those common units. Prior distributions in excess of the total net taxable income the unitholder was allocated for a common unit, which decreased the unitholder's tax
basis in that common unit, will, in effect, become taxable income

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to
the unitholder if the common unit is sold at a price greater than the unitholder's tax basis in that common unit, even if the price the unitholder receives is less than the unitholder's original
cost. A substantial portion of the amount realized, whether or not representing gain, may be ordinary income to unitholders. Should the IRS successfully contest some positions we take, unitholders
could recognize more gain on the sale of common units than would be the case under those positions, without the benefit of decreased income in prior years. In addition, if unitholders sell their
common units, they may incur a tax liability in excess of the amount of cash they receive from the sale.

Tax-exempt entities and foreign persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

Investment in common units by tax-exempt entities, such as individual retirement accounts (known as IRAs) and other
retirement plans, and non-U.S. persons, raises issues unique to them. For example, virtually all of our income allocated to organizations exempt from federal income tax, including IRAs and
other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest
applicable effective tax rate, and non-U.S. persons will be required to file United States federal income tax returns and pay tax on their share of our taxable income. If you are a
tax-exempt entity or a foreign person, you should consult your tax advisor before investing in our common units.

We registered as a tax shelter under prior law. This may increase the risk of an IRS audit of us or a unitholder.

Prior to the enactment of the American Jobs Creation Act of 2004, certain types of entities were required to register with the IRS as
"tax shelters," based on a perception that those entities might claim tax benefits that were unwarranted. We registered as a tax shelter under such prior law. The American Jobs Creation Act of 2004
repealed the tax shelter registration
requirement and replaced it with a regime that requires reporting of certain "reportable transactions." We do not expect to engage in any reportable transactions. Nevertheless, our registration as a
tax shelter under prior law, or our future participation in a reportable transaction, might increase the likelihood that we will be audited, and any such audit might lead to tax adjustments.

Should
our tax returns be audited, any adjustments to our tax returns may lead to adjustments to our unitholders' tax returns and may lead to audits of unitholders' tax returns. Our
unitholders' would be responsible for the consequences of any audits to their tax returns.

We treat each purchaser of common units as having the same tax benefits without regard to the units purchased. The IRS may challenge this treatment, which could adversely
affect the value of the common units.

Because we cannot match transferors and transferees of common units and because we must maintain uniformity of the economic and tax
characteristics of our common units to a purchaser of our common units, we will take depreciation and amortization positions that are intended to maintain such uniformity. These depreciation and
amortization positions may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to
unitholders. It also could affect the timing of these tax benefits or the amount of gain from the sale of common units and could have a negative impact on the value of our common units or result in
audit adjustments to unitholders' tax returns.

Unitholders may be subject to state, local and foreign taxes and return filing requirements as a result of investing in our common units.

In addition to federal income taxes, unitholders will likely be subject to other taxes, such as state and local income taxes,
unincorporated business taxes and estate, inheritance, or intangible taxes that

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are
imposed by the various jurisdictions in which we do business or own property. Unitholders will likely be required to file state and local income tax returns and pay state and local income taxes in
some or all of the various jurisdictions in which we do business or own property and may be subject to penalties for failure to comply with those requirements. We own property or conduct business in
Alaska, California, Delaware, Hawaii, Massachusetts, New York, New Jersey, Oregon, Pennsylvania, Virginia and Washington. We currently conduct certain operations in Canada and Venezuela in a manner
that we believe does not subject unitholders to direct liability to pay tax or file returns in those countries, but there can be no assurance that we will conduct our foreign operations in this manner
in the future. Taxes we pay with respect to our foreign operations reduce the cash flow available for
distribution to our unitholders. We may do business or own property in other states or foreign countries in the future. It is the responsibility of unitholders to file all federal, state, local, and
foreign tax returns.

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

We conduct a portion of our operations through subsidiaries that are, or are treated as, corporations for federal income tax purposes.
Currently, those operations consist primarily of our bunkering activities and our operation of a Canadian flagged vessel. We may elect to conduct additional operations in corporate form in the future.
These corporate subsidiaries will be subject to corporate-level tax, which will reduce the cash available for distribution to us and, in turn, to our unitholders. If the IRS were to successfully
assert that these corporate subsidiaries have more tax liability than we anticipate or legislation was enacted that increased the corporate tax rate, our cash available for distribution to our
unitholders would be further reduced.

The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income
tax purposes.

We will be considered to have terminated for federal income tax purposes if there is a sale or exchange of 50% or more of the total
interests in our capital and profits within a twelve-month period. Our termination would, among other things, result in the closing of our taxable year for all unitholders and could result in a
deferral of depreciation deductions allowable in computing our taxable income. If this occurs, you will be allocated an increased amount of federal taxable income for the year in which we are
considered to be terminated as a percentage of the cash distributed to you with respect to that period.

We prorate our items of income, gain, loss, and deduction between transferors and transferees of our units each month based upon the ownership of our units of the first day
of each month, instead of on the basis of the date a particular unit is transferred, which is standard practice for master limited partnerships. The IRS may challenge this treatment, which could
change the allocation of items of income, gain, loss and deduction among our unitholders.

We prorate our items of income, gain, loss, and deduction between transferors and transferees of our units each month based upon the
ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred, which is standard practice for master limited partnerships. The use of this
proration method may not be permitted under existing Treasury regulations. If the IRS were to challenge this method or new Treasury regulations were issued, we may be required to change the allocation
of items of income, gain, loss, and deduction among our unitholders.

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A unitholder whose units are loaned to a "short seller" to cover a short sale of units may be considered as having disposed of those units. If so, he would no longer be
treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition.

Because a unitholder whose units are loaned to a "short seller" to cover a short sale of units may be considered as having disposed of
the loaned units, he may no longer be treated for tax purposes as a partner with respect to those units during the period of the loan to the short seller and the unitholder may recognize gain or loss
from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those units may not be reportable by the unitholder and
any cash distributions received by the unitholder as to those units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain
recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from loaning their units.

We have adopted certain methodologies that may result in a shift of income, gain, loss and deduction between the general partner and the unitholders. The IRS may challenge
this treatment, which could adversely affect the value of the common units.

When we issue additional units or engage in certain other transactions, we determine the fair market value of our assets and allocate
any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and our general partner. Our methodology may be
viewed as understating the value of our assets. In that case, there may be a shift of income, gain, loss and deduction between certain unitholders and the general partner, which may be unfavorable to
such unitholders. Moreover, subsequent purchasers of common units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to our tangible assets and a
lesser portion allocated to our intangible assets. The IRS may challenge our valuation methods, or our allocation of the Section 743(b) adjustment attributable to our tangible and intangible
assets, and allocations of income, gain, loss and deduction between the general partner and certain of our unitholders.

A
successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to our unitholders. It also could affect the amount
of gain from our unitholders' sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders' tax returns without the benefit
of additional deductions.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

None.

ITEM 3.    LEGAL PROCEEDINGS.

We are a party to various suits in the ordinary course of business for monetary relief arising principally from personal injuries,
collision or other casualty and to claims arising under vessel charters. All of these personal injury, collision and casualty claims against us are fully covered by insurance, subject to deductibles
ranging from $10,000 to $250,000. We reserve on a current basis for amounts we expect to pay. Although the outcome of any individual claim or action cannot be predicted with certainty, we believe 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.

EW
Transportation LLC and its predecessors have been named, together with a large number of other companies, as co-defendants in 39 civil actions by various parties,
including former employees, alleging unspecified damages from past exposure to asbestos and second-hand smoke aboard some of the vessels that it contributed to us in connection with our
initial public offering. EW

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Transportation LLC
and its predecessors have been dismissed from 38 of these lawsuits for an aggregate sum of approximately $47,000. The remaining case has been administratively dismissed,
which effectively means that it remains active for routine matters not requiring a formal hearing. We may be subject to litigation in the future from these plaintiffs and others alleging exposure to
asbestos due to alleged failure to properly encapsulate or remove friable asbestos on our vessels, as well as for exposure to second-hand smoke and other matters. For a related discussion
of insurance coverage, please read "Business and PropertiesInsurance Program" in Items 1 and 2 of this report.

Our
predecessors have agreed to indemnify us for certain liabilities. For more information, please read "Certain Relationships and Related TransactionsOmnibus
AgreementIndemnification" in Item 13 of this report.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

No matters were submitted to a vote of security holders during the quarter ended June 30, 2009.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SECURITY HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Price of Common Units, Distributions and Related Unitholder Matters

Our common units are listed on the New York Stock Exchange under the symbol "KSP." As of September 1, 2009, there were
19,087,983 outstanding common units, representing an aggregate 98.95% limited partner interest in us, which were held by approximately 58 holders of record, representing approximately 10,000
beneficial owners. The following table sets forth, for the periods indicated, the high and low sales prices per common unit, as reported on the New York Stock Exchange, and the amount of cash
distributions declared per common unit:

Price RangeCash
Distribution(1)High

Low2009 Fiscal YearFourth Quarter Ended June 30, 2009

$
21.44

$
16.46

$
0.77Third Quarter Ended March 31, 2009

$
20.43

$
13.25

$
0.77Second Quarter Ended December 31, 2008

$
20.50

$
10.80

$
0.77First Quarter Ended September 30, 2008

$
31.75

$
19.05

$
0.772008 Fiscal YearFourth Quarter Ended June 30, 2008

$
38.08

$
31.53

$
0.77Third Quarter Ended March 31, 2008

$
38.22

$
31.14

$
0.76Second Quarter Ended December 31, 2007

$
40.67

$
33.90

$
0.74First Quarter Ended September 30, 2007

$
48.50

$
36.23

$
0.72






The
aggregate amount of cash distributions declared in respect of the 2009 and 2008 fiscal years totaled $51.0 million and $44.6 million, respectively. The general partner
was issued an aggregate 99,683 common units in respect of the third and fourth quarters of fiscal 2009 in lieu of approximately $2.5 million of cash distributions. These common units were
issued in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

Cash Distribution Policy

Within 45 days after the end of each quarter, we distribute all of our available cash from operating surplus to unitholders of
record on the applicable record date. Our available cash from operating surplus consists generally of all cash on hand at the end of the fiscal quarter, plus all cash on hand resulting from working
capital borrowings made after the end of the quarter up to the date of determination of available cash, less the amount of cash that our general partner determines is necessary or appropriate to,
among others:



Our
ability to distribute available cash is contractually restricted by the terms of our credit facilities, which require us to maintain certain financial ratios and generally prohibit
distributions to unitholders if the distribution would cause an event of default, or an event of default exists, under our

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credit
facilities. Please read "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesCredit Agreement" in
Item 7 of this report.

Incentive Distribution Rights

Incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of available cash from
operating surplus after the minimum quarterly distribution and certain target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may
transfer these rights separately from its general partner interest, subject to restrictions in the partnership agreement.

If
for any quarter, we have distributed available cash from operating surplus to the common unitholders an amount equal to the minimum quarterly distribution, then we will distribute any
additional available cash from operating surplus for that quarter among the unitholders and our general partner in the following manner:



The
percentage interests set forth above for our general partner include its 1.05% general partner interest and assume the general partner has not transferred the incentive distribution
rights. The percentage interests set forth above may change if we issue additional partnership interests and our general partner does not elect to maintain its percentage interest by acquiring
additional general partner units.

Under
our partnership agreement, our general partner and holders of incentive distribution rights may elect to receive distributions with respect to a quarter, in whole or in part, in
the form of common units instead of cash to the extent approved in advance by the conflicts committee of the board of directors of the general partner of our general partner.

Issuer Purchases of Equity Securities

We did not repurchase any of our common units during the fourth quarter of fiscal 2009.

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ITEM 6.    SELECTED FINANCIAL DATA.

The following table sets forth selected historical financial and operating data of K-Sea Transportation
Partners L.P. The following table should be read in conjunction with the consolidated financial statements, including the notes thereto, included elsewhere in this report, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this report.

Years Ended June 30,2009

2008

2007

2006

2005Income Statement Data:Voyage revenue

$
310,429

$
312,680

$
216,924

$
176,650

$
118,811Other revenue


20,033


13,600


9,650


6,118


2,583Total revenues


330,462


326,280


226,574


182,768


121,394Voyage expenses


67,029


79,427


45,875


37,973


24,220Vessel operating expenses


144,291


124,551


96,005


77,325


49,296General and administrative expenses


29,806


28,947


20,472


17,309


11,163Depreciation and amortization


53,582


48,311


33,415


26,810


21,399Net (gain) loss on sale of vessels


(702
)

(601
)

102


(313
)

(264
)Total operating expenses


294,006


280,635


195,869


159,104


105,814Operating income


36,456


45,645


30,705


23,664


15,580Interest expense, net


21,503


21,275


14,097


10,118


5,949Net loss on reduction of debt (1)











7,224


1,359Other expense (income), net


719


(1,827
)

(63
)

(64
)

(27
)Income before provision for income taxes


14,234


26,197


16,671


6,386


8,299Provision for income taxes


287


529


851


484


163Net income

$
13,947

$
25,668

$
15,820

$
5,902

$
8,136Net income per unitbasic

$
0.89

$
1.97

$
1.56

$
0.60

$
0.95diluted

$
0.88

$
1.95

$
1.55

$
0.60

$
0.95Balance Sheet Data (at year end):Vessels and equipment, net

$
533,996

$
608,209

$
358,580

$
316,237

$
235,490Total assets


738,803


798,308


439,833


389,220


275,267Total debt


383,013


439,206


244,287


193,380


114,005Partners' capital


279,414


275,178


152,653


163,943


141,940Cash Flow Data:Net cash provided by (used in):Operating activities

$
51,956

$
40,507

$
41,176

$
20,072

$
24,163Investing activities


(45,382
)

(292,196
)

(63,704
)

(105,398
)

(55,901
)Financing activities


(6,507
)

252,529


22,614


86,064


31,447


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Years Ended June 30,2009

2008

2007

2006

2005Other Financial Data:Capital expenditures (2):Maintenance

$
21,431

$
27,836

$
20,337

$
13,753

$
8,024Expansion (including vessel and company acquisitions)


9,624


240,710


25,960


98,073


39,337Total

$
31,055

$
268,546

$
46,297

$
111,826

$
47,361Construction of tank vessels

$
65,189

$
51,987

$
33,315

$
20,702

$
16,816Distributions declared per common unit in respect of the period

$
3.080

$
2.990

$
2.680

$
2.380

$
2.180Operating Data:Number of tank barges (at period end)


69


74


60


61


44Number of tankers (at period end)





1


1


2


2Number of tugboats (at period end)


66


66


44


41


25Total barrel-carrying capacity (in thousands at period end)


4,125


4,423


3,464


3,357


2,561Net utilization (3)


85
%

84
%

85
%

83
%

85
%Average daily rate (4)

$
11,521

$
11,334

$
10,097

$
9,245

$
8,734


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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is a discussion of the historical consolidated financial condition and results of operations of K-Sea
Transportation Partners L.P. and should be read in conjunction with our historical consolidated financial statements and notes thereto included elsewhere in this report.

GENERAL

We are a leading provider of marine transportation, distribution and logistics services for refined petroleum products in the United
States. As of September 1, 2009, we operated a fleet of 69 tank barges and 66 tugboats that serves a wide range of customers, including
major oil companies, oil traders and refiners. With approximately 4.1 million barrels of capacity, as of September 1, 2009, we believe we operate the largest coastwise tank barge fleet
in the United States.

Demand
for our services is driven primarily by demand for refined petroleum products in the areas in which we operate. We generate revenue by charging customers for the transportation
and distribution of their products utilizing our tank vessels and tugboats. These services are generally provided under the following four basic types of contractual
relationships:



In
addition, a variation of a voyage charter is known as a "consecutive voyage charter." Under this arrangement, consecutive voyages are performed for a specified period of time.

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

Time Charter

Contract of
Affreightment

Voyage
Charter(1)

Bareboat CharterTypical contract length

One year or more

One year or more

Single voyage

One year or moreRate basis

Daily

Per barrel

Varies

DailyVoyage expenses(2)

Customer pays

We pay

We pay

Customer paysVessel operating expenses(2)

We pay

We pay

We pay

Customer paysIdle time

Customer pays as long as vessel is available for operations

Customer does
not pay

Customer does
not pay

Customer pays


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For contracts of affreightment and voyage charters, revenue is recognized based upon the relative transit time in each period, with expenses
recognized as incurred. Although contracts of affreightment and certain contracts for voyage charters may be effective for a period in excess of one year, revenue is recognized over the transit time
of individual voyages, which are generally less than ten days in duration. For time charters and bareboat charters, revenue is recognized ratably over the contract period, with expenses recognized as
incurred.

One
of the principal distinctions among these types of contracts is whether the vessel operator or the customer pays for voyage expenses, which include fuel, port charges, pilot fees,
tank cleaning costs and canal tolls. Some voyage expenses are fixed, and the remainder can be estimated. If we, as the vessel operator, pay the voyage expenses, we typically pass these expenses on to
our customers by charging higher rates under the contract or re-billing such expenses to them. As a result, although voyage revenue from different types of contracts may vary, the net
revenue that remains after subtracting voyage expenses, which we call net voyage revenue, is comparable across the different types of contracts. Therefore, we principally use net voyage revenue,
rather than voyage revenue, when comparing performance between different periods. Since net voyage revenue is a non-GAAP measurement, it is reconciled to the nearest GAAP measurement,
voyage revenue, under "Results of Operations" below.

SIGNIFICANT EVENTS DURING FISCAL 2009

Common Unit Offering

On August 20, 2008, we completed a public offering of 2,000,000 common units representing limited partner interests. The price
to the public was $25.80 per unit. The net proceeds of $49.8 million from the offering, after payment of underwriting discounts and commissions and other transaction costs, were used to repay
borrowings under our credit agreements and to make construction progress payments in connection with our vessel new-building program.

Change in Accounting Estimates

In assessing the appropriateness of the useful lives and salvage values of our vessels, we considered the recent growth in the fleet
and changes in its composition. We concluded, based on our accumulated data on useful lives and the planned future use of our vessels, as well as a review of industry data, that our assets are fully
operative and economic for periods greater than those previously used for book depreciation purposes. Accordingly, effective July 1, 2008, we prospectively increased the estimated useful lives
of double-hulled tank barges and tugboats to a range of ten to thirty years, from the previous ranges of ten to twenty five years and ten to twenty years, respectively, and increased salvage values
for double-hulled tank barges. These changes in accounting estimates increased operating income by $6.4 million and net income by $6.3 million, respectively and net income per fully
diluted limited partner unit by $0.40 for the year ended June 30, 2009.

Insurance Call

In December 2008, we received an additional call from our mutual insurance carrier. The call was primarily retrospective for policy
years covering February 2006 through February 2009. The decision to make the call was based primarily on falling investment returns and projected underwriting losses. Although such additional calls
are uncommon, our insurance carrier has the right to make these calls when it believes the level of its reserves will be insufficient to meet certain regulatory requirements. The additional calls,
which were based upon the information available in mid-November 2008, totaled approximately $3.4 million. The call for the first policy year was paid in February 2009 and the call
for the second policy year is expected to be paid in September 2009. The call for the last policy year is

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scheduled
for payment in January 2010 and August 2010. Our insurance carrier has scheduled these payments over this time period to reassess at various points whether the calls are necessary. We
received updated information from our insurance carrier reflecting improved investment returns and underwriting results. Based on the information provided, our financial statements reflect additional
insurance expense, included in vessel operating expenses, of approximately $2.5 million for the year ended June 30, 2009. Such estimates are subject to change and additional liabilities
may be recorded if market conditions or underwriting results should deteriorate.

RECENT DEVELOPMENT

In August 2009, we completed a public offering of 3,244,500 common units representing limited partner interests. The price to the
public was $19.15 per unit. The aggregate net proceeds of approximately $59.4 million from the offering, after payment of underwriting discounts and commissions but excluding other transaction
costs, were used to repay borrowings of approximately $35.0 million under our credit agreements and to make construction progress payments in connection with our vessel newbuilding program.

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:



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RESULTS OF OPERATIONS

The following table summarizes our results of operations for the periods presented (dollars in thousands, except average daily rates):

For the Years Ended June 30,2009

2008

2007Voyage revenue

$
310,429

$
312,680

$
216,924Other revenue


20,033


13,600


9,650Total revenues


330,462


326,280


226,574Voyage expenses


67,029


79,427


45,875Vessel operating expenses


144,291


124,551


96,005% of voyage and vessel operating expenses to total revenues


63.9
%

62.5
%

62.6
%General and administrative expenses


29,806


28,947


20,472% of total revenues


9.0
%

8.9
%

9.0
%Depreciation and amortization


53,582


48,311


33,415Net (gain) loss on sale of vessels


(702
)

(601
)

102Operating income


36,456


45,645


30,705% of total revenues


11.0
%

14.0
%

13.6
%Interest expense, net


21,503


21,275


14,097Other expense (income), net


719


(1,827
)

(63
)Income before provision for income taxes


14,234


26,197


16,671Provision for income taxes


287


529


851Net income

$
13,947

$
25,668

$
15,820Net voyage revenue by tradeCoastwiseTotal tank vessel days


16,262


15,103


11,032Days worked


14,246


13,174


9,954Scheduled drydocking days


333


831


511Net utilization


88
%

87
%

90
%Average daily rate

$
13,457

$
13,731

$
12,375Total coastwise net voyage revenue (a)

$
191,711

$
180,893

$
123,182LocalTotal tank vessel days


8,545


9,267


8,864Days worked


6,880


7,406


6,987Scheduled drydocking days


218


174


232Net utilization


81
%

80
%

79
%Average daily rate

$
7,513

$
7,070

$
6,851Total local net voyage revenue (a)

$
51,689

$
52,360

$
47,867Tank vessel fleetTotal tank vessel days


24,807


24,370


19,896Days worked


21,126


20,580


16,941Scheduled drydocking days


551


1,005


743Net utilization


85
%

84
%

85
%Average daily rate

$
11,521

$
11,334

$
10,097Total fleet net voyage revenue (a)

$
243,400

$
233,253

$
171,049


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Fiscal Year Ended June 30, 2009 Compared to the Fiscal Year Ended June 30, 2008

Voyage Revenue and Voyage Expenses

Voyage revenue was $310.4 million for the year ended June 30, 2009, a decrease of $2.3 million, or 0.7%, as
compared to voyage revenue of $312.7 million for the year ended June 30, 2008. Voyage expenses were $67.0 million for the year ended June 30, 2009, a decrease of
$12.4 million, or 15.6%, as compared to voyage expenses of $79.4 million for the year ended June 30, 2008. The decrease in voyage expenses primarily relates to the decrease in the
price of fuel.

Net Voyage Revenue

Net voyage revenue was $243.4 million for the year ended June 30, 2009, an increase of $10.1 million, or 4.3%, as
compared to net voyage revenue of $233.3 million for the year ended June 30, 2008. In our coastwise trade, net voyage revenue was $191.7 million for the year ended June 30,
2009, an increase of $10.8 million, or 6.0%, as compared to $180.9 million for the year ended June 30, 2008. Net utilization in our coastwise trade was 88% for the year ended
June 30, 2009 as compared to 87% for the year ended June 30, 2008. Net voyage revenue in our coastwise trade increased $15.0 million for the year ended June 30, 2009 due
(1) to an increase in the number of working days for our barges (a) the DBL 77 and the Washington, both of which began operations in July 2008 and (b) the DBL 76 and the DBL 79,
which began operations in November 2008 and January 2009, respectively, and (2) the net decrease in scheduled drydocking days in fiscal year 2009 versus fiscal year 2008. These increases were
partially offset by a decrease of $2.5 million relating to two barges that were sold and a decrease of $1.8 million relating to a barge which worked in the spot market in the year ended
June 30, 2009 as compared to being on a time charter for the year ended June 30, 2008. Average daily rates in our coastwise trade decreased 2.0% to $13,457 for the year ended
June 30, 2009 from $13,731 for the year ended June 30, 2008 due to a write down of our fuel inventory to reflect lower fuel cost and lower rates in the Gulf Coast region due to decreased
demand for #6 oil due to the lower price of natural gas.

Net
voyage revenue in our local trade for the year ended June 30, 2009 decreased by $0.7 million, or 1.3%, to $51.7 million from $52.4 million for the year
ended June 30, 2008. Local net voyage revenue increased by $3.8 million during the year ended June 30, 2009 due to the increased number of working days for the newbuild barges DBL
23, DBL 24 and DBL 25, which were delivered in September 2007, December 2007, and March 2008, respectively. Additionally, local net voyage revenue increased by $2.0 million due to the movement
of two vessels from performing operational support activities for our waste water treatment and Philadelphia facilities during the year ended June 30, 2008 to the spot bunker market in the year
ended June 30, 2009 and the return to service of a vessel that was in shipyard for an extended period during the year ended June 30, 2008. The $5.8 million increase was offset by
a decrease in local net voyage revenue of $6.4 million due to the retirement of six single-hull vessels, four of which were sold as of June 30, 2009. Net utilization in our
local trade was 81% for the year ended June 30, 2009, compared to 80% for the year ended June 30, 2008. Average daily rates in our local trade increased 6.3% to $7,513 for the year ended
June 30, 2009 from $7,070 for the year ended June 30, 2008 due to higher rates on certain clean oil vessels due to a colder winter as compared to the year ended June 30, 2008 and
higher rates on certain newbuild vessels.

Other Revenue

Other revenue increased by $6.4 million, or 47.1%, to $20.0 million for the year ended June 30, 2009, as compared
to $13.6 million for the year ended June 30, 2008. Of this $6.4 million increase, $5.9 million was attributable to increased revenue from the purchase of eight tugboats in
June 2008, $0.9 million was a result of a full year of operations relating to the Smith Maritime Group acquisition, and $0.5 million related to a customer contract cancellation
settlement during fiscal year 2009. These

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increases
were partially offset by a $1.0 million decrease due to three vessels whose charters terminated during fiscal year 2009 and which had operated under charters during the year ended
June 30, 2008.

Vessel Operating Expenses

Vessel operating expenses were $144.3 million for the year ended June 30, 2009, an increase of $19.7 million, or
15.8%, as compared to $124.6 million for the year ended June 30, 2008. Voyage and vessel operating expenses as a percentage of total revenues increased to 63.9% for the year ended
June 30, 2009 from 62.5% for the year ended June 30, 2008. Vessel labor and related costs for the year ended June 30, 2009 increased $18.0 million as a result of a
contractual labor rate increase reflected in our new two-year labor contract with certain of our vessel employees and a higher average number of employees for the year ended
June 30, 2009 due to the operation of the additional barges and tugboats described under "Net voyage revenue" and "Other Revenue" above. Other vessel operating costs
increased approximately $1.8 million for the year ended June 30, 2009, including $8.4 million of aggregate increases attributable to (1) an increase in vessel insurance
premiums of $4.4 million due an increased number of vessels and rate increases, including $2.5 million relating to the additional call described in "Significant Events"
above; (2) an increase of $1.2 million for repairs, damages, maintenance, supplies and parts; (3) an increase of $0.6 million relating to bad debt expense primarily as a
result of the resolution of an arbitration proceeding; (4) an increase of $0.9 million in outside charter fees primarily due to certain sale-leaseback agreements entered into
during fiscal 2009; and (5) an increase of $1.3 million relating to fuel and other costs. Such increases were partially offset by a decrease of $6.0 million in outside towing
expenses as a result of the purchase of eight additional tug boats in June 2008 and a $0.6 million decrease in uninsured losses relating to the deductible portion of insurance claims.

Depreciation and Amortization

Depreciation and amortization was $53.6 million for the year ended June 30, 2009, an increase of $5.3 million, or
11.0%, as compared to $48.3 million for the year ended June 30, 2008. The increase in depreciation and amortization for the year ended June 30, 2009 includes $5.0 million
for vessels purchased and newbuilds placed in service during fiscal years 2009 and 2008 and $5.8 million for increased drydocking amortization. These increases were partially offset by a
decrease of $6.4 million due to the change in estimated useful lives of our vessels and salvage values as described under "Significant Events" above.

General and Administrative Expenses

General and administrative expenses were $29.8 million for the year ended June 30, 2009, an increase of
$0.9 million, or 3.1%, as compared to general and administrative expenses of $28.9 million for the year ended June 30, 2008. As a percentage of total revenues, general and
administrative expenses increased to 9.0% for the year ended June 30, 2009 from 8.9% for the year ended June 30, 2008. The $0.9 million increase for the year ended June 30,
2009 is primarily the result of increased personnel costs resulting from increased average headcount for the year ended June 30, 2009 to support our growth and the additional facilities costs
of our offices in Hawaii and Seattle.

Interest Expense, Net

Net interest expense was $21.5 million for the year ended June 30, 2009, or $0.2 million higher than the
$21.3 million incurred for the year ended June 30, 2008. Net interest expense increased slightly for the year ended June 30, 2009 compared to June 30, 2008 because of
higher average debt balances, partially offset by lower variable interest rates.

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Other Expense (Income), Net

Other expense (income), net of $0.7 million for the year ended June 30, 2009 is primarily comprised of a
$0.5 million provision for contract cancellation. Other expense (income), net of ($1.8 million) for the year ended June 30, 2008 is primarily comprised of a reimbursement of
certain expenses totaling $2.1 million resulting from a court settlement relating to an incident with one of our tank barges in November 2005.

Provision for Income Taxes

Our provision for income taxes is based on our estimated annual effective tax rate. For the fiscal year ended June 30, 2009 and
2008, our effective tax rate was 2.0%. Our effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on our operating partnership, plus federal, state, local and
foreign corporate income taxes on the taxable income of our operating partnership's corporate subsidiaries.

Net Income

Net income was $13.9 million for the year ended June 30, 2009, a decrease of $11.8 million compared to net income
of $25.7 million for the year ended June 30, 2008. This decrease resulted primarily from a $9.2 million decrease in operating income, a $2.5 million decrease in other
income and a $0.2 million increase in interest expense, partially offset by a $0.2 million decrease in the provision for income taxes.

Fiscal Year Ended June 30, 2008 Compared to the Fiscal Year Ended June 30, 2007

Voyage Revenue and Voyage Expenses

Voyage revenue was $312.7 million for the fiscal year ended June 30, 2008, an increase of $95.8 million, or 44%,
as compared to voyage revenue of $216.9 million for the fiscal year ended June 30, 2007. Voyage expenses were $79.4 million for the fiscal year ended June 30, 2008, an
increase of $33.5 million, or 73%, as compared to voyage expenses of $45.9 million for the fiscal year ended June 30, 2007.

Net Voyage Revenue

Net voyage revenue was $233.3 million for the fiscal year ended June 30, 2008, an increase of $62.3 million, or
36%, as compared to net voyage revenue of $171.0 million for the fiscal year ended June 30, 2007. In our coastwise trade, net voyage revenue was $180.9 million for the fiscal year
ended June 30, 2008, an increase of $57.7 million, or 47%, as compared to $123.2 million for the fiscal year ended June 30, 2007. Net utilization in our coastwise trade was
87% for the fiscal year ended June 30, 2008 as compared to 90% for the fiscal year ended June 30, 2007. Net utilization in fiscal 2008 was adversely affected by a larger than usual
number of shipyard days. The acquisition of the Smith Maritime Group in August 2007 resulted in increased coastwise net voyage revenue of $42.4 million for the fiscal year ended June 30,
2008. Net voyage revenue increased by an additional $13.4 million during the fiscal year ended June 30, 2008 due to an increase in the number of working days for our barges
(1) the DBL 104, which began operations in April 2007, (2) the DBL 134, which was in shipyard being coupled with the Irish Sea in the prior fiscal period, (3) the DBL 151, which
was in shipyard for an extended stay in the prior fiscal period and (4) the Columbia, which was purchased and placed in service in September 2007. Average daily rates in our coastwise trade
increased 11% to $13,731 for the fiscal year ended June 30, 2008 from $12,375 for the fiscal year ended June 30, 2007.

Net
voyage revenue in our local trade for the fiscal year ended June 30, 2008 increased by $4.5 million, or 9%, to $52.4 million from $47.9 million for the
year ended June 30, 2007. Local net

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voyage
revenue increased by $8.3 million for the fiscal year ended June 30, 2008 due to the increased number of work days for the newbuild barges DBL 27, DBL 22, DBL 23, DBL 24 and DBL
25 delivered in January 2007, June 2007, September 2007, December 2007 and March 2008, respectively. This increase was partially offset by the retirement of four single-hulled tank vessels, which
decreased net voyage revenue by $2.1 million, and also by weakness in the market for certain older, smaller units and an unseasonably warm winter in the northeast, which reduced demand for
heating oil. Net utilization in our local trade was 80% for the fiscal year ended June 30, 2008, compared to 79% for the fiscal year ended June 30, 2007. Average daily rates in our local
trade increased 3% to $7,070 for the
fiscal year ended June 30, 2008 from $6,851 for the fiscal year ended June 30, 2007. Net utilization in fiscal 2008 was positively impacted by higher utilization for our newbuild barges.

Other Revenue

Other revenue was $13.6 million for the fiscal year ended June 30, 2008, compared to $9.7 million for the fiscal
year ended June 30, 2007. Increases from the Smith Maritime Group contributed $5.2 million and the eight tugboats purchased from Roehrig Maritime in June 2008 contributed
$0.8 million. These increases were partially offset by a $2.3 million decrease in chartering of tank barges to third parties.

Vessel Operating Expenses

Vessel operating expenses were $124.6 million for the fiscal year ended June 30, 2008, an increase of
$28.6 million, or 30%, as compared to $96.0 million for the fiscal year ended June 30, 2007. Voyage and vessel operating expenses as a percentage of total revenues decreased to
62.5% for the fiscal year ended June 30, 2008 from 62.6% for the fiscal year ended June 30, 2007. Vessel labor and related costs increased $18.6 million during fiscal 2008 as a
result of contractual labor rate increases and a higher average number of employees due to the operation of the additional barges described under "Net voyage revenue" above, the
acquisition of the Smith Maritime Group during August 2007 and additional tugboats purchased during fiscal 2008. Insurance costs and vessel repairs and supplies increased $9.7 million during
fiscal 2008 as a result of the operation of the larger number of vessels. Additionally, outside towing costs decreased $1.3 million due to additional tugboats purchased during fiscal 2008.

Depreciation and Amortization

Depreciation and amortization was $48.3 million for the fiscal year ended June 30, 2008, an increase of
$14.9 million, or 45%, as compared to $33.4 million for the fiscal year ended June 30, 2007. The increase resulted from additional depreciation and drydocking amortization on our
newbuild and purchased vessels described above in addition to the vessels acquired in the Smith Maritime Group transaction.

General and Administrative Expenses

General and administrative expenses were $28.9 million for the fiscal year ended June 30, 2008, an increase of
$8.4 million, or 41%, as compared to general and administrative expenses of $20.5 million for the fiscal year ended June 30, 2007. As a percentage of total revenues, general and
administrative expenses decreased to 8.9% for the fiscal year ended June 30, 2008 from 9.0% for the fiscal year ended June 30, 2007. The $8.4 million increase during fiscal 2008
was mainly a result of increased personnel costs resulting from the Smith Maritime Group acquisition, increased headcount to support our growth, and the additional facilities costs of our new offices
in Philadelphia and Hawaii.

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Interest Expense, Net

Net interest expense was $21.3 million for the fiscal year ended June 30, 2008, or $7.2 million higher than the
$14.1 million incurred in fiscal year ended June 30, 2007. The increase resulted from higher average debt balances resulting from increased credit line and term loan borrowings in
connection with our acquisition and vessel newbuilding program. In addition, we incurred $1.1 million of interest expense during fiscal 2008 for bridge financing in connection with the Smith
Maritime Group acquisition.

Provision for Income Taxes

For the fiscal year ended June 30, 2008, our effective tax rate was 2.0% as compared to a rate of 5.1% for the fiscal year ended
June 30, 2007. Our effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on our operating partnership, plus federal, state, local and foreign corporate
income taxes on the taxable income of our operating partnership's corporate subsidiaries. Our effective tax rate for the fiscal year ended June 30, 2008 was lower than the comparable prior year
period primarily due to adjustments to the estimated tax liabilities for certain foreign jurisdictions based on tax returns filed.

Net Income

Net income was $25.7 million for the fiscal year ended June 30, 2008; an increase of $9.9 million compared to net
income of $15.8 million for the fiscal year ended June 30, 2007. This increase resulted primarily from a $14.9 million increase in operating income, a $1.8 million increase
in other income and a $0.3 decrease in the provision for income taxes, partially offset by a $7.2 million increase in interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Operating Cash Flows.Net cash provided by operating activities was $51.9 million, $40.5 million and $41.2 million for
the years
ended June 30, 2009, 2008 and 2007, respectively. The increase of $11.4 million in fiscal 2009, compared to fiscal 2008, resulted from a $10.2 million positive impact from changes
in assets and liabilities and a $4.9 million decrease in drydocking payments, which were partially offset by a $3.7 million negative impact from operating results (after adjusting for
non-cash expenses such as depreciation and amortization). During the year ended June 30, 2009, our working capital decreased, thereby increasing cash flow, primarily due to a
decrease in accounts receivable as a result of improved collections and a decrease in prepaid expenses and other current assets mainly due to the lower cost of the fuel inventory used to power our
tugboats. This was offset by a decrease in accounts payable as a result of the timing of payments. The decrease of $0.7 million in fiscal 2008, compared to fiscal 2007, resulted from a
$12.9 million negative impact from changes in operating working capital and by increased drydocking payments of $10.6 million, offset by $22.8 million of improved operating
results, after adjusting for non-cash expenses such as depreciation and amortization. During fiscal 2008, our working capital increased mainly due to increased accounts receivable as a
result of increased revenues, and increased prepaid expenses as a result of increased fuel inventory which resulted from higher fuel prices.

Investing Cash Flows.Net cash used in investing activities totaled $45.4 million, $292.2 million and $63.7 million for
the
years ended June 30, 2009, 2008 and 2007, respectively. Tank vessel construction in the year ended June 30, 2009 aggregated $65.2 million and included progress payments on the
construction of one 185,000-barrel articulated tug barge unit, one 100,000-barrel tank barge and two 80,000-barrel tank barges. Capital expenditures of
$10.1 million for the year ended June 30, 2009 consisted primarily of coupling tugboats to our newbuild tank barges and rebuilding the hull of one of our tugboats. Cash proceeds on the
sale of vessels in the year ended June 30, 2009 were $29.5 million,

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primarily
related to sale-leaseback agreements. Excluded from this amount are $1.5 million related to a note issued by the purchaser of a single-hull barge which is
expected to be paid in monthly installments with the final payment due in April 2010 and $2.1 million related to a note issued by the purchaser of a single-hull barge which is
expected to be paid in monthly installments with the final payment due in October 2010.

Fiscal
2008 included the $168.9 million cash portion of the purchase price for the Smith Maritime Group. Vessel acquisitions for fiscal 2008 included $60.5 million to
acquire two existing barges and eleven additional tugs. We issued a $3.0 million note to the seller on one of the barge purchases, which was paid in November 2007. Vessel acquisitions totaled
$16.2 million for fiscal 2007, which related to the purchase of five tugboats and certain small tank vessels. Tank vessel construction for fiscal 2008 aggregated $52.0 million and
included progress payments on the construction of three new 80,000-barrel tank barges, three new 28,000-barrel tank barges, a new 50,000-barrel tank barge, a new
100,000-barrel tank barge and a new 185,000-barrel articulated tug-barge unit. Tank vessel construction of $33.3 million in fiscal 2007 included progress
payments on construction of a new 100,000-barrel tank barge, three new 80,000-barrel tank barges and six new 28,000-barrel tank barges. Other capital expenditures,
totaling $13.3 million in fiscal 2008, related primarily to the coupling of tugboats to our newbuild tank barges, tank renovations on two tank barges and improvements to a newly purchased tug.
Capital expenditures of $14.8 million in fiscal 2007 included the coupling of tugboats to our newbuild tank barges and the rebuilding of one of our larger existing tank barges. Capital
expenditures made in the normal course of business are generally financed by cash from operations and, where necessary, borrowings under our credit agreement.

Financing Cash Flows.Net cash used in financing activities was $6.5 million for the year ended June 30, 2009. Net cash
provided by
financing activities was $252.5 million and $22.6 million for the years ended June 30, 2008 and 2007, respectively. The primary financing activities for the year ended
June 30, 2009 included $51.6 million in gross proceeds from the issuance of 2,000,000 common units in August 2008, $41.4 million in proceeds from the issuance of
long-term debt and the repayment of $20.7 million of term loans (which excludes $49.8 million of term loans refinanced via operating lease agreements). We used a portion of
the equity offering proceeds for the repayment of $37.5 million of credit agreement borrowings and had additional net borrowings under the credit agreement of
$11.7 million. We also made $50.8 million in distributions to partners during fiscal 2009 as described under "Payment of Distributions" below. The primary financing
activities for fiscal 2008 were $138.3 million in gross proceeds from the issuance of 3,500,000 common units in September 2007, $105.0 million of borrowings related to the Smith Maritime
Group acquisition, which were repaid with the equity offering proceeds, and $161.9 million of other term loans to finance our vessel newbuilding program and certain tug and barge purchases
(including the purchase of eight tugboats from Roehrig Maritime LLC as described under "Term Loans" below). Repayment of term loans during fiscal 2008 totaled
$171.8 million, which included $105.0 million related to the Smith Maritime Group and $27.5 million of bridge financing for the purchase of eight tugboats from Roehrig
Maritime LLC. We also increased our credit line borrowings during fiscal 2008 by a net $69.0 million relating to the Smith Maritime Group acquisition and for progress payments on barges
under construction, and paid $40.4 million in distributions to partners as described under "Payment of Distributions" below.

During
fiscal 2007, we increased our credit line borrowings by a net $43.1 million, increased borrowings on term loans by $14.9 million to finance the construction of new
tank barges, repaid term loans by $7.7 million, and paid $27.1 million in distributions to partners.

Payment of Distributions.The board of directors of K-Sea General Partner GP LLC declared the following quarterly
distributions to unitholders: $0.77 per unit in respect of the quarter ended June 30, 2008, which was paid on August 14, 2008 to unitholders of record on August 6, 2008; $0.77 per
unit in respect of the quarter ended September 30, 2008, which was paid on November 14, 2008 to unitholders of record on November 7, 2008; $0.77 per unit in respect of the quarter
ended December 31, 2008,

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which
was paid on February 16, 2009 to unitholders of record on February 9, 2009; and $0.77 per unit in respect of the quarter ended March 31, 2009, which was paid on
May 15, 2009 to unitholders of record on May 8, 2009. For the quarterly period ended March 31, 2009, the board of directors of K-Sea General
Partner GP LLC, after considering the recommendation of its conflicts committee, which consists entirely of independent directors, approved the issuance of 49,775 common units to our
general partner in lieu of $1.244 million in cash distributions for the quarterly period ended March 31, 2009. Additionally, the board of directors of K-Sea General
Partner GP LLC declared a quarterly distribution of $0.77 per unit in respect of the quarter ended June 30, 2009, which was paid on August 14, 2009 to holders of record on
August 10, 2009. For the quarterly period ended June 30, 2009, the board of directors of K-Sea General Partner GP LLC, after considering the recommendation of
its conflicts committee, approved the issuance of 49,908 common units to our general partner in lieu of $1.248 million in cash distributions. Any proposal to issue common units to the general
partner in lieu of a future cash distribution will be considered by the board of directors of K-Sea General Partner GP LLC and its conflicts committee at the time such future
distribution is considered.

Oil Pollution Act of 1990.Tank vessels are subject to the requirements of OPA 90. OPA 90 mandates that all single-hull tank vessels
operating in U.S. waters be removed from petroleum and petroleum product transportation services at various times by January 1, 2015, and provides a schedule for the phase-out of
the single-hull vessels based on their age and size. At September 1, 2009, approximately 83% of the barrel-carrying capacity of our tank vessel fleet was double-hulled in compliance
with OPA 90, and the remainder will be in compliance with OPA 90 until January 2015.

Ongoing Capital Expenditures.Marine transportation of refined petroleum products is a capital intensive business, requiring
significant investment
to maintain an efficient fleet and to stay in regulatory compliance. We estimate that, over the next five years, we will spend an average of approximately $22.7 million per year to drydock and
maintain our fleet. We expect drydocking and maintenance expenditures to approximate $22.5 million in fiscal 2010. In addition, we anticipate that we will spend $1.0 million annually for
other general capital expenditures. Periodically, we also make expenditures to acquire or construct additional tank vessel capacity and/or to upgrade our overall fleet efficiency. For a further
discussion of maintenance and expansion capital expenditures, please read footnote 2 to the table in "Selected Financial Data" in Item 6 of this report. The following table summarizes total
maintenance capital expenditures, including drydocking expenditures, and expansion capital expenditures for the periods presented (in thousands):

Years Ended June 30,2009

2008

2007Maintenance capital expenditures

$
21,431

$
27,836

$
20,337Expansion capital expenditures (including vessel and company acquisitions)


9,624


240,710


25,960Total capital expenditures

$
31,055

$
268,546

$
46,297Construction of tank vessels

$
65,189

$
51,987

$
33,315


During
fiscal 2009, we took delivery of the following newbuild vessels: in December 2008, an 80,000-barrel tank barge, the DBL 79, and in November 2008, an
80,000-barrel tank barge, the DBL 76. During fiscal 2008, we took delivery of the following newbuild vessels: in June 2008, an 80,000-barrel tank barge, the DBL 77; in March
2008, a 28,000-barrel tank barge, the DBL 25; in December 2007, a 28,000-barrel tank barge, the DBL 24; and in September 2007, a 28,000-barrel tank barge, the DBL
23. In total, we have agreements with shipyards for (1) the construction of a

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100,000-barrel
tank barge and an articulated tug-barge unit ("ATB") and (2) the lease of two 50,000-barrel tank barges as follows:

Vessels

Expected DeliveryOne 185,000-barrel articulated tug-barge unit

2nd Quarter of fiscal 2010One 100,000-barrel tank barge

3rd Quarter fiscal 2010Two 50,000-barrel tank barges

3rd Quarter fiscal 2010 and 3rd Quarter fiscal 2011


The
above ATB and 100,000-barrel tank barge are expected to cost, in the aggregate and after the addition of certain special equipment, approximately $101.0 million,
of which $66.7 million has been spent as of June 30, 2009. We have agreements for a seven year term charter for both the ATB and the 100,000-barrel tank barge with major
customers that are expected to commence upon delivery.

We
periodically evaluate entering into sale-leaseback transactions in order to lower the cost of funding our operations, to diversify our funding among different classes of
investors and to
diversify our funding among different types of funding instruments. These sale-leaseback transactions are often executed with third party financial institutions. In general, these
sale-leaseback transactions result in a reduction of vessels and debt on the balance sheet. Accordingly, sale-leaseback transactions will result in reduced depreciation and
interest expense and increased vessel rental expense, which we classify as vessel operating expenses.

In
December 2008, we sold three barges under sale-leaseback agreements with two financial institutions for an aggregate sales price of $34.4 million. The proceeds of
the sales were used to make the final payment for construction of one of the vessels, refinance debt with operating lease obligations and fund a security deposit associated with a lease agreement.
Each of the three operating lease agreements gives us the right to renew the lease at the end of its initial lease term, which ranges from ten to twelve years. Two of the leases include early buy out
options after ten years and nine years, respectively. One lease includes a rent escalation after six years. Gains on the sale of two vessels of $0.9 million and $0.8 million have been
deferred and will be amortized as a reduction of lease expense, which is included in vessel operating expenses, on a straight line basis over their respective lease terms. Prepaid rent and deferred
transaction related costs of $1.6 million will be amortized on a straight line basis over the respective lease terms.

In
June 2009, we sold five barges under sale-leaseback agreements with three financial institutions for an aggregate sales price of $47.8 million. Approximately
$34.4 million of sales proceeds were disbursed directly by the purchasers to refinance debt with operating lease obligations and fund security deposits associated with certain lease agreements.
Four of the five operating lease agreements give us the right to renew the lease at the end of its initial lease term, which ranges from nine and a half to ten years. Two of these leases include early
buyout options after nine years, one lease includes an early buyout option after seven and three quarter years and two leases include early buyout options after seven years. Gains on the sale of two
vessels of $1.4 million and $0.1 million have been deferred and will be amortized as a reduction of lease expense, which is included in vessel operating expenses, on a straight line
basis over each of their respective lease terms. Losses on the sales of two vessels of $0.3 million and $0.1 million have been included in the consolidated statement of operations.
Prepaid rent and deferred transaction related costs of $1.1 million will be amortized on a straight line basis over the respective lease terms.

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Aggregate rent expense for these eight operating lease agreements over their terms is $74.7 million (net of the gain amortization described above),
including rent expense of $1.4 million for the year ended June 30, 2009 and $7.1 million per year for each year in the five year period ending June 30, 2014. The net
unamortized gain and the net unamortized prepaid rent and deferred costs relating to these eight leases are $3.1 million and $2.7 million, respectively, as of June 30, 2009.

Additionally,
we intend to retire, retrofit or replace 17 (including two chartered-in) single-hull tank vessels by January 1, 2015, which at
September 1, 2009 represented approximately 17% of our barrel-carrying capacity. The capacity of certain of these single-hulled vessels has already been effectively replaced by double-hulled
vessels placed into service in the past several years. We estimate that the current cost to replace the remaining capacity with newbuildings and by retrofitting certain of our existing vessels totals
approximately $39.0 million. This capacity can also be replaced by acquiring existing double-hulled tank vessels as opportunities arise. We evaluate the most cost-effective means to
replace this capacity on an ongoing basis.

Liquidity Needs.Our primary short-term liquidity needs are to fund general working capital requirements, distributions to unitholders,
and drydocking expenditures while our long term liquidity needs are primarily associated with expansion and other maintenance capital expenditures. Expansion capital expenditures are primarily for the
purchase of vessels, while maintenance capital expenditures include drydocking expenditures and the cost of replacing tank vessel operating capacity.
Our primary sources of funds for our short term liquidity needs are cash flows from operations and borrowings under our credit agreement, while our long-term sources of funds are cash from
operations, long-term bank borrowings and other debt or equity financings.

We
believe that cash flows from operations and borrowings under our credit agreement, described under "Credit Agreement" below, will be sufficient to meet our liquidity
needs for the next 12 months.

Credit Agreement.We maintain a revolving credit agreement with a group of banks, with KeyBank National Association as administrative
agent and lead
arranger, to provide financing for our operations. On August 14, 2007, we amended and restated our revolving credit agreement to provide for (1) an increase in availability to
$175.0 million under the primary revolving facility, with an increase in the term to seven years, (2) amendments to certain financial covenants and (3) a reduction in interest
rate margins. Under certain conditions, we have the right to increase the primary revolving facility by up to $75.0 million, to a maximum total facility amount of $250.0 million. On
November 7, 2007, we exercised this right and increased the facility by $25.0 million to $200.0 million. The primary revolving facility is collateralized by a first perfected
security interest in a pool of vessels and certain equipment and machinery related to such vessels having a net book value of $255.0 million and a total fair market value of approximately
$256.0 million as of June 30, 2009.

As
of June 30, 2009 and 2008, we had $139.9 million and $162.4 million outstanding on the revolving facility.

The
following table summarizes the rates of interest and commitment fees for the revolving credit agreement:

Ratio of Total Funded Debt to EBITDA

LIBOR
Margin

Base Rate
Margin

Commitment
FeeLess than 2.00 : 1.00


0.70
%

0.00
%

0.150
%Greater than or equal to 2.00 : 1.00 and less than 2.50 : 1.00


0.85
%

0.00
%

0.150
%Greater than or equal to 2.50 : 1.00 and less than 3.00 : 1.00


1.10
%

0.00
%

0.200
%Greater than or equal to 3.00 : 1.00 and less than 3.50 : 1.00


1.25
%

0.00
%

0.200
%Greater than or equal to 3.50 : 1.00


1.50
%

0.25
%

0.300
%


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Interest
on a base rate loan is payable monthly over the term of the credit agreement. Interest on a LIBOR-based loan is due, at our election, one, two or three months after such loan is
made. Outstanding principal amounts are due upon termination of the credit agreement.

Loan
proceeds under the credit agreement may be used for any purpose in the ordinary course of business, including vessel acquisitions, ongoing working capital needs and distributions.
Amounts borrowed and repaid may be re-borrowed. Borrowings made for working capital purposes must be reduced to zero for a period of at least 15 consecutive days once each year.

The
credit agreement contains covenants that include, among others:



The
credit agreement contains customary events of default. If a default occurs and is continuing, we must repay all amounts outstanding under the agreement.

On
November 30, 2007, we entered into agreements with a financial institution to swap the LIBOR-based, variable rate interest payments on $104.9 million of our credit
agreement borrowings to fixed rates, for a term of three years. The fixed rates to be paid by us average 4.01% plus the applicable margin. The fair value of the swap contracts of ($4.7 million)
and ($1.2 million) as of June 30, 2009 and 2008, respectively, is included in other liabilities in the consolidated balance sheets.

We
also maintain a separate $5.0 million revolver with a commercial bank to support our daily cash management activities. Advances under this facility bear interest at
30-day LIBOR plus a margin of 1.40%; amounts outstanding at June 30, 2009 and 2008 totaled $0.4 million and $3.7 million, respectively. This revolving credit facility
is collateralized by three barges and two tug boats.

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Term Loans.Term loans and capital lease obligation outstanding at June 30, 2009 and 2008 were as follows. Descriptions of these
borrowings
are included below:

2009

2008(in thousands)Term loans due:October 5, 2008

$


$
4,265May 1, 2012


2,619


3,418October 1, 2012


2,245


2,830December 31, 2012


8,317


9,102January 1, 2013


11,039


13,243April 30, 2013


14,036


15,321May 1, 2013


67,661


71,916June 1, 2014


17,418


18,869June 1, 2015





16,497July 1, 2015


26,284


27,465November 1, 2015


5,601


December 1, 2016


46,023


10,381February 28, 2018


5,139


5,370April 1, 2018


4,096


4,275May 1, 2018


15,638


46,858June 1, 2018





4,300August 1, 2018


16,220


17,990Capital lease obligation


399


1,035242,735


273,135Less current portion


16,820


16,754$
225,915

$
256,381


On
October 8, 2008, we entered into a loan agreement with a financial institution to borrow $5.8 million, for which we pledged two tug boats as collateral. The proceeds of
the loan were used to repay indebtedness under our revolving credit agreement. This loan bears interest at a fixed rate of 5.85% per annum. This loan is repayable by one payment of interest only
covering the period from the closing date through October 31, 2008, which was paid on November 1, 2008, and 84 monthly installments of $0.06 million commencing
December 1, 2008, with the remaining principal balance of $2.9 million, together with interest, due on November 1, 2015. Outstanding borrowings were $5.6 million at
June 30, 2009.

On
June 5, 2008, we closed the last of eleven fixed-rate term loans aggregating $72.1 million, which were entered into between April 30, 2008 and
June 5, 2008. These loans were arranged with a financial institution, which assigned all but two to other financial institutions. The proceeds of these loans were used to repay borrowings under
our credit agreement, except for $15.0 million which was used to repay an advance on such loans which was borrowed on March 21, 2008 concurrent with the repayment of a separate term loan
on March 24, 2008. These term loan agreements contain customary events of default, including a cross default to our credit agreement, and also the fixed charge coverage ratio requirement that
is included in the credit agreement. In conjunction with the sale-leaseback transactions two of these term loans were repaid in December 2008 and four were repaid in June 2009. The
remaining five term loans have a term of ten years maturing between April 1, 2018 and May 1, 2018 and are collateralized by three barges and two tugboats. The remaining five term loans
bear a weighted average interest rate of 6.43% and are repayable in an aggregate fixed monthly payment of $0.2 million. Final balloon payments on the remaining five term loans aggregate
$9.1 million between

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April 1,
2018 and May 1, 2018. Borrowings outstanding on these loans totaled $19.7 million and $71.9 million at June 30, 2009 and 2008, respectively.

Also
on June 5, 2008, in connection with the acquisition of eight tugboats and ancillary equipment from Roehrig Maritime LLC, we entered into a $31.7 million bridge
loan agreement with a financial institution. The bridge loan was to mature on October 5, 2008; we have since refinanced $27.5 million of the bridge loan with term loans and repaid the
balance on July 13, 2008 using our revolving credit agreement. The term loans all have terms of seven years. Two of the loans totaling $19.9 million bear a weighted average interest rate
of 6.52% and are repayable in an aggregate fixed monthly amount of $0.2 million, with final balloon payments of principal totaling $12.1 million due at maturity on July 1, 2015. A
third term loan bears interest at LIBOR plus 2.0%, is repayable in fixed principal amounts ranging from $30,896 to $41,946 monthly, plus interest, and matures on July 1, 2015 at which
time a final balloon payment of principal of $4.6 million is due. These term loans are collateralized by six tugboats. Borrowings outstanding on these term loans totaled $ 26.3 million
and $27.5 million at June 30, 2009 and 2008, respectively.

On
June 4, 2008, we entered into a credit agreement (the "ATB Agreement") with a financial institution pursuant to which the lender agreed to provide financing during the
construction period, and thereafter, for a 185,000-barrel articulated tug-barge unit in an amount equal to 80% of the acquisition costs of the unit, up to a maximum of
$57.6 million. Obligations under the ATB Agreement are collateralized during the construction period by an assignment of our rights under the construction contract with the shipyard and, after
delivery, by a first preferred mortgage in the tug-barge unit. Interest is payable quarterly at the applicable LIBOR rate plus a margin ranging from 1.05% to 1.85% based upon our ratio of
total funded debt to EBITDA, as defined in the agreement. At the delivery date of the unit, which is expected during the fourth quarter of calendar 2009, the aggregate of the advances taken during the
construction period will be converted to a term loan repayable in twenty-eight quarterly payments covering 37.5% of the term loan, which are expected to approximate $0.8 million each, plus
interest at LIBOR plus the applicable margin. The twenty eighth and final payment will also include a balloon payment of 62.5% of the term loan, estimated at $36.0 million. The ATB Agreement
contains the same financial covenants as are contained in our credit agreement described above, as well as customary events of default. We had outstanding
borrowings of $46.0 million and $10.4 million at June 30, 2009 and 2008, respectively, under the ATB Agreement. On June 13, 2008, we also entered into an agreement with the
financial institution to swap the LIBOR-based, variable rate interest payments on the outstanding balance of the ATB Agreement to a fixed rate of 5.08% over the same term, resulting in a total fixed
interest rate of 5.08% plus the applicable margin. The fair value of the swap contract of ($4.6 million) and ($0.9 million) as of June 30, 2009 and 2008, respectively, is included
in other liabilities in the consolidated balance sheets.

On
February 22, 2008, we closed a new ten-year, $5.4 million term loan to finance the purchase of a tugboat. The loan bears interest at 6.15%, and is repayable
in monthly installments of $46,220 with a final payment at maturity on February 28, 2018 of $2.4 million. The loan is collateralized by the related tugboat. The principal balance of the
loan was $5.1 million and $5.4 million at June 30, 2009 and 2008, respectively.

On
August 14, 2007, in connection with the acquisition of the Smith Maritime Group, we assumed two term loans totaling $23.5 million. The first, in the amount of
$19.5 million, bears interest at LIBOR plus 1.25% and is repayable in equal monthly installments of $147,455, plus interest, through August 2018. The second, in the amount of
$4.0 million, bears interest at LIBOR plus 1.0% and is repayable in monthly installments ranging from $59,269 to $81,320, plus interest, through May 2012. These loans are collateralized by
three tank barges. We also agreed with the lender to assume the two existing interest rate swaps relating to these two loans. The LIBOR-based, variable rate interest payments on these loans have been
swapped for fixed payments at an average rate of 5.46%, plus a

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margin,
over the same terms as the loans. Borrowings outstanding on the term loans were $18.8 million and $21.4 million at June 30, 2009 and 2008, respectively. The fair value of
the swap contract of ($1.9 million) and ($1.2 million) as of June 30, 2009 and 2008, respectively, is included in other liabilities in the consolidated balance sheets.

Also
in connection with the acquisition of the Smith Maritime Group, we acquired an option to purchase a 50% interest in a joint venture which was exercised in October 2007. The joint
venture is consolidated in the accompanying financial statements. The joint venture debt, consisting of a term loan which bears interest at 6.5%, matures on October 1, 2012, and is
collateralized by the related tank barge. Borrowings outstanding on this term loan at June 30, 2009 and 2008 were $2.2 million and $2.8 million, respectively.

In
May 2006, we entered into an agreement to borrow up to $23.0 million to partially finance construction of two 28,000-barrel and one 100,000-barrel tank
barges. The loan bears interest at 30-day LIBOR plus 1.40%, and is repayable in monthly principal payments of $120,958, plus accrued interest, over seven years, with the remaining
principal amount of $10.3 million payable at maturity on June 1, 2014. The loan is collateralized by the related tank barges and two other tank vessels. Borrowings outstanding on this
loan were $17.4 million and $18.9 million at June 30, 2009 and 2008, respectively.

On
April 3, 2006, we entered into an agreement with a lending institution under which we borrowed $80.0 million, for which we pledged six tugboats and six tank barges as
collateral. We used the proceeds of these loans to repay indebtedness under our credit agreement. Borrowings are represented by six loans which have been assigned to other lending institutions. These
loans bear interest at a rate equal to LIBOR plus 1.40%, and are repayable in 84 monthly installments with the remaining principal payable at maturity. The agreement contains certain prepayment
premiums. Borrowings outstanding on these loans totaled $67.7 million and $71.9 million as of June 30, 2009 and 2008, respectively. Also on April 3, 2006, we entered into
an agreement with the lending institution to swap the one-month, LIBOR-based, variable interest payments on the $80.0 million of loans for a fixed payment at a rate of 5.2275% plus
the applicable margin, over the same terms as the loans. This swap results in a fixed interest rate on the loans of 6.6275% for their seven-year term. The fair value of the swap contract
of ($6.4 million) and ($3.5 million) as of June 30, 2009 and 2008, respectively, is included in other liabilities in the consolidated balance sheets.

The
interest rate swap contracts referred to above have all been designated as cash flow hedges and, therefore, the unrealized gains and losses resulting from the change in fair value of
each of the contracts are being reflected in other comprehensive income in the consolidated statements of operations.

On
December 19, 2005, one of our subsidiaries entered into a seven year Canadian dollar (CDN $) term loan to refinance the purchase of an integrated tug-barge
unit. The proceeds of US $13.0 million were used to repay borrowings under our credit agreement, which had been used to finance the purchase of the unit. The loan bears interest at a
fixed rate of 6.59% and is repayable in 60 monthly installments of CDN $136,328 and 23 monthly installments of CDN $215,991 with the remaining principal amount of CDN $7.7 million
payable at maturity on January 1, 2013. This loan is collateralized by the related tug-barge unit and one other tank barge. Borrowings outstanding on this loan totaled US
$11.0 million and US $13.2 million as of June 30, 2009 and 2008, respectively.

In
June 2005, we entered into an agreement to borrow up to $18.0 million to finance the purchase of an 80,000-barrel double-hull tank barge and
construction of two 28,000-barrel double-hull tank barges. The loan bears interest at 30-day LIBOR plus 1.71%, and is repayable in monthly principal installments of
$107,143 with the remaining principal amount of $9.0 million payable at maturity on April 30, 2013. The loan is collateralized by the related tank barges. Borrowings outstanding on this
loan were $14.0 million and $15.3 million at June 30, 2009 and 2008, respectively.

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In
March 2005, we entered into an agreement to borrow up to $11.0 million to partially finance construction of a 100,000-barrel tank barge. The loan bears interest at
30-day LIBOR plus 1.05%, and is repayable in monthly principal installments of $65,500 with the remaining principal amount of $5.5 million payable at maturity on December 31,
2012. The loan is collateralized by the related tank barge. Borrowings outstanding on this loan totaled $8.3 million and $9.1 million at June 30, 2009 and 2008, respectively.

Restrictive Covenants.The agreements governing our credit facility, the term loans and the operating lease agreements contain
restrictive covenants
that, among others, (a) prohibit distributions under defined events of default, (b) restrict investments and sales of assets, and (c) require us to adhere to certain financial
covenants, including defined ratios of asset coverage of at least 1.25 to 1.00, fixed charge coverage of at least 1.85 to 1.00 and of total funded debt to EBITDA (as defined in the agreements) of no
greater than 4.00 to 1.00 through June 30, 2009 and of no greater than 3.75 to 1.00 thereafter. We continuously monitor our debt covenants and when considering future transaction, our decision
making process evaluates the impact such transactions will have on our debt covenants. As of June 30, 2009 and 2008, we were in compliance with all of our debt covenants.

Issuances of Common Units.In August 2009, we completed a public offering of 3,244,500 common units at a price to the public of $19.15
per unit. The
net proceeds of $59.4 million from the offering, after payment of underwriting discounts and commissions but excluding other transaction costs, were used to repay borrowings of approximately
$35.0 million under our credit agreements and to make construction progress payments in connection with our vessel newbuilding program.

On
August 20, 2008, we completed a public offering of 2,000,000 common units at a price to the public of $25.80 per unit. The net proceeds of $49.8 million from the
offering, after payment of underwriting discounts and commissions and payment of expenses, were used to repay borrowings under our credit agreements and to make construction progress payments in
connection with our vessel newbuilding program.

On
August 14, 2007, we issued 250,000 common units to certain sellers in connection with our acquisition of the Smith Maritime Group. On September 26, 2007, we completed a
public offering of 3,500,000 common units at a price to the public of $39.50 per unit. The net proceeds of $131.9 million from the offering, after payment of underwriting discounts and
commissions and expenses, were used to repay borrowings under the credit agreement.

Conversion of Subordinated Units.On January 14, 2004, we completed our initial public offering of our common units and, in
connection
therewith, also issued to our predecessor companies an aggregate of 4,165,000 subordinated units. We met certain financial tests described in our partnership agreement for
early conversion of the first 50% of subordinated units and, as a result, 1,041,250 of these subordinated units converted to common units on each of February 14, 2007 and February 14,
2008. The subordination period for the remaining subordinated units ended in February 2009 when we met certain financial tests described in our partnership agreement. At that time all the remaining
subordinated units converted into common units on a one-for-one basis. The common units are no longer entitled to arrearages.

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Contractual Obligations and Contingencies.Our contractual obligations at June 30, 2009 consisted of the following (in thousands):

Payments Due by Period

Total

Less than
1 Year

2  3 Years

4  5 Years

After
5 YearsLong-term debt and capital lease obligations

$
383,013

$
16,820

$
38,919

$
107,058

$
220,216Interest on long-term debt and capital lease obligations (1)


50,634


15,494


19,591


9,578


5,971Operating lease obligations (2)


80,210


8,834


16,518


15,718


39,140Purchase obligations (3)


23,291


23,108


183





$
537,148

$
64,256

$
75,211

$
132,354

$
265,327


---

Certain
executive officers of K-Sea General Partner GP LLC have entered into employment agreements with K-Sea Transportation Inc., our
indirect wholly owned corporate subsidiary. Each of these employment agreements had an initial term of one year, which is automatically extended for successive one-year terms unless either
party gives 30 days written notice prior to the end of the term that such party desires not to renew the employment agreement. These executive officers currently receive aggregate base annual
salaries of $740,000. In addition, each employee is eligible to receive an annual bonus award based upon consideration of our partnership performance and individual performance. If the employee's
employment is terminated without cause or if the employee resigns for good reason, the employee will be entitled to severance in an amount equal to the greater of (a) the product of 1.3125
(1.75 multiplied by .75) multiplied by the employee's base salary at the time of termination or resignation and (b) the product of 1.75 multiplied by the remaining term of the employee's
non-competition provisions multiplied by the employee's base salary at the time of termination or resignation.

The
European Union has been working toward a new directive for the insurance industry, called "Solvency 2", with a proposed implementation date of November 1, 2012 and which
requires increases in the level of free, or unallocated, reserves required to be maintained by insurance entities, including protection and indemnity clubs that provide coverage for the maritime
industry. The West of England Ship Owners Insurance Services Ltd. ("WOE"), a mutual insurance association based in Luxembourg, provides our protection and indemnity insurance coverage and would
be impacted by the Solvency 2 directive. In anticipation of the Solvency 2 regulatory requirements, the WOE has assessed its members an additional capital call which it believes will contribute to
achievement of the projected required free reserve increases. Our capital call of $1.1 million was paid during calendar 2007. A further request for capital may be made in the future; however,
the amount of such further assessment, if any, cannot be reasonably estimated at this time. As a shipowner member of the WOE, we have an interest in the

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WOE's
free reserves, and therefore have recorded the additional $1.1 million capital call as an investment, at cost, subject to periodic review for impairment. This amount is included in other
assets in the June 30, 2009 and 2008 consolidated balance sheets.

We
are the subject of various claims and lawsuits in the ordinary course of business for monetary relief arising principally from personal injuries, collisions and other casualties.
Although the outcome of any individual claim or action cannot be predicted with certainty, we believe 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 also
subject to deductibles with respect to its insurance coverage that range from $10,000 to $250,000 per incident and provide on a current basis for estimated payments thereunder.

Inflation

During the last three years, inflation has had a relatively minor effect on our financial results. Our contracts generally contain
escalation clauses whereby certain cost increases, including labor and fuel, can be passed through to our customers.

Related Party Transactions

For information regarding related party transactions, please read "Certain Relationships and Related Transactions" in Item 13 of
this report.

Seasonality

We operate our tank vessels in markets that exhibit seasonal variations in demand and, as a result, in charter rates. For example,
movements of clean oil products, such as motor fuels, generally increase during the summer driving season. In certain regions, movements of black oil products and distillates, such as heating oil,
generally increase during the winter months, while movements of asphalt products generally increase in the spring through fall months. Unseasonably cold winters result in significantly higher demand
for heating oil in the northeastern United States. Meanwhile, our operations along the West Coast and in Alaska historically have been subject to seasonal variations in demand that vary from those
exhibited in the East Coast and Gulf Coast regions. The summer driving season can increase demand for automobile fuel in all of our markets and, accordingly, the demand for our services. A decline in
demand for, and level of consumption of, refined petroleum products could cause demand for tank vessel capacity and charter rates to decline, which would decrease our revenues and cash flows. Our West
Coast operations provide seasonal diversification primarily as a result of its services to our Alaskan markets, which experience the greatest
demand for petroleum products in the summer months, due to weather conditions. Considering the above, we believe seasonal demand for our services is lowest during our third fiscal quarter. We do not
see any significant seasonality in the Hawaiian market.

CRITICAL ACCOUNTING POLICIES

An accounting policy is deemed to be critical if it requires us to make an accounting estimate based on assumptions about matters that
are uncertain at the time an accounting estimate is made. An accounting policy is also deemed critical if different accounting estimates that reasonably could be used or changes in the accounting
estimates are reasonably likely to occur periodically, which changes could materially change the financial statements. We consider accounting policies related to revenue recognition and related
reserve, depreciation and amortization of vessels and equipment, impairment of long lived assets including vessels and equipment and intangible assets, impairment of goodwill,

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deferred
income taxes and loss contingency accruals to be critical accounting policies due to the judgments and estimation processes involved in each.

Revenue Recognition and Related Reserve

We earn revenue under contracts of affreightment, voyage charters, time charters and bareboat charters. Revenue is generally recorded
when services are rendered, we have a signed charter agreement or other evidence of an arrangement, pricing is fixed or determinable and collection is reasonably assured. We recognize revenue based on
EITF Issue 91-9 Method 5, which allocates revenue between reporting periods based on the relative transit time in each reporting period with expenses recognized as incurred.

For
contracts of affreightment and voyage charters, revenue is recognized based upon the relative transit time in each period, with expenses recognized as incurred. We are responsible
for the voyage expenses, which include fuel and other items such as port charges, pilot fees, tank cleaning costs and canal tolls which are unique to a particular voyage, and the vessel operating
expenses, such as wages paid to vessel crews, routine maintenance and repairs, marine insurance, and outside towing. Although contracts of affreightment and certain contracts for voyage charters may
be effective for a period in excess of one year, revenue is recognized over the transit time of individual voyages, which are generally less than ten days in duration. For time charters and bareboat
charters, revenue is recognized ratably over the contract period, with expenses recognized as incurred. For time charters we are
responsible for vessel operating expenses, while the customer is responsible for the voyage expenses. For bareboat charters the customer is responsible for both the vessel operating expenses and
voyage expenses. Estimated losses on contracts of affreightment and charters are accrued when such losses become evident and can be estimated.

We
extend credit to our customers in the normal course of business. We serve a wide range of customers including major oil companies, oil traders and refiners. We perform a credit review
of all customers with significant transactions to determine whether a customer is credit worthy and collection is probable. Prior credit history with us, credit reports, financial statements, and bank
references are used to assess creditworthiness. We usually do not require collateral. Estimates of uncollectible amounts are revised each period, and changes are recorded in the period they become
known. We provide an estimate for uncollectible accounts based primarily on management's judgment. Management uses historical losses, current economic conditions and individual evaluations of each
customer including the age of its unpaid amounts and information about the customer's current financial strength to make adjustments to the allowance for doubtful accounts. We believe our allowances
to be based on fair judgment and adequate at the time of their creation. Historically, credit risk with respect to our trade receivables has generally been considered minimal because of the financial
strength of our customers. During fiscal 2009 we recorded an increase in the allowance for doubtful accounts of $0.5 million primarily due to changes in facts and circumstances relating to an
arbitration proceeding with one customer. Because amounts due from individual customers can be significant, future adjustments to the allowance may be material if one or more individual customer's
balances are deemed uncollectible.

Depreciation and Amortization of Vessels and Equipment

In assessing the appropriateness of the useful lives and salvage values of our vessels, we consider growth in the fleet and changes in
its composition. We review industry data as well as our accumulated data on useful lives, historical utilization levels and the planned future use of our vessels, to assess whether or not our assets
are fully operative and economic for their estimated useful lives. We review both historical and current data relating to the price per ton of scrap steel for estimating the salvage values of our
vessels.

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Vessels
and equipment are recorded at cost, which includes contract price, capitalized interest where appropriate, and other direct costs relating to acquiring and placing the vessels in
service. Vessels and equipment are depreciated using the straight-line method over the estimated useful lives of the individual assets as follows: double-hulled tank barges and tug
boatsten to thirty years; pier and office equipmentthree to five years. For single-hull tank vessels, useful lives are limited to the remaining period of
operation prior to mandatory retirement as
required by OPA 90. Management also considers the impact of customer demand for double-hull vessels and the resulting impact on actual utilization levels for single-hull
vessels in assessing the appropriateness of the remaining useful lives of its single-hull tank vessels.

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.

Also
included in vessels and equipment are drydocking expenditures that are capitalized and amortized over three years based on regulatory drydocking requirements. Drydocking of vessels
is required by both the U.S. Coast Guard and by the applicable classification society, which in our case is the American Bureau of Shipping. Such drydocking activities include, but are not limited to,
the inspection, refurbishment and replacement of steel, engine components, tail shafts, mooring equipment and other parts of the vessel. Management makes estimates and judgments relating to the
classification of items such as whether an item is a capital improvement, a drydocking expense or a repair and maintenance item. For example, the replacement of steel during a scheduled drydocking may
be considered either a drydocking expense or a capital improvement depending on the volume of steel replaced.

Impairment of Long Lived AssetsVessels and Equipment, net and Intangible Assets

We periodically review our vessels and equipment and intangible assets for impairment in accordance with Statement of Financial
Accounting Standards ("FAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Factors that could indicate impairment include significant underperformance of the asset as compared to historical or projected future operating results, changes in regulations
relating to an asset, significant changes in the actual or intended use of the asset, or significant negative industry or economic trends. An indication that a vessel's carrying amount may not be
recoverable would require management to estimate the undiscounted future cash flows expected to result from the use of the vessel and its eventual disposition. If the sum of the undiscounted expected
future cash flows is less than the carrying amount of the vessel, we would recognize an impairment loss to the extent the carrying value exceeds its fair value as determined by either such
undiscounted cash flow or by appraisal. In determining whether an asset is impaired we must make assumptions regarding estimated future cash flows from the asset which would include assumptions
relating to the intended use of the asset, asset utilization, estimated annual daily rates and other related factors. If these estimates or their related assumptions change, we may be required to
record an impairment charge for these assets.

Impairment of Goodwill

Goodwill represents the purchase price in excess of the fair value of the net assets acquired and liabilities assumed by us at the date
of acquisition. FAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill be tested for impairment at the reporting unit level on an annual basis and more frequently if
an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. We test for impairment during the second quarter (as of
October 31) of our fiscal year using a two-step process. The first step identifies potential impairment by comparing the fair value of a reporting unit with its book value,
including goodwill. If

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the
fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired and the second step is not necessary. If the carrying value exceeds the fair value, the second step
calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied fair value of goodwill is less than the carrying amount, a
write-down is recorded.

We
operate in a single operating segment. We have two reporting units consisting of our Atlantic region and Pacific region operations. All of our goodwill relates to the Pacific region
reporting unit. We determine the fair value of the Pacific region reporting unit using an income approach based on the present value of estimated future cash flows. We believe that the income approach
is appropriate due to the long term nature our time charters, consecutive voyage charters, and contracts of affreightment and bareboat charters, which are generally for periods of one year or more and
generally contain renewal options. We assess the reasonableness of our approach by consideration of current trading multiples for peer companies.

We
used our business plans and projections as the basis for expected future cash flows for purposes of the annual impairment test as of October 31, 2008. Inherent in the
development of cash flow projections are assumptions and estimates derived from a review of operating results for fiscal 2008 and the first quarter of fiscal 2009, approved business plans, expected
growth rates (which consider both our existing contracts and contracts relating to our newbuild program vessels), cost of capital and tax rates. We also make certain assumptions about future economic
conditions including inflation, interest rates and other market data. The following critical assumptions were used in determining the fair value of goodwill: (1) an increase in the average
daily rate of 4% in 2010 and 3% in 2011, excluding the impact of newbuilds expected to be placed into service in 2010, (2) projected long term growth of 3% for determining terminal value;
(3) a tax rate of 35%, which reflects a market participant rather than our tax rate and (4) an average discount rate of 10.5%, representing our weighted average cost of capital ("WACC").
Factors inherent in determining our WACC included our own and peer company data relating to (1) the value of our limited partner units and peer company common stock; (2) the amounts of
debt and equity capital and the percentages they comprise of capitalization; and (3) expected interest costs on debt and debt market conditions. We assessed the reasonableness of our discounted
cash flow approach by consideration of current EBITDA multiples for peer companies.

The
calculated fair value of the Pacific region reporting unit exceeded its carrying value by $26.0 million as of the measurement date. As of the October 31, 2008
measurement date, the closing price of our common units was $17.01 as compared to the book value per unit of $19.78. We do not believe the market is attributing the full value of our
long-term contracts. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. We based our fair value estimate on assumptions we believe to be
reasonable. However, actual future results may differ from those projected, and those differences may be material.

The
following table summarizes the approximate impact that a change in certain critical assumptions would have on the estimated fair value of the Pacific region reporting unit, assuming
all other assumptions and factors remain constant:

Change From

Change To

Approximate
Impact on Fair Value
Increase (Decrease)Critical AssumptionWACC

10.50%

9.50%

$
63.5 millionWACC

10.50%

11.50%

$
(48.8 million
)Average daily rate excluding newbuilds

3.0%  4.0%

2.0%  3.0%

$
(18.4 million
)Long term growth rate

3.00%

2.00%

$
(42.3 million
)


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Deferred Income Taxes

We provide deferred taxes for the tax effects of differences between the financial reporting and tax bases of assets and liabilities at
enacted tax rates in effect in the jurisdictions where we operate for the years in which the differences are expected to reverse. In
accordance with the applicable standards, we regularly assess our ability to realize our deferred tax assets. Assessments of the realization of deferred tax assets require that management consider all
available evidence, both positive and negative, and make significant judgments about many factors, including the amount and likelihood of future income. Based on all the available evidence, we believe
a portion of our Canadian deferred tax assets are not currently realizable. In reaching this determination, we evaluated our three year cumulative results as well as the impacts that current economic
conditions may have on our future results. As a result we have provided for a valuation allowance on a portion of our Canadian deferred tax assets. It is reasonably possible that we could reduce a
portion of our valuation allowance in the near term.

Loss Contingency Accruals

We are required to make accruals of certain loss contingencies related to litigation, arbitration and mediation activities and claims
under our personnel indemnity, hull and other insurance policies (collectively, "claims"), contract disputes, etc. We accrue these items in accordance with FAS No. 5 "Accounting for
Contingencies" which requires us to accrue for losses we believe are probable and can be reasonably estimated; however, the estimation of the amount to accrue requires significant judgment. Claim
accruals require us to make assumptions about the outcome of each claim based on current information. Adjustments to accruals are required due to changes in facts and circumstances. During fiscal 2009
we recorded an accrual of $0.5 million relating to a customer contract cancellation and during fiscal 2008 we recognized $2.1 million in other income relating to the settlement of legal
proceedings relating to an incident with one of our tank barges in November 2005.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued FAS No. 157, "Fair Value Measurements"
("FAS 157"), which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. We adopted FAS 157 as of July 1, 2008, with
the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities, for which the effective date was delayed as further described below.
Non-recurring nonfinancial assets and nonfinancial liabilities include those measured at fair value in goodwill and indefinite lived intangible assets impairment testing.

In
February 2008, the FASB also issued FASB Staff Positions ("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, while FSP 157-2 delays the effective date of the application of
FAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis.

In
December 2007, the FASB issued FAS No. 141 (revised 2007), "Business Combinations" ("FAS 141(R)") which replaces FAS No.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 purchase method of accounting, but FAS 141(R)
changed the method of applying the purchase 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 fiscal year 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 No. 109 "Accounting for Income Taxes," ("FAS 109") such that adjustments made to valuation

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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). This amendment to FAS 109 had no impact on our consolidated financial statements. We expect the adoption of the remaining provisions of FAS 141(R) will not have a
significant impact on our consolidated financial statements.

In
December 2007, the FASB issued FAS No. 160, "Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB 51" ("FAS 160").
FAS 160 amends ARB 51 to establish new standards that will govern the accounting for and reporting of (1) non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. FAS 160 is effective on a prospective basis for all fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. We expect the adoption of FAS 160 will not have a significant
impact on our consolidated financial statements.

In
March 2008, the FASB issued FAS No. 161, "Disclosure about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("FAS 161").
FAS 161 requires qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective for fiscal years beginning after
November 15, 2008 with early application encouraged. We adopted FAS 161 effective January 1, 2009 and included the required disclosures in the notes to the consolidated financial
statements.

In
May 2008, the FASB's Emerging Issues Task Force ("EITF") issued EITF Issue 07-4 ("EITF 07-4"): "Application of the Two-Class Method under
FASB Statement No. 128 to Master Limited Partnerships" ("MLPs"). EITF 07-4 applies to MLPs that are required to make incentive distributions when certain thresholds have been
met that are accounted for as equity distributions. The provisions of EITF 07-4 are effective for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Earlier application is not permitted. EITF 07-4 will be applied retrospectively for all financial statements presented for us
starting July 1, 2009. We are currently analyzing the impact of this standard.

In
June 2008, the FASB issued FSP EITF 03-6-1"Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities"
("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in a share based payment transaction are participating
securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share ("EPS") under the two class method described in paragraphs 60 and 61
of FASB Statement No. 28, "Earnings per Share." FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those years. FSP EITF 03-6-1 requires prior period EPS data presented to be adjusted retrospectively to conform to its provisions. We
are currently analyzing the impact of this standard.

In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1: "Interim Disclosures about Fair Value of Financial Instruments" ("FSP
FAS 107-1 and APB 28-1"). FSP FAS 107-1 and APB 28-1 amends FAS No. 107, "Disclosures about Fair Value of Financial
Instruments," to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP
FAS 107-1 and APB 28-1 also amends APB Opinion No. 28, "Interim Financial Reporting," to require those disclosures in summarized financial information at
interim reporting periods. FSP FAS 107-1 and APB 28-1 is effective for interim periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. We adopted FSP FAS 107-1 and APB 28-1 effective July 1, 2009 and will include the required disclosures in our
interim period reporting.

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In
May 2008, the FASB issued FAS 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 used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United
States. This statement was not expected to change existing practices but rather reduce the complexity of financial reporting. This statement became effective on November 13, 2008 and did not
have a material effect on our financial statements. In June 2009, the FASB issued FAS No. 168 "The FASB Codification and the Hierarchy of Generally Accepted Principles, a
replacement of FAS No. 162" ("FAS 168"). FAS 168 will become the source of authoritative U.S. generally accepted accounting principles. On the effective date of FAS 168,
the Codification will supersede all then existing non-SEC accounting and reporting standards. FAS 168 is effective for financial statements issued for interim and annual periods ending
after September 15, 2009. FAS 168 is not expected to have a material effect on our consolidated financial statements.

In
May 2009, the FASB issued FAS No. 165, "Subsequent Events" ("FAS 165"). FAS 165 establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or are available to be issued. This standard requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This standard is effective for
interim and annual financial periods ending after June 15, 2009. We adopted FAS 165 effective April 1, 2009 and have included the required disclosure in the notes to the
consolidated financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our primary market risk is the potential impact of changes in interest rates on our variable rate borrowings. After considering the
interest rate swap agreements discussed below, as of June 30, 2009 and June 30, 2008, approximately $254.5 million and $312.4 million, respectively, of our
long-term debt bore interest at fixed interest rates ranging from 5.51% to 6.81% and 5.26% to 6.81%, respectively. Borrowings under a portion of our credit agreement and certain other term
loans, totaling $128.5 million and $126.8 million at June 30, 2009 and June 30, 2008, respectively, bore interest at a floating rate based on LIBOR, which subjects us to
increases or decreases in interest expense resulting from movements in that rate. Based on our total outstanding floating rate debt as of June 30, 2009, the impact of a 1% change in interest
rates would result in a change in interest expense, and a corresponding impact on income before income taxes, of approximately $1.3 million annually.

As
of June 30, 2009, we had seven outstanding interest rate swap agreements, three relating to the revolving credit agreement that expire in 2010 and four that expire over the
period from 2012 to 2018, concurrently with the hedged term loans. Interest payments relating to one swap with a notional amount of $57.6 million commence in February 2010 and bear a fixed rate
of 5.08% plus a margin ranging from 1.05% to 1.85%. As of June 30, 2009, the notional amount of the six other swaps agreements was $191.4 million, we were paying a weighted average fixed
rate of 6.02% (including applicable margins), and we were receiving a weighted average variable rate of 1.95%. As of June 30, 2008, the notional amount of the six other swaps was
$198.2 million and we were paying a weighted average fixed rate of 5.91%, and were receiving a weighted average variable rate of 3.77%. The primary objective of these contracts is to reduce the
aggregate risk of higher interest costs associated with variable rate debt. The interest rate swap contracts we hold have been designated as cash flow hedges and, accordingly, gains and losses
resulting from changes in the fair value of these contracts are recognized as other comprehensive income as required by Statement of Financial Accounting Standards No. 133. We are exposed to
credit related losses in the event of non-performance by counterparties to these instruments; however, the counterparties are major financial institutions and we consider such risk of loss
to be minimal. We do not hold or issue derivative financial instruments for trading purposes.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements set forth on pages F-1 to F-39 of this report are incorporated herein by
reference.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.    CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

In accordance with 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 period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
June 30, 2009.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three months ended June 30,
2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting

See page F-2 of this report for Management's Report on Internal Control Over Financial Reporting.

ITEM 9B.    OTHER INFORMATION.

None.

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

K-Sea General Partner GP LLC, as the general partner of K-Sea General Partner L.P., our
general partner, manages our operations and activities. Our general partner is not elected by our unitholders and is not subject to re-election on a regular basis. Unitholders are not
entitled to elect the directors of K-Sea General Partner GP LLC or directly or indirectly participate in our management or operation.

Set
forth below is information concerning the directors and executive officers of K-Sea General Partner GP LLC as of September 1, 2009. Executive
officers and directors are elected for one-year terms.

Name

Age

Position with K-Sea General Partner GP LLCJames J. Dowling


63

Chairman of the BoardTimothy J. Casey


48

President, Chief Executive Officer and DirectorAnthony S. Abbate


69

DirectorBarry J. Alperin


69

DirectorBrian P. Friedman


53

DirectorFrank Salerno


50

DirectorTerrence P. Gill


41

Chief Financial OfficerThomas M. Sullivan


50

Chief Operating Officer and PresidentAtlantic RegionRichard P. Falcinelli


48

Executive Vice President and SecretaryGregory J. Haslinsky


46

Senior Vice President, Business Development and MarketingGordon Smith


40

PresidentPacific Region


James J. Dowlinghas served as our Chairman of the Board since July 2003, has served as Chairman of the Board of EW
Transportation LLC (formerly K-Sea Transportation LLC) since January 2002 and has served as a director of EW Transportation LLC since its formation in April 1999.
Mr. Dowling has been a Managing Director of Jefferies Capital Partners, a private investment firm, since January 2002, and is a director of various private companies in which Jefferies Capital
Partners has an interest. Jefferies Capital Partners is the manager of Furman Selz Investors II L.P. and its affiliated entities, principal owners of our general partner.

Timothy J. Caseyhas served as our President, Chief Executive Officer and Director since July 2003. Mr. Casey has served as
President, Chief Executive Officer and Director of EW Transportation LLC since April 1999. Mr. Casey is also Chairman of the Board of Directors of American Waterways Operators, a board
member of The Seamen's Church Institute and a member of the American Bureau of Shipping.

Anthony S. Abbatehas served as a Director since February 2004. Mr. Abbate was President, Chief Executive Officer and a director of
Interchange Financial Services Corporation, a bank holding company, since 1984 until his retirement in 2007 and President, Chief Executive Officer and a director of its principal subsidiary,
Interchange Bank, from 1981 until his retirement in 2007. In April 2007, Mr. Abbate joined the Board of Directors of Sussex Bancorp, a bank holding company.

Barry J. Alperinhas served as a Director since February 2004. Mr. Alperin is a business consultant who retired from
Hasbro Inc. in 1996 after 11 years in various senior executive positions, including Vice Chairman and Director. Mr. Alperin is currently on the board of Henry Schein, Inc.,
a distributor of healthcare products to office-based practitioners, and The Hain Celestial Group, Inc., a natural and organic beverage, snack, specialty food and personal care products company.

Brian P. Friedmanhas served as a director since July 2003. Since 1997, Mr. Friedman has been President of Jefferies Capital
Partners, a private equity investment firm. Mr. Friedman also serves as Chairman of the Executive Committee of Jefferies & Company, Inc., a global securities and investment

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banking
firm, and as a director of Jefferies Group, Inc. As a result of his management of various private equity funds and the significant equity positions those funds hold in their portfolio
companies, Mr. Friedman serves on several boards of directors of private portfolio companies. Mr. Friedman also serves on the board of directors of Carrols Restaurant Group, Inc.

Frank Salernohas served as a Director since February 2004. Mr. Salerno has served as a director for WisdomTree
Investments, Inc. (formerly known as Index Development Partners) since July 2005 and chair of its audit and compensation committees and as a director for Crystal International Travel Group
since April 2006. From mid-1999 until his retirement in February 2004, Mr. Salerno was Managing Director and Chief Operating Officer of Merrill Lynch Investment
AdvisorsAmericas Institutional Division, an investment advisory company.

Terrence P. Gillhas served as our Chief Financial Officer since November 2008. Mr. Gill served as our Corporate Controller since
July 2003, and has served as Controller of EW Transportation LLC since May 2000. From November 1996 to May 2000, Mr. Gill was employed by Pricewaterhouse Coopers LLP, most
recently as an audit manager. Mr. Gill is a certified public accountant.

Thomas M. Sullivanhas served as Chief Operating Officer and PresidentAtlantic Region since April 2008. Mr. Sullivan
served as Vice President of Operations from July 2003 to April 2008. Mr. Sullivan served as Vice President of Operations for EW Transportation LLC since April 1999. Mr. Sullivan
also served as Vessel Supervisor for EW Transportation LLC's predecessor from March 1995 until April 1999.

Richard P. Falcinellihas served as Executive Vice President and Secretary since April 2008. Mr. Falcinelli served as Vice
President of Administration and Secretary from July 2003 to April 2008. Mr. Falcinelli has served as Vice President of Administration and Secretary of EW Transportation LLC since April
1999.

Gregory J. Haslinskyhas served as our Senior Vice President, Business Development and Marketing since January 2009. Mr. Haslinsky
served as Vice President, Sales and Marketing from October 2005 to January 2009 and has been employed by K-Sea Transportation since December 1999 in various sales capacities.
Mr. Haslinsky was employed from November 1988 to November 1999 by Maritrans, a marine transportation company, holding various sales and marketing positions within the organization.

Gordon Smithhas served as our PresidentPacific Region since April 2008. From August 2007 to April 2008, Mr. Smith
served as Vice Chairman. Mr. Smith was President of Smith Maritime, Ltd. from 1992 and Vice President of Sirius Maritime LLC from 2002 until our acquisition of those companies in
August 2007.

Meetings and Committees of the Board of Directors

Meetings

K-Sea General Partner GP LLC's board of directors held nine meetings during fiscal 2009. During fiscal 2009,
each director attended at least 75% of the aggregate of (1) the total number of meetings of the board of directors of K-Sea General Partner GP LLC and (2) the
total number of meetings held by all committees of such board on which he served.

Audit Committee

K-Sea General Partner GP LLC has a standing audit committee consisting of Messrs. Abbate, Alperin
(Chairman) and Salerno. The board of directors of K-Sea General Partner GP LLC has determined that all members of the audit committee are independent within the meaning of
the listing standards of the New York Stock Exchange and the applicable rules of the Securities and Exchange Commission. In addition, the board of directors of K-Sea General
Partner GP LLC has determined that

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Mr. Abbate
is an audit committee financial expert within the meaning of the rules of the Securities and Exchange Commission.

The
primary responsibilities of the audit committee are to assist the board of directors of K-Sea General Partner GP LLC in overseeing (1) the integrity
of our financial statements, (2) our independent registered public accounting firm's qualifications, independence, and performance, (3) the effectiveness of our internal controls and
procedures and our internal audit function, and (4) our compliance with legal and regulatory requirements. The audit committee has the sole authority to appoint, retain and terminate our
independent registered public accounting firm, which reports directly to the audit committee.

The
audit committee has established procedures for the receipt, retention and treatment of complaints we receive regarding accounting, internal accounting controls or auditing matters
and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.

Compensation Committee

K-Sea General Partner GP LLC has a standing compensation committee consisting of Messrs. Alperin,
Dowling (Chairman) and Friedman. The compensation committee, among other tasks, determines and approves the chief executive officer's compensation, makes recommendations to the board with respect to
other executive officer compensation, and reviews from time to time the compensation and benefits of non-employee directors.

Conflicts Committee

K-Sea General Partner GP LLC has a standing conflicts committee consisting of Messrs. Abbate, Alperin
and Salerno. The conflicts committee reviews specific matters that the board of directors of K-Sea General Partner GP LLC believes may involve conflicts of interest and takes
such other action as may be required under the terms of our partnership agreement.

Finance Committee

K-Sea General Partner GP LLC has a standing finance committee consisting of Messrs. Dowling and Casey.
The finance committee is authorized to review and approve derivative transactions (including interest rate swaps) with respect to up to 50% of our total outstanding indebtedness.

Director Independence

For information on director independence, please read "Item 13. Certain Relationships and Related Transactions, and Director
Independence."

Policies and Procedures for Approval of Related Person Transactions

The Board of Directors of K-Sea General Partner GP LLC has adopted a policy pursuant to which related party
transactions are reviewed, approved or ratified. The policy applies to any transaction in which (1) we are a participant, (2) any related person has a direct or indirect material
interest and (3) the amount involved exceeds $120,000, but excludes any transaction that does not require disclosure under Item 404(a) of Regulation S-K. The Conflicts
Committee is responsible for reviewing, approving and ratifying any related person transaction, except those related to compensation which is the responsibility of the compensation committee.

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Code of Business Conduct and Ethics

The board of directors of K-Sea General Partner GP LLC has adopted a code of business conduct and ethics for
all employees, officers and directors. If any amendments are made to the code or if K-Sea General Partner GP LLC grants any waiver, including any implicit waiver, from a
provision of the code that the SEC or the New York Stock Exchange ("NYSE") requires us to disclose, we will disclose the nature of such amendment or waiver on our website or in a current report on
Form 8-K.

Corporate Governance Guidelines

The board of directors of K-Sea General Partner GP LLC has adopted corporate governance guidelines in
accordance with the rules of the New York Stock Exchange.

Availability of Corporate Governance Documents

Copies of the board committee charters, code of business conduct and ethics and corporate governance guidelines are available, without
charge, on our website atwww.k-sea.comand in print, free of charge, upon written request to the Secretary, K-Sea General
Partner GP LLC, One Tower Center Blvd., 17th Floor, East Brunswick, New Jersey 08816.

Annual Certification

We have filed the required certifications under Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2
to this report. For fiscal 2008, we submitted to the NYSE the CEO certification required by Section 303A.12(a) of the NYSE's Listed Company Manual. For fiscal 2009, we expect to submit this
certification to the NYSE within 30 days after filing this report.

Executive Sessions of the Board of Directors

Messrs. Abbate, Alperin, Dowling, Friedman and Salerno, who are non-management directors of K-Sea
General Partner GP LLC, meet at regularly scheduled executive sessions without management. These meetings are chaired on a rotating basis by the chairmen of the audit committee and
compensation committee. Persons wishing to communicate with our non-management directors may do so by writing to them at K-Sea General Partner GP LLC, c/o Board
of Directors, One Tower Center Blvd., 17th Floor, East Brunswick, New Jersey 08816.

Messrs. Abbate,
Alperin, and Salerno, who are independent non-management directors of K-Sea General Partner GP LLC, meet at least annually in
executive sessions without management and the other directors. Mr. Abbate serves as the presiding director at those executive sessions.

Communications with Independent Directors

Persons wishing to communicate with our independent non-management directors may do so by writing to them at
K-Sea General Partner GP LLC, c/o Board of Directors, One Tower Center Blvd., 17th Floor, East Brunswick, New Jersey 08816.

Payments to Our General Partner

K-Sea General Partner LP does not receive any management fee or other compensation in connection with its management
of us; however, K-Sea General Partner LP or its affiliates who perform services for us and/or our subsidiaries are reimbursed at cost for all expenses incurred on our behalf which
are necessary or appropriate to the conduct of our business. There were no reimbursable expenses in fiscal 2009, fiscal 2008 or fiscal 2007. We also directly pay the fees of the independent directors
of K-Sea General Partner GP LLC and reimburse meeting-related expenses of all directors of K-Sea General Partner GP LLC.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of a
registered class of our equity securities, to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Officers, directors and greater than 10% unitholders are required
by SEC regulations to furnish us with copies of all Section 16(a) forms.

Based
solely on our review of the copies of such forms we received, or representations from certain reporting persons that no Form 4s were required for those persons, we believe
that during the fiscal year ended June 30, 2009, all of our officers, directors, and greater than 10% beneficial owners
complied on a timely basis with all applicable filing requirements under Section 16(a) of the Securities Exchange Act of 1934, except for the failure to timely file one Form 4 by each of
Messrs. Casey, Falcinelli, Friedman, Haslinsky, Nicola, Smith, Sullivan and EW Transportation LLC.

ITEM 11.    EXECUTIVE COMPENSATION.

Compensation Discussion and Analysis

This Compensation Discussion and Analysis is intended to provide investors with an understanding of our compensation policies and
decisions regarding our named executive officers for fiscal 2009. Our named executive officers are our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated
executive officers for fiscal 2009, as well as our former Chief Financial Officer, who retired from that position during fiscal 2009.

Executive Compensation Philosophy

In establishing executive compensation, we believe that:



Purpose of Our Executive Compensation Program

Our primary business objective is to increase our distributable cash flow ("DCF") per unit, which serves as a basis for our
distribution payments to unitholders, by executing the following business strategies:



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For
additional information regarding our business strategies, please see "Items 1 and 2. Business and PropertiesOur Partnership."

The
purpose of our executive compensation program is to assist us in achieving our business objectives by developing and retaining talented senior executives with a competitive
compensation package, and to motivate them to achieve our strategic goals and increase our DCF and unitholder value. DCF is a non-GAAP financial measure which is among the measures used to
evaluate our operating performance and our ability to make cash distributions.

Role of the Compensation Committee

Responsibilities and Authority

The Compensation Committee of K-Sea General Partner GP LLC has overall responsibility for determining the
compensation of our named executive officers. The specific duties and responsibilities of the Compensation Committee are described above under "Item 10. Directors, Executive Officers and
Corporate GovernanceMeetings and Committees of the Board of DirectorsCompensation Committee" and in the charter of the Compensation Committee, which is available on the
"Investor RelationsGovernance" section of our website atwww.k-sea.com.

For
fiscal 2009, the compensation payable to all of our named executive officers was reviewed and approved by the Compensation Committee. The Compensation Committee seeks input from
Timothy J. Casey, our President and Chief Executive Officer, regarding the amount of compensation payable to, and the individual performance of, our named executive officers (other than
Mr. Casey).

Independent Compensation Consultant

In fiscal 2007, the Compensation Committee retained Pearl Meyer and Partners ("PMP") as an independent consultant on executive
compensation matters. The Compensation Committee met with PMP multiple times over several months during late fiscal 2007 and early fiscal 2008 to review and refine the partnership's compensation
methodology. The Compensation Committee did not retain PMP or any other compensation consultant with respect to the determination of base salaries for fiscal 2010 or fiscal 2009 or the amount or form
of incentive compensation to be paid to executive officers with respect to performance in fiscal 2009 or fiscal 2008.

Timing of Decisions

The Compensation Committee meets after the end of each fiscal year to review base salaries for the then-current year, to
consider incentive compensation (consisting of cash bonuses and equity-based awards) and to review and, as appropriate, make changes to our executive compensation program. The Compensation Committee
also meets at other times during the year and acts by written consent when necessary and appropriate. During fiscal 2009, the Compensation Committee met once. The Chairman of the Compensation
Committee also met with members of our management team on several occasions to discuss our executive compensation policies and programs.

We
do not time the release of material non-public information for the purpose of affecting the values of executive compensation. At the time of making equity-based
compensation decisions, the Compensation Committee may be aware of material non-public information and takes such information into account, but it does not adjust the size of grants to
reflect possible market reaction. The Compensation Committee considers grants of equity-based compensation on an annual basis shortly after the end of each fiscal year, although specific grants may be
made at other times to recognize the promotion of an employee, a change in responsibility or a specific achievement.

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Elements of Compensation

Our executive compensation program includes three main elements: a base salary, an annual cash bonus and an annual equity-based
incentive award. These individual components are designed to:



We
view the various components of compensation as related, but distinct, and emphasize "pay for performance." A significant portion of total executive compensation reflects a risk aspect
and is tied to our financial and strategic goals. Our compensation philosophy is to foster entrepreneurship at all levels of the organization by making long-term equity-based incentives,
in particular through participation in the growth of our quarterly distributions, a significant component of executive compensation. We determine the appropriate level for each compensation component
based in part, but not exclusively, on our view of internal equity and consistency, and other considerations we deem relevant, such as rewarding extraordinary performance. The Compensation Committee
has not yet adopted any policies for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation, or among different
forms of non-cash compensation.

As
described in more detail below, our executive compensation program is designed to reward partnership and individual performance.





Timothy J. Casey, Thomas M. Sullivan, and Richard P. Falcinelli have entered into employment agreements with K-Sea
Transportation Inc., one of our indirect wholly owned subsidiaries. The employment agreements contemplate that each employee will serve as an officer of the general partner of our general
partner and other affiliates. Each of the employment agreements had an initial term of one year. The term of each employment agreement is automatically extended for successive one-year
terms unless either party gives 30-days written notice prior to the end of the term that such party desires not to renew the employment agreement.

Each
employment agreement established an annual base salary for the named executive officer, which has been subsequently increased by the Compensation Committee. Under the employment
agreement, each employee is eligible to receive an annual incentive bonus based upon the financial performance of us and our subsidiaries. The board of directors of K-Sea General
Partner GP LLC will determine the amount of any incentive bonus award and may issue additional awards to each employee in the amounts and at the times it so determines. Further,
Messrs. Casey, Sullivan and Falcinelli are

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each
furnished an automobile for business use and reimbursed for reasonable costs of insurance, gasoline and repairs for the automobile in accordance with our reimbursement policies.

Each
employment agreement also provides for certain payments upon termination of employment. For more information, please read below "Executive Compensation TablesPotential
Payments upon Termination or Change in Control." The Compensation Committee is currently evaluating potential revisions to the employment agreements.



In September 2009, the Compensation Committee evaluated our financial condition and results of operations, our fiscal 2009 performance
in light of the unprecedented economic slowdown and how effectively management adapted to changing industry conditions and opportunities during fiscal 2009.



In evaluating the base salaries of our named executive officers for fiscal 2010, the Compensation Committee considered the historical
and expected future performance of each such executive and competitive market data provided by PMP in early fiscal 2008. Based on these factors, together with the unprecedented economic slowdown in
fiscal 2009, the Compensation Committee decided not to increase the base salaries of our named executive officers for fiscal 2010.



The amount of the annual cash bonus is determined by the Compensation Committee on an annual basis after considering partnership and
individual performance. For fiscal 2009, the Compensation Committee had targeted an annual cash bonus of 80% of base salary for Mr. Casey and 40% of base salary for other named executive
officers. Due to the state of the economy, the Compensation Committee decided not to award cash bonuses for fiscal 2009.



Normally, the Compensation Committee made phantom unit grants in amounts intended to result in approximately 50% of the executive's
total annual incentive compensation being equity based. A "phantom" unit entitles the grantee to receive a common unit upon the vesting of the phantom unit or, in the discretion of the Compensation
Committee, cash equivalent to the fair market value of a common unit. Holders of phantom units also have the right to
receive an amount in cash equal to, and payable at the same time as, the cash distribution made with respect to a common unit during the period the phantom unit is outstanding. The Compensation
Committee believes that making a portion of an executive's compensation contingent on long-term unit price performance more closely aligns the executive's interests with those of our
unitholders. Like cash bonuses, phantom unit awards reflect progress toward our corporate goals and individual performance.

Due
to the state of the economy, the Compensation Committee decided not to make any phantom unit grants to our named executive officers with respect to fiscal 2009.



Messrs. Casey, Sullivan, Falcinelli and Haslinsky are furnished an automobile for business use and reimbursed for reasonable
costs of insurance, gasoline and repairs for the automobile in accordance with our reimbursement policies.

We
seek to provide benefit plans, such as medical, life and disability insurance, in line with market conditions. Executive officers are eligible for the same benefit plans provided to
other exempt

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employees,
including insurance plans and supplemental plans chosen and paid for by employees who wish additional coverage. We do not have any special insurance plans for executive officers.

Other Compensation Related Matters



Although we encourage our executive officers to retain ownership in our partnership, we do not have a policy requiring maintenance of a
specified equity ownership level. In the aggregate, as of June 30, 2009, our named executive officers beneficially owned an aggregate of 71,510 common units and 59,520 phantom units.
Additionally, our named executive officers receive an aggregate of approximately 9.65% of the cash distributions received by our general partner and its affiliates through their ownership interest in
these entities. These arrangements further tie the interests of these executive officers to the interests of unitholders.

Our
policies prohibit our executive officers from using puts, calls or options to hedge the economic risk of their ownership.



We do not have a policy with respect to adjustment or recovery of awards or payments if relevant performance measures upon which
previous awards were based are restated or otherwise adjusted in a manner that would reduce the size of such award or payment.

Impact of Tax and Accounting Treatment



Effective July 1, 2005, we adopted FAS 123R, which requires that companies recognize in their financial statements the
cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards.



Section 162(m) of the Code generally disallows a tax deduction to publicly traded corporations for compensation in excess of
$1 million paid to the Chief Executive Officer or any of the four other most highly compensated officers. Because we are organized as a limited partnership, we are not subject to the provisions
of Section 162(m) of the Code.

Section 409A
of the Code imposes new constraints on nonqualified deferred compensation, and some awards under our long-term incentive plan and severance benefits under
employment agreements with our officers may be subject to these new rules. Failure to comply with Section 409A may result in the early taxation of deferred compensation and the imposition of a
20% penalty. We intend to design our compensation arrangements to be either exempt from Section 409A or to comply with Section 409A, and we amended certain arrangements in calendar year
2008 to bring them into compliance with the regulations under Section 409A.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the compensation discussion and analysis required by
Item 402(b) of Regulation S-K. Based on the review and discussion referred to above, the Compensation Committee recommended to the board of directors that this compensation
discussion and analysis be included in this Form 10-K.

Compensation Committee:James J. Dowling (Chairman)
Barry J. Alperin
Brian P. Friedman


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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or
more of its executive officers serving as a member of our general partner's board of directors or compensation committee.

There
are no matters relating to interlocks or insider participation that we are required to report.

EXECUTIVE COMPENSATION TABLES

Summary Compensation Table

Name and Principal Position

Fiscal
Year

Salary
($)

Bonus
($)

Stock
Awards
($)(1)

Option
Awards
($)

Non-Equity
Incentive
Plan
Compensation
($)

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)

All Other
Compensation
($)(2)

Total
($)Timothy J. Casey


2009

$
300,000

$
0

$
297,637

$


$


$


$
19,905

$
617,542President and


2008

$
300,000

$
240,000

$
251,174

$


$


$


$
25,862

$
817,036Chief Executive


2007

$
250,000

$
300,750

$
202,117

$


$


$


$
21,616

$
774,483OfficerTerrence P. Gill


2009

$
168,750

$
0

$
28,940

$


$


$


$
12,256

$
209,946Chief FinancialOfficerJohn J. Nicola


2009

$
157,215

$
0

$
108,469

$


$


$


$
20,198

$
285,882Former Chief


2008

$
210,000

$
84,000

$
82,089

$


$


$


$
22,820

$
398,909Financial Officer


2007

$
200,000

$
90,225

$
67,372

$


$


$


$
18,194

$
375,791Thomas M. Sullivan


2009

$
219,580

$
0

$
97,880

$


$


$


$
20,330

$
337,790Chief Operating


2008

$
210,000

$
84,000

$
82,089

$


$


$


$
20,510

$
396,599OfficerPresident


2007

$
200,000

$
90,225

$
67,372

$


$


$


$
18,911

$
376,508Atlantic RegionRichard P. Falcinelli


2009

$
219,580

$
0

$
97,880

$


$


$


$
22,635

$
340,095Executive Vice


2008

$
210,000

$
84,000

$
82,089

$


$


$


$
21,468

$
397,557President and


2007

$
200,000

$
90,225

$
67,372

$


$


$


$
20,741

$
378,338SecretaryGregory J. Haslinsky


2009

$
219,538

$
0

$
82,255

$


$


$


$
18,227

$
320,020Senior Vice


2008

$
200,000

$
84,000

$
66,464

$


$


$


$
18,983

$
369,447President, BusinessDevelopment andMarketing


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Grants of Plan-Based Awards Table

The following table sets forth awards of phantom units granted in fiscal 2009 for each of our named executive officers.

Name

Grant Date

All Other Stock Awards:
Number of Shares of Stock
or Units (1)

Grand Date Fair Value of
Stock and Option Awards (2)Timothy J. Casey


9/8/2008


9,700

$
240,269Terrence P. Gill


9/8/2008


2,000

$
49,540John J. Nicola


9/8/2008


3,400

$
84,218Thomas M. Sullivan


9/8/2008


3,400

$
84,218Richard P. Falcinelli


9/8/2008


3,400

$
84,218Gregory J. Haslinsky


9/8/2008


3,400

$
84,218


---

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information concerning the outstanding equity awards made for each named executive officer as of
June 30, 2009.

Stock Awards (1)Name

Number of
Shares or Units
of Stock That
Have Not
Vested (#)

Market Value
of Shares or
Units of Stock
That Have Not
Vested ($)(2)

Equity Incentive Plan
Awards: Number of
Unearned Shares, Units
or Other Rights That
Have Not Vested (#)

Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares, Units
or Other Rights That
Have Not Vested (#)Timothy J. Casey


24,300

$
476,523





Terrence P. Gill


3,400

$
66,674





John J. Nicola


8,080

$
158,449





Thomas M. Sullivan


8,080

$
158,449





Richard P. Falcinelli


8,080

$
158,449





Gregory J. Haslinsky


7,580

$
148,644








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Option Exercises and Stock Vested Table

The following table sets forth the number of shares acquired upon the vesting of phantom unit awards, and the value realized upon
exercise or vesting of such awards, for each of our named executive officers in fiscal 2009.

Stock AwardsName

Number of Shares
Acquired on Vesting
(#)

Value Realized on
Vesting ($)(1)Timothy J. Casey


7,400

$
147,926Terrence P. Gill


600

$
11,994John. J. Nicola


2,420

$
48,376Thomas M. Sullivan


2,420

$
48,376Richard P. Falcinelli


2,420

$
48,376Gregory J. Haslinsky


1,920

$
38,381






Pension Benefits

We do not maintain any plans that provide for payments or other benefits at, following or in connection with retirement, other than a
401(k) plan that is available to all U.S. employees.

Non-Qualified Deferred Compensation

We do not maintain any defined contribution or other plan that provides for the deferral of compensation on a basis that is not
tax-qualified under the Internal Revenue Code.

Potential Payments upon Termination or Change-in-Control

Timothy J. Casey, Thomas M. Sullivan and Richard P. Falcinelli have entered into employment agreements ("Employment Agreements") with
K-Sea Transportation Inc., one of our indirect wholly owned subsidiaries. The Employment Agreements do not provide for any payments in the event of a change in control. The
Employment Agreements provide that if the employee's employment is terminated without cause or if the employee resigns for good reason, the employee is entitled to severance in an amount equal to the
greater of (a) the product of 1.3125 (1.75 multiplied by 0.75) multiplied by the employee's base salary at the time of termination or resignation and (b) the product of 1.75 multiplied
by the remaining term of the employee's non-competition provisions multiplied by the employee's base salary at the time of termination or resignation. In addition, we will make COBRA
payments on behalf of the employee for a period of one year. If the employee is terminated for cause or terminates employment without good reason (other than death or disability), the employee is
entitled to receive only earned but unpaid compensation and benefits. If the employee is terminated due to death, the employee's designated beneficiary or, if none, his estate, is entitled to receive
an amount equal to one-half of the employee's annual base salary at the time of death. If the employee is terminated due to disability, the employee is entitled to receive an amount equal
to one-half of the employee's annual base salary at the time of disability and, if the employee so elects, COBRA payments for one year following termination.

John
J. Nicola has entered into an employment and retirement agreement ("Employment and Retirement Agreement") with K-Sea Transportation Inc. which terminates on
November 28, 2010. The Employment and Retirement Agreement provides that if Mr. Nicola's employment is terminated without cause or due to death or disability, he or his beneficiary (or
beneficiaries) is entitled to

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severance
in an amount equal to (a) his base salary through the date of termination, (b) other benefits for which he is eligible in accordance with applicable plans or programs of the
Partnership, (c) accelerated payment of all base salary he would have been entitled to receive for the remainder of the term of the Employment and Retirement Agreement, (d) COBRA
payments on behalf of Mr. Nicola
for a period of eighteen months after the termination and (e) all unvested phantom units shall immediately vest and all restrictions thereon shall lapse. If Mr. Nicola is terminated for
cause, he is entitled to receive only earned but unpaid compensation and benefits.

Under
the Employment Agreements and the Employment and Retirement Agreement, "cause" and "good reason" are defined as follows:



If
a change in control were to have occurred as of June 30, 2009, all phantom units awarded to named executive officers awards under our long-term incentive plan would
have immediately vested. In addition, all such awards would immediately vest upon the death, disability or retirement (after reaching age 65) of the named executive. If a named executive
officer, other than John J. Nicola, is terminated other than in connection with a change in control or the executive's death, disability or retirement (after reaching age 65), any unvested phantom
units awarded to such executive would be forfeited.

The
following tables set forth potential amounts payable to our named executive officers upon termination of employment under various circumstances, as if terminated on June 30,
2009.

Change in ControlCasey

Gill

Nicola

Sullivan

Falcinelli

HaslinskyAccelerated vesting of phantom units (1)

$
476,523

$
66,674

$
158,449

$
158,449

$
158,449

$
148,644


---

Termination Without Cause or Resignation for Good Reason(1)Casey

Gill

Nicola

Sullivan

Falcinelli

HaslinskySeverance payment

$
1,050,000

$


$
118,750

$
735,000

$
735,000

$
COBRA payments


13,428





20,143


13,428


13,428


Accelerated vesting of phantom units








158,449








Total

$
1,063,428

$


$
297,342

$
748,428

$
748,428

$



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Termination in the Event of DeathCasey

Gill

Nicola

Sullivan

Falcinelli

HaslinskySeverance payment

$
150,000

$


$
118,750

$
110,000

$
110,000

$
COBRA payments


13,428





20,143


13,428


13,428


Accelerated vesting of phantom units


476,523


66,674


158,449


158,449


158,449


148,644Total

$
639,951

$
66,674

$
297,342

$
281,877

$
281,877

$
148,644




Termination in the Event of DisabilityCasey

Gill

Nicola

Sullivan

Falcinelli

HaslinskySeverance payment

$
150,000

$


$
118,750

$
110,000

$
110,000

$
COBRA payments


13,428





20,143


13,428


13,428


Accelerated vesting of phantom units


476,523


66,674


158,449


158,449


158,449


148,644Total

$
639,951

$
66,674

$
297,342

$
281,877

$
281,877

$
148,644


Director Compensation

K-Sea General Partner GP LLC pays no additional remuneration to its employees for serving as directors. Also,
neither Mr. Dowling nor Mr. Friedman received any remuneration during fiscal 2009 for serving as a director; however, they were reimbursed for expenses attendant to board membership.

The
following table sets forth a summary of the compensation paid to non-employee directors in fiscal 2009:

Name

Fees
Earned
or Paid
in Cash
($)

Stock
Awards
($)(1)

Option
Awards
($)

Non-Equity
Incentive Plan
Compensation
($)

Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)

All Other
Compensation
($)

Total
($)(2)(3)Brian P. Friedman

$


$


$


$


$


$


$
James J. Dowling




$
93,750













$
93,750Anthony S. Abbate

$
18,000

$
42,049













$
60,049Barry J. Alperin

$
24,000

$
42,049













$
66,049Frank Salerno

$
18,000

$
42,049













$
60,049


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Table of Contents

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITYHOLDER MATTERS.

A diagram depicting our organizational structure as of September 1, 2009 is presented below.

GRAPHIC

87

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Table of Contents

K-Sea Transportation Partners L.P.

The following table sets forth the beneficial ownership of units of K-Sea Transportation Partners L.P. as of
September 1, 2009 by beneficial owners of 5% or more of such units, by each director and named executive officer of K-Sea General Partner GP LLC and by all directors
and executive officers as a group.

Name of Beneficial Owners (1)

Common
Units(2)

Percentage
of Common
UnitsBeneficial Owners of 5% or MoreEW Transportation LLC (3)


4,165,000

21.82%EW Holding Corp. (4)


1,181,818

6.19%Directors and Executive OfficersJames J. Dowling


28,000

*Timothy J. Casey


35,740

*Anthony S. Abbate


17,500

*Barry J. Alperin


12,500

*Brian P. Friedman (5)


4,308,595

22.57%Frank Salerno


6,800

*Terrence P. Gill


2,950

*John J. Nicola


20,720

*Thomas M. Sullivan


11,805

*Richard P. Falcinelli


11,720

*Gregory J. Haslinsky


8,395

*All directors and executive officers as a group (11 persons)


4,665,635

24.44%


---

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Table of Contents



Name of Beneficial Owner

Economic Interest

Equity InterestKSP Investors A L.P (a)


57.6
%

62.9
%KSP Investors B L.P (a)


19.8
%

21.7
%KSP Investors C L.P (a)


12.6
%

13.7
%Park Avenue Transportation Inc. (a)


90.0
%

98.3
%James J. Dowling (b)





Timothy J. Casey


5.5
%

*Anthony S. Abbate





Barry J. Alperin





Brian P. Friedman (a)


90.0
%

98.3
%Frank Salerno





Terrence P. Gill


*


*John J. Nicola


1.3
%

*Thomas M. Sullivan


1.3
%

*Richard P. Falcinelli


1.3
%

*Gregory J. Haslinsky


*


*All directors and executive officers of K-Sea General Partner GP LLC as a group (12 persons)


99.7
%

99.9
%






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Table of Contents

K-Sea General Partner GP LLC

The following table sets forth the economic interest in, and the beneficial ownership of equity interests of, K-Sea General
Partner GP LLC, the general partner of our general partner, as of September 1, 2009:

Name of Beneficial Owner

Economic Interest/
Equity InterestKSP Investors A L.P.


57.6
%KSP Investors B L.P.


19.8
%KSP Investors C L.P.


12.6
%Park Avenue Transportation Inc. (1)


90.0
%James J. Dowling (2)


Timothy J. Casey


5.5
%Anthony S. Abbate


Barry J. Alperin


Brian P. Friedman (1)


90.0
%Frank Salerno


Terrence P. Gill


*John J. Nicola


1.3
%Thomas M. Sullivan


1.3
%Richard P. Falcinelli


1.3
%Gregory J. Haslinsky


*All directors and executive officers of K-Sea General Partner GP LLC as a group (12 persons)


99.7
%






Equity Compensation Plan Information

The following table sets forth in tabular format a summary of our equity plan information as of September 1, 2009:

(a)

(b)

(c)Plan Category

Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights

Weighted average
exercise price
of outstanding
options, warrants
and rights

Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))Equity compensation plans approved by securityholders (1)








229,896
(2)Equity compensation plans not approved by securityholders








Total








229,896


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Table of Contents

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Distributions and Payments to Our General Partner and Its Affiliates

We generally distribute 98.95% (as of September 1, 2009) of our available cash to our unitholders, including EW
Transportation LLC, EW Holding Corp., EW Transportation Corp. and K-Sea General Partner L.P. in their capacity as holders of an aggregate of 4,264,683 common units, and the
remaining 1.05% (as of September 1, 2009) of our available cash to our general partner for its general partner interest. If distributions exceed the $0.50 per unit minimum quarterly
distribution and other higher target levels, our general partner is entitled to increasing percentages of the distributions, up to 48% of the distributions above the highest target level. We refer
to the rights to the increasing distributions as "incentive distribution rights." Please read "Market For Registrant's Common Equity, Related Securityholder Matters and Issuer Purchases of Equity
SecuritiesIncentive Distribution Rights" in Item 5 of this report. Assuming we pay the $0.50 per unit minimum quarterly distribution on all of our outstanding units, our general
partner would receive an annual distribution of $404,894 on its 1.05% general partner interest and $199,366 on its limited partner interest, and affiliates of our general partner would receive an
annual distribution of approximately $8,330,000 on their common units. In August 2009, the board of directors of the general partner of our general partner declared a quarterly cash distribution of
$0.77 per common unit. If distributions continue at that level on all of our outstanding units, our general partner would receive an annual distribution of $5,873,576 on its 1.05% general partner
interest and incentive distribution rights and $307,024 on its limited partner interest, and affiliates of our general partner would receive an annual distribution of approximately $12,828,200 on
their common units. No assurances can be made, however, that distributions will continue at that level.

Under
our partnership agreement, K-Sea General Partner L.P. may elect to receive distributions with respect to a quarter determined pursuant to the partnership
agreement, in whole or in part, in the form of common units instead of cash (an "In-Kind Distribution Quarter") to the extent approved in advance by the conflicts committee of the board of
directors of K-Sea General Partner GP LLC. For the quarterly periods ended March 31, 2009 and June 30, 2009, the board of directors of K-Sea General
Partner GP LLC, after considering the recommendation of its conflicts committee, approved the issuance of 49,775 common units and 49,908 common units to K-Sea General
Partner L.P. in lieu of $1.244 million and $1.248 million in cash distributions, respectively.

Our
general partner and its affiliates do not receive a management fee or other compensation for the management of our partnership. Our general partner and its affiliates are entitled to
be reimbursed, however, for all direct and indirect expenses incurred on our behalf. Our general partner has sole discretion in determining the amount of these expenses. There were no reimbursed
expenses in fiscal 2009, fiscal 2008 or fiscal 2007.

If
our general partner withdraws or is removed, its general partner interest and its incentive distribution rights will either be sold to the new general partner for cash or converted
into common units, in each case for an amount equal to the fair market value of those interests.

Upon
our liquidation, the partners, including our general partner, will be entitled to receive liquidating distributions according to their particular capital account balances.

Omnibus Agreement

We are a party to an omnibus agreement with the KSP Entities, EW Transportation LLC, EW Acquisition Corp., EW Holding Corp., EW
Transportation Corp., K-Sea General Partner LP (our general partner), K-Sea General Partner GP LLC (the general partner of our general partner),
K-Sea

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Table of Contents

OLP GP LLC
(the general partner of our operating partnership) and K-Sea Operating Partnership L.P. (our operating partnership).

Noncompetition

Under the omnibus agreement, neither the KSP Entities nor their controlled affiliates may engage, either directly or indirectly, in the
business of providing refined petroleum product marine transportation, distribution and logistics services in the United States to the extent such business generates qualifying income for federal
income tax purposes. The restriction does not apply to the assets that were retained by our predecessors at the closing of our initial public offering in January 2004. Except as provided above,
neither the KSP Entities nor their controlled affiliates are prohibited from engaging in activities in which they compete directly or indirectly with us. Jefferies Capital Partners, and the funds it
manages, are not prohibited from owning assets or engaging in businesses that compete directly or indirectly with us.

Indemnification

Under the omnibus agreement, the KSP Entities, EW Transportation LLC and the subsidiaries of EW Transportation LLC
(collectively, "the Indemnitors") have jointly and severally agreed to indemnify us until January 14, 2014, against certain toxic tort liabilities associated with the operation of the assets
before January 14, 2004. Liabilities resulting from changes in law after the closing of our initial public offering are excluded from the environmental indemnity. We have agreed to indemnify
the Indemnitors for events and conditions associated with the operation of our assets that occur on or after January 14, 2004 to the extent the Indemnitors are not required to indemnify us.
There is an aggregate cap of $10 million on the amount of indemnity coverage provided by the Indemnitors for the environmental and toxic tort liabilities.

The
Indemnitors have also agreed to indemnify us for liabilities related to:



Amendments

The omnibus agreement may not be amended without the prior approval of the conflicts committee if the proposed amendment will, in the
reasonable discretion of our general partner, adversely affect holders of our common units.

Operations Manager

We currently employ William Sullivan as an operations manager at our Staten Island, New York location. William Sullivan is the brother
of Thomas M. Sullivan, Chief Operating Officer and PresidentAtlantic Region. William Sullivan received total compensation of approximately $163,717 in respect of fiscal 2009.
Additionally, we currently employ Bernard Casey as an operations manager at our Honolulu, Hawaii location. Bernard Casey is the brother of Timothy J. Casey, President, Chief Executive Officer and
Director. Bernard Casey received total compensation of approximately $228,249 including a housing allowance and relocation expenses, in respect of fiscal 2009. The compensation for William Sullivan
and Bernard Casey is reviewed and approved by the Compensation Committee.

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Table of Contents

Properties

We lease our Staten Island, New York office and pier facilities from, and charter certain vessels to, affiliates of an employee who is
not an executive officer or director. Additionally, we utilize one of these affiliates for tank cleaning services. Please read note 12 to our audited consolidated financial statements included
elsewhere in this report.

We
lease a parcel of land used for storage of vessel parts and equipment from Gordon Smith, PresidentPacific Region, for $12,000 per month.

Director Independence

The board of directors of K-Sea General Partner GP LLC has determined that Messrs. Abbate, Alperin and
Salerno are independent within the meaning of the listing standards for general independence of the New York Stock Exchange. Under the listing standards, the audit committee is required to be composed
solely of directors who are independent. The standards for audit committee membership include additional requirements under rules of the SEC.

The
listing standards relating to general independence consist of both a requirement for a board determination that the director has no material relationship with the listed company and
a listing of several specific relationships that preclude independence. To assist it in making determinations of independence, the board has adopted categorical standards as permitted under the
listing standards. Although the board considers all relevant facts and circumstances in assessing whether a director is independent, relationships falling within the categorical standards are not
required to be disclosed or separately discussed in this report in connection with the board's independence determinations. A relationship falls within the categorical standards adopted by the board
if it:





None
of the independent directors had relationships relevant to an independence determination that were outside the scope of the board's categorical standards.

Because
we are a limited partnership, the listing standards of the New York Stock Exchange do not require K-Sea General Partner GP LLC to have a majority of
independent directors or a nominating/corporate governance or compensation committee.

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Table of Contents

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table presents fees for services rendered by PricewaterhouseCoopers LLP during fiscal 2009 and fiscal 2008.

Year Ended
June 30, 2009

Year Ended
June 30, 2008Audit fees (1)

$
1,142,500

$
1,480,359Audit-related fees (2)


179,105


406,159Tax fees (3)


800,274


861,001All other fees





Total

$
2,121,879

$
2,747,519






The
audit committee has considered whether the provision of the non-audit services described above is compatible with maintaining the independence of
PricewaterhouseCoopers LLP and determined that the provision of such services was compatible with maintaining such independence.

Audit Committee Policies and Procedures for Pre-approval of Audit and Non-Audit Services

Consistent with SEC policies regarding auditor independence, the audit committee is responsible for pre-approving all audit
and non-audit services performed by the independent registered public accounting firm. In addition to its approval of the audit engagement, the audit committee takes action at least
annually to authorize the performance by the independent registered public accounting firm of several specific types of services within the categories of audit-related services and tax services.
Audit-related services include assurance and related services that are reasonably related to the performance of the audit or review of the financial statements. Authorized tax services include
compliance-related services such as services involving tax filings, as well as consulting services such as tax planning, transaction analysis and opinions. Services are subject to
pre-approval of the specific engagement if they are outside the specific types of services included in the periodic approvals or if they are in excess of specified fee limitations. The
audit committee may delegate pre-approval authority to subcommittees or to the Chairman. During 2009 no pre-approval requirements were waived.

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Table of Contents

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1)    Financial Statements.

See "Index to Financial Statements" set forth on page F-1.

(a)(2)    Financial Statement Schedules.

None.

(a)(3)    Exhibits.

Exhibit
Number



Description3.1.1
*


Certificate of Limited Partnership of K-Sea Transportation Partners L.P. (incorporated by reference to Exhibit 3.1 to the Partnership's Registration Statement on Form S-1 (Registration No. 107084), as
amended (the "Registration Statement"), originally filed with the Securities and Exchange Commission on July 16, 2003).3.2.1
*


Third Amended and Restated Agreement of Limited Partnership of K-Sea Transportation Partners L.P. (including specimen unit certificate for the common units) (incorporated by reference to Exhibit 3.1 to the
Partnership's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 5, 2006).3.2.2
*


Amendment No. 1 to the Third Amended and Restated Agreement of Limited Partnership of K-Sea Transportation Partners L.P. (incorporated by reference to Exhibit 3.1 to the Partnership's Current Report on
Form 8-K filed with the Securities and Exchange Commission on December 20, 2007).3.2.3
*


Amendment No. 2 to the Third Amended and Restated Agreement of Limited Partnership of K-Sea Transportation Partners L.P. (incorporated by reference to Exhibit 3.1 to the Partnership's Current Report on
Form 8-K filed with the Securities and Exchange Commission on May 7, 2009).3.3
*


Certificate of Limited Partnership of K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 3.3 to the Registration Statement).3.4
*


Amended and Restated Agreement of Limited Partnership of K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 3.4 to the Partnership's Quarterly Report on Form 10-Q for the period
ended December 31, 2003).3.5
*


Certificate of Limited Partnership of K-Sea General Partner L.P. (incorporated by reference to Exhibit 3.5 to the Registration Statement).3.6
*


First Amended and Restated Agreement of Limited Partnership of K-Sea General Partner L.P. (incorporated by reference to Exhibit 3.6 to the Partnership's Quarterly Report on Form 10-Q for the period
ended December 31, 2003).3.7
*


Certificate of Formation of K-Sea General Partner GP LLC (incorporated by reference to Exhibit 3.7 to the Registration Statement).3.8
*


First Amended and Restated Limited Liability Company Agreement of K-Sea General Partner GP LLC (incorporated by reference to Exhibit 3.8 to the Partnership's Quarterly Report on Form 10-Q for the
period ended December 31, 2003).


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Table of Contents

Exhibit
Number



Description10.1
*


Contribution, Conveyance and Assumption Agreement, dated as of January 14, 2004, among K-Sea Investors L.P., K-Sea Transportation LLC, EW Holding Corp., K-Sea Transportation Corp., K-Sea Transportation
Partners L.P. and K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 10.2 to the Partnership's Quarterly Report on Form 10-Q for the period ended December 31, 2003).10.2
*


Omnibus Agreement, dated as of January 14, 2004, among K-Sea Investors L.P., K-Sea Acquisition Corp., New EW Holding Corp., New K-Sea Transportation Corp., K-Sea General Partner L.P., K-Sea General
Partner GP LLC, K-Sea Transportation Partners L.P., K-Sea OLP GP LLC and K-Sea Operating Partnership L.P. (incorporated by reference to Exhibit 10.3 to the Partnership's Quarterly Report on Form 10-Q for the
period ended December 31, 2003).10.3.1
*


K-Sea Transportation Partners L.P. Long-term Incentive Plan (incorporated by reference to Exhibit 10.7 to the Partnership's Quarterly Report on Form 10-Q for the period ended March 31,
2004).10.3.2
*


Form of Director Phantom Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Partnership's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7,
2004).10.3.3
*


Form of Employee Phantom Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Partnership's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7,
2004).10.4
*


K-Sea Transportation Partners L.P. Employee Unit Purchase Plan (incorporated by reference to Exhibit 4.2 to the Partnership's Registration Statement on Form S-8 (Registration No. 333-117251) filed
on July 9, 2004).10.5
*


Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and Timothy J. Casey (incorporated by reference to Exhibit 10.9 to the Partnership's Quarterly Report on
Form 10-Q for the period ended December 31, 2003).10.6
*


Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and Richard P. Falcinelli (incorporated by reference to Exhibit 10.11 to the Partnership's Quarterly Report on
Form 10-Q for the period ended December 31, 2003).10.7
*


Employment Agreement, dated as of January 14, 2004, between K-Sea Transportation Inc. and Thomas M. Sullivan (incorporated by reference to Exhibit 10.12 to the Partnership's Quarterly Report on
Form 10-Q for the period ended December 31, 2003).10.8
*


Form of Indemnification Agreement (incorporated by reference to Exhibit 10.12 to the Partnership's Annual Report on Form 10-K for the fiscal year ended June 30, 2005)10.9
*


Amended and Restated Loan and Security Agreement, dated as of August 14, 2007, among K-Sea Operating Partnership L.P., as Borrower, LaSalle Bank National Association and Citibank, N.A., as co-syndication
agents, Citizens Bank of Pennsylvania and HSBC Bank USA National Association, as co-documentation agents, and KeyBank National Association, as administrative agent and collateral trustee, and the lenders party thereto (incorporated by reference to
Exhibit 10.1 to the Partnership's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 20, 2007).


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Table of Contents

Exhibit
Number



Description10.10
*


Master Loan and Security Agreement dated as of April 3, 2006 by and among K-Sea Operating Partnership L.P., as Borrower, Key Equipment Finance Inc., as Lender, and K-Sea Transportation Partners L.P.,
K-Sea Transportation Inc. and Sea Coast Transportation LLC, as Guarantors (incorporated by reference to Exhibit 10.1 to the Partnership's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 7,
 2006).10.11
*


Employment and Retirement Agreement, dated November 20, 2008 but effective as of November 28, 2008, between John J. Nicola and K-Sea Transportation Inc. (incorporated by reference to Exhibit 10.1 to the
Partnership's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 25, 2008).21.1



List of Subsidiaries.23.1



Consent of PricewaterhouseCoopers LLP.31.1



Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2



Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1



Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2



Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
*


Loan Agreement, dated as of March 17, 2005, between K-Sea Operating Partnership L.P. and First Union Commercial Corporation (incorporated by reference to Exhibit 10.3 to the Partnership's Quarterly
Report on Form 10-Q for the period ended March 31, 2005).99.2
*


Loan Agreement, dated as of June 28, 2005, between K-Sea Operating Partnership L.P. and Citizens Asset Finance, d/b/a Citizens Leasing Corporation (incorporated by reference to Exhibit 10.16 to the
Partnership's Annual Report on Form 10-K for the fiscal year ended June 30, 2005).99.3
*


Loan Agreement dated December 19, 2005 between K-Sea Canada Corp., as Borrower, and Citizens Leasing Corp. d/b/a Citizens Asset Finance, as Lender, (incorporated by reference to Exhibit 10.3 to the
Partnership's Quarterly Report on Form 10-Q for the period ended December 31, 2005).99.4
*


Loan Agreement dated as of May 12, 2006 among K-Sea Operating Partnership L.P., as Borrower, Citizens Leasing Corporation, as Lender, and Citizens Leasing Corporation, as agent and collateral trustee for the
other lenders that may become parties to the loan agreement (incorporated by reference to Exhibit 99.4 to the Partnership's Annual Report on Form 10-K for the fiscal year ended June 30, 2006).99.5
*


Secured Term Loan Credit Facility dated June 4, 2008 by K-Sea Operating Partnership L.P., as Borrower, and DnB NOR Bank ASA, as Mandated Lead Arranger, Bookrunner, Administrative Agent and Security Trustee,
and the banks and financial institutions indentified therein, as Lenders (incorporated by reference to Exhibit 99.5 to the Partnership's Annual Report on Form 10-K for the fiscal year ended June 30, 2008).


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

K-SEA TRANSPORTATION PARTNERS L.P.By:

K-SEA GENERAL PARTNER L.P.,
its General PartnerBy:

K-SEA GENERAL PARTNER GP LLC,
its General PartnerSeptember 14, 2009

By:

/s/ TIMOTHY J. CASEY Timothy J. Casey President and Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated:

Signature

Title

Date/s/ TIMOTHY J. CASEY Timothy J. Casey

President and Chief Executive
Officer and Director (Principal
Executive Officer)

September 14, 2009/s/ TERRENCE P. GILL Terrence P. Gill

Chief Financial Officer (Principal
Financial and Accounting Officer)

September 14, 2009/s/ JAMES J. DOWLING James J. Dowling

Chairman of the Board and Director

September 14, 2009/s/ ANTHONY S. ABBATE Anthony S. Abbate

Director

September 14, 2009/s/ BARRY J. ALPERIN Barry J. Alperin

Director

September 14, 2009/s/ BRIAN P. FRIEDMAN Brian P. Friedman

Director

September 14, 2009/s/ FRANK SALERNO Frank Salerno

Director

September 14, 2009


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Table of Contents

INDEX TO CONSOLIDATED STATEMENTS



PageManagement's Report on Internal Control Over Financial Reporting

F-2Report of Independent Registered Public Accounting Firm

F-3Consolidated Balance Sheets as of June 30, 2009 and 2008

F-4Consolidated Statements of Operations for the fiscal years ended June 30, 2009, 2008 and
2007

F-5Consolidated Statements of Partners' Capital for the fiscal years ended June 30, 2009,
2008 and 2007

F-6Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2009, 2008 and
2007

F-7Notes to Consolidated Financial Statements

F-8


F-1

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Table of Contents

Management's Report on Internal Control Over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Securities and Exchange Act of 1934. Management assessed the
effectiveness of our internal control over financial reporting as of June 30, 2009 based on the framework in "Internal ControlIntegrated Framework," issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on that assessment, management concluded that our internal control over financial reporting was effective as of June 30, 2009, based
on those criteria.

Management's
assessment of the effectiveness of our internal control over financial reporting as of June 30, 2009 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which is included under the heading "Report of Independent Registered Public Accounting Firm" on page F-3.

F-2

---





Table of Contents

Report of Independent Registered Public Accounting Firm

To
the General Partner and Unitholders of K-Sea Transportation Partners L.P.,

In
our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 15 (a)(1) present fairly, in all material respects, the financial
position of K-Sea Transportation Partners L.P. and its subsidiaries (collectively, the "Partnership") at June 30, 2009 and June 30, 2008, and the results of their
operations and their cash flows for each of the three years in the period ended June 30, 2009 in conformity with accounting principles generally accepted in the United States of America. Also
in our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of June 30, 2009, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Partnership's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting on page F-2. Our responsibility is to express
opinions on these financial statements and on the Partnership's internal
control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control
over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/
PRICEWATERHOUSECOOPERS LLP

Florham
Park, New Jersey
September 14, 2009

F-3

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands)

June 30,2009

2008AssetsCurrent AssetsCash and cash equivalents

$
1,819

$
1,752Accounts receivable, net


29,819


42,090Deferred taxes


1,118


1,184Prepaid expenses and other current assets


16,689


19,861Total current assets


49,445


64,887Vessels and equipment, net


533,996


608,209Construction in progress


66,882


40,370Deferred financing costs, net


3,152


3,829Goodwill


54,300


54,300Other assets


31,028


26,713Total assets

$
738,803

$
798,308Liabilities and Partners' CapitalCurrent LiabilitiesCurrent portion of long-term debt

$
16,820

$
16,754Accounts payable


17,239


35,335Accrued expenses and other current liabilities


18,375


19,211Deferred revenue


12,476


14,219Total current liabilities


64,910


85,519Term loans and capital lease obligation


225,915


256,381Credit line borrowings


140,278


166,071Other liabilities


20,154


6,707Deferred taxes


3,618


3,933Total liabilities


454,875


518,611Non-controlling interest in equity of joint venture


4,514


4,519Commitments and contingenciesPartners' Capital


279,414


275,178Total liabilities and partners' capital

$
738,803

$
798,308


See
accompanying notes to consolidated financial statements.

F-4

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit amounts)

For the Years Ended June 30,2009

2008

2007Voyage revenue

$
310,429

$
312,680

$
216,924Other revenue


20,033


13,600


9,650Total revenues


330,462


326,280


226,574Voyage expenses


67,029


79,427


45,875Vessel operating expenses


144,291


124,551


96,005General and administrative expenses


29,806


28,947


20,472Depreciation and amortization


53,582


48,311


33,415Net (gain) loss on sale of vessels


(702
)

(601
)

102Total operating expenses


294,006


280,635


195,869Operating income


36,456


45,645


30,705Interest expense, net


21,503


21,275


14,097Other expense (income), net


719


(1,827
)

(63
)Income before provision for income taxes


14,234


26,197


16,671Provision for income taxes


287


529


851Net income

$
13,947

$
25,668

$
15,820Other comprehensive income:Fair market value adjustment for interest rate swap, net of taxes


(10,775
)

(6,720
)

(698
)Foreign currency translation adjustment


(115
)

10


2Comprehensive income

$
3,057

$
18,958

$
15,124General partner's interest in net income

$
181

$
405

$
316Limited partners' interest:Net income

$
13,766

$
25,263

$
15,504Net income per unitbasic

$
0.89

$
1.97

$
1.56diluted

$
0.88

$
1.95

$
1.55Weighted average units outstandingbasic


15,469


12,847


9,936diluted


15,590


12,952


10,020


See
accompanying notes to consolidated financial statements.

F-5

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL

(in thousands)

Limited PartnersCommon

Subordinated

Accumulated
Other
Comprehensive
IncomeGeneral
PartnerUnits

$

Units

$

TOTALBalance of Partners' Capital at June 30, 2006

$
1,679


5,755

$
124,510


4,165

$
36,533

$
1,221

$
163,943Issuance of common units under long-term incentive plan





23


731











731Conversion of subordinated units to common units





1,041


8,575


(1,041
)

(8,575
)




Fair market value adjustment for interest rate swap contracts, net of taxes of $8

















(698
)

(698
)Foreign currency translation adjustment

















2


2Distributions to partners


(1,311
)




(15,713
)




(10,121
)




(27,145
)Net income


316





9,619





5,885





15,820Balance of Partners' Capital at June 30, 2007

$
684


6,819

$
127,722


3,124

$
23,722

$
525

$
152,653Issuance of common units under long-term incentive plan





23


725











725Conversion of subordinated units to common units, net of tax related adjustments (note 1)





1,041


3,382


(1,041
)

(3,382
)




Fair market value adjustment for interest rate swap contracts, net of taxes of $91

















(6,720
)

(6,720
)Foreign currency translation adjustment

















10


10Issuance of common units, net of transaction costs of $6,332





3,500


131,918











131,918Issuance of common units for the Smith Maritime Group





250


11,298











11,298Distributions to partners


(2,968
)




(29,076
)




(8,330
)




(40,374
)Net income


405





19,892





5,371





25,668Balance of Partners' Capital at June 30, 2008

$
(1,879
)

11,633

$
265,861


2,083

$
17,381

$
(6,185
)
$
275,178Issuance of common units under long-term incentive plan





28


983











983Amortization of restricted units awards under long term incentive plan








1,218











1,218Issuance of common units, net of costs of $1,795





2,000


49,805











49,805Conversion of subordinated units to common units





2,083


13,579


(2,083
)

(13,579
)




Fair market value adjustment for interest rate swap contracts, net of taxes of $135

















(10,775
)

(10,775
)Foreign currency translation adjustment

















(115
)

(115
)Distributions to partners


(4,549
)




(42,420
)




(4,811
)




(51,780
)Stock distribution to the general partner





50


953











953Net income


181





12,757





1,009





13,947Balance of Partners' Capital at June 30, 2009

$
(6,247
)

15,794

$
302,736







$
(17,075
)
$
279,414


See accompanying notes to consolidated financial statements.

F-6

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Years Ended June 302009

2008

2007Cash flows from operating activities:Net income

$
13,947

$
25,668

$
15,820Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


54,564


48,820


33,720Payment of drydocking expenditures


(20,986
)

(25,908
)

(15,357
)Provision for loss on cancellation of contract


515





Provision for doubtful accounts


1,028


549


454Deferred income taxes


(114
)

478


395Net (gain) loss on sale of vessels


(702
)

(601
)

102Gain on settlement of legal proceedings





(2,073
)

Unit compensation costs


1,324


1,156


803Other


(13
)

245


167Changes in operating working capital:Accounts receivable


11,243


(12,248
)

(4,623
)Prepaid expenses and other current assets


6,322


(13,437
)

3,159Other assets


(2,210
)

196


(14
)Accounts payable


(10,948
)

7,957


547Accrued expenses and other current liabilities


209


5,505


2,176Deferred revenue


(1,743
)

4,200


3,827Other liabilities


(481
)




Net cash provided by operating activities


51,955


40,507


41,176Cash flows from investing activities:Vessel acquisitions





(60,475
)

(16,184
)Acquisition of the Smith Maritime Group, net of cash acquired





(168,881
)

Construction of tank vessels


(65,189
)

(51,987
)

(33,315
)Other capital expenditures


(10,069
)

(13,282
)

(14,756
)Proceeds from settlement of legal proceedings





2,073


Net proceeds on sale of vessels


29,536


2,192


740Payment received on notes receivable


340





Investment in joint venture





(1,836
)

Other








(189
)Net cash used in investing activities


(45,382
)

(292,196
)

(63,704
)Cash flows from financing activities:Proceeds from credit line borrowings


224,539


309,953


122,861Repayment of credit line borrowings


(250,332
)

(240,953
)

(79,805
)Gross proceeds from equity offering


51,600


138,250


Proceeds from issuance of long-term debt


41,442


266,931


14,891Payment of term loans


(20,695
)

(171,840
)

(7,722
)Financing costs paidequity offerings


(1,795
)

(6,234
)

(98
)Financing costs paiddebt borrowings


(438
)

(3,204
)

(368
)Distributions to partners


(50,827
)

(40,374
)

(27,145
)Net cash (used in) provided by financing activities


(6,506
)

252,529


22,614Cash and cash equivalents:Net increase


67


840


86Balance at beginning of year


1,752


912


826Balance at end of year

$
1,819

$
1,752

$
912Supplemental disclosure of cash flow information:Cash paid during the year for:Interest, net of amounts capitalized

$
20,972

$
21,799

$
14,457Income taxes

$
46

$
375

$
13Supplemental disclosure of non-cash investing and financing activities:Sale of vessels for notes receivable

$
3,516Use of proceeds of sale-leaseback disbursed directly by the purchaser:Refinancing of term loans with operating lease agreements

$
49,806Lease security deposits

$
3,492Acquisition of the Smith Maritime Group:Value of common units issued to sellers




$
11,298Debt assumed




$
23,511Purchase of vessel with note payable




$
3,000Issuance of limited partner units under the long-term incentive plan

$
983

$
725

$
731Distribution of units to the general partner

$
953


See accompanying notes to consolidated financial statements.

F-7

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (dollars in thousands, except unit and per unit amounts)

Note 1: Basis of Presentation

K-Sea Transportation Partners L.P. and its subsidiaries (the "Partnership") provide marine transportation, distribution and logistics services for refined petroleum
products in the United States. On January 14, 2004, the Partnership completed its initial public offering of common units representing limited partner interests and, in connection therewith,
also issued to its predecessor companies an aggregate of 4,165,000 subordinated units representing limited partner interests. The Partnership met certain financial tests described in its partnership
agreement for early conversion of the first 50% of subordinated units and, as a result, 1,041,250 of these subordinated units converted to common units on each of February 14, 2007 and
February 14, 2008. The subordination period for the remaining subordinated units ended in February 2009 when the Partnership met certain financial tests described in its partnership agreement.
At that time all the remaining subordinated units converted into common units on a one-for-one basis. The common units are no longer entitled to arrearages.

The
Partnership's consolidated statement of partners' capital for the year ended June 30, 2008 includes a reclassification of $4,676 related to the allocation of a deferred tax
benefit from common limited partners' capital to subordinated limited partners capital. Such reclassification is included in the line
item entitled "Conversion of subordinated units to common units, net of tax related adjustments" in such statement.

The
Partnership's general partner, K-Sea General Partner L.P., holds 202,447 general partner units, representing a 1.27% general partner interest in the Partnership as
of June 30, 2009 as well as 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, and certain target distribution levels have been achieved. The target distribution levels entitle the general partner to receive an additional 13% of total
quarterly cash distributions in excess of $0.55 per unit until all unitholders have received $0.625 per unit, an additional 23% of total quarterly cash distributions in excess of $0.625 per unit until
all unitholders have received $0.75 per unit, and an additional 48% of total quarterly cash distributions in excess of $0.75 per unit. The Partnership is required to distribute all of its available
cash from operating surplus, as defined in its partnership agreement. Additional contributions by the general partner to the Partnership upon issuance of new common units are not mandatory.

In
May 2009, the Partnership issued 49,775 limited partner units to the general partner in lieu of $1,244 in cash distributions, effectively $25.00 per unit for the distribution declared
for the quarter ended March 31, 2009. In August 2009, the Partnership issued 49,908 limited partner units to the general partner in lieu of $1,248 in cash distributions, effectively $25.00 per
unit for the distribution declared for the quarter ended June 30, 2009. Future such issuances in lieu of cash distributions will be considered by the Board of Directors of the general partner
of the general partner at the time future distributions are considered.

Note 2: Summary of Significant Accounting Policies

Basis of Consolidation.These consolidated financial statements are for the Partnership and its wholly
owned subsidiaries. All material inter-company transactions and balances have been eliminated in consolidation.

During
fiscal 2008, the Partnership acquired a 50% interest in a joint venture formed to own and charter a tank barge (see note 3). The joint venture is a single asset leasing
entity and is considered a

F-8

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 2: Summary of Significant Accounting Policies (Continued)

variable
interest entity as such term is defined by Financial Accounting Standards Board ("FASB") Interpretation ("FIN") 46R,Consolidation of Variable Interest
Entities. The joint venture as lessor of the asset loses the right to exercise residual power over the asset during the term of the lease (bareboat charter agreement). The
Partnership is the lessee under the bareboat charter agreement, which includes renewal options that result in the Partnership having greater decision making over the asset for substantially all of its
useful life and consequently greater economic interest. As a result, the Partnership is deemed the primary beneficiary of the variable interest entity requiring consolidation of the variable interest
entity in the accompanying financial statements.

Currency Translation.Assets and liabilities related to the Partnership's Canadian subsidiary are translated at the exchange rate
prevailing on the
balance sheet date, and revenues and expenses are translated at the weighted average exchange rate for the period. The resulting translation gain or loss is reflected in partners' capital as a
component of accumulated other comprehensive income.

Use of Estimates.The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and revenues and
expenses during the reporting period. The most significant estimates relate to depreciation of the vessels and equipment, amortization of drydocking costs, estimates used in assessing the
recoverability of goodwill, intangible and other long lived assets, liabilities incurred from workers' compensation, commercial and other claims, the allowance for doubtful accounts and deferred
income taxes. Actual results could differ from these estimates. The Partnership has evaluated subsequent events through September 14, 2009 which represents the date these financial statements
were issued.

Cash and Cash Equivalents.The Partnership considers all highly liquid investments with original maturities of three months or less to
be cash
equivalents.

Concentrations of Credit Risk.Financial instruments which potentially subject the Partnership to concentrations of credit risk are
primarily cash
and cash equivalents and trade accounts receivable. The Partnership maintains its cash and cash equivalents on deposit at a financial institution in amounts that, at times, may exceed insurable
limits.

There
were two customers that accounted for 18% and 13% of consolidated accounts receivable at June 30, 2009 and no customers that accounted for 10% or more of consolidated
accounts receivable at June 30, 2008. Two customers accounted for 20% and 11% of consolidated total revenues for the fiscal year ended June 30, 2009. Three customers accounted for 16%,
12% and 11% of consolidated total revenues for the fiscal year ended June 30, 2008. Two customers accounted for 19% and 17% of consolidated total revenues for the fiscal year ended
June 30, 2007.

With
respect to accounts receivable, the Partnership extends credit based upon an evaluation of a customer's financial condition and generally does not require collateral. The
Partnership's allowance for doubtful accounts totaling $1,264 and $1,970 at June 30, 2009 and 2008, respectively, is based on the Partnership's best estimate of the amount of probable credit
losses in the Partnership's existing accounts receivable. The Partnership does not believe it is exposed to concentrations of credit risk that are likely to have a material adverse effect on its
financial position, results of operations or cash flows.

F-9

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 2: Summary of Significant Accounting Policies (Continued)

For
the fiscal years ended June 30, 2009, 2008 and 2007, the Partnership's allowance for doubtful amounts was impacted by additional charges of $1,028, $549, and $454, and
write-offs of $1,733, ($7) and $206, respectively.

Insurance Claims Receivable.Insurance claims receivable, which are included in prepaid expenses and other current assets, represent
claims for
reimbursement of expenses incurred that have been made under our hull and machinery, and protection and indemnity coverages. The Partnership records the probable amount that it expects to recover from
insurance net of the applicable deductible.

Fuel Supplies.Fuel used to operate the Partnership's vessels, and on hand at the end of the period, is recorded at cost. Such amounts
totaled $4,291
and $8,389 as of June 30, 2009 and 2008, respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets.

Vessels and Equipmentincluding Changes in Accounting Estimates.Vessels and equipment are recorded at cost, which includes
contract
price, capitalized interest where appropriate and other direct costs relating to acquiring and placing the vessels in service. Vessels and equipment are depreciated using the straight-line
method over the estimated useful lives of the individual assets. In assessing the appropriateness of the useful lives and salvage values of its vessels, the Partnership considered the recent growth in
the fleet and changes in its composition. The Partnership concluded, based on its accumulated data on useful lives and the planned future use of its vessels, as well as a review of industry data, that
its assets are fully operative and economic for periods greater than those previously used for book depreciation purposes. Accordingly, effective July 1, 2008, the Partnership prospectively
increased the estimated useful lives of double-hulled tank barges and tugboats to a range of ten to thirty years, from the previous ranges of ten to twenty five years and ten to twenty years,
respectively, and increased salvage values for double-hulled tank barges. These changes in accounting estimates increased operating income and net income by $6,405 and $6,326, respectively, and net
income per fully diluted limited partner unit by $0.40, for the fiscal year ended June 30, 2009.

For
single-hull tank vessels, useful lives are limited to the remaining period of operation prior to mandatory retirement as required by the Oil Pollution Act of 1990 ("OPA
90"). OPA 90 requires that the 17 (including two chartered-in) single-hull vessels operated by the Partnership as of June 30, 2009, representing approximately 17% of
total barrel-carrying capacity, be retired or retrofitted to double-hull by January 1, 2015. The useful lives of pier and office equipment range from three to five years.

Included
in vessels and equipment are drydocking expenditures that are capitalized and amortized over three years based on regulatory drydocking requirements. Drydocking of vessels is
required both by the United States Coast Guard and by the applicable classification society, which in the Partnership's case is the American Bureau of Shipping. Such drydocking activities include, but
are not limited to, the inspection, refurbishment and replacement of steel, engine components, tail shafts, mooring equipment and other parts of the vessel.

Major
renewals and betterments of assets are capitalized and depreciated over the remaining useful lives of the assets. Leasehold improvements are capitalized and depreciated over the
shorter of their useful lives or the remaining term of the lease. Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed.

F-10

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 2: Summary of Significant Accounting Policies (Continued)

The
Partnership assesses impairment of long-lived assets used in operations when indicators of impairment are present. An impairment loss would be recognized if the
undiscounted cash
flows estimated to be generated by those assets are less than the assets' carrying amounts, and to the extent the carrying value exceeds fair value by appraisal.

When
property items are retired, sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts with any gain or loss on the dispositions
included in income. Assets to be disposed of are reported at the lower of their carrying amounts or fair values, less the estimated costs of disposal.

Construction in Progress.Construction in progress comprises expenditures relating to the Partnership's newbuild program which is
described in
note 5. Construction in progress is recorded at cost, including capitalized interest where appropriate. The Partnership capitalizes direct and indirect costs clearly associated with the
development, design, and construction of new vessels as these costs have a future benefit. Costs include installments paid to the shipyard, payments made to third parties in connection with the vessel
newbuild program, and interest costs incurred during the construction period, which is defined as the period from the start of construction until the date that each vessel is substantially complete
and ready for use.

Leases.Leases are classified as either capital or operating. Those leases that transfer substantially all the benefits and risks of
ownership of
property to the Partnership are accounted for as capital leases. All other leases are accounted for as operating leases. Rental expense for leases classified as operating and that contain
predetermined fixed increases of minimum rentals during the term of the lease is recognized on a straight-line basis over the life of the lease, beginning with the point at which the
Partnership obtains control and possession of the leased properties.

Deferred Financing Costs.Direct costs associated with obtaining long-term financing are deferred and amortized over the terms of the
related financings. Deferred financing costs are stated net of accumulated amortization which, at June 30, 2009 and 2008, amounted to $1,515 and $939, respectively.

Goodwill.Goodwill represents the excess of the purchase price over the fair value of the net assets of the acquired business at the
date of the
acquisition. The Partnership tests for impairment at least annually using a two-step process. The first step identifies potential impairment by comparing the fair value of a reporting unit
with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired and the second step is not necessary. If the carrying value
exceeds the fair value, the second step calculates the possible
impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied fair value of goodwill is less than the carrying amount, a write-down is recorded.

Intangible Assets.Included in other assets are intangible assets acquired as part of business combinations or asset acquisitions which
are recorded
at fair value at their acquisition date and are amortized on a straight-line basis over their estimated useful lives. The Partnership reviews intangible assets to evaluate whether events
or changes have occurred that would suggest an impairment of carrying value. An impairment would be recognized when expected undiscounted future operating cash flows are lower than the carrying value,
and to the extent the carrying value exceeds fair value.

F-11

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 2: Summary of Significant Accounting Policies (Continued)

Derivative instruments.The Partnership utilizes derivative financial instruments to reduce interest rate risks. The Partnership does
not hold or
issue derivative financial instruments for trading purposes. The Partnership accounts for its derivative financial instruments in accordance with Statement of Financial Accounting Standards ("FAS")
No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended, ("FAS No. 133"). FAS No. 133 requires that an
entity recognize all derivative financial instruments as either assets or liabilities, depending on the rights or obligations under the contract. Derivative financial instruments are measured at fair
value. Changes in the fair value (gains or losses) of those derivative financial instruments are reported in earnings or other comprehensive income depending on the use of the derivative and whether
it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative will depend on the hedge designation and whether the hedge is highly
effective in achieving offsetting changes in fair value of cash flows of the asset or liability hedged.

The
Partnership enters into interest rate swap contracts to hedge its exposure to variability in expected future cash flows relating to interest payments associated with the
Partnership's floating- rate borrowings. These swap contracts have been designated as cash flow hedges. A derivative financial instrument qualifies for cash flow hedge accounting if it meets criteria
specified by FAS 133 which includes among others a) that the forecasted transaction is specifically identified, b) its occurrence is probable and c) the forecasted
transaction is a transaction with a party external to the reporting entity. The effective portion of the cash flow hedge's gain or loss is initially reported as a component of other comprehensive
income and subsequently reclassified into earnings when the forecasted transaction affects earnings. Assessing hedge effectiveness includes an evaluation of whether or not critical terms of the
derivative and the hedged item are the same (i.e. size, reset and payment dates, market conventions, etc.) The ineffective portion of the gain or loss is reported in earnings immediately. Based
on the characteristics of each interest rate swap contract and its related floating rate borrowing the Partnership uses either the "matched terms" accounting method provided by Derivative
Implementation Group Issue G9,Assuming No Ineffectiveness When Critical Terms of the Hedging Instruments and the Hedge
Transaction Match in a Cash Flow Hedge, or the methodology prescribed by Derivative Implementation Group Issue G7,Cash Flow Hedges Measuring the
Ineffectiveness of a Cash Flow Hedge under Paragraph 30(b) When the Shortcut Method Is Not Applied.

Fair Value of Financial Instruments.The following method and assumptions were used to estimate the fair value of financial instruments
included in
the following categories:



F-12

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 2: Summary of Significant Accounting Policies (Continued)



Revenue RecognitionRelated Expenses.The Partnership earns revenue under contracts of affreightment, voyage charters, time
charters and
bareboat charters. For contracts of affreightment and voyage charters, revenue is recognized based upon the relative transit time in each period, with expenses recognized as incurred. The Partnership
is responsible for the voyage expenses, including fuel and other expenses which are unique to a particular voyage, such as port charges, pilot fees, tank cleaning costs and canal tolls, and the vessel
operating expenses such as wages paid to vessel crews, routine maintenance and repairs, marine insurance, and outside towing. Although contracts of affreightment and certain voyage charters may be
effective for a period in excess of one year, revenue is recognized over the transit time of individual voyages, which are generally less than ten days in duration. For time charters and bareboat
charters, revenue is recognized ratably over the contract period, with expenses recognized as incurred. For time charters the Partnership is responsible for vessel operating expenses, while the
customer is responsible for the voyage expenses. For bareboat charters, the customer is responsible for both the vessel operating expenses and the voyage expenses. Estimated losses on contracts of
affreightment and charters are accrued when such losses become evident.

Deferred revenue.Deferred revenue arises in the normal course of business from advance billings under charter agreements. Revenue is
recognized
ratably over the contract period.

Income Taxes.The Partnership's effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on its
operating
partnership, plus federal, state, local and foreign corporate income taxes on the income of the operating partnership's corporate subsidiaries.

Deferred
taxes represent the tax effects of differences between the financial reporting and tax bases of the Partnership's assets and liabilities, as applicable, at enacted tax rates in
effect for the years in which the differences are expected to reverse. The recoverability of deferred tax assets is evaluated and a valuation allowance established when it is more likely than not that
some portion or all of the deferred tax assets will not be realized.

The
Partnership records tax related interest and penalties as interest expense and general and administrative expenses, respectively.

Unit-Based Compensation.The Partnership has adopted a long-term incentive plan that permits the granting of awards to
directors and employees in the form of restricted units and unit options. The Partnership recognizes compensation cost for the restricted units on a
straight-line basis over the vesting periods of the awards, which range from approximately three to five years. No unit options have been granted.

F-13

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 2: Summary of Significant Accounting Policies (Continued)

Net Income per Unit.Basic net income per unit is determined by dividing net income, after deducting the amount of net income allocated
to the
general partner interest, by the weighted average number of units outstanding during the period. Diluted net income per unit is calculated in the same manner as basic net income per unit, except that
the weighted average number of outstanding units is increased to include the dilutive effect of outstanding unit options or restricted units granted under the Partnership's long-term
incentive plan. For diluted net income per unit, the weighted average units outstanding were increased by 121, 105 and 84 for the fiscal years ended June 30, 2009, 2008 and 2007, respectively,
due to the dilutive effect of restricted units.

As
required by Emerging Issues Task Force ("EITF") Issue No. 03-6,Participating Securities and the Two-Class Method under FASB
Statement No. 128, Earnings per Share("EITF 03-6"), the general partner's interest in net income is calculated as if all net income for the year was
distributed according to the terms of the partnership agreement. The partnership agreement does not provide for the distribution of net income; rather, it provides for the distribution of available
cash, which is a contractually defined term that generally means all cash on hand at the end of each quarter after provision for certain cash requirements. Unlike available cash, net income is
affected by non-cash items, such as depreciation and amortization.

As
described in note 1 above, the general partner's incentive distribution rights entitle it to receive an increasing percentage of distributions when the quarterly cash
distribution exceeds $0.55 per unit. Under EITF 03-6, the impact of these increasing percentages is reflected in the calculation of the general partner's interest in quarterly net
income when such net income exceeds $0.55 per unit.

Distributions per Unit.Distributions to limited partners were $3.08, $2.92,and $2.60 per unit for the years ended June 30, 2009,
2008 and
2007, respectively.

Accumulated Comprehensive Income (Loss)Included within accumulated other comprehensive income
(loss) for the Partnership are fair value adjustments related to foreign currency translation and derivative instruments classified as cash flow hedges, net of the related tax. Total comprehensive
income (loss) for the years ended June 30, 2009, 2008 and 2007 is presented on the statements of operations.

Note 3: Acquisitions

The Smith Maritime Group

On August 14, 2007, the Partnership, through certain wholly owned subsidiaries, completed the acquisition of all of the equity
interests in Smith Maritime, Ltd., Go Big Chartering, LLC and Sirius Maritime, LLC (collectively, the "Smith Maritime Group"). This transaction is part of the Partnership's
business strategy to expand its fleet through strategic and accretive acquisitions. The Smith Maritime Group provides marine transportation and logistics services to major oil companies, oil traders
and refiners in Hawaii and along the West Coast of the United States. The aggregate purchase price was $203,690. As further described in note 6 below, the Partnership financed the cash portion
of the purchase through additional borrowings under its revolving credit agreement and a bridge loan.

Under
the purchase method of accounting, the Partnership has included the Smith Maritime Group's results of operations from August 14, 2007, the acquisition date, through
June 30, 2008. The aggregate recorded purchase price of $203,690 consisted of $168,881 of cash, including $1,496 of direct

F-14

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 3: Acquisitions (Continued)

expenses,
$23,511 of assumed debt, and $11,298 representing 250,000 common units valued at their average market value during the five-day period surrounding the announcement of the
definitive agreement. The Partnership allocated the purchase price to the tangible assets, intangible assets, and liabilities acquired based on their fair values. The purchased identifiable intangible
assets are being amortized on a straight-line basis over their respective estimated useful lives. The excess of the purchase price over the fair value of the acquired net assets has been
recorded as goodwill, which is not amortized but which will be reviewed annually for impairment. Such purchase price was in excess of the net assets acquired because the Partnership believes that the
cash flows generated from the acquired business will be accretive. The Partnership's allocation of the purchase price is as follows:

Current assets

$
8,229Vessels and equipment, net


158,660Intangible assets


20,115Goodwill


37,915Other assets


9224,928Liabilities and capital lease obligations


21,238Total purchase price

$
203,690


The
identifiable intangible assets purchased in the acquisition include customer relationships and covenants not to compete, valued at $17,400 which will be amortized over
20 years and $100 which will be amortized over 3 years, respectively, (see note 4). The acquisition also included an option to purchase a 50% interest in a tank barge, at less
than fair market value, which resulted in recognition of an intangible asset of $2,615 at the acquisition date. Upon exercise of the option in October 2007, the Partnership obtained a 50% interest in
a joint venture, which joint venture is considered a variable interest entity and is consolidated in the accompanying financial statements. The amount of goodwill that is deductible for tax purposes
over 15 years is $24,415.

The
consolidated balance sheets reflect $4,514 and $4,519 as of June 30, 2009 and 2008, respectively, for the non-controlling interest in this joint venture. The joint
venture has a term loan, which matures on October 1, 2012, that is collateralized by the related tank barge. The carrying value of the tank barge is $11,263 and $11,737 at June 30, 2009
and 2008, respectively. Borrowings outstanding on this term loan at June 30, 2009 and 2008 were $2,245 and $2,830, respectively. Other income (expense) for the fiscal years ended
June 30, 2009 and 2008 includes an allocation of $317 and $337, respectively, for the non-controlling interest's portion of the joint venture's income.



The unaudited pro forma financial information for the fiscal years ended June 30, 2008 and 2007 combines the historical results
of the Partnership with the historical results of the Smith Maritime Group for the period preceding the August 14, 2007 acquisition. The unaudited financial information in the table below
summarizes the combined results of operations of the Partnership and the Smith Maritime Group, on a pro forma basis, as though the acquisition had been completed as of the beginning of each period
presented. This pro forma financial data is presented for information

F-15

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 3: Acquisitions (Continued)

purposes
only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition actually taken place at those dates.

For the Year Ended
June 30,2008

2007(unaudited)Revenues

$
332,618

$
283,546Net income

$
27,636

$
28,103Basic net income per limited partner unit

$
1.99

$
2.01Fully diluted net income per limited partner unit

$
1.97

$
2.00


Note 4: Goodwill and Intangible Assets

FAS No. 142,Goodwill and Other Intangible Assets, requires that goodwill be tested for impairment at the reporting unit level on
an annual basis and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Partnership
tests for impairment during the second quarter (as of October 31) of its fiscal year using a two-step process described in note 2.

The
Partnership operates in a single operating segment. It has two reporting units consisting of its Atlantic region and Pacific region operations. All of the Partnership's goodwill
relates to the Pacific region reporting unit. The Partnership determines the fair value of the Pacific region reporting unit using an income approach based on the present value of estimated future
cash flows. The Partnership believes that the income approach is appropriate due to the long term nature of the Partnership's time charters, consecutive voyage charters, and contracts of affreightment
and bareboat charters, which are generally for periods of one year or more and generally contain renewal options. The Partnership assesses the reasonableness of its approach by consideration of
current trading multiples for peer companies.

The
Partnership used its business plans and projections as the basis for expected future cash flows for purposes of the annual impairment test as of October 31, 2008. Inherent in
the development of cash flow projections are assumptions and estimates derived from a review of operating results for fiscal 2008 and the first quarter of fiscal 2009, approved business plans,
expected growth rates (which consider both existing contracts and contracts relating to the Partnership's newbuild program vessels), cost of capital and tax rates. The Partnership also makes certain
assumptions about future economic
conditions including inflation, interest rates and other market data. The following critical assumptions were used in determining the fair value of goodwill: (1) an increase in the average
daily rate of 4% in 2010 and 3% in 2011, excluding the impact of newbuilds expected to be placed into service in 2010, (2) a projected long term growth of 3% for determining terminal value;
(3) a tax rate of 35%, which reflects a market participant rather than the Partnership's tax rate, and (4) an average discount rate of 10.5%, representing the Partnership's weighted
average cost of capital ("WACC"). Factors inherent in determining the Partnership's WACC included the Partnership's own and peer company data relating to (1) the value of the Partnership's
limited partner units and peer company common stock; (2) the amounts of debt and equity capital and the percentages they comprise of total capitalization; and (3) expected interest costs
on debt and debt market conditions.

F-16

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 4: Goodwill and Intangible Assets (Continued)

The
calculated fair value of the Pacific region reporting unit exceeded its carrying value by $26,042 as of the measurement date. Assumptions in estimating future cash flows are subject
to a high degree of judgment and complexity. The Partnership based its fair value estimate on assumptions it believes to be reasonable. However, actual future results may differ from those projected,
and those differences may be material.

The
changes in the carrying amount of goodwill for the years ended June 30, 2009 and 2008 are as follows:

TotalBalance as of June 30, 2007

$
16,385Smith Maritime Group Acquisition


37,915Balance as of June 30, 2008

$
54,300Activity during fiscal year 2009


Balance as of June 30, 2009

$
54,300


Intangible
assets consist of customer relationships, customer contracts and covenants not to compete. The net carrying amount of intangible assets for the years ended
June 30, 2009 and 2008 are as follows:

As of June 30, 2009Amortization
period in years

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountCustomer Relationships/Contracts

3  20

$
32,415

$
(9,956
)
$
22,459Covenants Not to Compete

3  4


550


(473
)

77Total



$
32,965

$
(10,429
)
$
22,536




As of June 30 2008Amortization
period in years

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountCustomer Relationships/Contracts

3  20

$
32,415

$
(7,159
)
$
25,256Covenants Not to Compete

3  4


550


(327
)

223Total



$
32,965

$
(7,486
)
$
25,479


F-17

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 4: Goodwill and Intangible Assets (Continued)

Amortization
expense for the customer relationships/contracts and the covenant not to compete for the years ended June 30, 2009, 2008 and 2007 were $2,943, $2,793
and $2,004, respectively. The expected future amortization expense related to these intangible assets is as follows:

Year ending June 30,2010

$
2,4222011


1,8462012


1,8402013


1,8402014


1,8402015 and thereafter


12,748Total

$
22,536


Note 5: Vessels and Equipment and Construction in Progress

At June 30, 2009 and 2008, vessels and equipment and construction in progress comprised the following:

2009

2008Vessels

$
697,359

$
739,153Pier and office equipment


6,309


5,967703,668


745,120Less accumulated depreciation and amortization


(169,672
)

(136,911
)Vessels and equipment, net

$
533,996

$
608,209Construction in progress

$
66,882

$
40,370


At
June 30, 2009 vessels and equipment with a book value of $507,064 are subject to liens, which are further described in note 6 below.

Depreciation
and amortization of vessels and equipment for the fiscal years ended June 30, 2009, 2008 and 2007 was $50,360, $45,519 and $31,411, respectively. Such depreciation
and amortization includes amortization of drydocking expenditures for the fiscal years ended June 30, 2009, 2008 and 2007 of $19,437, $13,679 and $9,826, respectively.

During
fiscal 2009, the Partnership took delivery of the following newbuild vessels: in December 2008 and November 2008, the Partnership took delivery of two 80,000-barrel
tank barge newbuild vessels, the DBL 79 and the DBL 76. These tank barges cost, in the aggregate, $31,636.

In
December 2008, the Partnership sold three barges under sale-leaseback agreements with two financial institutions for an aggregate sales price of $34,397. Approximately
$18,855 of sales proceeds were disbursed directly by the purchasers to refinance debt with operating lease obligations and fund a security deposit associated with a lease agreement. Such activities
are shown as non-cash investing and financing activities in the statements of cash flows. Additionally $10,153 was disbursed to make the final payment for construction of one of the
vessels and the remainder was used to repay borrowings under credit agreements. Each of the three operating lease agreements gives the charterer the right to renew the lease at the end of its initial
lease term, which ranges from ten to twelve years. Two of the leases include early buyout options after ten years and nine years, respectively. One lease includes a rent

F-18

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 5: Vessels and Equipment and Construction in Progress (Continued)

escalation
after six years. Gains on the sale of two vessels of $863 and $812 have been deferred and will be amortized as a reduction of lease expense, which is included in vessel operating expenses,
on a straight line basis over their respective lease terms of twelve and ten years. Prepaid rent and deferred transaction related costs of $1,602 will be amortized on a straight line basis over the
respective lease terms.

In
June 2009 the Partnership sold five barges under sale-leaseback agreements with three financial institutions for an aggregate sales price of $47,752. Approximately $34,448
of sales proceeds were disbursed directly by the purchasers to refinance debt with operating lease obligations and fund security deposits associated with certain lease agreements. Such activities are
therefore shown as non-cash investing and financing activities in the statements of cash flows. Four of the five operating lease agreements give the charterer the right to renew the lease
at the end of its initial lease term, which ranges from nine and a half to ten years. Two of these leases include early buyout options after nine years, one lease includes an early buyout option after
seven and three quarter years and two leases include early buyout options after seven years. Gains on the sale of two vessels of $1,416 and $81 have been deferred and will be amortized as a reduction
of lease expense, which is included in vessel operating expenses, on a straight line basis over each of their respective lease terms of ten years. Losses on the sales of two vessels of $251 and $93
have been included in the consolidated statement of operations. Prepaid rent and deferred transaction related costs of $1,132 will be amortized on a straight line basis over the respective lease
terms.

Aggregate
rent expense for these eight operating lease agreements over their terms is $74,740 (net of the gain amortization described above), including rent expense of $1,407 for the
year ended June 30, 2009 and $7,109 per year for each year in the five year period ended June 30, 2014. The net unamortized gain and the net unamortized deferred costs relating to these
eight leases is $3,083 and $2,663 as of June 30, 2009.

In
January 2009, the Partnership sold a single hull barge for a $1,458 note from the purchaser, which is payable in monthly installments ending in April 2010. The Partnership recognized
a loss on the sale of $274. In June 2009, the Partnership sold a single hull barge for $2,080, which included a deposit of $500 and a note from the purchaser in the amount of $1,580. The note is
payable in monthly installments ending in October 2010. The Partnership recognized a gain on the sale of $1,317. The $1,117 current portion of and $369 noncurrent portion of these note receivables are
included in prepaid expenses and other current assets and other assets, respectively, in the consolidated balance sheet at June 30, 2009.

During
fiscal 2008, the Partnership took delivery of the following newbuild vessels: in June 2008, an 80,000-barrel tank barge, the DBL 77; in March 2008, a
28,000-barrel tank barge, the DBL 25; in December 2007, a 28,000-barrel tank barge, the DBL 24; and in September 2007, a 28,000-barrel tank barge, the DBL 23.
Additionally, the Partnership acquired two additional tugboats and two tank barges during the year. These tank barges and tugboats cost, in the aggregate, $51,888.

On
June 5, 2008, the Partnership completed the acquisition of eight tugboats and ancillary equipment from Roehrig Maritime LLC and its affiliates. The purchase price was
$41,541 in cash and was financed using available cash plus borrowings under a bridge loan agreement as described in note 6.

F-19

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 5: Vessels and Equipment and Construction in Progress (Continued)

As
described in note 3, on August 14, 2007 the Partnership acquired the Smith Maritime Group, including $158,660 of vessels, pier and office equipment.

The
Partnership has also entered into agreements with shipyards for (1) the construction of a 100,000-barrel tank barge and an articulated tug-barge unit
("ATB") and (2) the lease of two 50,000-barrel tank barges as follows:

Vessels

Expected DeliveryOne 185,000-barrel articulated tug-barge unit

2nd Quarter fiscal 2010One 100,000-barrel tank barge

3rd Quarter fiscal 2010Two 50,000-barrel tank barges

3rd Quarter fiscal 2010 and 3rd Quarter fiscal 2011


Construction
in progress at June 30, 2009 primarily relates to costs incurred for the articulated tug barge unit and the 100,000-barrel tank barge
described above.

Note 6: Financing



The Partnership maintains a revolving credit agreement with a group of banks, with KeyBank National Association as administrative agent
and lead arranger, to provide financing for its operations. On August 14, 2007, the Partnership amended and restated its revolving credit agreement to provide for (1) an increase in
availability to $175,000 under the primary revolving facility, with an increase in the term to seven years, (2) an additional $45,000 364-day senior secured revolving
credit facility, (3) amendments to certain financial covenants and (4) a reduction in interest rate margins. Under certain conditions, the Partnership has the right to increase the
primary revolving facility by up to $75,000, to a maximum total facility amount of $250,000. On November 7, 2007, the Partnership exercised this right and increased the facility by $25,000 to
$200,000. The primary revolving facility is collateralized by a first perfected security interest in a pool of vessels and certain equipment and machinery related to such vessels having a net book
value of $255,000 and a total fair market value of approximately $256,000 as of June 30, 2009. The revolving facility bears interest at the London Interbank Offered Rate, or LIBOR (0.31% at
June 30, 2009), plus a margin ranging from 0.7%
to 1.5% depending on the Partnership's ratio of total funded debt to EBITDA (as defined in the agreement). The Partnership also incurs commitment fees, payable quarterly, on the unused amount of the
facility at a rate ranging from 0.15% to 0.30% based also upon the ratio of Total Funded Debt to EBITDA. On August 14, 2007, the Partnership borrowed $67,000 under the primary revolving
facility and $45,000 under the 364-day facility to fund a portion of the purchase price of the Smith Maritime Group (see note 3).

Also
on August 14, 2007, the Partnership entered into a bridge loan facility for up to $60,000 with an affiliate of KeyBank National Association in connection with the Smith
Maritime Group acquisition. While outstanding, the bridge loan facility bore interest at an annual rate of LIBOR plus 1.5%, and was to mature on November 12, 2007.

Both
the $45,000 364-day senior secured facility and the $60,000 bridge loan were repaid on September 26, 2007 upon closing of an offering of common units
by the Partnership. See "Common

F-20

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 6: Financing (Continued)

Unit
Offerings" below. As of June 30, 2009 and 2008, the Partnership had $139,850 and $162,350 outstanding on the revolving facility, respectively.

The
Partnership initially entered into this revolving credit agreement on March 24, 2005 and amended it at various times in fiscal year 2006 to increase or decrease its available
borrowings in conjunction with acquisition, bond repayment, newbuild and term loan activities. During fiscal 2007, the Partnership further amended the credit agreement to add additional bank
participants, increase the available borrowings to $125,000, amend certain financial covenants and reduce interest rates.

On
November 30, 2007, the Partnership entered into agreements with a financial institution to swap the LIBOR-based, variable rate interest payments on $104,850 of its credit
agreement borrowings for fixed rates, for a term of three years. The fixed rates to be paid by the Partnership average 4.01% plus the applicable margin. The fair value of the swap contract of ($4,682)
and ($1,156) as of June 30, 2009 and 2008, respectively, is included in other liabilities in the consolidated balance sheets.

The
Partnership also maintains a separate $5,000 revolver with a commercial bank to support its daily cash management activities. Advances under this facility bear interest at
30-day LIBOR plus a margin of 1.40%; amounts outstanding at June 30, 2009 and 2008 totaled $428 and $3,721, respectively. This revolving credit facility is collateralized by three
barges and two tug boats.



Term loans and capital lease obligation outstanding at June 30, 2009 and 2008 were as follows. Descriptions of these borrowings
are included below:

2009

2008Term loans due:October 5, 2008

$


$
4,265May 1, 2012


2,619


3,418October 1, 2012


2,245


2,830December 31, 2012


8,317


9,102January 1, 2013


11,039


13,243April 30, 2013


14,036


15,321May 1, 2013


67,661


71,916June 1, 2014


17,418


18,869June 1, 2015





16,497July 1, 2015


26,284


27,465November 1, 2015


5,601


December 1, 2016


46,023


10,381February 28, 2018


5,139


5,370April 1, 2018


4,096


4,275May 1, 2018


15,638


46,858June 1, 2018





4,300August 1, 2018


16,220


17,990Capital lease obligation


399


1,035242,735


273,135Less current portion


16,820


16,754$
225,915

$
256,381


F-21

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 6: Financing (Continued)

On
October 8, 2008, the Partnership entered into a loan agreement with a financial institution to borrow $5,800, for which it pledged two tug boats as collateral.
The proceeds of the loan were used to repay indebtedness under the Partnership's revolving credit agreement. This loan bears interest at a fixed rate of 5.85% per annum. This loan is repayable by one
payment of interest only covering the period from the closing date through October 31, 2008, which was paid on November 1, 2008, and 84 monthly installments of $56 commencing
December 1, 2008, with the remaining principal balance of $2,900, together with interest, due on November 1, 2015. Outstanding borrowings were $5,601 at June 30, 2009.

On
June 5, 2008, the Partnership closed the last of eleven fixed-rate term loans aggregating $72,147, which were entered into between April 30, 2008 and
June 5, 2008. These loans were arranged with a financial institution, which assigned all but two to other financial institutions. The proceeds of these loans were used to repay borrowings under
the Partnership's credit agreement, except for $15,000 which was used to repay an advance on such loans which was borrowed on March 21, 2008 concurrent with repayment of a separate term loan
which came due and was repaid on March 24, 2008. These term loan agreements contain customary events of default, including a cross default to the Partnership's credit agreement, and also the
fixed charge coverage ratio requirement that is included in the credit agreement. In conjunction with the
sale-leaseback transactions (see note 5) two of these term loans were repaid in December 2008 and four were repaid in June 2009. The remaining five term loans have a term of ten
years maturing between April 1, 2018 and May 1, 2018 and are collateralized by three barges and two tugboats. The remaining five term loans bear a weighted average interest rate of 6.43%
and are repayable in an aggregate fixed monthly payment of $180. Final balloon payments on the remaining five term loans aggregate $9,108 between April 1, 2018 and May 1, 2018.
Borrowings outstanding on these loans totaled $19,734 and $71,930 at June 30, 2009 and 2008, respectively.

Also
on June 5, 2008, in connection with the acquisition of eight tugboats and ancillary equipment described in note 5 above, the Partnership entered into a bridge loan
agreement with a financial institution, pursuant and subject to which the lender agreed to extend a bridge loan in the original principal amount of $31,730. The bridge loan was to mature on
October 5, 2008; the Partnership has since refinanced $27,465 of the bridge loan with term loans and repaid the balance on July 13, 2008 using its revolving credit agreement. The term
loans all have terms of seven years. Two of the loans totaling $19,860 bear a weighted average interest rate of 6.52% and are repayable in an aggregate fixed monthly amount of $182, with final balloon
payments of principal totaling $12,141 due at maturity on July 1, 2015. A third term loan bears interest at LIBOR plus 2.0%, is repayable in fixed principal amounts ranging from $31 to
$42 monthly, plus interest, and matures on July 1, 2015 at which time a final balloon payment of principal of $4,605 is due. These term loans are collateralized by six tugboats.
Borrowings outstanding on these term loans totaled $26,284 and $27,465 at June 30, 2009 and 2008, respectively.

On
June 4, 2008, the Partnership entered into a credit agreement (the "ATB Agreement") with a financial institution pursuant to which the lender agreed to provide financing during
the construction period, and thereafter, for a 185,000-barrel articulated tug-barge unit in an amount equal to 80% of the acquisition costs of the unit, up to a maximum of
$57,600. Obligations under the ATB Agreement are collateralized during the construction period by an assignment of the Partnership's rights under the construction contract with the shipyard and, after
delivery, by a first preferred mortgage in the tug-barge unit. Interest is payable quarterly at the applicable LIBOR rate plus a margin ranging from 1.05% to 1.85% based upon the
Partnership's ratio of total funded debt to EBITDA, as defined in the agreement. At the delivery date of the unit, which is expected during the fourth quarter of calendar 2009, the aggregate of the

F-22

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 6: Financing (Continued)

advances
taken during the construction period will be converted to a term loan repayable in twenty-eight quarterly payments covering 37.5% of the term loan, which are expected to approximate $771
each, plus interest at LIBOR plus the applicable margin. The twenty eighth and final payment will also include a balloon payment of 62.5% of the acquisition cost, estimated at $36,000. The ATB
Agreement contains the same financial covenants as are contained in the Partnership's credit agreement described above, as well as customary events of default. Outstanding borrowings were $46,023 and
$10,381 at June 30, 2009 and 2008 respectively, under the agreement. On June 13, 2008, the Partnership also entered into an agreement with the bank to swap the LIBOR-based, variable rate
interest payments on the outstanding balance of the ATB Agreement to a fixed rate of 5.08% over the same term, resulting in a total fixed interest rate of 5.08% plus the applicable margin. The fair
value of the swap contract of ($4,607) and ($881) as of June 30, 2009 and 2008, respectively, is included in other liabilities in the consolidated balance sheets.

On
February 22, 2008, the Partnership closed a new ten-year, $5,425 term loan to finance the purchase of a tugboat. The loan bears interest at 6.15%, and is repayable
in monthly installments of $46 with a final payment at maturity on February 28, 2018 of $2,417. The loan is collateralized by the related tugboat. The principal balance of the loan was $5,139
and $5,370 at June 30, 2009 and 2008, respectively.

On
August 14, 2007, in connection with the acquisition of the Smith Maritime Group, the Partnership assumed two term loans totaling $23,511. The first, in the amount of $19,464,
bears interest at LIBOR plus 1.25% and is repayable in equal monthly installments of $147, plus interest, through August 2018. The second, in the amount of $4,047, bears interest at LIBOR plus 1.0%
and is repayable in monthly installments ranging from $59 to $81, plus interest, through May 2012. These loans are collateralized by three tank barges. The Partnership also agreed with the lender to
assume the two existing interest rate swaps relating to these two loans. The LIBOR-based, variable rate interest payments on these loans have been swapped for fixed payments at an average rate of
5.46%, plus a margin, over the same terms as the loans. Borrowings outstanding on the term loans were $18,839 and $21,408 at June 30, 2009 and 2008, respectively. The fair value of the swap
contract of ($1,929) and ($1,219) as of June 30, 2009 and 2008, respectively, is included in other liabilities in the consolidated balance sheets.

Also
in connection with the acquisition of the Smith Maritime Group, the Partnership acquired an option to purchase a 50% interest in a joint venture which was exercised in October 2007.
The joint venture is consolidated in these financial statements. The joint venture debt consists of a term loan which bears interest at 6.5%, matures on October 1, 2012, and is collateralized
by the related tank barge. Borrowings outstanding on this term loan at June 30, 2009 and 2008 were $2,245 and $2,830, respectively.

In
May 2006, the Partnership entered into an agreement to borrow up to $23,000 to partially finance construction of two 28,000-barrel and one 100,000-barrel tank
barges. The loan bears interest at 30-day LIBOR plus 1.40%, and is repayable in monthly principal payments of $121, plus accrued interest, over seven years, with the remaining principal
amount of $10,281 payable at maturity on June 1, 2014. The loan is collateralized by the related tank barges and two other tank vessels. Borrowings outstanding on this loan were $17,418 and
$18,869 at June 30, 2009 and 2008, respectively.

On
April 3, 2006, the Partnership entered into an agreement with a lending institution to borrow $80,000, for which it pledged six tugboats and six tank barges as collateral. The
proceeds of these loans were used to repay indebtedness under the Partnership's credit agreement. Borrowings are represented by six notes which have been assigned to other lending institutions. These
loans bear interest at a rate equal to LIBOR plus 1.40%, and are repayable in 84 monthly installments with the remaining principal payable at

F-23

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 6: Financing (Continued)

maturity
on May 1, 2013. The agreement contains certain prepayment premiums. Borrowings outstanding on these loans totaled $67,661 and $71,916 as of June 30, 2009 and 2008, respectively.
Also on April 3, 2006, the Partnership entered into an agreement with the lending institution to swap the one-month, LIBOR-based, variable interest payments on the $80,000 of loans
for a fixed payment at a rate of 5.2275% plus the applicable margin, over the same terms as the loans. This swap results in a fixed interest rate on
the Notes of 6.6275% for their seven-year term. The fair value of the swap contract of ($6,399) and ($3,451) as of June 30, 2009 and 2008, respectively, is included in other
liabilities in the consolidated balance sheets.

The
interest rate swap contracts referred to above have all been designated as cash flow hedges and, therefore, the unrealized gains and losses resulting from the change in fair value of
each of the contracts are being reflected in other comprehensive income.

On
December 19, 2005, one of the Partnership's subsidiaries entered into a seven year Canadian dollar (CDN $) term loan to refinance the purchase of an integrated
tug-barge unit. The proceeds of US $13,000 were used to repay borrowings under the credit agreement which had been used to finance the purchase of the unit. The loan bears interest at a
fixed rate of 6.59%, is repayable in 60 monthly installments of CDN $136 and 23 monthly installments of CDN $216 with the remaining principal amount of CDN $7,688 payable at maturity on
January 1, 2013. This loan is collateralized by the related tug-barge unit and one other tank barge. Borrowings outstanding on this loan total US $11,039 and US $13,243 as of
June 30, 2009 and 2008, respectively.

In
June 2005, the Partnership entered into an agreement to borrow up to $18,000 to finance the purchase of an 80,000-barrel double-hull tank barge and
construction of two 28,000-barrel double-hull tank barges. The loan bears interest at 30-day LIBOR plus 1.71%, and is repayable in monthly principal installments of
$107 with the remaining principal amount of $9,000 payable at maturity on April 30, 2013. The loan is collateralized by the related tank barges. Borrowings outstanding on this loan were $14,036
and $15,321 at June 30, 2009 and 2008, respectively.

In
March 2005, the Partnership entered into an agreement to borrow up to $11,000 to partially finance construction of a 100,000-barrel tank barge. The loan bears interest at
30-day LIBOR plus 1.05%, and is repayable in monthly principal installments of $66 with the remaining principal amount of $5,500 payable at maturity on December 31, 2012. The loan
is collateralized by the related tank barge. Borrowings outstanding on this loan totaled $8,317 and $9,102 at June 30, 2009 and 2008, respectively.

The
capital lease obligation, which had a balance outstanding of $399 at June 30, 2009, matures in April 2010.

F-24

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 6: Financing (Continued)



The agreements governing the credit agreement, the term loans and the operating lease agreements contain restrictive covenants that,
among others, (a) prohibit distributions under defined events of default, (b) restrict investments and sales of assets, and (c) require the Partnership to adhere to certain
financial covenants, including defined ratios of asset coverage, fixed charge coverage and total funded debt to EBITDA, as defined in the agreements. As of June 30, 2009 and 2008, the
Partnership was in compliance with such covenants.



Interest expense, net of amounts capitalized, and interest income, was as follows:

For the Years Ended June 30,2009

2008

2007Interest costs incurred

$
24,069

$
22,955

$
14,878Less interest capitalized


2,436


1,592


738Interest expense


21,633


21,363


14,140Interest income


(130
)

(88
)

(43
)Interest expense, net

$
21,503

$
21,275

$
14,097


The
weighted average interest rate on the term loans was 4.8%, 5.9% and 6.6% at June 30, 2009, 2008 and 2007, respectively. All but one term loan is subject to either a prepayment
or breakage fee. Interest payable totaled $1,213 and $1,739 as of June 30, 2009 and 2008, respectively, and is included in accrued expenses and other current liabilities in the consolidated
balance sheets. At June 30, 2009 and 2008, accounts payable included book overdrafts of $1,695 and $5,445, respectively, representing outstanding checks.



As of June 30, 2009, maturities of long-term debt for each of the next five years were as follows:

2010

$
16,8202011


18,9172012


20,0022013


86,9142014


20,144




On August 20, 2008, the Partnership completed a public offering of 2,000,000 common units representing limited partner interests
at a price to the public of $25.80 per unit. The net proceeds of $49,805 from the offering, after payment of underwriting discounts and commissions and other

F-25

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 6: Financing (Continued)

transaction
costs, were used to repay borrowings under the Partnership's credit agreements and to make construction progress payments in connection with the Partnership's vessel newbuilding program.

On
September 26, 2007, the Partnership completed a public offering of 3,500,000 common units at a price to the public of $39.50 per unit. The net proceeds of $131,918 from the
offering, after payment of underwriting discounts and commissions and other transaction costs, were used to repay borrowings under the credit agreement, including the
$45,000 364-day facility, and also the $60,000 bridge loan facility described above. In addition, as described in note 3, the Partnership issued 250,000 common units to
the sellers in the Smith Maritime Group acquisition, valued at $11,298, in a transaction not involving a public offering.

Note 7: Derivative Financial Instruments

The Partnership is exposed to certain financial risks relating to its ongoing business operations. Currently, the only risk managed by using derivative instruments is interest rate risk.
Interest rate swaps are used to manage interest rate risk associated with the Partnership's floating-rate borrowings. As of June 30, 2009, the total notional amount of the
Partnership's seven receive-variable/pay-fixed interest rate swaps was $248,950. Interest and principal payments for debt hedged by one interest rate contract with a notional amount of
$57,600 commence in February
2010 and bear a fixed rate of 5.08% plus a margin ranging from 1.05% to 1.85%. The remaining six interest rate contracts have fixed interest rates, including applicable margins, ranging from 5.51% to
6.81%, with a weighted average rate of 6.02%. Interest rate swaps having a notional amount of $191,350 at June 30, 2009 decrease as principal payments on the respective debt are made.
Information on the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains and losses in the consolidated statements of operations is shown below:

Fair Values of Derivative Instruments

Liability DerivativesJune 30, 2009

June 30, 2008Derivatives designated as hedging
instruments under FAS 133

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
ValueInterest rate contracts

Other liabilities

$
17,617

Other liabilities

$
6,707Total derivatives designated as hedging instruments under FAS 133



$
17,617



$
6,707


F-26

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 7: Derivative Financial Instruments (Continued)

The Effect of Derivative Instruments on the Statement of Operations
For the Years Ended June 30, 2009, 2008 and 2007

Amount of Gain or (Loss)
Reclassified From
Accumulated OCI
into Income
(Effective Portion)
For the Year Ended June 30,Amount of Gain or (Loss)
Recognized in OCI* on
Derivatives (Effective Portion)
For the Year ended June 30,

Location of
Gain (Loss)
Reclassified from
Accumulated
OCI into Income
(Effective Portion)Derivatives in FAS 133 Cash Flow Hedging Relationships

2009

2008

2007

2009

2008

2007Interest rate contracts

$
(10,910
)
$
(6,811
)
$
(690
)
Interest expense

$
(3,221
)
$
20

$
213Total

$
(10,910
)
$
(6,811
)
$
(690
)


$
(3,221
)
$
20

$
213


---

Interest
payments made on the underlying debt instruments will result in the reclassification of gains and losses that are reported in accumulated other comprehensive income. The
estimated amount of the existing losses at June 30, 2009 that are expected to be reclassified into earnings within the next 12 months is $8,759. The maximum length of time over which the
Partnership is hedging its exposure to variability in future cash flows relating to floating rate interest payments is approximately nine years.

The
Partnership does not obtain collateral or other security to support financial instruments subject to credit risk. The Partnership monitors the credit risk of our counterparties and
enters into agreements only with established banking institutions. The financial stability of those institutions is subject to current and future global and national economic conditions, and
governmental support.

Note 8: Fair Value Measurements

Effective July 1, 2008, the Partnership adopted FAS No. 157"Fair Value Measurements" ("FAS 157"). FAS 157
defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

FAS 157
established a fair value hierarchy that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the
reporting entity and the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances. FAS 157 defines fair
value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price. In
addition, the fair value of assets and liabilities should include consideration of non-performance risk, which for the liabilities described below includes our own credit risk.

F-27

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 8: Fair Value Measurements (Continued)

The
levels of the fair value hierarchy established by FAS 157 are as follows:



The
following table summarizes assets and liabilities measured at fair value on a recurring basis at June 30, 2009. This amount includes fair value adjustments relating to our own
credit risk:

Level 1

Level 2

Level 3LiabilitiesInterest rate swap contracts

$


$
17,617

$



Our
interest rate swap contracts are not traded in any market. The fair value is determined using inputs that use as their basis readily observable market data that are actively quoted
and can be validated through external sources.

Note 9: Retirement Plan

The Partnership's 401(k) Savings Plan (the "401(k) Plan") is a defined contribution plan that qualifies under Section 401(k) of the Internal Revenue Code. The 401(k) Plan covers
all eligible employees. The 401(k) Plan provides that eligible employees may make contributions, subject to Internal Revenue Code limitations, and the Partnership will match the first two percent of
employee compensation contributed, subject to a maximum amount. In addition, the 401(k) Plan allows for an annual discretionary employer contribution up to five percent of an employee's annual
compensation. Employer contribution expense under the 401(k) Plan totaled $4,839, $3,743 and $2,981 for the years ended June 30, 2009, 2008 and 2007, respectively.

Accrued
expenses for the 401(k) Plan totaled $3,506 and $2,881 as of June 30, 2009 and 2008, respectively, and are included in accrued expenses and other current liabilities in
the consolidated balance sheets. Additionally, accrued expenses for payroll-related costs totaled $3,279 and $3,969 as of June 30, 2009 and 2008, respectively, which are also included in
accrued expenses and other current liabilities in the consolidated balance sheets.

Note 10: Long-term Incentive Plan

In January 2004, K-Sea General Partner GP LLC, the general partner of the Partnership's general partner, adopted the K-Sea Transportation
Partners L.P. Long-term Incentive Plan (the "Plan") for directors and employees of K-Sea General Partner GP LLC and its affiliates. The Plan currently
permits the grant of awards covering an aggregate of 440,000 common units in the form of restricted units and unit options and is administered by the Compensation Committee of the Board of Directors
of K-Sea General Partner GP LLC. The Board of Directors of K-Sea General Partner GP LLC, in its

F-28

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 10: Long-term Incentive Plan (Continued)

discretion,
may terminate the Plan at any time with respect to any restricted units for which a grant has not yet been made, and also reserves the right to alter or amend the Plan from time to time,
including increasing the number of common units with respect to which awards may be granted subject to unitholder approval as required by the New York Stock Exchange. No change in any outstanding
grant may be made, however, which would materially impair the rights of the participant without the consent of such participant. Subject to certain exceptions, restricted units are subject to
forfeiture if employment is terminated prior to vesting. As the restricted units vest, K-Sea General Partner GP LLC has the option to either acquire common units in the open
market for delivery to the recipient or distribute newly issued common units from the Partnership. In all cases, K-Sea General Partner GP LLC is reimbursed by the Partnership
for such expenditures.

The
Partnership follows the provisions of FAS 123R, which states "equity instruments awarded to employees is to be estimated at fair value at the grant date." There is only a
service condition ("vesting period") in respect to the awards; they are not conditional upon any performance or market conditions. The vesting period for the restricted units ranges from approximately
three to five years. The Partnership estimated forfeitures over the vesting period to be zero. Therefore, the fair value estimate is based solely upon the unit price at the grant dates.

Unit
compensation expense amounted to $1,324, $1,411 and $1,007 for the years ended June 30, 2009, 2008 and 2007, respectively. The total fair value of units vested during the
years ended June 30, 2009, 2008 and 2007 were $983, $725, and $731, respectively. As of June 30, 2009 and 2008 there was $2,766 and $2,962, respectively, of unamortized compensation cost
related to non-vested restricted units, which is expected to be recognized over a remaining weighted-average vesting period of 3.0 years. A summary of the status of the
Partnership's restricted unit awards as of June 30, 2009 and 2008, and of changes in restricted units outstanding under the Partnership's long-term incentive plan during the year
ended June 30, 2009, is as follows:

Number
of units

Weighted-average
grant priceRestricted unit awards outstanding at June 30, 2008


102,884

$
37.32Units granted


49,044

$
24.84Forfeitures


(2,524
)
$
39.77Units vested and issued


(28,100
)
$
34.98Restricted unit awards outstanding at June 30, 2009


121,304

$
32.76


During
the fourth quarter of fiscal 2009, the Partnership reclassified $1,218 of deferred compensation liability for vested and unissued restricted units from accrued expense and other
liabilities to partners' capital in the consolidated balance sheets.

F-29

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 11: Income Taxes

The components of the provision for income taxes for the fiscal years ended June 30, 2009, 2008 and 2007 are as follows:

2009

2008

2007Current:Federal

$


$


$
102State and local


43


36


24Foreign


358


15


330401


51


456Deferred:Federal


(54
)

380


152State and local


203


310


218Foreign


(263
)

(212
)

25(114
)

478


395Provision for income taxes

$
287

$
529

$
851


A
reconciliation of income tax expense, as computed using the federal statutory income tax rate of 34%, to the Partnership provision for income taxes for the fiscal years ended
June 30, 2009, 2008 and 2007 is as follows:

2009

2008

2007Tax at federal statutory rate of 34%

$
4,839


8,906

$
5,668Entities not subject to federal income taxes


(5,036
)

(8,517
)

(5,393
)State and local income taxes, net of federal benefit


238


312


241Foreign taxes, net of federal benefit


75


(187
)

340Valuation allowance


97





Other


74


15


(5
)Total

$
287

$
529

$
851


F-30

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 11: Income Taxes (Continued)

Significant
components of deferred income tax liabilities and assets as of June 30, 2009 and 2008 are as follows:

2009

2008Deferred tax liabilities:Book basis of vessels and equipment in excess of tax basis

$
6,454

$
5,343Total deferred tax liabilities

$
6,454

$
5,343Deferred tax assets:Allowance for doubtful accounts

$
49

$
104Accrued expenses


852


997Net operating loss carry-forwards


2,962


1,357Valuation allowance


(97
)

Other


188


136Total deferred tax assets

$
3,954

$
2,594


The
Partnership had temporary differences at June 30, 2009 primarily related to the excess of the book basis of vessels and equipment over the related tax basis in the amount of
$164,346. This amount will result in taxable income, in the years these differences reverse, that will be included in the overall allocation of taxable income to the unitholders of the Partnership.

FAS 109,Accounting for Income Taxes, requires the Partnership to establish a valuation allowance against deferred tax assets when
it is more likely than not that the Partnership will be unable to realize those deferred tax assets in the future. Based on the Partnership's current and past performance, cumulative losses in recent
years resulting from its Canadian operations, the market environment in which the Partnership operates, and the utilization of past tax attributes, the Partnership has established a valuation
allowance of $97 against a portion of its Canadian deferred tax assets.

The
Partnership expects to maintain such valuation allowance against a portion of its Canadian deferred tax assets, subject to the consideration of all prudent and feasible tax planning
strategies, until such time as the Partnership attains an appropriate level of future Canadian profitability and the Partnership is able to conclude that it is more likely than not that all of its
Canadian deferred tax assets are realizable. The change in the valuation allowance for the years ended June 30, 2009 and June 30, 2008 was $97 and $0, respectively.

At
June 30, 2009, the Partnership's corporate subsidiaries had federal net operating losses of $3,522, which begin to expire in 2024, state and local net operating losses of
$6,834 which begin to expire in 2011, and foreign net operating losses of $5,626, which begin to expire in 2026.

The
Partnership is currently under an Internal Revenue Service ("IRS") examination for calendar year 2006. Though the examination is still ongoing, the IRS has yet to contest any of the
federal income tax positions taken on the Partnership's 2006 federal tax return.

F-31

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 12: Related Party Transactions, Commitments and Contingencies

The Partnership leases its New York office and pier facilities from and charters certain vessels to an affiliate of an employee who is not an executive officer or a director. Terms of
the lease agreement provide for annual rental payments of $400 through April 2019. Rent expense was $400 for the fiscal years ended June 30, 2009, 2008 and 2007. Bareboat charter revenue
related to vessels chartered to an affiliate of an employee who is not an executive officer or director was $309, $514 and $513 for the fiscal years ended June 30, 2009, 2008 and 2007,
respectively. The Partnership also utilizes such affiliate for tank cleaning services at a cost of $1,314, $1,601 and $1,894 for the years ended June 30, 2009, 2008 and 2007 respectively.
Included in accounts receivable at June 30, 2009 and June 30, 2008 is $110 and $146, respectively, due from this affiliate. Included in accounts payable at June 30, 2009 and
June 30, 2008 is $100 and $77, respectively, due to this affiliate.

The
Partnership leases a parcel of land used for the storage of vessel parts and equipment from the President of the Pacific Region for $12 per month. Included in accounts payable at
June 30, 2009 and June 30, 2008 is $12 and $0, respectively, due to the President of the Pacific Region.

In
addition, a subsidiary of the Partnership leases office and pier facilities and a water treatment facility in Virginia under an agreement with a third party that extends through
January 2010. The Virginia lease agreement requires annual rental payments of $250 through January 8, 2010. The subsidiary receives $84 from sublease of a portion of the Virginia property which
extends to December 31, 2009. The subsidiary has an option to buy the Virginia premises for an aggregate purchase price of $4,200. Rent expense, net of the sublease, was $166 for the fiscal
years ended June 30, 2009, 2008 and 2007. The Partnership and subsidiary are also responsible for real estate taxes, insurance and all other costs associated with occupying these properties.
Effective July 1, 2006, the Partnership also leases office space in New Jersey under an agreement with a third party that extends through December 2013. Such lease agreement was amended in
March 2008 to reflect an expansion of leased office space which the Partnership occupied at the end of the 2008 fiscal year. The New Jersey lease requires annual rental payments of $392 through
December 2009, $408 through December 2010 and $423 through December 2013. Rent expense was $400, $260 and $220 for the fiscal years ended June 30, 2009, 2008 and 2007, respectively.

In
connection with an acquisition, the Partnership assumed agreements with the port authority in Seattle, Washington covering the lease of terminal facilities and docking rights for its
vessels. The lease expired in October 2008 and was renewed, there is an option for one additional five-year term. The lease requires monthly payments of $34 with escalation each year based
on the consumer price index. In October 2007, the Partnership entered into a five year lease with the port authority in Seattle, Washington relating to the expansion of leased office and warehouse
space that requires monthly rental payments of $3. Rent expense for these leases for the years ended June 30, 2009, 2008 and 2007 was $308, $239 and $265 respectively.

The
partnership leases equipment which consists of copy machines and a forklift. The equipment lease expense for the years ended June 30, 2009, 2008 and 2007 was $106, $80 and
$68, respectively.

In
addition to the eight vessel operating lease agreements described in note 5, the Partnership leases one tugboat and three barges under non-cancelable operating
leases which expire October 2009 through February 2011. Charter expenses were $3,826, $2,724 and, $2,995 for the tug and barge operating leases for the years ended June 30, 2009, 2008 and 2007,
respectively. The future minimum

F-32

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 12: Related Party Transactions, Commitments and Contingencies (Continued)

operating
lease payments for the one tug and eleven barges, as well as the aforementioned property and equipment leases, as of June 30, 2009 are as follows:

Year ending June 30,

Vessels

Property

Equipment

(Sub Lease)

Total2010

$
7,687

$
1,150

$
52

$
(55
)
$
8,8342011


7,260


1,044


49





8,3532012


7,068


1,057


40





8,1652013


7,068


1,037


14





8,1192014 and thereafter


45,560


1,170


9





46,739Total

$
74,643

$
5,458

$
164

$
(55
)
$
80,210


Additionally,
the Partnership has lease agreements with a shipyard for two 50,000-barrel barges, with expected delivery of one vessel in the third quarter of fiscal year 2010
and the other vessel in third quarter of fiscal year 2011. Aggregate rent for the ten year terms of these two leases is $16,680 and $17,280, respectively.

Included
in total revenues are time charter and bareboat charter revenues of $196,528, $157,209 and $105,621 for the fiscal years ended June 30, 2009, 2008 and 2007, respectively.
The Partnership's time charters and bareboat charters extend over various periods which expire between 2009 and December 2014.

At
June 30, 2009, minimum contractually agreed future revenue under time and bareboat charters was as follows:

Year ending June 30,2010

$
129,9862011


78,9792012


51,2982013 and thereafter


145,469Total

$
405,732


The
Partnership has entered into employment agreements with certain of its executive officers. Each of the employment agreements had an initial term of one year, which is automatically
extended for successive one-year terms unless either party gives 30-days written notice prior to the end of the term that such party desires not to renew the employment
agreement. These executive officers currently receive aggregate base annual salaries of $740. In addition, each employee is eligible to receive an annual bonus award based upon the performance of the
Partnership and individual performance. If the employee's employment is terminated without cause or if the employee resigns for good reason, the employee will be entitled to severance in an amount
equal to the greater of (a) the product of 1.3125 (1.75 multiplied by 0.75) multiplied by the employee's base salary at the time of termination or resignation and (b) the product of 1.75
multiplied by the remaining term of the employee's non-competition provisions multiplied by the employee's base salary at the time of termination or resignation.

F-33

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 12: Related Party Transactions, Commitments and Contingencies (Continued)

The
European Union has been working toward a new directive for the insurance industry, called "Solvency 2", with a proposed implementation date of November 1, 2012 and which
requires increases in the level of free, or unallocated, reserves required to be maintained by insurance entities, including protection and indemnity clubs that provide coverage for the maritime
industry. The West of England Ship Owners Insurance Services Ltd. ("WOE"), a mutual insurance association based in Luxembourg, provides the Partnership's protection and indemnity insurance
coverage and would be impacted by the Solvency 2 directive. In anticipation of the Solvency 2 regulatory requirements, the WOE has assessed its members an additional capital call which it believes
will contribute to achievement of the projected required free reserve increases. The Partnership's capital call of $1,119 was paid during calendar 2007. A further request for capital may be made in
the future; however, the amount of such further assessment, if any, cannot be reasonably estimated at this time. As a shipowner member of the WOE,
the Partnership has an interest in the WOE's free reserves, and therefore has recorded the additional $1,119 capital call as an investment, at cost, subject to periodic review for impairment. This
amount is included in other assets in the June 30, 2009 and 2008 consolidated balance sheets.

In
December 2008, the Partnership received an additional call from its mutual insurance carrier. The call was primarily retrospective for policy years covering February 2006 through
February 2009. The decision to make the call was based primarily on falling investment returns and projected underwriting losses. Although such additional calls are uncommon, the Partnership's
insurance carrier has the right to make these calls when it believes the level of its reserves will be insufficient to meet certain regulatory requirements. The additional calls, which were based upon
the information available in mid-November 2008, totaled $3,377. The call for the first policy year was paid in February 2009 and the call for the second policy year is expected to be paid
in September 2009. The remaining call for the last policy year is scheduled for payment in January 2010 and August 2010. The Partnership's insurance carrier has scheduled these payments over this time
period to reassess at various points whether the calls are necessary. The Partnership received updated information from its insurance carrier reflecting improved investment returns and underwriting
results. Based on the information provided, the Partnership's financial statements reflect additional insurance expense, included in vessel operating expenses, of $2,470 for the year ended
June 30, 2009. Such estimates may be subject to change in the future and additional liabilities may be recorded if market conditions or underwriting results should deteriorate.

In
November 2005 one of the Partnership's tank barges, the DBL 152, struck submerged debris in the U.S. Gulf of Mexico, causing significant damage which resulted in the barge eventually
capsizing. The Partnership's insurers responded to the pollution-related costs and environmental damages resulting from the incident, paying approximately $65,000 less $60 in total deductibles. In
December 2007, a court made a final determination of liability in this case, resulting in a financial recovery by the Partnership's insurers, and also by the Partnership. As a result of the ruling,
the Partnership was awarded a reimbursement of certain expenses totaling $2,073, which is included in other expense (income) in the Partnership's consolidated statements of operations for the fiscal
year ended June 30, 2008. The Partnership received payment in January 2008.

The
Partnership is the subject of various claims and lawsuits in the ordinary course of business for monetary relief 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

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 12: Related Party Transactions, Commitments and Contingencies (Continued)

that
any adverse outcome, individually or in the aggregate, would be substantially mitigated by applicable insurance or indemnification from previous owners of the Partnership's assets, and would not
have a material adverse effect on the Partnership's financial position, results of operations or cash flows. The Partnership is also subject to deductibles with respect to its insurance coverage that
range from $10 to $250 per incident and provides on a current basis for estimated payments thereunder. Insurance claims receivable outstanding totaled $7,459 and $8,801 at June 30, 2009 and
2008, respectively, and is included in prepaid expenses and other current assets. Insurance claims payable at
June 30, 2009 and 2008 totaled $7,206 and $7,594, respectively, and is included in accrued expenses and other current liabilities.

As
discussed in note 5, the Partnership has agreements with shipyards for the construction of one articulated tug-barge unit and one additional tank barge.

Note 13: New Accounting Pronouncements

In September 2006, FASB issued FAS No. 157, "Fair Value Measurements" ("FAS 157"), which is effective for fiscal years beginning after November 15, 2007 and for
interim periods within those years. The Partnership adopted FAS 157 as of July 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial
assets and nonfinancial liabilities, for which the effective date was delayed as further described below. Non-recurring nonfinancial assets and nonfinancial liabilities include those
measured at fair value in goodwill and indefinite lived intangible assets impairment testing.

In
February 2008, the FASB also issued FASB Staff Positions ("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, while FSP 157-2 delays the effective date of the application of
FAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis.

In
December 2007, the FASB issued FAS No. 141 (revised 2007), "Business Combinations" ("FAS 141(R)") which replaces FAS No.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 purchase method of accounting, but FAS 141(R)
changed the method of applying the purchase 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 fiscal year 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 No. 109 "Accounting for Income Taxes," ("FAS 109") 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). This amendment to FAS 109 had no impact on the Partnership's consolidated financial statements. The Partnership expects the adoption of the remaining provisions of
FAS 141(R) will not have a significant impact on our consolidated financial statements.

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 13: New Accounting Pronouncements (Continued)

In December 2007, the FASB issued FAS No. 160, "Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB 51" ("FAS 160").
FAS 160 amends ARB 51 to establish new standards that will govern the accounting for and reporting of (1) non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. FAS 160 is effective on a prospective basis for all fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. The Partnership expects the adoption of FAS 160 will not have a
significant impact on its consolidated financial statements.

In
March 2008, the FASB issued FAS No. 161, "Disclosure about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("FAS 161").
FAS 161 requires qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective for fiscal years beginning after
November 15, 2008 with early application encouraged. The Partnership adopted FAS 161 effective January 1, 2009 and included the required disclosures in the notes to the
consolidated financial statements.

In
May 2008, the FASB's EITF issued EITF Issue 07-4 ("EITF 07-4"): "Application of the Two-Class Method under FASB Statement No. 128 to
Master Limited Partnerships" ("MLPs"). EITF 07-4 applies to MLPs that are required to make incentive distributions when certain thresholds have been met that are accounted for as
equity distributions. The provisions of EITF 07-4 are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Earlier application is not permitted. EITF 07-4 will be applied retrospectively for all financial statements presented for us starting July 1, 2009. The
Partnership is currently analyzing the impact of this standard.

In
June 2008, the FASB issued FSP EITF 03-6-1"Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities"
("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in a share based payment transaction are participating
securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share ("EPS") under the two class method described in paragraphs 60 and 61
of FASB Statement No. 28, "Earnings per Share." FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those years. FSP EITF 03-6-1 requires prior period EPS data presented to be adjusted retrospectively to conform to its provisions. The
Partnership is currently analyzing the impact of this standard.

In
April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1: "Interim Disclosures about Fair Value of Financial Instruments" ("FSP
FAS 107-1 and APB 28-1"). FSP FAS 107-1 and APB 28-1 amends FAS No. 107, "Disclosures about Fair Value of Financial
Instruments," to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP
FAS 107-1 and APB 28-1 also amends APB Opinion No. 28, "Interim Financial Reporting," to require those disclosures in summarized financial information at
interim reporting periods. FSP FAS 107-1 and APB 28-1 is effective for interim periods ending after June 15, 2009, with early adoption permitted for

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 13: New Accounting Pronouncements (Continued)

periods
ending after March 15, 2009. The Partnership adopted FSP FAS 107-1 and APB 28-1 effective July 1, 2009 and will include the required
disclosures in its interim period reporting.

In
May 2008, the FASB issued FAS 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 used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United
States. This statement was not expected to change existing practices but rather reduce the complexity of financial reporting. This statement became effective on November 13, 2008 and did not
have a material effect on the Partnership's financial statements. In June 2009, the FASB issued FAS No. 168 "The FASB Codification and the Hierarchy of Generally Accepted
Principles, a replacement of FAS No. 162 ("FAS 168"). FAS 168 will become the source of authoritative U.S. generally accepted accounting principles. On the effective date of
FAS 168, the Codification will supersede all then existing non-SEC accounting and reporting standards. FAS 168 is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. FAS 168 is not expected to have a material effect on the Partnership's consolidated financial statements.

In
May 2009, the FASB issued FAS No. 165, "Subsequent Events" ("FAS 165"). FAS 165 establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or are available to be issued. This standard requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date; that is, whether that date represents the date the financial statements were issued or were available to be issued. This standard is effective for
interim and annual financial periods ending after June 15, 2009. The Partnership adopted FAS 165 effective April 1, 2009 and has included the required disclosure in the notes to
the consolidated financial statements.

Note 14: Quarterly Results of Operations (Unaudited)

The following summarizes certain quarterly results of operations for each of the fiscal years ended June 30, 2009 and 2008:

Three Months EndedSeptember 30

December 31

March 31

June 30(in thousands, except per unit amounts)Fiscal 2009Total revenues

$
91,494

$
88,259

$
78,438

$
72,271Operating income

$
9,893

$
9,353

$
8,926

$
8,284Net income

$
3,854

$
3,603

$
3,908

$
2,582General partners' interest in net income

$
53

$
46

$
50

$
33Limited partners' interest in net income

$
3,801

$
3,557

$
3,858

$
2,549Net income per limited partner unit:Basic

$
0.26

$
0.23

$
0.25

$
0.16Diluted

$
0.26

$
0.22

$
0.24

$
0.16


Effective
July 1, 2008, the Partnership prospectively increased the estimated useful lives of double-hulled tank barges and tugboats to a range of ten to thirty years, from the
previous ranges of ten to

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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 14: Quarterly Results of Operations (Unaudited) (Continued)

twenty
five years and ten to twenty years, respectively, and increased salvage values for double-hulled tank barges. These changes in accounting estimates increased operating income and net income by
$1,552 and $1,533, respectively, and net income per fully diluted limited partner unit by $0.09, for the three months ended June 30, 2009; increased operating income and net income by $1,587
and $1,567, respectively, and net income per fully diluted limited partner unit by $0.09, for the three months ended March 31, 2009; increased operating income and net income by $1,633 and
$1,613, respectively, and net income per fully diluted limited partner unit by $0.10, for the three months ended December 31, 2008; and increased operating income and net income by $1,633 and
$1,613, respectively, and net income per fully diluted limited partner unit by $0.11, for the three months ended September 30, 2008.

During
the third quarter financial reporting process, the Partnership identified an accounting adjustment related to the December 31, 2008 carrying value of one of its fixed
assets. The impact is a reduction to the net income for the quarter ended December 31, 2008 of $274 which is not considered material. This adjustment has been reflected in net income for the
quarter ended March 31, 2009 as further described in note 6 vessels and equipment to the Partnership's Quarterly Report on Form 10-Q for the period ended
March 31, 2009.

Three Months EndedSeptember 30

December 31

March 31

June 30(in thousands, except per unit amounts)Fiscal 2008Total revenues

$
71,761

$
83,676

$
80,749

$
90,094Operating income

$
12,049

$
12,423

$
9,329

$
11,844Net income

$
6,006

$
8,976

$
4,325

$
6,361General partners' interest in net income

$
149

$
314

$
63

$
93Limited partners' interest in net income

$
5,857

$
8,662

$
4,262

$
6,268Net income per limited partner unit:Basic

$
0.57

$
0.63

$
0.31

$
0.46Diluted

$
0.56

$
0.63

$
0.31

$
0.45




Three Months EndedSeptember 30

December 31

March 31

June 30(in thousands, except per unit amounts)Fiscal 2007Total revenues

$
54,910

$
56,031

$
55,630

$
60,003Operating income

$
7,517

$
7,758

$
7,601

$
7,829Net income

$
4,086

$
3,946

$
3,996

$
3,792General partners' interest in net income

$
82

$
79

$
80

$
75Limited partners' interest in net income

$
4,004

$
3,867

$
3,916

$
3,717Net income per limited partner unit:Basic

$
0.40

$
0.39

$
0.39

$
0.37Diluted

$
0.40

$
0.39

$
0.39

$
0.37


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Table of Contents

K-SEA TRANSPORTATION PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except unit and per unit amounts)

Note 15: Subsequent Event

On August 12, 2009, the Partnership completed a public offering of 2,900,000 common units at a price to the public of $19.15 per unit. On August 21, 2009 the underwriters
exercised a portion of their over-allotment option to purchase additional common units resulting in the issuance of an additional 344,500 common units at $19.15 per unit. The net proceeds
of $59,407 from the offering, after payment of underwriting discounts and commissions but excluding other transaction costs, were used to repay borrowings of approximately $35,000 under the
Partnership's credit agreements and will be used to make construction progress payments in connection with the Partnership's vessel newbuilding program.

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