**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-K**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe fiscal year ended June 30, 2005**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Commissionfile number 001-31920**

**K-SEA TRANSPORTATION PARTNERS L.P.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     | **20-0194477**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction  of incorporation or organization) | (I.R.S. Employer  Identification No.) |

 

**3245 Richmond TerraceStaten Island, New York 10303**

(Address of principalexecutive offices and zip code)

**(718) 720-9306**

(Registrant’s telephonenumber, including area code)

**Securitiesregistered pursuant to Section 12(b) of the Act:**

| Title of each class | ** ** | **Name of each exchange on which registered** |
|---------------------|------------|-----------------------------------------------|
| Common Units        |       | New York Stock  Exchange                      |

 

**Securitiesregistered pursuant to section 12(g) of the Act: None**

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports) and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot 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 IIIof this Form 10-K or any amendment to this Form 10-K. o

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

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

The aggregate market valueof the registrant’s Common Units held by non-affiliates of the registrant was approximately$144.3 million as of December 31, 2004 based on $34.91 per Common Unit,the closing price of the Common Units on the New York Stock Exchange on suchdate.

At September 12,2005, 4,667,250 Common Units and 4,165,000 Subordinated Units were outstanding.

Documents Incorporated byReference: **None**

 

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**K-SEA TRANSPORTATION PARTNERS L.P. 2005 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS**
|                | ** ** | ** **                                                                                                             | **PAGE** |
|----------------|------------|------------------------------------------------------------------------------------------------------------------------|----------|
| PART I    |       |                                                                                                                   |     |   |   |
| ITEMS 1 and 2. |       | BUSINESS  and PROPERTIES                                                                                               |     | 1 |   |
| ITEM 3.        |       | LEGAL  PROCEEDINGS                                                                                                     |     | 19 |   |
| ITEM 4.        |       | SUBMISSION  OF MATTERS TO A VOTE OF SECURITYHOLDERS                                                                    |     | 20 |   |
| PART II   |       |                                                                                                                   |     |   |   |
| ITEM 5.        |       | MARKET  FOR REGISTRANT’S COMMON EQUITY, RELATED SECURITYHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES |     | 21 |   |
| ITEM 6.        |       | SELECTED  FINANCIAL DATA                                                                                               |     | 24 |   |
| ITEM 7.        |       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            |     | 26 |   |
| ITEM 7A.       |       | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                              |     | 55 |   |
| ITEM 8.        |       | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                           |     | 55 |   |
| ITEM 9.        |       | CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                  |     | 55 |   |
| ITEM 9A.       |       | CONTROLS  AND PROCEDURES                                                                                               |     | 55 |   |
| ITEM 9B.       |       | OTHER  INFORMATION                                                                                                     |     | 56 |   |
| PART III  |       |                                                                                                                   |     |   |   |
| ITEM 10.       |       | DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                                    |     | 56 |   |
| ITEM 11.       |       | EXECUTIVE  COMPENSATION                                                                                                |     | 60 |   |
| ITEM 12.       |       | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED  SECURITYHOLDER MATTERS                    |     | 65 |   |
| ITEM 13.       |       | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                                        |     | 69 |   |
| ITEM 14.       |       | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                                |     | 71 |   |
| PART IV   |       |                                                                                                                   |     |   |   |
| ITEM 15.       |       | EXHIBITS  AND FINANCIAL STATEMENT SCHEDULES                                                                            |     | 72 |   |

 

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**FORWARD-LOOKING STATEMENTS**

Statements included in this report that are nothistorical facts (including statements concerning plans and objectives ofmanagement for future operations or economic performance, or assumptionsrelated thereto) are forward-looking statements. In addition, we may fromtime to time make other oral or written statements that are also forward-lookingstatements. Forward-looking statements may include words such as “anticipate,” “estimate,”“expect,” “project,” “intend,” “plan,” “believe,” “should” and other words andterms of similar meaning.

Forward-lookingstatements appear in a number of places in this report and include statementswith respect to, among other things:

·       ourability to pay distributions;

·       theexpected source of funds for financing the proposed acquisition of Sea CoastTowing, Inc., and the estimated closing date and expected benefits to bederived therefrom;

·       plannedcapital expenditures and availability of capital resources to fund capitalexpenditures;

·       ourexpected cost of complying with the Oil Pollution Act of 1990;

·       estimatedfuture expenditures for drydocking and maintenance of our tank vessels’operating capacity;

·       ourplans for the retirement or retrofitting of tank vessels and the expecteddelivery, and cost of, newbuild vessels;

·       theintegration of recent and proposed acquisitions of tank barges and tugboats,including the timing, effects and benefits thereof;

·       expecteddecreases in the supply of domestic tank vessels;

·       expecteddemand in the domestic tank vessel market in general and the demand for ourtank vessels in particular;

·       theadequacy of our insurance;

·       thelikelihood that pipelines will be built that compete with us;

·       theeffect of new or existing regulations or requirements on our financialposition;

·       ourfuture financial condition or results of operations and our future revenues andexpenses;

·       ourbusiness strategies and other plans and objectives for future operations;

·       ourfuture financial exposure to lawsuits currently pending against EWTransportation LLC and its predecessors; and

·       anyother statements that are not historical facts.

These forward-looking statements are made basedupon management’s current plans, expectations, estimates, assumptions andbeliefs concerning future events and, therefore, involve a number of risks anduncertainties. We caution that forward-looking statements are notguarantees and that actual results could differ materially from those expressedor implied in the forward-looking statements. Please read “Risk Factors”in Item 7 of this report for a list of important factors that could cause ouractual results of operations or our actual financial condition to differ fromour expectations.

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**PART I**

**ITEMS1 and 2.   BUSINESS and PROPERTIES.**

**Our Partnership**

We are a leading provider of refined petroleum productmarine transportation, distribution and logistics services in the United Statesdomestic marine transportation business. We currently operate a fleet of 44tank barges, 2 tankers and 25 tugboats that serves a wide range ofcustomers, including major oil companies, oil traders and refiners. Withapproximately 2.6 million barrels of capacity, we believe we currently ownand operate the third-largest coastwise tank barge fleet in the UnitedStates as measured by barrel-carrying capacity.

For the fiscal year ended June 30, 2005, ourfleet transported approximately 100 million barrels of refined petroleumproducts for our customers, including BP, Chevron, ExxonMobil and Rio Energy.Our five largest customers in fiscal 2005 have been doing business with us forapproximately 14 years on average. We do not assume ownership of any ofthe products we transport. During fiscal 2005, we derived approximately 74% ofour revenue from longer-term contracts that are generally for periods of oneyear or more.

We have a high-quality, well-maintained fleet.Approximately 72% of our current barrel-carrying capacity is double-hulled.Furthermore, we will be permitted to continue to operate our single-hull tankvessels until January 1, 2015 in compliance with the Oil Pollution Act of1990, or OPA 90, which mandates the phase-out of all single-hull tank vesselstransporting petroleum and petroleum products in U.S. waters. All of ourvessels except one operate under the U.S. flag, and all but three are qualifiedto transport cargo between U.S. ports under the Jones Act, the federal statutesthat restrict foreign owners from operating in the U.S. maritimetransportation industry.

Our primarybusiness objective is to increase distributable cash flow to unitholders byexecuting the following strategies:

·       *Maintain safe, low-cost and efficient operations.*   We believe we are acost-efficient and reliable tank vessel operator. We intend to continue toreduce operating costs through constant evaluation of each vessel’s performanceand concurrent adjustment of operating and chartering procedures to maximizeeach vessel’s safety and profitability. We also intend to continue to minimizecosts through an active preventative maintenance program both on-shore and atsea, employing qualified officers and crew and continually training ourpersonnel to ensure safe and reliable vessel operations.

·       *Balance our fleet deployment between longer-term contracts andshorter-term business in an effort to provide stable cash flows throughbusiness cycles, while preserving flexibility to respond to changing marketconditions.*   Duringfiscal 2005, we derived approximately 74% of our revenue from time charters,consecutive voyage charters, contracts of affreightment and bareboat charters,all of which are generally for periods of one year or more. We derived theremaining 26% of our revenue for fiscal 2005 from single voyage charters, whichare generally priced at prevailing market rates. Vessels operating under voyagecharters may generate increased profit margins during periods of improvedcharter rates, while vessels operating on time charters generally provide morepredictable cash flow. We intend to pursue a strategy of emphasizinglonger-term contracts, while preserving operational flexibility to takeadvantage of changing market conditions.

·       *Maximize fleet utilization and improve productivity.*   The interchangeability of ourtank vessels and the critical mass of our fleet give us the flexibility toallocate the right vessel for the right cargo assignment on a timely basis. Weintend to continue improving our operational efficiency through the use of newtechnology and comprehensive training programs for new and existing employees. 

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We also intend to minimizedown time by emphasizing efficient scheduling and timely completion of plannedand preventative maintenance.

·       *Attract and maintain customers by adhering to highstandards of performance, reliability and safety.*   Customers place particularemphasis on efficient operations and strong environmental and safety records.We intend to continue building on our reputation for maintaining high standardsof performance, reliability and safety, which we believe will enable us toattract increasingly selective customers.

·       *Expand our fleet through newbuildings and accretiveand strategic acquisitions.*   Wehave grown successfully in the past through newbuildings and strategicacquisitions. We expect to continue this strategy by consistently surveying themarketplace to identify and pursue newbuilding opportunities and acquisitionsthat expand the services and products we offer or that expand our geographicpresence.

We are a publicly traded Delaware limited partnership.Our business activities are conducted through our subsidiary, K-Sea OperatingPartnership L.P., a Delaware limited partnership which we refer to as the “operatingpartnership,” and the subsidiaries of the operating partnership. Our generalpartner, K-Sea General Partner L.P., is a Delaware limitedpartnership whose general partner is K-Sea General Partner GP LLC, a Delawarelimited liability company. K-Sea General Partner GP LLC has ultimateresponsibility for managing our business.

Our principal executiveoffice is located at 3245 Richmond Terrace, Staten Island, New York 10303, andour telephone number at that address is (718) 920-9306.

**Recent Events**

On August 23, 2005, we entered into a definitivepurchase agreement with Marine Resources Group, Inc. and SaltchukResources, Inc. to acquire, through our operating partnership, all of theoutstanding capital stock of Sea Coast Towing, Inc. (“Sea Coast”), awholly owned subsidiary of Marine Resources Group based in Seattle, Washington.Sea Coast is engaged in the maritime transportation of refined petroleumproducts and related businesses along the West Coast of the United States andAlaska. Sea Coast operates 15 tank barges and 15 tugboats, representingapproximately 705,000 barrels of capacity, of which 321,000 barrels aredouble-hulled. Of the remaining single-hull capacity, approximately 80% iseligible to operate in the Jones Act trades until January 2015, with theremaining capacity (one vessel) eligible until January 2008. The additionof Sea Coast’s tank barges will represent a 27.5% increase in ourbarrel-carrying capacity to approximately 3.3 million barrels, which we believewill make us the largest coastwise tank barge operator (measured bybarrel-carrying capacity) in the United States, with approximately 66%double-hull capacity.

The purchase price for SeaCoast consists of $77 million in cash and 125,000 common units representinglimited partner interests in us. We expect to finance the cash portion of thepurchase price through additional borrowings. The purchase agreement containscustomary representations, warranties and covenants. The acquisition isscheduled to close in October 2005 and is subject to customary conditions,including, among others, the following:  (1) theabsence of any legal proceeding, law or order preventing the closing orprohibiting our ownership or operation of all or a material portion of SeaCoast’s assets or capital stock, or compelling us to dispose of or holdseparate all or a material portion of our or Sea Coast’s business or assets, (2) obtainingcertain consents and approvals, (3) the removal of liens on Sea Coast’sassets, (4) the accuracy of the representations and warranties of eachparty, (5) compliance of each party with its covenants and agreements, (6) theabsence of any material adverse change in the value of Sea Coast’s capitalstock or its business or financial condition, and (7) the receipt by us ofaudited and unaudited financial statements with respect to Sea Coast that arerequired by Rule 3-05 of Regulation S-X 

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of theSecurities Exchange Act of 1934, as amended. The purchase agreement containscustomary termination rights.

**Industry Overview**

***Introduction***

Tank vessels, which include tank barges and tankers,are a critical link in the refined petroleum product distribution chain. Tankvessels transport gasoline, diesel fuel, heating oil, asphalt and otherproducts from refineries and storage facilities to a variety of destinations,including other refineries, distribution terminals, power plants and ships.According to a May 2005 study by the Association of Oil Pipe Lines,29.1% of all domestic refined petroleum product transportation was by water in2003, making waterborne transportation the most used mode of transportation forrefined petroleum products after pipelines.

Among the laws governing the domestic tank vesselindustry is the Jones Act. Under the Jones Act, marine transportation betweenpoints in the United States, generally known as U.S. coastwise trade, islimited to U.S.-flag vessels that were built in the United States and areowned, manned and operated by U.S. citizens. All of our vessels except oneoperate under the U.S. flag, and all but three are qualified to transport cargobetween U.S. ports under the Jones Act.

OPA 90 mandates the phase-out of all single-hull tankvessels transporting petroleum and petroleum products in U.S. waters at varyingtimes by January 1, 2015. The effect of this legislation has been, and isexpected to continue to be, the replacement of domestic single-hull tank vesselcapacity with newbuildings and retrofitting of existing single-hull tankvessels.

The demand for domestictank 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 fueland kerosene. Black oil products, which are what remain after clean oilproducts have been separated from crude oil, include residual fuel oil in therefining process, asphalt, petrochemical feedstocks and bunker fuel. The demandfor clean oil products is impacted by vehicle usage, air travel and prevailingweather conditions, while demand for black oil products varies depending on thetype of product transported and other factors, such as oil refineryrequirements and turnarounds, asphalt use, the use of residual fuel oil byelectric utilities and bunker fuel consumption.

***Transportation of Refined Petroleum Products***

Tank vessels are usedfrequently to continue the transportation of refined petroleum products alongthe distribution chain after these products have first been transported byanother method of transportation, such as a pipeline. For example, many areashave access to refined petroleum products only by using marine transportationas the last link in their distribution chain. In addition, tank vesseltransportation is generally a more cost-effective and energy-efficientmeans of transporting bulk commodities such as refined petroleum products thantransportation by rail car or truck. The carrying capacity of a 100,000-barreltank barge is the equivalent of approximately 162 average-size rail tank carsand approximately 439 average-size tractor trailer tank trucks.

***Types of Tank Vessels***

The domestic tank vessel fleet consists of tankers,which have internal propulsion systems, and tank barges, which do not haveinternal propulsion systems and are instead pushed or towed by a tugboat. Tankbarges generally move at slower speeds than comparably sized tankers, but areless 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 ofmany tank barges having a notch of varying depth to permit pushing by a tug. 

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While a larger tank vesselmay be able to carry more cargo, some voyages require a tank vessel to gothrough a lock, bridge opening or narrow waterway, which limit the size ofvessels that may be used. In addition, some loading and discharge facilitieshave physical limitations that prevent larger tank vessels from loading ordischarging their cargo. Tank barges are often able to navigate the shallowerwaters 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 becategorized by:

·       *Barrel-carrying Capacity*—the numberof barrels of refined product that it takes to fill a vessel;

·       *Gross Tonnage*—the total volume capacity ofthe interior space of a vessel, including non-cargo space, using a conventionof 100 cubic feet per gross ton;

·       *Net Tonnage*—the volume capacity of avessel determined by subtracting the engine room, crew quarters, stores andnavigation space from the gross tonnage using a convention of 100 cubic feetper net ton;

·       *Deadweight Tonnage*—the number of long-tons(2,240 pounds) of cargo that a vessel can transport. A deadweight ton isequivalent to approximately 6.5 to 7.5 barrels of capacity, depending on thespecific gravity of the cargo. In this report, we have assumed that adeadweight ton is equivalent to 7.0 barrels of capacity;

·       *Hull Type*—the body or framework of avessel. Vessels can have more than one hull, which means they have additionalcompartments between the cargo and the outside of the vessel. Typical vesselsare single- or double-hulled; and

·       *Cargo*—the type of commodity transported.

Tank vessels canalso be categorized into the following fleets based on the primary waterwaysystem typically navigated by the vessel:

·       *Coastwise Fleet.*   The term coastwise fleet generally refers to commercialvessels that transport goods in the following areas:

·        alongthe Atlantic, Gulf and Pacific coasts;

·        betweenthe U.S. mainland and Puerto Rico, Alaska, Hawaii and other U.S. PacificIslands; and

·        betweenthe Atlantic or Gulf and Pacific coasts by way of the Panama Canal.

·       *Inland Waterways Fleet.*   The term inland waterwaysfleet generally refers to commercial vessels that transport goods on thenavigable internal waterways of the Atlantic, Gulf and Pacific Coasts, and theMississippi River System. The main arteries of the inland waterways network forthe mid-continent are the Mississippi and the Ohio Rivers. The inlandwaterways fleet consists primarily of tugboats and tank barges, which typicallyhave a shallower depth, and are generally less costly, than many tank bargesoperating in the coastwise fleet. The vessels comprising the inland waterwaysfleet are generally not built to standards required for operation in coastalwaters.

·       *Great Lakes Fleet.*   The term Great Lakes fleet generally refers to commercialvessels normally navigating the waters among the U.S. Great Lakes ports andconnecting waterways.

***Tugboats***

Tugboats are equipped topush, pull or tow tank barges alongside. The amount of horsepower required tohandle a barge depends on a number of factors, including the size of the barge,the amount of 

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productloaded, weather conditions and the waterways navigated. A typical tug is mannedby six people: a captain, a mate, an engineer, an assistant engineer and twodeckhands. These individuals perform the duties and tasks required to operatethe tug, such as standing navigational watches, maintaining and repairingmachinery, rigging and line-handling, and painting and other routinemaintenance. 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-hourshifts each day.

***Integrated Tug-Barge Units***

Tugboats can also beintegrated into a barge utilizing a notching system that connects the twovessels. An integrated tug-barge unit, or ITB, has certain advantages overother tug-barge combinations, including higher speed and bettermaneuverability. In addition, an ITB can operate in certain sea and weatherconditions in which conventional tug-barge combinations cannot.

**Our Customers**

We provide marine transportation services primarily tomajor oil companies, oil traders and refiners in the northeastern United Statesand the Gulf of Mexico. We monitor the supply and distribution patterns of ouractual and prospective customers and focus our efforts on providing servicesthat are responsive to the current and future needs of these customers.

The following chart setsforth our major customers and the number of years each of them has been a customer.

**K-SeaTransportation Partners L.P.Major Customers**
| **Major Customers** | ** ** | ** ** | ** ** | **Years as  Customer** | ** ** |
|--------------------------|------------|------------|------------|-----------------------------|------------|
| BP                       |       |       | 32         |                        |       |
| Chevron                  |       |       | 16         |                        |       |
| ExxonMobil               |       |       | 9          |                        |       |
| Rio Energy               |       |       | 7          |                        |       |
| Penn Maritime            |       |       | 5          |                        |       |

 

Our two largest customersin fiscal 2005, based on gross revenue, were ExxonMobil and Rio Energy, each ofwhich accounted for more than 10% of our fiscal 2005 consolidated revenue.Please read note 10 to our audited consolidated financial statementsincluded elsewhere in this report.

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**Our Vessels**

***Tank Vessel Fleet***

At June 30, 2005, ourfleet 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-Out** | ** ** |
|---------------------------|------------|------------|------------|-----------------|------------|-------------------------|------------|-----------------|------------|----------------------------|------------|
| ***Double-Hull  Barges*** |       |       |       |            |       |                    |       |            |       |                       |       |
| DBL 151                   |       | 1981       |       | 150,000         |       | 8,710                   |       |            | N.A.       |                       |       |
| DBL 152                   |       | 1982       |       | 150,000         |       | 8,710                   |       |            | N.A.       |                       |       |
| DBL 155(2)                |       | 2004       |       | 165,882         |       | 12,152                  |       |            | N.A.       |                       |       |
| DBL 140                   |       | 2000       |       | 140,000         |       | 10,303                  |       |            | N.A.       |                       |       |
| DBL 134(3)                |       | 1994       |       | 134,000         |       | 9,514                   |       |            | N.A.       |                       |       |
| DBL 105(4)                |       | 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.       |                       |       |
| Casablanca(5)             |       | 1987       |       | 89,293          |       | 5,736                   |       |            | N.A.       |                       |       |
| Lemon Creek(5)            |       | 1987       |       | 89,293          |       | 5,736                   |       |            | N.A.       |                       |       |
| Spring Creek(5)           |       | 1987       |       | 89,293          |       | 5,736                   |       |            | N.A.       |                       |       |
| DBL 81                    |       | 2003       |       | 82,000          |       | 5,667                   |       |            | N.A.       |                       |       |
| DBL 82                    |       | 2003       |       | 82,000          |       | 5,667                   |       |            | N.A.       |                       |       |
| DBL 78                    |       | 2000       |       | 80,000          |       | 5,559                   |       |            | N.A.       |                       |       |
| DBL 70                    |       | 1972       |       | 73,024          |       | 5,248                   |       |            | 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 2202                  |       | 1962       |       | 22,000          |       | 1,830                   |       |            | N.A.       |                       |       |
| DBL 16                    |       | 1954       |       | 20,000          |       | 1,420                   |       |            | N.A.       |                       |       |
| DBL 19                    |       | 1998       |       | 18,000          |       | 1,499                   |       |            | N.A.       |                       |       |
| DBL 18                    |       | 1998       |       | 18,000          |       | 1,499                   |       |            | N.A.       |                       |       |
| DBL 17                    |       | 1998       |       | 18,000          |       | 1,499                   |       |            | N.A.       |                       |       |
| **Subtotal**              | ** ** | ** ** | ** ** | **1,842,785**   | ** ** | **130,306**             |       |            |       |                       |       |

 

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| **Vessel(1)**              | ** ** | ** ** | ** ** | **Year  Built** | ** ** | **Capacity  (barrels)** | ** ** | **Gross  Tons** | ** ** | **OPA 90  Phase-Out** | ** ** |
|----------------------------|------------|------------|------------|-----------------|------------|-------------------------|------------|-----------------|------------|----------------------------|------------|
| ***Single-Hull  Tankers*** |       |       |       |            |       |                    |       |            |       |                       |       |
| Great Lakes                |       | 1963       |       | 38,000          |       | 2,813                   |       |            | 2015       |                       |       |
| Great Gull                 |       | 1969       |       | 30,000          |       | 1,729                   |       |            | 2015       |                       |       |
| **Subtotal**               | ** ** | ** ** | ** ** | **68,000**      | ** ** | **4,542**               |       |            |       |                       |       |
| ***Single-Hull  Barges***  |       |       |       |            |       |                    |       |            |       |                       |       |
| KTC 80                     |       | 1981       |       | 82,878          |       | 4,576                   |       |            | 2015       |                       |       |
| KTC 71                     |       | 1975       |       | 81,759          |       | 4,719                   |       |            | 2015       |                       |       |
| KTC 60                     |       | 1980       |       | 61,638          |       | 3,824                   |       |            | 2015       |                       |       |
| KTC 55                     |       | 1972       |       | 53,012          |       | 3,113                   |       |            | 2015       |                       |       |
| KTC 50                     |       | 1974       |       | 54,716          |       | 3,367                   |       |            | 2015       |                       |       |
| Essex                      |       | 1967       |       | 35,160          |       | 2,307                   |       |            | 2015       |                       |       |
| DBL 3201                   |       | 1968       |       | 31,000          |       | 2,033                   |       |            | 2015       |                       |       |
| KTC 30                     |       | 1960       |       | 30,000          |       | 1,807                   |       |            | 2015       |                       |       |
| Wallabout Bay              |       | 1986       |       | 28,330          |       | 1,687                   |       |            | 2015       |                       |       |
| Newark Bay                 |       | 1969       |       | 27,390          |       | 1,595                   |       |            | 2015       |                       |       |
| Trader II                  |       | 1949       |       | 20,475          |       | 1,194                   |       |            | 2015       |                       |       |
| KTC 21                     |       | 1961       |       | 20,000          |       | 1,214                   |       |            | 2015       |                       |       |
| KTC 20                     |       | 1980       |       | 20,000          |       | 1,065                   |       |            | 2015       |                       |       |
| American 21                |       | 1968       |       | 19,500          |       | 1,262                   |       |            | 2015       |                       |       |
| Oyster Bay                 |       | 1951       |       | 19,370          |       | 1,278                   |       |            | 2015       |                       |       |
| E 10                       |       | 1960       |       | 18,790          |       | 1,077                   |       |            | 2015       |                       |       |
| Josiah Bartlett            |       | 1955       |       | 14,000          |       | 1,287                   |       |            | 2015       |                       |       |
| KTC 14                     |       | 1941       |       | 13,000          |       | 820                     |       |            | 2015       |                       |       |
| KTC 11                     |       | 1964       |       | 10,700          |       | 614                     |       |            | 2015       |                       |       |
| KTC 9                      |       | 1948       |       | 8,900           |       | 624                     |       |            | 2015       |                       |       |
| **Subtotal**               | ** ** | ** ** | ** ** | **650,618**     | ** ** | **39,463**              |       |            |       |                       |       |
| **Total  Existing Fleet**  | ** ** | ** ** | ** ** | **2,561,403**   | ** ** | **174,311**             |       |            |       |                       |       |

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(1)          Excludes a potable waterbarge, which we also operate.

(2)          Built in 1974; double-hullingwas completed and the vessel redelivered in September 2004.

(3)          Built in 1986 andrebuilt in 1994.

(4)          Built in 1982 andrebuilt for petroleum transportation in 2004.

(5)          Vesselnot qualified for Jones Act trade due to foreign construction.

***Newbuildings***

We have signed agreementswith a shipyard for the construction of new tank barges as follows: (1) inearly September 2004, we signed an agreement to construct a new100,000-barrel tank barge, which we expect to be delivered during the fall of2005; (2) in February 2005, we signed an agreement to construct two new28,000-barrel tank barges, which we expect to be delivered during the firstcalendar quarter of 2006; and (3) in August 2005, we signed an agreementto construct one 28,000-barrel tank barge, which we expect to be delivered inthe summer of 2006.

***Tugboat Fleet***

We view our tugboats as a cost center and, therefore,seek to maintain the proper balance between the number of tugboats and thenumber of tank barges in our fleet. This balance is influenced by a variety of 

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factors, including thecondition of the vessels in our fleet, the mix of our coastwise business andour local business and the level of longer-term contracts versus shorter-termbusiness. We are also able to maintain a proper balance between tugboats andtank barges by analyzing the historical trading patterns of our customers andthe nature of their cargoes. While a tank barge is unloading, we often dispatchits tugboat to perform other work.

At June 30, 2005, weoperated the following tugboats:

**K-SeaTransportation Partners L.P. Tugboat Fleet**
| **Name**      | ** ** | ** ** | ** ** | **Year Built** | ** ** | **Horsepower** | ** ** | **Dimensions** | ** ** |
|---------------|------------|------------|------------|---------------------|------------|----------------|------------|----------------|------------|
| Lincoln Sea   |       |       | 2000       |                |       |           | 8000       |           |       | 118.6’  x 40’ x 22’ |   |
| Rebel         |       |       | 1975       |                |       |           | 7200       |           |       | 150’  x 46’ x 22’ |   |
| Yankee        |       |       | 1976       |                |       |           | 7200       |           |       | 150’  x 46’ x 22’ |   |
| Irish Sea     |       |       | 1969       |                |       |           | 5750       |           |       | 135’  x 34’9” x 18’ |   |
| Volunteer     |       |       | 1982       |                |       |           | 4860       |           |       | 120’  x 37’ x 18’ |   |
| Adriatic Sea  |       |       | 1978       |                |       |           | 4800       |           |       | 126’  x 34’ x 14’5” |   |
| Java Sea      |       |       | 1981       |                |       |           | 4800       |           |       | 118’5”  x 34’ x 14’5” |   |
| Viking        |       |       | 1972       |                |       |           | 4300       |           |       | 132’5”  x 34’ x 18’3” |   |
| Beaufort Sea  |       |       | 1971       |                |       |           | 4300       |           |       | 113’  x 32’3” x 15’5” |   |
| Tasman Sea    |       |       | 1976       |                |       |           | 3900       |           |       | 123’5”  x 34’ x 16’4” |   |
| Norwegian Sea |       |       | 1976       |                |       |           | 3900       |           |       | 133’  x 34’ x 17.2” |   |
| Kara Sea      |       |       | 1974       |                |       |           | 3520       |           |       | 111’  x 32’ x 13’8” |   |
| Coral Sea     |       |       | 1973       |                |       |           | 3280       |           |       | 111’  x 32’ x 13’8” |   |
| Maryland      |       |       | 1962       |                |       |           | 3010       |           |       | 110’  x 28’ x 13’7” |   |
| Baltic Sea    |       |       | 1973       |                |       |           | 3000       |           |       | 101’  x 30’ x 13’1” |   |
| Sargasso Sea  |       |       | 1972       |                |       |           | 2460       |           |       | 105’  x 29.6’ x 15” |   |
| Bering Sea    |       |       | 1975       |                |       |           | 2250       |           |       | 105’  x 29’ x 13’3” |   |
| Davis Sea     |       |       | 1982       |                |       |           | 2000       |           |       | 77.4’  x 26’ x 8.5” |   |
| Houma         |       |       | 1970       |                |       |           | 1950       |           |       | 89’9”  x 29’ x 11’ |   |
| Timor Sea     |       |       | 1960       |                |       |           | 1920       |           |       | 80’  x 24’ x 10’ |   |
| Odin          |       |       | 1982       |                |       |           | 1860       |           |       | 72’  x 27’5” x 11’8” |   |
| Taurus        |       |       | 1979       |                |       |           | 1860       |           |       | 78’5”  x 25’ x 11’7” |   |
| Falcon        |       |       | 1978       |                |       |           | 1800       |           |       | 80’  x 25’ x 11’5” |   |
| Banda Sea     |       |       | 1966       |                |       |           | 1350       |           |       | 75’  x 23’ x 8’ |   |
| Scotia Sea    |       |       | 1981       |                |       |           | 900        |           |       | 56’ x 24’ x 9’ |   |

 

***Integrated Tug-Barge Units***

We currently operate tenITBs. At June 30, 2005, ITBs represented approximately 46% of the barrel-carryingcapacity of our tank barge fleet.

**Bunkering**

For over 30 years, we have specialized in theshipside delivery of fuel, known as bunkering, for the major and independentbunker suppliers in New York Harbor. We also provide bunkering services in theport of Norfolk. Demand for bunkering services is driven primarily by thenumber of ship arrivals. A ship’s time in port generally is limited, and thecost of delaying sailing due to bunkering or other activities can besignificant. Therefore, we continually strive to improve the level of serviceand on-time deliveries we provide to our customers.

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All ten of our bunkerdelivery tank barges are equipped with advanced, whole load sampling devices toprovide the supplier and receiver a representative sample. Our bunker deliverytank barges are also equipped with extended booms for hose handling easealongside ships, remote pump engine shut-offs, spill rails, spill containmentequipment and supplies, VHF and UHF radio communication and fendering.

**Preventative Maintenance**

We have a computerized preventative maintenanceprogram that tracks U.S. Coast Guard and American Bureau of Shipping inspectionschedules and establishes a system for the reporting and handling of routinemaintenance 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, inspectingidentified discrepancies, assigning a priority classification and generatingwork orders. Work orders establish job type, assign personnel responsible forthe task and record target start and completion dates. Vessel superintendentsinspect repairs completed by the crew, supervise outside contractors as neededand 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 operationsduty officer is available on a 24-hour basis to handle any operationalissues. The operations duty officer is prepared to respond on scene wheneverrequired and is trained in technical repair issues, spill control and emergencyresponse.

The American Bureau ofShipping and the U.S. Coast Guard establish drydocking schedules. Typically, wedrydock our vessels twice every five years. Prior to sending a vessel to ashipyard, we develop comprehensive work lists to ensure all requiredmaintenance is completed. Repair facilities bid on these work lists, and jobsare awarded based on price and time to complete. Vessels then report to acleaning facility to prepare for shipyard. Once the vessel is gas-free, acertified marine chemist issues paperwork certifying that no dangerous vaporsare present. The vessel proceeds to the shipyard where the vesselsuperintendent and certain crewmembers assist in performing the maintenance andrepair work. The planned maintenance period is considered complete when allwork 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 mannerthat protects the safety and health of our employees, the general public andthe environment. Our primary goal is to minimize the number of safety- andhealth-related accidents on our vessels and our property. Our primaryconcerns are to avoid personal injuries and to reduce occupational healthhazards. We want to prevent accidents that may cause damage to our personnel,equipment or the environment, such as fire, collisions, petroleum spills andgroundings of our vessels. In addition, we are committed to reducing overallemissions and waste generation from each of our facilities and vessels and tothe safe management of associated cargo residues and cleaning wastes.

Our policy is to followall laws and regulations as required, and we are actively participating withgovernment, trade organizations and the public in creating responsible laws,regulations and standards to safeguard the workplace, the community and theenvironment. Our Operations Department is responsible for coordinating allfacets of our health and safety program and identifies areas that may requirespecial emphasis, including new initiatives that evolve within the industry.Our Human Resources Department is responsible for all training, whetherconducted in-house or at a training facility. Supervisors are responsible forcarrying out and monitoring compliance for all of the safety and healthpolicies on their vessels.

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***Tank Barge Characteristics***

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

All ten of our bunkerdelivery tank barges are equipped with advanced, whole load sampling devices toprovide the supplier and receiver a representative sample. Our bunker deliverytank barges are also equipped with extended booms for hose handling easealongside ships, remote pump engine shut-offs, spill rails, spillcontainment equipment and supplies, VHF and UHF radio communication andfendering.

***Safety Management Systems***

We belong to and adhere to the recommendations of theAmerican Waterways Operators (“AWO”) Responsible Carrier Program. The programis designed as a framework for continuously improving the industry’s and membercompanies’ safety performance. The program complements and builds upon existinggovernment regulations, requiring company safety and training standards that inmany instances exceed those required by federal law or regulation.

Developed by theAWO, the Responsible Carrier Program incorporates best industry practices inthree primary areas:

·       managementand administration;

·       equipmentand inspection; and

·       humanfactors.

The Responsible Carriers Program has been recognizedby many groups, including the U.S. Coast Guard and shipper organizations. Weare periodically audited by an AWO-certified auditor to verify compliance. Wewere last audited in early 2004, and our Responsible Carrier Programcertificate remains in effect until March 2007.

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

**ShipManagement, Crewing and Employees**

We maintain an experienced and highly qualified workforce of shore-based and seagoing personnel. As of June 30, 2005, weemployed 490 persons, comprising 69 shore staff and 421 fleet personnel. Ourtug and tanker captains are non-union management supervisors. Effective July 1,2004, we entered into a new four-year collective bargaining agreement with ourmaritime union covering all our seagoing personnel, or approximately 75% of ourworkforce. The new agreement provides for wage increases totaling 15% over itsterm. Similar to the previous collective bargaining agreement, we are requiredto make contributions to our pension and other welfare programs on their behalf.No unfunded pension liability exists under any of these programs. Our vesselemployees are paid on a daily or hourly basis and typically work 14 dayson and 14 days off. Our shore-based personnel are generally salariedand most are located at our headquarters in Staten Island, New York. We believethat our relations with our employees are satisfactory.

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Our shore staff provides worldwide support for allaspects of our fleet and business operations, including sales and scheduling,crewing and human resources functions, engineering, compliance and technicalmanagement, financial and insurance services, and information technology. Astaff of dispatchers and schedulers maintain a 24-hour duty rotation tomonitor communications and to coordinate fleet operations with our customersand terminals. Communication with our vessels is accomplished by variousmethods, including wireless data links, cellular telephone, VHF, UHF and HF radio.

Our crews regularlyinspect each vessel, both at sea and in port, and perform most of the ordinarycourse maintenance. Our procedures call for a member of our shore-basedstaff to inspect each vessel at least once each fiscal quarter, making specificnotations and recommendations regarding the overall condition of the vessel,maintenance, safety and crew welfare. In addition, approximately 10% of ourfleet is inspected annually by independent consultants. All of the vessels thatare on bareboat charters to third parties are managed and operated by thecustomer.

**Classification,Inspection and Certification**

In accordance with standard industry practice, all ofour coastwise vessels have been certified as being “in class” by the AmericanBureau of Shipping. The American Bureau of Shipping is one of severalinternationally recognized classification societies that inspect vessels atregularly scheduled intervals to ensure compliance with American Bureau ofShipping classification rules and some applicable federal safetyregulations. Most insurance underwriters require an “in class” certification bya classification society before they will extend coverage to a coastwise vessel.The classification society certifies that the pertinent vessel has been builtand maintained in accordance with the rules of the society and complieswith applicable rules and regulations of the vessel’s country of registryand the international conventions of which that country is a member.Inspections are conducted on the pertinent vessel by a surveyor of theclassification society in three surveys of varying frequency and thoroughness:annual surveys each year, an intermediate survey every two to three years and aspecial survey every four to five years. As part of the intermediate survey, avessel may be required to be drydocked every 24 to 30 months forinspection of its underwater parts and for any necessary repair work related tosuch inspection.

Our vessels are also inspected at periodic intervalsby the U.S. Coast Guard to ensure compliance with Federal safety regulations. Allof our tank vessels carry Certificates of Inspection issued by the U.S. CoastGuard. All of our tugs participate in the U.S. Coast Guard’s un-inspectedtowing vessel inspection program.

Our vessels and shoresideoperations are also inspected and audited periodically by our customers, insome cases as a precondition to chartering our vessels. We maintain allnecessary approvals required for our vessels to operate in their normal trades.We believe that the high quality of our tonnage, our crews and our shoresidestaff are advantages when competing against other vessel operators forlong-term business.

**Insurance Program**

We maintain insurance coverage consistent withindustry practice that we believe is adequate to protect against the accident-relatedrisks involved in the conduct of our business and risks of liability forenvironmental damage and pollution. Nevertheless, we cannot provide assurancethat all risks are adequately insured against, that any particular claims willbe paid or that we will be able to procure adequate insurance coverage atcommercially reasonable rates in the future. K-Sea General Partner GP LLC,the general partner of our general partner, maintains a key man insurancepolicy on Mr. Timothy J. Casey, its President and Chief ExecutiveOfficer.

Our hull and machinery insurance covers risks ofactual or constructive loss from collision, towers liabilities, fire, groundingand engine breakdown up to an agreed value per vessel. Our war-risks insurance 

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covers risks ofconfiscation, seizure, capture, vandalism, sabotage and other war-related risks.While some tanker owners and operators obtain loss-of-hire insurance coveringthe loss of revenue during extended tanker off-hire periods, we do not havethis type of coverage. We believe that, given our diversified marinetransportation operations and high utilization rate, this type of coverage isnot economical and is of limited value to us. However, we evaluate the need forsuch coverage on an ongoing basis taking into account insurance marketconditions and the employment of our vessels.

Our protection and indemnity insurance covers third-partyliabilities and other related expenses from, among other things, injury ordeath of crew, passengers and other third parties, claims arising fromcollisions, damage to cargo, damage to third-party property, asbestosexposure and pollution arising from oil or other substances. Our currentprotection and indemnity insurance coverage for pollution is $1 billion perincident and is provided by West of England Ship Owners InsuranceServices Ltd. (“West of England”), a mutual insurance association. West ofEngland is a member of the International Group of protection and indemnitymutual assurance associations. The protection and indemnity associations thatcomprise the International Group insure approximately 90% of the world’scommercial tonnage and have entered into a pooling agreement to reinsureeach association’s liabilities. Each protection and indemnity association hascapped its exposure to this pooling agreement at approximately$4.3 billion per non-pollution incident. As a member of West ofEngland, we are subject to calls payable to the associations based on our claimrecords, as well as the claim records of all other members of the individualassociations and members of West of England.

We are not currently the subject of any claimsalleging exposure to asbestos or second-hand smoke, although such claims havebeen brought in the past and may be brought in the future. Our predecessorcompany, EW Transportation LLC, has contractually agreed to retain any suchliabilities 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 inconnection with the purchase of certain vessels. If, notwithstanding theforegoing, we are ultimately obligated to pay any asbestos-related orsimilar claims for any reason, we believe we or EW Transportation LLC wouldhave adequate insurance coverage for periods after March 1986 to pay suchclaims. However, EW Transportation LLC and its predecessors may not haveinsurance coverage prior to March 1986. If we were subject to claimsrelated to that period, including claims from current or former employees, EW TransportationLLC may not have insurance to pay the liabilities, if any, that could beimposed on us. If we had to pay claims solely out of our own funds, it couldhave a material adverse effect on our financial condition. Furthermore, anyclaims covered by insurance would be subject to deductibles, and because it ispossible that a large number of claims could be brought, the aggregate amountof these deductibles could be material. Please read “Legal Proceedings” in Item3 of this report.

We may not be able toobtain insurance coverage in the future to cover all risks inherent in ourbusiness, and insurance, if available, may be at rates that we do not considerto be commercially reasonable. In addition, as more single-hull vessels areretired from active service, insurers may be less willing to insure, andcustomers less willing to hire, single-hull vessels.

**Competition**

The Jones Act restricts U.S. point-to-point maritimeshipping 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 directcompetitors are the operators of U.S.-flag ocean-going tank barges andU.S.-flag refined petroleum product tankers, including the captive fleets ofmajor oil companies. The domestic tank vessel industry is highly competitive.

In the voyage and short-term charter market, ourvessels compete with all other vessels of a size and type required by acharterer that can be available at the date specified. In the voyage market,competition 

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is based primarily onprice and availability, although charterers have become more selective withrespect to the quality of vessels they hire, with particular emphasis onfactors such as age, double hulls and the reliability and quality of operations.Increasingly, major charterers are demonstrating a preference for modernvessels based on concerns about the environmental risks associated with oldervessels. Consequently, we believe that owners of large modern fleets have beenable to gain a competitive advantage over owners of older fleets.

U.S.-flag tank vesselsalso compete with petroleum product pipelines and are affected by the level ofimports on foreign flag products carriers. The Colonial Pipeline system, whichoriginates in Texas and terminates at New York Harbor, the Plantation Pipeline,which originates in Louisiana and terminates in Washington D.C., and smallerregional pipelines between Philadelphia and New York, carry refined petroleumproducts to the major storage and distribution facilities that we currentlyserve. We believe that high capital costs, tariff regulation and environmentalconsiderations make it unlikely that a new refined product pipeline system willbe built in our market areas in the near future. It is possible, however, thatnew pipeline segments, including pipeline segments that connect with existingpipeline systems, could be built or that existing pipelines could be convertedto carry refined petroleum products. Either of these occurrences could have anadverse effect on our ability to compete in particular locations.

**Regulation**

Our operations are subjectto significant federal, state and local regulation, the principal provisions ofwhich are described below.

***Environmental***

*General.  *Governmentregulation significantly affects the ownership and operation of our tankvessels. Our tank vessels are subject to international conventions, federal,state and local laws and regulations relating to safety and health andenvironmental protection, including the generation, storage, handling,emission, transportation, and discharge of hazardous and non-hazardousmaterials. Although we believe that we are in substantial compliance withapplicable environmental laws and regulations, we cannot predict the ultimatecost of complying with these requirements, or the impact of these requirementson the resale value or useful lives of our tank vessels. The recent trend inenvironmental legislation is toward stricter requirements, and this trend willlikely continue. In addition, a future serious marine incident occurring inU.S. waters, or internationally, that results in significant oil pollution orcauses significant environmental impact could result in additional legislationor regulation that could affect our profitability.

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

We maintain operating standards for all our tankvessels that emphasize operational safety, quality maintenance, continuoustraining of our crews and officers, care for the environment and compliancewith U.S. regulations. Our tank vessels are subject to both scheduled andunscheduled inspections by a variety of governmental and private entities, eachof which may have unique requirements. These entities include the local portauthorities (U.S. Coast Guard, harbor master or equivalent), classificationsocieties, flag state administration and charterers, particularly terminaloperators and oil companies.

Finally, we manage our exposure to losses frompotential discharges of pollutants through the use of well maintained and wellmanaged facilities, well maintained and well equipped vessels and safety and 

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environmental programs,including a maritime compliance program and our insurance program. Moreover, webelieve we will be able to accommodate reasonably foreseeable environmentalregulatory changes. However, the risks of substantial costs, liabilities, andpenalties are inherent in marine operations. As a result, there can be noassurance that any new regulations or requirements or any discharge ofpollutants by us will not have a material adverse effect on us.

*The Oil Pollution Act of 1990.  *TheOil Pollution Act of 1990, or OPA 90, affects all vessels trading in U.S.waters including the exclusive economic zone extending 200 miles seaward. OPA90 sets forth various technical and operating requirements for tank vesselsoperating in U.S. waters. Existing single-hull, double-sided and double-bottomedtank vessels are to be phased out of service at varying times based on theirtonnage and age, with all such vessels being phased out by January 2015.Under the phase-out schedule, 22 of our single-hull tank vessels will beprecluded from transporting petroleum products as of January 1, 2015.

Under OPA 90,owners or operators of tankers operating in U.S. waters must file vessel spillresponse plans with the U.S. Coast Guard and operate in compliance with theplans. These vessel response plans must, among other things:

·       addressa “worst case” scenario and identify and ensure, through contract or otherapproved means, the availability of necessary private response resources;

·       describecrew training and drills; and

·       identifya qualified individual with specific authority and responsibility to implementremoval actions in the event of an oil spill.

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

*Environmental Spill and ReleaseLiability.  *OPA 90 and various state laws substantiallyincreased over historic levels the statutory liability of owners and operatorsof vessels for the discharge or substantial threat of a discharge of oil andthe resulting damages, both regarding the limits of liability and the scope ofdamages. OPA 90 imposes joint and several strict liability on responsibleparties, including owners, operators and bareboat charterers, for all oil spilland containment and clean-up costs and other damages arising from spills attributableto their vessels. A complete defense is available only when the responsibleparty establishes that it exercised due care and took precautions againstforeseeable acts or omissions of third parties and when the spill is causedsolely by an act of God, act of war (including civil war and insurrection) or athird party other than an employee or agent or party in a contractualrelationship with the responsible party. These limited defenses may be lost ifthe responsible party fails to report the incident or reasonably cooperate withthe appropriate authorities or refuses to comply with an order concerningclean-up activities. Even if the spill is caused solely by a third party, theowner or operator must pay removal costs and damage claims and then seek reimbursementfrom the third party or the trust fund established under OPA 90. Finally, incertain circumstances involving oil spills from tank vessels, OPA 90 and otherenvironmental laws may impose criminal liability on personnel and/or thecorporate entity.

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OPA 90 limits theliability of each responsible party for a tank vessel, per discharge, to thegreater of (1) $1,200 per gross registered ton or (2) $10 millionfor vessels over 3,000 gross tons or $2 million for smaller vessels. This limitdoes not apply where, among other things, the spill is caused by grossnegligence or willful misconduct of, or a violation of an applicable federalsafety, construction or operating regulation by, a responsible party or itsagent or employee or any person acting in a contractual relationship with aresponsible party. In addition to removal costs, OPA 90 provides for recoveryof damages, including:

·       naturalresource damages and related assessment costs;

·       realand personal property damages;

·       netloss of taxes, royalties, rents, fees and other lost revenues;

·       netcosts of public services necessitated by a spill response, such as protectionfrom fire, safety or health hazards;

·       lossof profits or impairment of earning capacity due to the injury, destruction orloss of real property, personal property or natural resources; and

·       lossof subsistence use of natural resources.

OPA 90 expanded the pre-existing financialresponsibility requirements for tank vessels operating in U.S. waters andrequires owners and operators of tank vessels to establish and maintain withthe U.S. Coast Guard evidence of their financial responsibility sufficient tomeet their potential liabilities imposed by OPA 90. Under the regulations, wemay provide evidence of insurance, a surety bond, a guarantee, letter ofcredit, qualification as a self-insurer or other evidence of financialresponsibility. We have qualified as a self-insurer under the regulations andhave received Certificates of Financial Responsibility from the U.S. CoastGuard for all of our tank vessels subject to this requirement.

OPA 90 expressly provides that individual states areentitled to enforce their own pollution liability laws, even if inconsistentwith or imposing greater liability than OPA 90. There is no uniform liabilityscheme among the states. Some states have OPA 90-like schemes forlimiting liability to various amounts, some rely on common law fault-basedremedies and others impose strict and/or unlimited liability on an owner oroperator. Virtually all coastal states have enacted their own pollutionprevention, liability and response laws, whether statutory or through courtdecisions, with many providing for some form of unlimited liability. We believethat the liability provisions of OPA 90 and similar state laws have greatlyexpanded potential liability in the event of an oil spill, even where we arenot at fault. Some states have also established their own requirements forfinancial responsibility. However, in March 2000, the U.S. Supreme Courtdecided United States v. Locke. In that case, INTERTANKO challenged tank vesselregulations brought by the State of Washington. The Court struck down severalregulations and remanded the case for review of additional regulations. TheCourt held that the regulation of maritime commerce is generally a federalresponsibility because of the need for national and international uniformity.As a result of this ruling, at least two states have repealed regulationsconcerning the operation, manning, construction or design of tank vessels.

Parties affected by oil pollution may pursue relieffrom the Oil Spill Liability Trust Fund, absent full recovery by them against aresponsible party. Responsible parties may seek contribution from the fund forcosts incurred that exceeded the liability limits of OPA 90. In order to obtaincontribution, the responsible party would need to establish that it is entitledto both a statutory defense against liability and to a statutory limitation ofliability to obtain contribution from the fund. If we are deemed a responsibleparty for an oil pollution incident and are ineligible for contribution fromthe fund, the costs of responding to an oil pollution incident could have amaterial adverse effect on our results of operations, financial condition andcash flows. We presently maintain oil pollution liability insurance in anamount in excess of that required by OPA 90. Through West of England, ourcurrent coverage for oil pollution is $1 billion per 

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incident. It is possible,however, that our liability for an oil pollution incident may be in excess ofthe insurance coverage we maintain.

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

We are required to show proof of insurance, suretybond, self insurance or other evidence of financial responsibility to paydamages under OPA 90 and CERCLA in the amount of $1,500 per gross ton forvessels, consisting of the sum of the OPA 90 liability limit of $1,200 pergross ton or $10 million per discharge and the CERCLA liability limit of$300 per gross ton or $5 million per discharge. We have satisfied theserequirements and obtained a U.S. Coast Guard Certificate of FinancialResponsibility for each of our tank vessels. OPA 90 and CERCLA each preservethe right to recover damages under other existing laws, including maritime tortlaw.

*Water.  *The federalClean Water Act (CWA) imposes restrictions and strict controls on the dischargeof pollutants into navigable waters, and such discharges generally requirepermits. The CWA provides for civil, criminal and administrative penalties forany unauthorized discharges and imposes substantial liability for the costs ofremoval, remediation and damages. State laws for the control of water pollutionalso provide varying civil, criminal and administrative penalties and liabilitiesin the case of a discharge of petroleum, its derivatives, hazardous substances,wastes and pollutants into state waters. In addition, the Coastal ZoneManagement Act authorizes state implementation and development of programs ofmanagement measures for non-point source pollution to restore and protectcoastal waters.

A recent United States district court decision couldresult in certain of our vessels being required to obtain Clean Water Actpermits for the discharge of ballast water. Under current Clean Water Actregulations, our vessels are exempt from such permitting requirements, but inNorthwest Environmental Advocates v. EPA, issued in March 2005, thefederal district court in California ordered the EPA to repeal the exemption. Underthe court’s ruling owners and operators of vessels would be required to complywith the Clean Water Act permitting requirements or face penalties. Althoughthe EPA may appeal this decision, if the permitting exemption is repealed, wewill incur certain costs to obtain Clean Water Act permits for our vessels. Becausewe do not yet know how this matter ultimately will be resolved, we cannotestimate its potential financial impact at this time. However, we believe thatany financial impacts resulting from the repeal of the permitting exemption forballast water discharge will not be material.

*Solid Waste.  *Ouroperations occasionally generate and require the transportation, treatment anddisposal of both hazardous and non-hazardous solid wastes that are subject tothe requirements of the federal Resource Conservation and Recovery Act, orRCRA, and comparable state and local requirements. In August 1998, the EPAadded four petroleum refining wastes to the list of RCRA hazardous wastes. Inaddition, in the course of our tank vessel operations, we engage contractors toremove and dispose of waste material, including tank residue. In the event thatsuch waste is found to be “hazardous” under either RCRA or the CWA, and isdisposed of in violation of applicable law, we could be found jointly andseverally liable for the cleanup costs and any resulting damages. Finally, theEPA does not currently classify “used oil” as “hazardous waste,” providedcertain recycling standards are met. However, some states in which we operatehave classified “used oil” as “hazardous” under state laws patterned afterRCRA. The cost of managing wastes generated by tank vessel operations hasincreased in 

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recent years understricter state and federal standards. Additionally, from time to time we arrangefor the disposal of hazardous waste or hazardous substances at offsite disposalfacilities. If such materials are improperly disposed of by third parties, wecould be liable for clean up costs under CERCLA or the equivalent state laws.We use only certified haulers for this work.

EW Transportation Corp. (formerly K-Sea TransportationCorp., a predecessor company) has received a notice that it is a potentiallyresponsible party, or PRP, in a proceeding for the cleanup of hazardoussubstances at a site in Port Arthur, Texas, where cleaning was performed on twoof our barges in 1996 and 1997. This proceeding involves numerous wastegenerators and waste transportation and disposal companies and seeks toallocate or recover costs associated with site investigation and cleanup. Webelieve our share of liability, if any, will be immaterial to our financialposition, results of operations and cash flows given our limited dealings withthe site. Estimates of the degree of remediation of a particular site and the methodand ultimate cost of remediation require a number of assumptions and areinherently difficult to make. It is also possible that technological,regulatory or enforcement developments, the results of environmental studiesand the inability of other PRPs to contribute to settlements of such liabilitycould require us to incur some costs, the amount of which is not possible toestimate. These costs, if any, would be subject to insurance and certainindemnifications. For more information, please read “Certain Relationships andRelated Transactions—Omnibus Agreement—Indemnification” in Item 13 of thisreport.

*Air Emissions.  *Thefederal Clean Air Act (CAA) requires the EPA to promulgate standards applicableto emissions of volatile organic compounds and other air contaminants. Ourvessels are subject to vapor control and recovery requirements for certaincargoes when loading, unloading, ballasting, cleaning and conducting otheroperations in regulated port areas. Our tank barges are equipped with vaporcontrol systems that satisfy these requirements. In addition, the EPA issuedfinal rules regarding emissions standards for various classes of marinediesel engines. While these rules are currently limited to new enginesbeginning with the 2004 model year, the EPA has noted that it may revisit theapplication of emissions standards to rebuilt or remanufactured engines if theindustry does not take steps to introduce new pollution control technologies.Adoption of such standards could require modifications to some existing marinediesel engines and may require substantial expenditures.

The CAA also requiresstates to draft State Implementation Plans (SIPs) designed to attain nationalhealth-based air quality standards in primarily major metropolitan and/orindustrial areas. Where states fail to present approvable SIPs or SIP revisionsby certain statutory deadlines, the federal government is required to draft aFederal Implementation Plan. Several SIPs regulate emissions resulting frombarge loading and degassing operations by requiring the installation of vaporcontrol equipment. As stated above, our tank barges are already equipped withvapor control systems that satisfy these requirements. Although a risk existsthat new regulations could require significant capital expenditures andotherwise increase our costs, we believe, based upon the regulations that havebeen proposed to date, that no material capital expenditures beyond thosecurrently contemplated and no material increase in costs are likely to berequired.

***Coastwise Laws***

A substantialportion of our operations are conducted in the U.S. domestic trade, which isgoverned by the coastwise laws of the United States. The U.S. coastwise lawsreserve marine transportation between points in the United States, includingharbor tug services, to vessels built in and documented under the laws of theUnited States (U.S.-flag) and owned and manned by U.S. citizens. Generally, anentity is deemed a U.S. citizen for these purposes so long as:

·       itis organized under the laws of the United States or a state;

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·       eachof its president or other chief executive officer and the chairman of its boardof directors is a U.S. citizen;

·       nomore than a minority of the number of its directors necessary to constitute aquorum for the transaction of business are non-U.S. citizens;

·       atleast 75.0% of the interest and voting power in the corporation is held by U.S.citizens free of any trust, fiduciary arrangement or other agreement,arrangement or understanding whereby voting power may be exercised directly orindirectly by non-U.S. citizens; and

·       inthe case of a limited partnership, the general partner meets U.S. citizenshiprequirements for U.S. coastwise trade.

Because we could lose the privilege of operating ourvessels in the U.S. coastwise trade if non-U.S. citizens were to own or controlin excess of 25.0% of our outstanding interests, our limited partnershipagreement restricts foreign ownership and control of our common andsubordinated units to not more than 15.0% of our outstanding interests.

There have been repeatedefforts aimed at repeal or significant change of the Jones Act. Although webelieve it is unlikely that the Jones Act will be substantially modified orrepealed, there can be no assurance that Congress will not substantially modifyor repeal such laws. Such changes could have a material adverse effect on ouroperations and financial condition.

***Other***

Our vessels are subject tothe jurisdiction of the U.S. Coast Guard, the National Transportation SafetyBoard, the U.S. Customs Service and the U.S. Maritime Administration, as wellas subject to rules of private industry organizations such as the AmericanBureau of Shipping. These agencies and organizations establish safety standardsand are authorized to investigate vessels and accidents and to recommendimproved maritime safety standards. Moreover, to ensure compliance withapplicable safety regulations, the U.S. Coast Guard is authorized to inspectvessels at will.

***Occupational Health Regulations***

Our shoreside facilitiesare subject to occupational safety and health regulations issued by the U.S.Occupational Safety and Health Administration, or OSHA, and comparable stateprograms. These regulations currently require us to maintain a workplace freeof recognized hazards, observe safety and health regulations, maintain records,and keep employees informed of safety and health practices and duties. Ourvessel operations are also subject to occupational safety and healthregulations issued by the U.S. Coast Guard and, to an extent, OSHA. Theseregulations currently require us to perform monitoring, medical testing andrecordkeeping with respect to mariners engaged in the handling of the variouscargoes transported by our chemical and petroleum product carriers.

***Vessel Condition***

Our vessels are subject toperiodic inspection and survey by, and drydocking and maintenance requirementsof, the U.S. Coast Guard and/or the American Bureau of Shipping. We believe weare currently in compliance in all material respects with the environmental andother laws and regulations, including health and safety requirements, to whichour operations are subject. We are unaware of any pending or threatenedlitigation or other judicial, administrative or arbitration proceedings againstus occasioned by any alleged non-compliance with such laws or regulations. Therisks of substantial costs, liabilities and penalties are, however, inherent inmarine operations, and there can be no assurance that significant costs,liabilities or penalties will not be incurred by or imposed on us in thefuture.

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**Seasonality**

Tank vessel services aresignificantly affected by demand for refined petroleum products. This demand isseasonal and often dependent on weather conditions. Movements of certain cleanoil products, such as motor fuels, generally increase during the summer drivingseason. Movements of certain black oil products and distillates, such asheating oil, generally increase during the winter months, while movements ofasphalt products generally increase in the spring through fall months.Unseasonably cold winters result in significantly higher demand for heating oilin the northeastern United States, which is a significant market for our tankbarge services. The summer driving season can increase demand for automobilefuel and, accordingly, the demand for our services. A decline in demand for,and level of consumption of, refined petroleum products could cause demand fortank vessel capacity and charter rates to decline, which would decrease ourrevenues and profitability.

**Properties**

We lease pier facilitiesand approximately 7,000 square feet of office space for our principal executiveoffice in Staten Island, New York. The lease expires in April 2009;however, we have the option to renew it for two additional ten-year periods. Weown and use a 2,100 square-foot modular facility for additional office space onthe premises. We also lease pier facilities, a water treatment facility andapproximately 10,500 square feet of office space in Norfolk, Virginia. Thelease expires in January 2010 and we have an option to purchase thefacility after December 8, 2005.

**SEC Reporting**

We file annual, quarterly and current reports, alongwith any related amendments and supplements thereto, with the SEC. From time totime, we may also file registration statements pertaining to equity or debtofferings. You may read and copy any materials we file with the SEC at the SEC’sPublic Reference Room at 100 F Street, NE, Washington, DC 20549. You mayobtain information regarding the Public Reference Room by calling the SECat 1-800-SEC-0330. In addition, the SEC maintains a websiteat *www.sec.gov* that containsreports, proxy and information statements, and other information regardingissuers that file electronically with the SEC.

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

**ITEM 3.**                LEGALPROCEEDINGS.

We are a party to various suits in the ordinary courseof business for monetary relief arising principally from personal injuries,collision or other casualty and to claims arising under vessel charters. All ofthese personal injury, collision and casualty claims against us are fullycovered by insurance, subject to deductibles ranging from $10,000 to $100,000in amount. We reserve on a current basis for amounts we expect to pay. Althoughthe outcome of any individual claim or action cannot be predicted with certainty,we believe that any adverse outcome, individually or in the aggregate, would besubstantially mitigated by applicable insurance or indemnification fromprevious owners of our assets, and would not have a material adverse effect onour financial position, results of operations or cash flows.

EW Transportation LLC and its predecessors have beennamed, together with a large number of other companies, as co-defendants in 39civil actions by various parties, including former employees, allegingunspecified damages from past exposure to asbestos and second-hand smoke aboardsome of the vessels that it contributed to us in connection with our initialpublic offering. EW Transportation LLC and its predecessors have been dismissedfrom 38 of these lawsuits for an aggregate sum of approximately 

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$47,000, and are seekingto settle the other case. We may be subject to litigation in the future fromthese plaintiffs and others alleging exposure to asbestos due to allegedfailure to properly encapsulate or remove friable asbestos on our vessels, aswell as for exposure to second-hand smoke and other matters. For a relateddiscussion of insurance coverage, please read “Business and Properties—InsuranceProgram” in Items 1 and 2 of this report.

One of our predecessors has also received notice thatit is a potentially responsible party in a proceeding for the cleanup ofhazardous substances at a site in Port Arthur, Texas. For more information,please read “Business and Properties—Regulation—Environmental—Solid Waste” inItems 1 and 2 of this report.

Our predecessors haveagreed to indemnify us for certain liabilities. For more information, pleaseread “Certain Relationships and Related Transactions—OmnibusAgreement—Indemnification” in Item 13 of this report.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITYHOLDERS.

No matters were submitted to a vote of securityholdersduring the quarter ended June 30, 2005.

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**PART II**

**ITEM 5.**                MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED SECURITYHOLDER

**MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES.**

**MarketPrice of Common Units, Distributions and Related Unitholder Matters**

Ourcommon units have been listed on the New York Stock Exchange under the symbol “KSP”since January 9, 2004. Prior to January 9, 2004, our equitysecurities were not publicly traded. As of September 12, 2005, there were4,667,250 outstanding common units, representing an aggregate 52.8% limitedpartner interest in us. As of September 12, 2005, there were 21 holders ofrecord of our common units, representing approximately 6,000 beneficial owners.The following table sets forth, for the periods indicated, the high and lowsales prices per common unit, as reported on the New York Stock Exchange, andthe amount of cash distributions declared per common unit:
| ** **                                   | ** ** | **Price Range** | ** ** | **Cash** | ** ** |
|----------------------------------------------|------------|----------------------|------------|----------|------------|
| ** **                                   | ** ** | **High**             | ** ** | **Low**  | ** ** | **Distribution(1)** | ** ** |
| ***2005 Fiscal Year***                       |       |                 |       |     |       |   |   |   |   |
| Fourth Quarter Ended  June 30, 2005     |       | $                    | 37.00      |     | $          | 30.87 |   |   | $ | 0.560 |   |   |
| Third Quarter Ended  March 31, 2005     |       | $                    | 37.88      |     | $          | 33.16 |   |   | $ | 0.540 |   |   |
| Second Quarter Ended  December 31, 2004 |       | $                    | 35.21      |     | $          | 29.74 |   |   | $ | 0.540 |   |   |
| First Quarter Ended  September 30, 2004 |       | $                    | 32.00      |     | $          | 25.55 |   |   | $ | 0.540 |   |   |
| ***2004 Fiscal Year***                       |       |                 |       |     |       |   |   |   |   |
| Fourth Quarter Ended  June 30, 2004     |       | $                    | 28.95      |     | $          | 24.11 |   |   | $ | 0.525 |   |   |
| Third Quarter Ended  March 31, 2004(2)  |       | $                    | 29.64      |     | $          | 23.50 |   |   | $ | 0.430 |   |   |

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(1)          Distributions are shownfor the quarter with respect to which they were declared. For each of theindicated quarters for which distributions have been made, an identical perunit cash distribution was paid on the subordinated units.

(2)          For the period from January 14,2004, the closing date of our initial public offering, through March 31,2004.

The aggregate amount ofdistributions declared in respect of the 2005 and 2004 fiscal years on commonunits, the general partner interests, and subordinated units, totaled $18.8million and $8.1 million, respectively.

**Cash Distribution Policy**

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

·       providefor the proper conduct of our business, including reserves for future capitaland maintenance expenditures;

·       complywith applicable law, any of our debt instruments, or other agreements; or

·       providefunds for distributions to our unitholders and to our general partner for anyone or more of the next four quarters.

Our ability to distributeavailable cash is contractually restricted by the terms of our Title XI debtand our other credit facilities, which require us to maintain certain financialratios and generally prohibit 

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distributionsto unitholders if the distribution would cause an event of default, or an eventof default is existing, under our Title XI debt or a credit facility. Pleaseread “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations—Liquidity and Capital Resources—Title XI Borrowings” and “—CreditAgreement” in Item 7 of this report.

**Subordination Period**

During the subordination period, the common units havethe right to receive distributions of available cash from operating surplus inan amount equal to the minimum quarterly distribution of $0.50 per quarter,plus any arrearages in the payment of the minimum quarterly distribution on thecommon units from prior quarters, before any distributions of available cashfrom operating surplus may be made on the subordinated units. Upon expirationof the subordination period, each outstanding subordinated unit will convertinto one common unit and will participate pro rata with the other common unitsin distributions of available cash.

*Definitionof Subordination Period.  *The subordination period willextend until the first day of any quarter, beginning after December 31,2008, that each of the following tests are met:

·       distributionsof available cash from operating surplus on each of the outstanding commonunits and subordinated units equaled or exceeded the minimum quarterlydistribution for each of the three consecutive, non-overlapping four-quarterperiods immediately preceding that date;

·       the“adjusted operating surplus,” as defined in our partnership agreement,generated during each of the three consecutive, non-overlapping four-quarterperiods immediately preceding that date equaled or exceeded the sum of theminimum quarterly distributions on all of the outstanding common units andsubordinated units during those periods on a fully diluted basis and therelated distribution on the general partner interest during those periods; and

there are no arrearages in payment of the minimumquarterly distribution on the common units.

Adjusted operating surplus is intended to reflect thecash generated from operations during a particular period and thereforeexcludes net increases in working capital borrowings and net drawdowns ofreserves of cash generated in prior periods.

*EarlyConversion of Subordinated Units.  *Before the end of thesubordination period, 50% of the subordinated units, or up to 2,082,500subordinated units, may convert into common units on a one-for-onebasis immediately after the distribution of available cash to the partners inrespect of any quarter ending on or after:

·       December 31,2006 with respect to 25% of the subordinated units; and

·       December 31,2007 with respect to 25% of the subordinated units.

The earlyconversions will occur if at the end of the applicable quarter each of thefollowing occurs:

·       distributionsof available cash from operating surplus on each of the outstanding commonunits and subordinated units equaled or exceeded the minimum quarterlydistribution for each of the three consecutive, non-overlapping four-quarterperiods immediately preceding that date;

·       theadjusted operating surplus generated during each of the three consecutive,non-overlapping four-quarter periods immediately preceding that date equaled orexceeded the sum of the minimum quarterly distributions on all of theoutstanding common units and subordinated units during those periods on a fullydiluted basis and the related distribution on the general partner interestduring those periods; and

·       thereare no arrearages in payment of the minimum quarterly distribution on thecommon units.

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However, the second earlyconversion of the subordinated units may not occur until at least one yearfollowing the first early conversion of the subordinated units.

**Incentive Distribution Rights**

Incentive distribution rights represent the right toreceive an increasing percentage of quarterly distributions of available cashfrom operating surplus after the minimum quarterly distribution and certaintarget distribution levels have been achieved. Our general partner currentlyholds the incentive distribution rights, but may transfer these rightsseparately from its general partner interest, subject to restrictions in thepartnership agreement.

If for any quarter,we have distributed available cash from operating surplus a) to the commonand subordinated unitholders an amount equal to the minimum quarterlydistribution, and b) on the common units an amount necessary to eliminateany cumulative arrearages in payment of the minimum quarterly distribution,then we will distribute any additional available cash from operating surplusfor that quarter among the unitholders and our general partner in the followingmanner:

·       first,98% to all unitholders, pro rata, and 2% to our general partner, until eachunitholder receives a total of $0.55 per unit for that quarter;

·       second,85% to all unitholders, pro rata, and 15% to our general partner, until eachunitholder receives a total of $0.625 per unit for that quarter;

·       third,75% to all unitholders, pro rata, and 25% to our general partner, until eachunitholder receives a total of $0.75 per unit for that quarter; and

·       thereafter,50% to all unitholders, pro rata, and 50% to our general partner.

The percentage interestsset forth above for our general partner include its 2% general partner interestand assume the general partner has not transferred the incentive distributionrights.

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**ITEM 6.**                SELECTEDFINANCIAL DATA.

Thefollowing table sets forth selected historical financial and operating data ofK-Sea Transportation Partners L.P. and its predecessors. On January 14,2004, EW Transportation LLC contributed assets and liabilities constituting itsbusiness to us in connection with our initial public offering of common units. Therefore,the historical financial and operating data presented below are for EWTransportation LLC for all periods prior to January 14, 2004. Thefollowing table should be read in conjunction with the consolidated financialstatements, including the notes thereto, included elsewhere in this report, and“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” in Item 7 of this report.
| ** **                                                            | ** **    | **Years Ended June 30,** | ** ** |
|-----------------------------------------------------------------------|---------------|-----------------------------------------|------------|
| ** **                                                            | ** **    | **2005**                                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Income Statement Data:**                                            |          |                                    |       |   |   |   |   |   |   |   |   |
| Voyage revenue                                                        |          | $                                       | 118,811    |   | $ | 93,899 |   | $ | 83,942 |   | $ | 75,700 |   | $ | 77,418 |   |
| Bareboat charter  and other revenue                                   |          | 2,583                                   |       | 1,900 |   | 3,753 |   | 3,387 |   | 4,866 |   |
| Total revenues                                                        |          | 121,394                                 |       | 95,799 |   | 87,695 |   | 79,087 |   | 82,284 |   |
| Voyage expenses                                                       |          | 24,220                                  |       | 16,339 |   | 14,151 |   | 11,395 |   | 12,098 |   |
| Vessel operating  expenses                                            |          | 49,296                                  |       | 38,809 |   | 36,326 |   | 32,684 |   | 34,176 |   |
| General and  administrative expenses                                  |          | 11,163                                  |       | 8,149 |   | 7,047 |   | 6,384 |   | 5,954 |   |
| Depreciation and  amortization                                        |          | 21,399                                  |       | 18,643 |   | 16,293 |   | 14,805 |   | 10,591 |   |
| Net (gain) loss on  sale of vessels                                   |          | (264                                    | )          | 255 |   | (275 | ) | (422 | ) | 169 |   |
| Total operating  expenses                                             |          | 105,814                                 |       | 82,195 |   | 73,542 |   | 64,846 |   | 62,988 |   |
| Operating income                                                      |          | 15,580                                  |       | 13,604 |   | 14,153 |   | 14,241 |   | 19,296 |   |
| Interest expense  (income), net                                       |          | 5,949                                   |       | 6,370 |   | 8,808 |   | 7,519 |   | 9,202 |   |
| Net loss (gain) on  reduction of debt(1)                              |          | 1,359                                   |       | 3,158 |   | 4 |   | (377 | ) | — |   |
| Other (income)  expense, net                                          |          | (27                                     | )          | (253 | ) | 29 |   | 76 |   | (10 | ) |
| Income before  provision (benefit) for income taxes                   |          | 8,299                                   |       | 4,329 |   | 5,312 |   | 7,023 |   | 10,104 |   |
| Provision  (benefit) for income taxes(2)                              |          | 163                                     |       | (16,845 | ) | 340 |   | 549 |   | (132 | ) |
| Net income                                                            |          | $                                       | 8,136      |   | $ | 21,174 |   | $ | 4,972 |   | $ | 6,474 |   | $ | 10,236 |   |
| Net income per  unit—basic                                       |          | $                                       | 0.95       |   | $ | 2.26 |   | $ | 1.03 |   | $ | 1.34 |   | $ | 2.12 |   |
|                                                                  | —diluted |                                    | $          | 0.95 |   | $ | 2.25 |   | $ | 1.03 |   | $ | 1.34 |   | $ | 2.12 |   |
| **Balance  Sheet Data (at year end):**                                |          |                                    |       |   |   |   |   |   |   |   |   |
| Vessels and  equipment, net                                           |          | $                                       | 235,490    |   | $ | 193,646 |   | $ | 145,520 |   | $ | 115,304 |   | $ | 121,542 |   |
| Total assets                                                          |          | 273,262                                 |       | 228,144 |   | 178,328 |   | 184,730 |   | 136,462 |   |
| Total debt                                                            |          | 114,005                                 |       | 78,817 |   | 114,003 |   | 125,076 |   | 85,019 |   |
| Partners’  capital/members’ equity                          |          | 141,940                                 |       | 135,698 |   | 41,290 |   | 36,267 |   | 29,753 |   |
| **Cash Flow  Data:**                                                  |          |                                    |       |   |   |   |   |   |   |   |   |
| Net cash provided by  (used in):                                      |          |                                    |       |   |   |   |   |   |   |   |   |
| Operating activities                                                  |          | $                                       | 24,428     |   | $ | 17,825 |   | $ | 13,235 |   | $ | 16,417 |   | $ | 13,870 |   |
| Investing activities                                                  |          | (55,901                                 | )          | (59,167 | ) | (240 | ) | (52,291 | ) | (3,752 | ) |
| Financing activities                                                  |          | 31,182                                  |       | 41,695 |   | (12,984 | ) | 34,689 |   | (8,956 | ) |
| **Other  Financial Data:**                                            |          |                                    |       |   |   |   |   |   |   |   |   |
| Capital expenditures(3):                                              |          |                                    |       |   |   |   |   |   |   |   |   |
| Maintenance                                                           |          | $                                       | 8,024      |   | $ | 7,957 |   | $ | 8,389 |   | $ | 7,405 |   | $ | 10,591 |   |
| Expansion                                                             |          | 39,337                                  |       | 52,747 |   | 7,814 |   | 6,682 |   | 1,101 |   |
| Total                                                                 |          | $                                       | 47,361     |   | $ | 60,704 |   | $ | 16,203 |   | $ | 14,087 |   | $ | 11,692 |   |
| Construction of  tank vessels                                         |          | $                                       | 16,816     |   | $ | 16,512 |   | $ | 18,703 |   | $ | 12,994 |   | $ | 1,991 |   |
| Distributions declared  per common unit in respect of the period |          | $                                       | 2.180      |   | $ | 0.955 |   |   |   |   |   |   |   |
|                                                                       |               |                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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| ** **                                                             | ** ** | **Years Ended June 30,** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                             | ** ** | **2005**                                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Operating Data:**                                                    |       |                                    |       |   |   |   |   |   |   |   |   |
| Number of tank barges (at  period end)                                 |       | 44                                      |       | 34 |   | 35 |   | 34 |   | 35 |   |
| Number of tankers (at  period end)                                     |       | 2                                       |       | 2 |   | 3 |   | 3 |   | 5 |   |
| Number of tugboats  (at period end)                                    |       | 25                                      |       | 19 |   | 18 |   | 17 |   | 16 |   |
| Total barrel-carrying  capacity (in thousands at period end) |       | 2,561                                   |       | 2,410 |   | 2,309 |   | 2,079 |   | 2,164 |   |
| Net utilization(4)                                                     |       | 85                                      | %          | 86 | % | 87 | % | 81 | % | 84 | % |
| Average daily rate(5)                                                  |       | $                                       | 8,734      |   | $ | 8,095 |   | $ | 7,468 |   | $ | 7,482 |   | $ | 7,208 |   |
|                                                                        |            |                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)    Fiscal 2005 includes a $1.4 million loss in connectionwith a refinancing of our revolving credit facility and repayment of certainterm loans. Fiscal 2004 includes a $3.2 million loss on prepayment ofcertain EW Transportation LLC debt using proceeds of our initial publicoffering. Fiscal 2002 includes a $0.6 million gain on reduction ofsubordinated debt (and related accrued interest) owed to the seller of a vesselwe purchased in 1999. This reduction resulted from a customer’s exercise of anoption to purchase the vessel, which was provided for in the 1999 purchasecontract. Fiscal 2002 also includes $0.2 million in prepayment feesresulting from repayment of debt related to certain vessels that were soldduring the year.

(2)    Fiscal2004 includes a non cash tax benefit of $17.6 million solely attributableto a reduction in deferred taxes resulting from the change in income tax statusof the assets and liabilities constituting the business of EW TransportationLLC that were transferred to us at the date of the initial public offering. Fiscal2001 includes a deferred tax benefit of $2.6 million resulting from are-evaluation of our deferred tax liabilities resulting from a change in ourapproach to the allocation of income to the applicable tax jurisdictions.

(3)    Wedefine maintenance capital expenditures as capital expenditures required tomaintain, over the long term, the operating capacity of our fleet, andexpansion capital expenditures as those capital expenditures that increase,over the long term, the operating capacity of our fleet. Examples ofmaintenance capital expenditures include costs related to drydocking a vessel,retrofitting an existing vessel or acquiring a new vessel to the extent suchexpenditures maintain the operating capacity of our fleet. Expenditures made inconnection with our tank vessel newbuilding program were considered maintenancecapital expenditures as they were made to replace capacity scheduled to phaseout under OPA 90; however, because they were non-routine in nature they areincluded separately in the above table under “Construction of tank vessels.” Generally,expenditures for construction of tank vessels in progress are not included ascapital expenditures until such vessels are completed. Capital expendituresassociated with retrofitting an existing vessel, or acquiring a new vessel,which increase the operating capacity of our fleet over the long term whetherthrough increasing our aggregate barrel-carrying capacity, improving theoperational performance of a vessel or otherwise, are classified as expansioncapital expenditures. Drydocking expenditures are more extensive in nature thannormal routine maintenance and, therefore, are capitalized and amortized overthree years. For more information regarding our accounting treatment ofdrydocking expenditures, please read “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Critical AccountingPolicies—Amortization of Drydocking Expenditures” in Item 7 of this report.

(4)    “Netutilization” is a percentage equal to the total number of days actually workedby a tank vessel or group of tank vessels during a defined period, divided bythe number of calendar days in the period multiplied by the total number oftank vessels operating or in drydock during that period.

(5)    “Averagedaily rate” equals the net voyage revenue earned by a tank vessel or group oftank vessels during a defined period, divided by the total number of daysactually worked by that tank vessel or group of tank vessels during thatperiod.

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is adiscussion of the historical consolidated financial condition and results ofoperations of K-Sea Transportation Partners L.P. and, prior to our January 14,2004 initial public offering, of our predecessor company, EW TransportationLLC, and should be read in conjunction with our historical consolidatedfinancial statements and notes thereto included elsewhere in this report.

**GENERAL**

We are a leading provider of refined petroleum productmarine transportation, distribution and logistics services in the United Statesdomestic marine transportation business. We currently operate a fleet of 44tank barges, 2 tankers and 25 tugboats that serves a wide range of customers,including major oil companies, oil traders and refiners. With approximately2.6 million barrels of capacity, we believe we currently own and operatethe third-largest coastwise tank barge fleet in the United States, asmeasured by barrel-carrying capacity.

Demand for ourservices is driven primarily by demand for refined petroleum products in theEast Coast and Gulf of Mexico regions of the United States. We generate revenueby charging customers for the transportation and distribution of their productsutilizing our tank vessels and tugboats. These services are generally providedunder the following four basic types of contractual relationships:

·       timecharters, which are contracts to charter a vessel for a fixed period of time,generally one year or more, at a set daily rate;

·       contractsof affreightment, which are contracts to provide transportation services forproducts over a specific trade route, generally for one or more years, at anegotiated per barrel rate;

·       voyagecharters, which are charters for shorter intervals, usually a singleround-trip, that are made on either a current market rate or advancecontractual basis; and

·       bareboatcharters, which are longer-term agreements that allow a customer to operate oneof our vessels and utilize its own operating staff without taking ownership ofthe vessel.

In addition, a variation of a voyage charter is knownas a “consecutive voyage charter.” Under this arrangement, consecutive voyagesare performed for a specified period of time.

Thetable below illustrates the primary distinctions among these types ofcontracts:
| ** **                    | ** ** | **Time Charter**                                          | ** ** | **Contract of  Affreightment** | ** ** | **Voyage  Charter(1)** | ** ** | **Bareboat  Charter** | ** ** |
|-------------------------------|------------|----------------------------------------------------------------|------------|-------------------------------------|------------|------------------------|------------|-----------------------|------------|
| Typical contract  length      |       | One  year or more                                              |       | One  year or more                   |       | Single  voyage         |       | Two  years or more    |       |
| Rate basis                    |       | Daily                                                          |       | Per  barrel                         |       | Varies                 |       | Daily                 |       |
| Voyage  expenses(2)           |       | Customer  pays                                                 |       | We  pay                             |       | We  pay                |       | Customer  pays        |       |
| Vessel operating  expenses(2) |       | We  pay                                                        |       | We  pay                             |       | We  pay                |       | We  pay               |       |
| Idle 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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(1)          Under a consecutivevoyage charter, the customer pays for idle time.

(2)          See “Definitions” below.

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

One of the principaldistinctions among these types of contracts is whether the vessel operator orthe customer pays for voyage expenses, which include fuel, port charges, pilotfees, tank cleaning costs and canal tolls. Some voyage expenses are fixed, andthe remainder can be estimated. If we, as the vessel operator, pay the voyageexpenses, we typically pass these expenses on to our customers by charginghigher rates under the contract or re-billing such expenses to them. As aresult, although voyage revenue from different types of contracts may vary, thenet revenue that remains after subtracting voyage expenses, which we call netvoyage 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 revenueis a non-GAAP measurement, it is reconciled to the nearest GAAP measurement,voyage revenue, under “Results of Operations” below.

**RECENT EVENTS**

On August 23, 2005, we entered into a definitivepurchase agreement with Marine Resources Group, Inc. and SaltchukResources, Inc. to acquire, through our operating partnership, all of theoutstanding capital stock of Sea Coast Towing, Inc. (“Sea Coast”), awholly owned subsidiary of Marine Resources Group based in Seattle, Washington.Sea Coast is engaged in the maritime transportation of refined petroleumproducts and related businesses along the West Coast of the United States andAlaska. Sea Coast operates 15 tank barges and 15 tugboats, representingapproximately 705,000 barrels of capacity, of which 321,000 barrels aredouble-hulled. Of the remaining single-hull capacity, approximately 80% iseligible to operate in the Jones Act trades until January 2015, with theremaining capacity (one vessel) eligible until January 2008. The additionof these tank barges will represent a 27.5% increase in our barrel-carryingcapacity to approximately 3.3 million barrels, which we believe will make usthe largest coastwise tank barge operator (measured by barrel-carryingcapacity) in the United States, with approximately 66% double-hull capacity.

Thepurchase price for Sea Coast consists of $77 million in cash and 125,000 commonunits representing limited partner interests in us. We expect to finance thecash portion of the purchase price through additional borrowings. The purchaseagreement contains customary representations, warranties and covenants. Theacquisition is scheduled to close in October 2005 and is subject tocustomary conditions, including, among others, the following: (1) theabsence of any legal proceeding, law or order preventing the closing orprohibiting our ownership or operation of all or a material portion of SeaCoast’s assets or capital stock, or compelling us to dispose of or holdseparate all or a material portion of our or Sea Coast’s business or assets, (2) obtainingcertain consents and approvals, (3) the removal of liens on Sea Coast’sassets, (4) the accuracy of the representations and warranties of eachparty, (5) compliance of each party with its covenants and agreements, (6) theabsence of any material adverse change in the value of Sea Coast’s capitalstock or its business or financial condition, and (7) the receipt by us ofaudited and unaudited financial statements with respect to Sea Coast that arerequired by Rule 3-05 of Regulation S-X of the Securities ExchangeAct of 1934, as amended. The purchase agreement contains customary terminationrights.

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**SIGNIFICANT EVENTS DURING FISCAL YEAR 2005**

On June 28, 2005, we acquired an 80,000-barrelcapacity double-hull tank barge for a purchase price of approximately $12.0million, including certain modifications made to the barge. This acquisitionwas financed using borrowings under a new term loan. This new agreement isdescribed in further detail under “Liquidity and Capital Resources—Other TermLoans” below. From December 2004 until its acquisition, we operated thetank barge under a bareboat charter agreement.

On June 1, 2005, we issued and sold 500,000common units to Tortoise Energy Infrastructure Corporation, or Tortoise, in aprivate placement for proceeds of $16.0 million, before expenses associatedwith the offering. The offer and sale of the common units were made pursuant toan exemption from registration under section 4(2) of the SecuritiesAct of 1933, as amended. Pursuant to the terms of a registration rightsagreement, we have agreed to register the resale of the common units with theSecurities and Exchange Commission. Tortoise has agreed not to sell any of thecommon units until December 1, 2005.

On March 24, 2005, we entered into a new,five-year $80 million revolving credit agreement with a syndicate of banks. Thenew credit agreement replaced our then-existing $47 million credit agreement,which was repaid and terminated. The new credit agreement contains a $20million sublimit for letters of credit and allows us to request an increase inthe total availability thereunder by up to $20 million, to a maximum of $100million, so long as no default or event of default has occurred and iscontinuing. This new credit agreement is described in further detail under “Liquidityand Capital Resources—Credit Agreement” below.

On December 8, 2004,we acquired ten tank barges and seven tugboats from Bay Gulf Trading Company,Ltd. of Norfolk, Virginia and its affiliates. The addition of these vesselsrepresented a 10.6% increase in our aggregate barrel-carrying capacity at thetime of acquisition. The purchase price of $21 million (excludingacquisition-related costs), included a water treatment facility in Norfolk,Virginia. The transaction was financed using our available credit lines, andthe purchase price was allocated to the individual assets acquired based onindependent appraisals.

**DEFINITIONS**

In order to understandour discussion of our results of operations, it is important to understand themeaning of the following terms used in our analysis and the factors thatinfluence our results of operations:

·       *Voyage revenue.  *Voyage revenueincludes revenue from time charters, contracts of affreightment and voyagecharters, where we, as vessel operator, pay the vessel operating expenses.Voyage revenue is impacted by changes in charter and utilization rates and bythe mix of business among the types of contracts described in the precedingsentence.

·       *Voyage expenses.  *Voyage expensesinclude items such as fuel, port charges, pilot fees, tank cleaning costs andcanal tolls, which are unique to a particular voyage. Depending on the form ofcontract and customer preference, voyage expenses may be paid directly bycustomers or by us. If we pay voyage expenses, they are included in our resultsof operations when they are incurred. Typically when we pay voyage expenses, weadd them to our freight rates at an approximate cost.

·       *Net voyage revenue.  *Net voyagerevenue is equal to voyage revenue less voyage expenses. As explained above,the amount of voyage expenses we incur for a particular contract depends uponthe form of the contract. Therefore, in comparing revenues between reportingperiods, we use net voyage revenue to improve the comparability of reportedrevenues that are generated by the different forms of contracts. Since netvoyage revenue is a non-GAAP measurement, it is reconciled to the nearest GAAPmeasurement, voyage revenue, under “Results of Operations” below.

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·       *Bareboat charter and other revenue.  *Bareboatcharter and other revenue includes revenue from bareboat charters and fromtowing and other miscellaneous services.

·       *Vessel operating expenses.  *The mostsignificant direct vessel operating expenses are wages paid to vessel crews,routine maintenance and repairs and marine insurance. We may also incur outsidetowing expenses during periods of peak demand and in order to maintain ouroperating capacity while our tugs are drydocked or otherwise out of service forscheduled and unscheduled maintenance.

·       *Depreciation and amortization.  *Weincur fixed charges related to the depreciation of the historical cost of ourfleet and the amortization of expenditures for drydockings. The aggregatenumber of drydockings undertaken in a given period, the size of the vessels andthe nature of the work performed determine the level of drydockingexpenditures. We capitalize expenditures incurred for drydocking and amortizethese expenditures over 36 months.

·       *General and administrative expenses.  *Generaland administrative expenses consist of employment costs of shoreside staff andthe cost of facilities, as well as legal, audit, insurance and otheradministrative costs.

·       *Total tank vessel days.  *Total tankvessel days is equal to the number of calendar days in the period multiplied bythe total number of tank vessels operating or in drydock during that period.

·       *Scheduled drydocking days.  *Scheduleddrydocking days are days designated for the inspection and survey of tankvessels, and identification and completion of required refurbishment work, asrequired by the U.S. Coast Guard and the American Bureau of Shipping tomaintain the vessels’ qualification to work in the U.S. coastwise trade.Generally, drydockings are required twice every five years and last between 30and 60 days, based upon the size of the vessel and the type and extent ofwork required.

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

·       *Average daily rate.  *Average dailyrate, another key measure of our operating performance, is equal to the netvoyage revenue earned by a tank vessel or group of tank vessels during adefined period, divided by the total number of days actually worked by thattank vessel or group of tank vessels during that period. Fluctuations inaverage daily rates result not only from changes in charter rates charged toour customers, but also from changes in vessel utilization and efficiency,which could result from internal factors, such as newer and more efficient tankvessels, and from external factors such as weather or other delays.

·       *Coastwise and local trades.  *Ourbusiness is segregated into coastwise trade and local trade. Our coastwisetrade generally comprises voyages of between 200 and 1,000 miles by vesselswith greater than 40,000 barrels of barrel-carrying capacity. Thesevoyages originate from the middle Atlantic states to points as far north asCanada and as far south as Cape Hatteras and from points within the Gulf Coastregion to other points within that region or to the Northeast. We also own anon-Jones Act tank barge that transports petroleum products internationally.Our local trade generally comprises voyages by smaller vessels of less than 200miles. The term U.S. coastwise trade, as used generally for Jones Act purposes,would include our coastwise and local trades.

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**RESULTS OF OPERATIONS**

Thefollowing table summarizes our results of operations for the periods presented(dollars in thousands, except average daily rates):
| ** **                                              | ** ** | **For the Years Ended June 30,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                              | ** ** | **2005**                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| Voyage revenue                                          |       | $                                                         | 118,811    |   | $ | 93,899 |   | $ | 83,942 |   |
| Voyage expenses                                         |       | 24,220                                                    |       | 16,339 |   | 14,151 |   |
| **Net voyage revenue**                                  | ** ** | **94,591**                                                | ** ** | **77,560** | ** ** | **69,791** | ** ** |
| Bareboat charter  and other revenue                     |       | 2,583                                                     |       | 1,900 |   | 3,753 |   |
| Vessel operating  expenses                              |       | 49,296                                                    |       | 38,809 |   | 36,326 |   |
| *% of net voyage revenue*                               | * *   | *52.1*                                                    | *%*        | *50.0* | *%* | *52.0* | *%* |
| General and  administrative expenses                    |       | 11,163                                                    |       | 8,149 |   | 7,047 |   |
| *% of net voyage revenue*                               | * *   | *11.8*                                                    | *%*        | *10.5* | *%* | *10.1* | *%* |
| Depreciation and  amortization                          |       | 21,399                                                    |       | 18,643 |   | 16,293 |   |
| Net (gain) loss  on sale of vessels                     |       | (264                                                      | )          | 255 |   | (275 | ) |
| **Operating income**                                    | ** ** | **15,580**                                                | ** ** | **13,604** | ** ** | **14,153** | ** ** |
| *% of net voyage revenue*                               | * *   | *16.5*                                                    | *%*        | *17.5* | *%* | *20.3* | *%* |
| Interest expense,  net                                  |       | 5,949                                                     |       | 6,370 |   | 8,808 |   |
| Net loss on  reduction of debt                          |       | 1,359                                                     |       | 3,158 |   | 4 |   |
| Other (income)  expense, net                            |       | (27                                                       | )          | (253 | ) | 29 |   |
| **Income before provision (benefit) for income  taxes** | ** ** | **8,299**                                                 | ** ** | **4,329** | ** ** | **5,312** | ** ** |
| Provision  (benefit) for income taxes                   |       | 163                                                       |       | (16,845 | ) | 340 |   |
| **Net income**                                          | ** ** | **$**                                                     | **8,136**  | ** ** | **$** | **21,174** | ** ** | **$** | **4,972** | ** ** |
| **Net  voyage revenue by trade**                        |       |                                                      |       |   |   |   |   |
| **Coastwise**                                           |       |                                                      |       |   |   |   |   |
| Total tank vessel days                                  |       | 6,691                                                     |       | 6,055 |   | 5,390 |   |
| Days worked                                             |       | 6,035                                                     |       | 5,346 |   | 4,874 |   |
| Scheduled drydocking days                               |       | 142                                                       |       | 338 |   | 158 |   |
| Net utilization                                         |       | 90                                                        | %          | 88 | % | 90 | % |
| Average daily rate                                      |       | $                                                         | 11,369     |   | $ | 10,230 |   | $ | 9,844 |   |
| **Total coastwise net voyage revenue**                  | ** ** | **$**                                                     | **68,610** | ** ** | **$** | **54,689** | ** ** | **$** | **47,982** | ** ** |
| **Local**                                               |       |                                                      |       |   |   |   |   |
| Total tank vessel days                                  |       | 6,084                                                     |       | 5,032 |   | 5,391 |   |
| Days worked                                             |       | 4,795                                                     |       | 4,235 |   | 4,471 |   |
| Scheduled drydocking days                               |       | 263                                                       |       | 267 |   | 156 |   |
| Net utilization                                         |       | 79                                                        | %          | 84 | % | 83 | % |
| Average daily rate                                      |       | 5,418                                                     |       | $ | 5,400 |   | $ | 4,878 |   |
| **Total local net voyage revenue**                      | ** ** | **$**                                                     | **25,981** | ** ** | **$** | **22,871** | ** ** | **$** | **21,809** | ** ** |
| **Tank  vessel fleet**                                  |       |                                                      |       |   |   |   |   |
| Total tank vessel days                                  |       | 12,775                                                    |       | 11,087 |   | 10,781 |   |
| Days worked                                             |       | 10,830                                                    |       | 9,581 |   | 9,345 |   |
| Scheduled drydocking days                               |       | 405                                                       |       | 605 |   | 314 |   |
| Net utilization                                         |       | 85                                                        | %          | 86 | % | 87 | % |
| Average daily rate                                      |       | $                                                         | 8,734      |   | $ | 8,095 |   | $ | 7,468 |   |
| **Total  fleet net voyage revenue**                     | ** ** | **$**                                                     | **94,591** | ** ** | **$** | **77,560** | ** ** | **$** | **69,791** | ** ** |

 

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**FiscalYear Ended June 30, 2005 Compared to the Fiscal Year Ended June 30,2004**

***Net Voyage Revenue***

Voyage revenue was $118.8 million for the fiscal yearended June 30, 2005, an increase of $24.9 million, or 27%, ascompared to voyage revenue of $93.9 million for the fiscal year ended June 30,2004. Voyage expenses were $24.2 million for the fiscal year ended June 30,2005, an increase of $7.9 million, or 48%, as compared to voyage expensesof $16.3 million for the fiscal year ended June 30, 2004.

Net voyage revenue was $94.6 million for thefiscal year ended June 30, 2005, an increase of $17.0 million, or22%, as compared to net voyage revenue of $77.6 million for the fiscalyear ended June 30, 2004. In our coastwise trade, net voyage revenue was$68.6 million for the fiscal year ended June 30, 2005, an increase of$13.9 million, or 25%, as compared to $54.7 million for the fiscal year ended June 30,2004. Net utilization in our coastwise trade increased to 90% for the fiscalyear ended June 30, 2005 compared to 88% for the fiscal year ended June 30,2004, due mainly to a decrease in scheduled drydocking days. Increases totaling$13.2 million in coastwise net voyage revenue in fiscal 2005 resulted from anincrease in days worked by the following vessels during fiscal 2005 as comparedto fiscal 2004: (1) the DBL 102, which was placed in service in January 2004,(2) the DBL 140, which was purchased in January 2004, (3) theDBL 105, which completed its modification for petroleum transportation and wasplaced in service in May 2004, (4) the DBL 155, which completed itsdouble-hull retrofitting in September 2004, and (5) the return of theKTC 80 from bareboat charter in November 2003. These increases werepartially offset by an aggregate $4.2 million decrease in net voyage revenueduring fiscal 2005 resulting from the sale of the KTC 135 in April 2004 inanticipation of its OPA 90 phase-out, and the OPA 90 phase-out of the KTC 90and KTC 96 in December 2004. Coastwise net voyage revenue also benefitedfrom a 11% increase in average daily rates to $11,369 for the fiscal year endedJune 30, 2005 from $10,230 for the fiscal year ended June 30, 2004,which accounted for approximately $6.1 million of increased net voyage revenue.Average daily rates were positively impacted by the continuing strong demandfor petroleum products, increasing oil prices, and the addition of the severallarger vessels described above, which generate higher average daily rates.

Net voyage revenue in ourlocal trade for the fiscal year ended June 30, 2005 was $26.0 million, an increaseof $3.1 million, or 14%, as compared to $22.9 million for the fiscal year endedJune 30, 2004. The increase was mainly attributable to the barges acquiredas part of our December 2004 vessel acquisition, which accounted for $2.4million of the increase. Net utilization in our local trade was 79% for thefiscal year ended June 30, 2005 compared to 84% for the fiscal year ended June 30,2004. Net utilization in fiscal 2005 was adversely impacted by higherunscheduled repair days for one of our small tankers and by low utilization oncertain tank barges acquired in the December 2004 vessel acquisition. Averagedaily rates in our local trade improved slightly to $5,418 for the fiscal yearended June 30, 2005 from $5,400 for the fiscal year ended June 30,2004.

***Bareboat Charter and Other Revenue***

Bareboat charter and otherrevenue was $2.6 million for the fiscal year ended June 30, 2005, comparedto $1.9 million for the fiscal year ended June 30, 2004. Amounts for thefiscal 2005 period increased by $0.5 million due to revenue generated fromchartering out of a chartered-in barge.

***Vessel Operating Expenses***

Vessel operating expenseswere $49.3 million for the fiscal year ended June 30, 2005, an increase of$10.5 million, or 27%, as compared to $38.8 million for the fiscal year ended June 30,2004. Vessel operating expenses as a percentage of net voyage revenue increasedto 52.1% for the fiscal year ended June 30, 2005 from 50.0% for the fiscalyear ended June 30, 2004. Vessel labor and related costs increased 

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as aresult of contractual labor rate increases and a higher average number ofemployees due to the operation of the additional barges described under “—NetVoyage Revenue” above, an additional tugboat purchased in January 2004,and integration of the additional vessels purchased in December 2004. Insurancecosts and vessel repairs and supplies also increased as a result of theoperation of the larger number of vessels. Outside towing expense increased by$2.5 million due to the need for additional tugboats to satisfy increaseddemand for our tank vessels, and to replace certain of our tugboats duringcoupling and re-powering projects. Fiscal 2005 vessel operating expenses alsoincreased by $0.4 million for charter costs in connection with the bareboatcharter revenue discussed above in “—Bareboat Charter and Other Revenue.”

***Depreciation and Amortization***

Depreciation andamortization was $21.4 million for the fiscal year ended June 30, 2005, anincrease of $2.8 million, or 15%, as compared to $18.6 million for the fiscalyear ended June 30, 2004. The increase resulted from additionaldepreciation on our newbuild and purchased vessels described above, plusadditional depreciation recorded in the first quarter of fiscal 2005 to reducethe salvage value for the two single-hull vessels which phased out on December 31,2004.

***General and Administrative Expenses***

General and administrativeexpenses were $11.2 million for the fiscal year ended June 30, 2005, an increaseof $3.1 million, or 38%, as compared to general and administrative expenses of$8.1 million for the fiscal year ended June 30, 2004. As a percentage ofnet voyage revenue, general and administrative expenses increased to 11.8% forthe fiscal year ended June 30, 2005 from 10.5% for the fiscal year ended June 30,2004. The fiscal year ended June 30, 2005 included $1.9 million ofadditional professional fees and other costs incurred in connection with beinga public company. These increased professional fees included $0.6 million incosts for compliance with the Sarbanes-Oxley Act of 2002, and $0.4 million ofcosts incurred in fiscal 2005 to provide income tax compliance information toour unitholders, neither of which were incurred in the prior year’s period.

***Interest Expense, Net***

Net interest expense was$5.9 million for the fiscal year ended June 30, 2005, $0.5 million lowerthan the fiscal year ended June 30, 2004. The decrease resulted from thesignificant reduction of higher cost borrowings in connection with therepayment of debt using the proceeds of our initial public offering in January 2004.

***Loss on Reduction of Debt***

In connection with the refinancing of our revolvingcredit facility and repayment of certain term loans in March 2005 asdescribed below in “Liquidity and Capital Resources—Credit Agreement” and “—OtherTerm Loans,” we incurred $1.4 million in loss on reduction of debt. Included inthis amount was $1.1 million in deferred financing costs related to the repaiddebt that were written off, and $0.3 million of prepayment costs.

In connection with ourinitial public offering in fiscal 2004, $73.9 million in predecessorcompany debt was repaid. Included in this amount was $6.3 million inprepayment and make-whole amounts, of which $3.3 million had previouslybeen accrued by our predecessor as supplemental interest that would have beenpayable upon maturity of certain of these loans, resulting in a loss onprepayment of $3.0 million. In addition, $0.2 million in deferredfinancing costs related to the debt was also written off.

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***Provision (Benefit) For Income Taxes***

For fiscal 2005, our effective tax rate was 2.0%, ascompared to 16.5% (exclusive of the benefit discussed in the followingparagraph) in fiscal 2004. The periods prior to our initial public offering on January 14,2004 relate to our predecessor. Our effective tax rate comprises the New YorkCity Unincorporated Business Tax on our operating partnership, plus federal,state, local and foreign corporate income taxes on the taxable income of theoperating partnership’s corporate subsidiaries. Our effective tax rate for thefiscal year ended June 30, 2005 was lower than the rate for the fiscalyear ended June 30, 2004 because a smaller portion of our pretax incomewas provided by our operating partnership’s corporate subsidiaries.

Certain net assetscontributed to us in connection with our January 2004 initial publicoffering were transferred by our predecessor’s corporate subsidiaries. Thesenet assets had tax bases that were lower than their carrying value forfinancial reporting purposes, which resulted in deferred tax liabilitiesrelating to these temporary differences. Upon transfer to us, the futurereversal of these differences will be subject to our effective tax rate, whichis significantly lower than the effective tax rate of our predecessor’scorporate subsidiaries. The effect of the change in tax rates applicable tothese differences is reflected as a one-time deferred tax benefit of $17.6million for the fiscal year ended June 30, 2004.

***Net Income***

Net income was $8.1million for the fiscal year ended June 30, 2005, a decrease of $13.1million compared to net income of $21.2 million for the fiscal year ended June 30,2004. The decrease resulted primarily from recognition in the 2004 period ofthe $17.6 million deferred tax benefit described in the preceding paragraph,partially offset by a $0.5 million decrease in interest expense, net, a $1.8million decrease in loss on reduction of debt, and a $2.0 million increase inoperating income.

**FiscalYear Ended June 30, 2004 Compared to the Fiscal Year Ended June 30,2003**

***Net Voyage Revenue***

Voyage revenue was $93.9 million for the fiscalyear ended June 30, 2004, an increase of $10.0 million, or 12%, ascompared to voyage revenue of $83.9 million for the fiscal year ended June 30,2003. Voyage expenses were $16.3 million for the fiscal year ended June 30,2004, an increase of $2.1 million, or 15%, as compared to voyage expensesof $14.2 million for the fiscal year ended June 30, 2003.

Net voyage revenue was $77.6 million for thefiscal year ended June 30, 2004, an increase of $7.8 million, or 11%,as compared to net voyage revenue of $69.8 million for the fiscal yearended June 30, 2003. Our coastwise trade net voyage revenue increased by approximately$6.7 million. This increase is primarily due to the addition of two newvessels, the DBL 82 and DBL 102, which were delivered in June 2003 and January 2004,respectively, the acquisition of the DBL 140 in January 2004, and thedelivery, after modification, of the DBL 105 in May 2004. These vesseladditions were partially offset by the phase-out, as required under OPA 90, ofthe single-hull vessels KTC 115 and KTC 135. Coastwise vessel utilizationdecreased from 90% in fiscal 2003 to 88% in fiscal 2004 due to an increase inscheduled drydocking days. Coastwise average daily rates increased 4%, to$10,230 from $9,844 in fiscal 2003; these average daily rates benefited fromthe addition of larger vessels, including the DBL 140 and DBL 105 describedabove.

Net voyage revenue in ourlocal trade increased by $1.1 million, or 5%, in fiscal 2004 compared tofiscal 2003. Net utilization in our local trade improved to 84% in fiscal 2004from 83% in fiscal 2003. Average daily rates in our local trade improved 11% to$5,400 per day for fiscal 2004 from $4,878 per day for the prior year,reflecting higher rates for short-term work with a customer in the northeasternUnited States, and by higher bunkering rates.

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***Bareboat Charter and Other Revenue***

Bareboat charter and otherrevenue was $1.9 million in fiscal 2004, a decrease of $1.9 million,or 50%, as compared to $3.8 million in fiscal 2003. Fiscal 2003 included$1.2 million in revenue recorded from chartering out a chartered-in barge.Also, two vessels were returned from bareboat charter in fiscal 2004 foroperation by us, reducing bareboat charter revenue by $0.6 millioncompared to fiscal 2003.

***Vessel Operating Expenses***

Vessel operating expenseswere $38.8 million for the fiscal year ended June 30, 2004, an increaseof $2.5 million, or 7%, as compared to vessel operating expenses of$36.3 million for fiscal 2003. Vessel operating expenses as a percentageof net voyage revenue decreased to 50.0% for fiscal 2004 from 52.0% for fiscal2003. Vessel labor and related costs increased $2.2 million as a result ofa scheduled contractual wage increase for our unionized employees and a higheraverage number of vessel employees due to the operation of two additionaltugboats, which were purchased in May 2003 and January 2004.Operation of these additional tugboats also resulted in increased insurance,routine maintenance and other operating costs. Fiscal 2003 costs were increasedby $0.9 million in charter costs in connection with the bareboat charterrevenue discussed above.

***Depreciation and Amortization***

Depreciation andamortization was $18.6 million for the fiscal year ended June 30,2004, an increase of $2.3 million, or 14%, as compared to$16.3 million recorded in fiscal 2003. New vessel additions, net ofretirements, added $2.0 million in depreciation, while amortization ofdrydocking expenditures increased $0.3 million. Drydocking expendituresare amortized over 36 months.

***General and Administrative Expenses***

General and administrativeexpenses were $8.1 million for fiscal 2004, an increase of$1.1 million, or 16%, as compared to general and administrative expensesof $7.0 million for fiscal 2003. This increase resulted primarily fromadditional professional fees, insurance and other costs of $0.6 millionincurred in connection with being a public company which were not incurred inthe prior year. As a percentage of net voyage revenue, general andadministrative expenses increased to 10.5% in fiscal 2004 from 10.1% infiscal 2003.

***Interest Expense, Net***

Interest expense, net was$6.4 million in fiscal 2004, a decrease of $2.4 million, or 28%, ascompared to $8.8 million in fiscal 2003. This decrease resulted from thesignificant repayment of debt using the proceeds of our initial public offeringin January 2004. Additionally, a portion of both the pre- and post-IPOdebt expense resulted from debt bearing interest at a floating rate tied to30-day LIBOR, which averaged 1.1% for fiscal 2004 compared to 1.5% for fiscal2003.

***Loss on Reduction of Debt***

In connection with theinitial public offering, $73.9 million in predecessor company debt wasrepaid. Included in this amount was $6.3 million in prepayment andmake-whole amounts, of which $3.3 million had previously been accrued byour predecessor as supplemental interest that would have been payable uponmaturity of certain of these loans, resulting in a loss on prepayment of$3.0 million. In addition, $0.2 million in deferred financing costsrelated to the debt was also written off.

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***Provision (Benefit) For Income Taxes***

For fiscal 2004, our effective tax rate was 16.5%,exclusive of the benefit discussed in the following paragraph, as compared to6.4% in fiscal 2003. The periods prior to our initial public offering on January 14,2004 relate to our predecessor. Our effective tax rate comprises the New YorkCity Unincorporated Business Tax on our operating partnership, plus federal,state and local corporate income taxes on the taxable income of the operatingpartnership’s corporate subsidiary.

Certain net assetscontributed to us were transferred by our predecessor’s corporate subsidiaries.These net assets had tax bases that were lower than their carrying values forfinancial reporting purposes, which resulted in deferred tax liabilitiesrelating to these temporary differences. Upon transfer to us, the futurereversal of these differences will be subject to our effective tax rate, whichis significantly lower than the effective tax rate of our predecessor’scorporate subsidiaries. The effect of the change in tax rates applicable to thesedifferences is reflected as a deferred tax benefit of $17.6 million infiscal 2004.

***Net Income***

Net income was$21.2 million for fiscal 2004, an increase of $16.2 million comparedto $5.0 million in fiscal 2003. This increase resulted from the$17.6 million deferred tax benefit discussed in the preceding paragraph,the increased net voyage revenue of $7.8 million, and the decrease ininterest expense, net of $2.4 million, offset by the $3.2 millionloss on reduction of debt, increased operating expenses of $2.5 million,increased depreciation and amortization of $2.3 million, increased generaland administrative expenses of $1.1 million, and the decrease in bareboatcharter and other revenue of $1.9 million.

**LIQUIDITY AND CAPITAL RESOURCES**

*Operating Cash Flows.  *Netcash provided by operating activities was $24.4 million in fiscal 2005,$17.8 million in fiscal 2004 and $13.2 million in fiscal 2003. Theincrease of $6.6 million in fiscal 2005, compared to fiscal 2004, resultedprimarily from the improved operating results, after adjusting for non-cashexpenses such as depreciation and amortization, and a $3.0 million positiveimpact from changes in operating working capital. This positive impact resultedmainly from increased accounts payable due to increased operating costs of alarger fleet, partially offset by increases in prepaid expenses such as fuelsupplies and insurance premiums. The increase of $4.6 million in fiscal 2004,compared to fiscal 2003, resulted primarily from increased net voyage revenue,partially offset by increases in vessel operating and general andadministrative expenses. The improved revenue in fiscal 2004 also resulted inan increase in accounts receivable, which provided an offsetting reduction incash provided by operating activities.

*Investing Cash Flows.  *Netcash used in investing activities totaled $55.9 million in fiscal 2005,$59.2 million in fiscal 2004 and $0.2 million in fiscal 2003. Theprimary elements of these activities were vessel acquisitions, construction ofnew vessels and retrofitting of existing ones, and the drawdown of Title XIescrow funds during the vessel construction period. We spent$30.7 million, $34.1 million and $3.5 million on vesselacquisitions in fiscal 2005, 2004 and 2003, respectively. The fiscal 2005acquisitions included the vessels acquired in December 2004 and the DBL78, which was acquired in June 2005. Construction expenditures for ourtank vessel newbuilding program and rebuilding projects totaled$16.8 million in fiscal 2005, $26.5 million in fiscal 2004 and$18.7 million in fiscal 2003. Other capital expenditures of$9.0 million in fiscal 2005, $9.5 million in fiscal 2004 and$5.2 million in fiscal 2003 related primarily to repowering of, andinstallation of coupling systems on, certain tugboats, and expenditures relatedto upgrading the vessels acquired in December 2004. Capital expendituresmade in the normal course of business are generally financed by cash fromoperations and, where necessary, borrowings under our revolving creditagreement.

In fiscal 2002, we invested the net proceeds of$39.1 million from our Title XI borrowings in short-term U.S.government obligations. These proceeds were held in escrow and then drawn downby us 

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upon delivery of the fourtank barges being financed and used to repay construction period borrowingsmade under our revolving credit agreement. We made $10.7 million and$26.8 million of such drawdowns from our Title XI escrow account in fiscal2004 and fiscal 2003, respectively. The fourth and final tank vessel in thisnewbuilding program was delivered in January 2004. The final$1.5 million of escrow funds were left on deposit and are available to theMaritime Administration of the U.S. Department of Administration (“MARAD”) inconnection with the restructuring of our financial agreement for the Title XIbonds at the time of our initial public offering. Under this agreement, we arerequired to make monthly reserve fund deposits which are used to makesemi-annual debt service payments. Such deposits, which are reflected in netcash provided by financing activities, were $4.0 million and $1.7 million forfiscal 2005 and fiscal 2004, respectively. For more information, please read “—TitleXI Borrowings” below.

*Financing Cash Flows.  *Netcash provided by financing activities was $31.2 million in fiscal 2005 and$41.7 million in fiscal 2004; net cash used in financing activities was$13.0 million in fiscal 2003.

During fiscal 2005, we increased our credit lineborrowings and term loans by a net of $39.2 million, primarily to financevessel acquisitions. We also paid $18.2 million in distributions to ourunitholders in fiscal 2005. In March 2005, we signed a new five-year $80.0million credit agreement with a syndicate of banks. See “—Credit Agreement”below. The new credit agreement replaced our then-existing $47.0 million creditagreement, which was repaid and terminated. On June 1, 2005, we issued andsold 500,000 common units in a private placement for gross proceeds of $16.0million.

During fiscal 2004, we completed our initial publicoffering and used the gross proceeds thereof to pay down term loans and creditline borrowings, including prepayment costs, that had been contributed to us byour predecessor, to pay underwriting fees, professional fees and other offeringexpenses, and to redeem the 665,000 common units received by our predecessor inconnection with the transfer of net assets to us concurrent with the initialpublic offering. Also in fiscal 2004, we entered into $36.0 million of newterm loans to finance the purchase of the DBL 140/Lincoln Sea and the DBL 105rebuilding project. Finally, we paid $3.7 million in distributions topartners in fiscal 2004. In fiscal 2003, we repaid $9.8 million of termloans and $2.0 million of credit line borrowings and paid$1.5 million in financing costs, primarily attributable to our initialpublic offering.

*Oil Pollution Act of 1990.  *Tankvessels are subject to the requirements of OPA 90. OPA 90 mandates that allsingle-hull tank vessels operating in U.S. waters be removed from petroleum andpetroleum product transportation services at various times through January 1,2015, and provides a schedule for the phase-out of the single-hull vesselsbased on their age and size. One single-hull vessel, renamed the DBL 155,was retrofitted to double-hull and redelivered to us in September 2004. Toreplace the operating capacity of four single-hull vessels that phased out atvarying times from December 2002 to December 2004, we entered into acontract with Bollinger Gretna, L.L.C. in March 2001 for the constructionof four double-hull tank barges to be built over three years. The aggregatecost of these four vessels, which have all been delivered, was approximately$46.2 million, including financing and other costs and certain specialequipment. These new tank barges were coupled with tugboats we own, using anarticulated connection system, to create integrated tug-barge units thatprovide increased operating efficiency and enhanced safety and reliability. Wefinanced the purchase of the four new tank vessels through the issuance ofTitle XI bonds described below under “—Title XI Borrowings.” At June 30,2005, approximately 72% of the barrel-carrying capacity of our tankvessel fleet was double-hulled in compliance with OPA 90, and theremainder will be in compliance with OPA 90 until January 2015.

*OngoingCapital Expenditures.  *Marine transportation of refinedpetroleum products is a capital intensive business, requiring significantinvestment to maintain an efficient fleet and to stay in regulatory compliance.We estimate that, over the next five years, we will spend an average ofapproximately $11.5 million per year to drydock and maintain our tankvessels’ operating capacity. We expect such expenditures to approximate$10.7 million in fiscal 2006. In addition, we anticipate that we willspend 

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$0.5 million annually for other general capitalexpenditures. Periodically, we also make expenditures to acquire or constructadditional tank vessel capacity and/or to upgrade our overall fleet efficiency.For a further discussion of maintenance and expansion capital expenditures,please read footnote 3 to the table in “Selected Financial Data” in Item 6 ofthis report. The following table summarizes total maintenance capitalexpenditures, including drydocking expenditures, and expansion capitalexpenditures for the periods presented (in thousands):
| ** **                                                      | ** ** | **Years Ended June 30,** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                      | ** ** | **2005**                                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Maintenance  capital expenditures                               |       | $                                       | 8,024      |   | $ | 7,957 |   | $ | 8,389 |   |
| Expansion capital  expenditures (including vessel acquisitions) |       | 39,337                                  |       | 52,747 |   | 7,814 |   |
| **Total capital expenditures**                                  | ** ** | **$**                                   | **47,361** | ** ** | **$** | **60,704** | ** ** | **$** | **16,203** | ** ** |
| Construction of tank  vessels                                   | ** ** | **$**                                   | **16,816** | ** ** | **$** | **16,512** | ** ** | **$** | **18,703** | ** ** |

 

In September 2004, we signed an agreement with ashipyard to construct a new 100,000-barrel tank barge, which is expected to bedelivered during the fall of 2005. The total cost, after addition of certainspecial equipment and integration with an existing tugboat, is expected to bein the range of $13.0 to $14.0 million. We also signed an agreement withthe same shipyard in February 2005 to construct two new 28,000-barrel tankbarges that are expected to be delivered during the first calendar quarter of2006 and which are expected to cost, in the aggregate and after the addition ofcertain special equipment, in the range of $9.0 to $10.0 million. In August 2005,we signed another agreement with that shipyard to construct another new28,000-barrel tank barge that we expect will be delivered in the summer of 2006and which is expected to cost, after the addition of certain special equipment,in the range of $4.5 to $5.0 million. We expect to finance thesenewbuildings from borrowings and cash from operations.

Additionally, we intend to retire or retrofit 22single-hull tank vessels by December 2014, which at June 30, 2005represented approximately 28% of our barrel-carrying capacity. We estimate thatthe current cost to replace this capacity with newbuildings and by retrofittingcertain of our existing vessels would range from $58.0 million to $66.0 million.This capacity can also be replaced by acquiring existing double-hull tankvessels as opportunities arise. We are currently evaluating the mostcost-effective means to replace this capacity.

*Liquidity Needs.  *Ourprimary short-term liquidity needs are to fund general working capitalrequirements, distributions to unitholders, and drydocking expenditures whileour long term liquidity needs are primarily associated with expansion and othermaintenance capital expenditures. Expansion capital expenditures are primarilyfor the purchase of vessels, while maintenance capital expenditures includedrydocking expenditures and the cost of replacing tank vessel operatingcapacity. Our primary sources of funds for our short term liquidity needs arecash flows from operations and borrowings under our credit facility, while ourlong term sources of funds are cash from operations, long term bank borrowingsand other debt or equity financings.

We believe that cash flows from operations andborrowings under our credit agreement, described under “—Credit Agreement”below, will be sufficient to meet our liquidity needs for the next 12 months.

*Credit Agreement*.   In March 2005,we entered into a new five-year $80.0 million revolving credit agreement with asyndicate of banks. The new credit agreement replaced our then-existing $47.0million revolving credit agreement, which was repaid and terminated. The newcredit agreement contains a $20.0 million sublimit for letters of credit andallows us to request an increase in the total availability under the new creditagreement by up to $20.0 million, to a maximum of $100.0 million, so long as nodefault or event of default has occurred and is continuing.

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Obligationsunder the new credit agreement are secured by a first priority securityinterest, subject to permitted liens, on certain of our vessels having anorderly liquidation value at least equal to the greater of (a) $50.0million and (b) 1.25 times the amount of the obligations (includingletters of credit) outstanding under the new credit agreement. Interest rateson outstanding borrowings and commitment fees are determined quarterly basedupon the ratio of Total Funded Debt (as defined in the new credit agreement) toEBITDA (as defined in the new credit agreement) and are determined according towhether the loan is based on the London interbank offered rate (a LIBOR-basedloan) or onarate per annum equal to the greater of (a) the bank’s prime rate, or (b) 0.50%in excess of the federal funds effective rate (a base rate loan). The followingtable summarizes the rates of interest and commitment fees under the new creditagreement:
| **Ratio of Total Funded Debt to EBITDA** | ** ** | ** ** | ** ** | **LIBOR  Margin** | ** ** | **Base Rate  Margin** | ** ** | **Commitment  Fee** | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|-------------------|------------|----------------------------|------------|---------------------|------------|
| Less than 1.75 :  1.00                                                 |       |       | 1.00       | %                 |       |                       | 0.00       | %                   |       |   | 0.175 | % |   |
| Greater than or equal to 1.75 : 1.00 and less than  2.25 : 1.00        |       |       | 1.25       | %                 |       |                       | 0.00       | %                   |       |   | 0.200 | % |   |
| Greater than or equal to 2.25 : 1.00 and less than  2.75 : 1.00        |       |       | 1.50       | %                 |       |                       | 0.00       | %                   |       |   | 0.225 | % |   |
| Greater than or equal to 2.75 : 1.00 and less than  3.25 : 1.00        |       |       | 1.75       | %                 |       |                       | 0.00       | %                   |       |   | 0.250 | % |   |
| Greater than or  equal to 3.25 : 1.00                                  |       |       | 2.00       | %                 |       |                       | 0.25       | %                   |       |   | 0.375 | % |   |

 

Interest on a base rate loan is payable monthly overthe five-year term of the agreement. Interest on a LIBOR-based loan is due, atour election, one, two, three or six months after such loan is made. Outstandingprincipal amounts are due upon termination of the agreement.

Loan proceeds under the new credit agreement may beused for any purpose in the ordinary course of business, including vesselacquisitions, ongoing working capital needs and distributions. Amounts borrowedand repaid may be re-borrowed. Borrowings made for working capital purposesmust be reduced to zero for a period of at least 15 consecutive days once eachyear.

The new creditagreement contains covenants that are similar to, but generally more favorablethan, the prior revolving credit agreement. These covenants include, amongothers:

·       themaintenance of the following financial ratios (all as defined in the new creditagreement): (a) fixed charges to EBITDA of at least 2.50 to 1:00, (b) totalfunded debt to tangible capitalization of no greater than 0.60 to 1.00, and (c) totalfunded debt to EBITDA of no more than 3.75 to 1.00.

·       restrictionson creating liens on or disposing of the vessels securing the new creditagreement, subject to permitted exceptions;

·       restrictionson merging and selling assets outside the ordinary course of business;

·       prohibitionson making distributions to limited or general partners of ours during thecontinuance of an event of default; and

·       restrictionson transactions with affiliates and materially changing our business.

The new credit agreement contains customary events ofdefault. If a default occurs and is continuing, we must repay all amountsoutstanding thereunder.

Borrowings outstanding under the new credit agreementas of June 30, 2005 were $47.1 million. We have also utilized $6.5 millionin a stand-by letter of credit under the credit facility as collateral inconnection with security granted to MARAD pursuant to the financial agreementsgoverning our Title XI borrowings. For more information, please read “—Title XIBorrowings” below.

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*Other Term Loans.  *InMarch 2005, we entered into a new, three-year term loan in the amount of$11.7 million to refinance an existing loan. Our obligations under thisagreement are secured by a first priority security interest in three vessels. Wehave assigned to the lender all proceeds from the charters, hires, andcontracts of affreightment, as well as the proceeds of any insurance payments,with respect to the pledged vessels. The loan is repayable in monthly principalinstallments of $69,578, with the remaining principal amount repayable atmaturity, plus accrued interest at an annual fixed rate of 6.25%. The loanagreement contains events of default and covenants that are customary forfacilities of this type.

Also in March 2005, we also entered into anagreement to borrow up to $11.0 million to partially finance construction ofthe new 100,000-barrel tank barge described above in “—Ongoing CapitalExpenditures.” The loan bears interest at 30-day LIBOR plus 1.05%;interest only is payable monthly through the earlier of October 31, 2005or delivery of the tank barge. Thereafter, monthly principal payments ofprincipal, plus accrued interest, are payable over seven years, with theremaining principal amount payable at maturity. The loan is collateralized bythe related tank barge. Borrowings outstanding on this loan totaled $6.4million at June 30, 2005.

In June 2005, we entered into an agreement toborrow up to $18.0 million to finance the purchase of the 80,000-barreldouble-hull tank barge acquired in June 2005 and to partially financeconstruction of the new 28,000-barrel tank barges described above in “—OngoingCapital Expenditures.” The loan bears interest at 30-day LIBOR plus 1.60% forthe interim financing period, which is the earlier of April 30, 2006 orthe delivery of the two 28,000-barrel barges, and 30-day LIBOR plus 1.75%thereafter. Interest only is payable monthly through the interim financingperiod. Thereafter, monthly payments of principal, plus accrued interest, arepayable over seven years, with the remaining principal amount payable atmaturity. We have the option, after the first anniversary date of the note, toconvert to a fixed interest rate. The loan is collateralized by the relatedtank barges. Borrowings outstanding on this loan totaled $11.6 million atJune 30, 2005.

To finance the January 2004 acquisition of a140,000-barrel capacity double-hull tank barge and related tugboat, we enteredinto a seven-year, $25.0 million term loan. To finance the rebuilding ofthe DBL 105 and the retrofitting of the DBL 155, we entered into an agreementwith a financial institution in May 2004 to provide $20.0 million ofterm loans to permanently finance these vessels upon completion of therespective projects. These term loans were repaid upon closing of the newcredit agreement and new term loan as described above.

*Title XI Borrowings.  *Toprovide permanent financing for the four tank vessels built under our recentlycompleted newbuilding program, we applied for and received from the MaritimeAdministration of the U.S. Department of Transportation, or MARAD, a guaranteeof obligations for mortgage financing pursuant to Title XI of the MerchantMarine Act of 1936. Under this program, the long-term financing for these fournew tank vessels is guaranteed by the full faith and credit of the UnitedStates of America, which is collateralized by the tank vessels beingconstructed and certain other agreements. The guarantee amount of$40.4 million is equal to 87.5% of the MARAD-approved cost ofconstruction of the four tank vessels, which includes qualifying financingcosts. We refer to our obligations relating to this financing as our “Title XIborrowings.”

On June 7, 2002, we privately placed$40.4 million of bonds (“Title XI bonds”), which were guaranteed by MARAD.The proceeds of $39.1 million, net of certain closing fees, were depositedin an escrow account with the U.S. Department of the Treasury and were investedin U.S. government obligations. The bonds were issued in four series and bearinterest at a weighted average fixed rate of 6.2% per year. Each series isrepayable over 25 years beginning six months after the delivery date ofthe related tank vessel.

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On July 26, 2002, February 5, 2003, June 27,2003, and January 16, 2004, respectively, the delivery dates of the fourtank barges, we drew down the portion of the escrow account relating to theparticular vessel. Principal repayment of these bonds, excluding interest, willtotal $1.6 million for fiscal 2005 and for each fiscal year thereafter untilthe debt is repaid.

The agreements with MARAD governing the Title XIborrowing guarantees are collateralized by a first priority security interest,subject to permitted liens, on the four Title XI vessels. In addition,throughout the term of the Title XI bonds, we will cause additional funds inthe aggregate sum of $8.0 million to be made available to the U.S. Secretary ofTransportation (the “Secretary”) in the form of one or more letters of creditand/or additional cash deposits ($1.5 million minimum for cash deposits) to theescrow account that we maintain pursuant to the terms of the Title XIagreements. We are obligated under the financial agreement with MARAD to escrowon a monthly basis one-sixth of the next semi-annual debt service payment duefor each series of the Title XI bonds, which deposits are used to make suchsemi-annual payments. We have also granted MARAD first priority securityinterests in additional vessels having an orderly liquidation value of $10.0million.

The financialagreements relating to the Title XI bonds enable us to make distributions ofour available cash in accordance with the terms of our partnership agreement,except under any of the following circumstances, in which case distributionswould require the written consent of the Secretary:

·       failureto pay any principal, interest, fees, expenses or other amounts on the Title XIbonds or related obligations when due;

·       failureto observe any agreement, security instrument, obligation, representation,warranty or covenant included in the agreements with respect to the Title XIbonds;

·       bankruptcyor insolvency events involving us, the operating partnership or any of oursubsidiaries; or

·       exceeding$5.0 million in indebtedness incurred for the purpose of makingdistributions or indemnity payments to our predecessor and certain of itsaffiliates.

The Title XIfinancial agreements also contain various covenants that generally prohibit us,without the Secretary’s written consent, from engaging in any of the followingactivities:

·       enteringinto any agreements with third parties to manage the Title XI vessels;

·       selling,mortgaging, transferring, leasing or demise chartering the Title XI vessels tothird parties;

·       enteringinto sale/leaseback transactions that do not result in sale proceeds at leastequal to the fair value of the property sold;

·       guaranteeingthe obligations of other persons;

·       embarkingon any new business not related to our current business;

·       makingcertain indemnity payments; and

·       subjectto certain exceptions, merging, consolidating or conveying any portion of ourproperties or assets and dissolving our partnership.

In addition, unless(a) we maintain a consolidated fixed charge coverage ratio (as defined inthe financial agreements) of at least 3.0 to 1.0, (b) after giving effectto a transaction or transactions, our consolidated net worth exceeds ourconsolidated long-term debt, and (c) after giving effect to a transactionor transactions, our consolidated net worth is at least initially$90.0 million (or in any fiscal year after our 2004 fiscal year, is atleast 90% of our consolidated net worth as of the last day of the immediately 

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precedingfiscal year but shall not be lower than $90.0 million), we will not beallowed, without the Secretary’s written consent, to:

·       withdrawany capital;

·       redeemany partnership interest or convert any of the same into debt;

·       exceptas described above, make any distribution respecting any partnership interest;

·       makeany investments in the securities of any related party;

·       makeany loan or advance to, or prepay any indebtedness to:

·        anyshareholder or partner of K-Sea Transportation Partners L.P., K-Sea OperatingPartnership L.P. or any of their respective consolidated subsidiaries;

·        anydirector, officer or employee of K-Sea Transportation Partners L.P., K-SeaOperating Partnership L.P., any of their respective consolidated subsidiariesor any related party; or

·        anyrelated party;

·       grantcompensation increases to employees earning more than certain defined amounts,acquire any fixed assets other than those required for the maintenance of ourexisting assets, or make any new investments in other than obligations of theUnited States;

·       eitherenter into or become liable (directly or indirectly) under charters and leases(having a term of six months or more) which have annual payments aggregating inexcess of $0.5 million;

·       payany indebtedness subordinated to the Title XI bonds;

·       incurany new indebtedness, except current liabilities, short-term loans or loansunder our revolving credit lines incurred in the ordinary course of business;or

·       permitany new mortgages or liens on any of our property or assets, subject to certainexceptions.

*Restrictive Covenants.  *Theagreements governing our $80.0 million credit facility, Title XI borrowings andterm loans contain restrictive covenants that, among others, (a) prohibitdistributions under defined events of default, (b) restrict investmentsand sales of assets, and (c) require us to adhere to certain financialcovenants, including defined ratios of fixed charge coverage and funded debt toEBITDA (earnings before interest, taxes, depreciation and amortization, asdefined), and a minimum balance of partners’ capital.

Under the terms of the credit facility and the termloans, we are prevented from declaring distributions if any event of default,as defined, occurs or would result from such declaration. The financialagreements relating to the Title XI bonds enable us to make distributions ofour available cash in accordance with the terms of our partnership agreement,except under certain defined circumstances in which case distributions wouldrequire the written consent of the Secretary.

*Private Placement of Common Units.  *OnJune 1, 2005, we issued and sold 500,000 common units to Tortoise in aprivate placement for proceeds of $16.0 million, before expenses associatedwith the offering. The offer and sale of the common units was made pursuant toan exemption from registration under section 4(2) of the Securities Act of1933, as amended. Tortoise has agreed not to sell any of the common units untilDecember 1, 2005.

In connection with its purchase of common units, weentered into a registration rights agreement with Tortoise. Pursuant to thisagreement, we filed a shelf registration statement on August 30, 2005 forthe resale of the common units, and we have agreed to use commerciallyreasonable efforts to cause the shelf registration statement to be declaredeffective by the Securities and Exchange Commission by January 27, 

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2006. In addition, wegranted Tortoise certain “piggyback” registration rights in the registrationrights agreement.

We used the net proceeds to repay indebtednessincurred under our revolving credit facility in connection with our December 2004vessel acquisition.

*Contractual Obligations andContingencies.  *Our contractual obligations at June 30,2005 consisted of the following (in thousands):

**Payments Due byPeriod**
| ** **                   | ** ** | **Total** | ** **  | **Less than  1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5  Years** | ** ** |
|------------------------------|------------|-----------|-------------|---------------------------------|------------|--------------------|------------|--------------------|------------|-------------------------|------------|
| Long-term debt  obligations  |       | $         | 114,005     |                            |       | $                  | 2,897      |               |       | $                       | 16,465     |   | $ | 52,920 |   | $ | 41,723 |   |
| Operating lease  obligations |       | 2,658     |        |                            | 650        |               |       | 1,300              |       | 708                     |       | — |   |
| Purchase obligations(1)      |       | 10,131    |        |                            | 10,131     |               |       | —             |       | —                  |       | — |   |
|                         | ** ** | **$**     | **126,794** | ** **                      | ** ** | **$**              | **13,678** |               | ** ** | **$**                   | **17,765** | ** ** | **$** | **53,628** | ** ** | **$** | **41,723** | ** ** |

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(1)          Capital expendituresrelating to shipyard payments for the construction of a new 100,000-barreldouble-hull tank barge and two new 28,000-barrel double-hull tank barges.

The executive officers of K-Sea General Partner GP LLChave entered into employment agreements with K-Sea Transportation Inc., ourindirect wholly owned corporate subsidiary. Each of the employment agreementshad an initial term of one year. The term of each employment agreement isautomatically extended for successive one-year terms unless either party gives30 days written notice prior to the end of the term that such partydesires not to renew the employment agreement. The employment agreementscurrently provide for an aggregate base annual salary of $710,000. In addition,each employee is eligible to receive an annual bonus award based upon ourconsolidated financial performance. If the employee’s employment is terminatedwithout cause or if the employee resigns for good reason, the employee will beentitled to severance in an amount equal to the greater of (a) the productof 1.3125 (1.75 multiplied by .75) multiplied by the employee’s base salary atthe time of termination or resignation and (b) the product of 1.75multiplied by the remaining term of the employee’s non-competition provisionsmultiplied by the employee’s base salary at the time of termination orresignation.

We are a party to various claims and lawsuits in theordinary course of business for monetary relief arising principally frompersonal injuries, collision or other casualty and to claims arising undervessel charters. All of these personal injury, collision and casualty claimsare fully covered by insurance, subject to deductibles ranging from $25,000 to$100,000. We accrue on a current basis for estimated deductibles we expect topay.

EW Transportation LLC and its predecessors have beennamed, together with a large number of other companies, as co-defendants in 39civil actions by various parties, including former employees, allegingunspecified damages from past exposure to asbestos and second-hand smoke aboardsome of the vessels that it contributed to us in connection with our initialpublic offering. EW Transportation LLC and its predecessors have been dismissedfrom 38 of these lawsuits for an aggregate sum of approximately $47,000 and areseeking to settle the other case. We may be subject to litigation in the futureinvolving these plaintiffs and others alleging exposure to asbestos due toalleged failure to properly encapsulate friable asbestos or remove friableasbestos on our vessels, as well as for exposure to second-hand smoke and othermatters.

EW Transportation Corp., apredecessor to our partnership, and many other marine transportation companiesoperating in New York, have come under audit with respect to the New York StatePetroleum Business Tax (“PBT”), which is a tax on vessel fuel consumed whileoperating in New York State territorial 

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waters. Theboundaries of these waters have never been defined. An industry group in whichwe and EW Transportation Corp. participate has proposed to the New York taxingauthority that it adopt a calculation methodology for the PBT that it hasapplied, for purposes of a different tax, for many years. The taxing authorityhas not yet responded to this proposal. We have begun filing monthly taxreturns, and have accrued our estimated liability using the industry’s proposedcalculation methodology. In accordance with the agreements entered into inconnection with our initial public offering, any liability resulting from thePBT prior to January 14, 2004 (the effective date of the initial publicoffering) is a retained liability of our predecessor.

**Inflation**

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

**Related Party Transactions**

We lease our office and pier facilities from, andcharter certain vessels to, affiliates of an employee. Additionally, we utilizeone of these affiliates for tank cleaning services. Please read note 7 toour audited consolidated financial statements included elsewhere in thisreport.

KSP Investors A L.P., KSPInvestors B L.P., and KSP Investors C L.P. and their controlled affiliates haveagreed to indemnify us for claims associated with certain retained liabilities.For more information regarding the indemnification obligations and otherrelated party transactions, please read “Certain Relationships and RelatedTransactions” in Item 13 of this report.

**Seasonality**

We operate our tankvessels in markets that have historically exhibited seasonal variations indemand and, as a result, in charter rates. Movements of clean oil products,such as motor fuels, generally increase during the summer driving season. Movementsof black oil products and distillates, such as heating oil, generally increaseduring the winter months, while movements of asphalt products generallyincrease in the spring through fall months. Unseasonably cold winters result insignificantly higher demand for heating oil in the northeastern United States,which is a significant market for our tank barge services. The summer drivingseason can increase demand for automobile fuel and, accordingly, the demand forour services. A decline in demand for, and level of consumption of, refinedpetroleum products, particularly in the East Coast and Gulf Coast regions,could cause demand for tank vessel capacity and charter rates to decline, whichwould decrease our revenues and profitability.

**CRITICAL ACCOUNTING POLICIES**

The accounting treatmentof a particular transaction is governed by generally accepted accountingprinciples, or GAAP, and, in certain circumstances, requires us to makeestimates, judgments and assumptions that we believe are reasonable based uponinformation available. We base our estimates, judgments and assumptions onhistorical experience and known facts that we believe to be reasonable underthe circumstances. Actual results may differ from these estimates underdifferent assumptions and conditions. We believe that, of our significantaccounting policies discussed in note 3 to our audited consolidatedfinancial statements, the following may involve a higher degree of judgment.

**Revenue Recognition**

We earn revenue undercontracts of affreightment, voyage charters, time charters and bareboatcharters. For contracts of affreightment and voyage charters, revenue isrecognized based upon the relative 

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transittime in each period, with expenses recognized as incurred. Although contractsof affreightment and certain contracts for voyage charters may be effective fora period in excess of one year, revenue is recognized over the transit time ofindividual voyages, which are generally less than ten days in duration. Fortime charters and bareboat charters, revenue is recognized ratably over thecontract period, with expenses recognized as incurred. Estimated losses oncontracts of affreightment and charters are accrued when such losses becomeevident.

**Depreciation**

Vessels and equipment arerecorded at cost, including capitalized interest where appropriate, anddepreciated using the straight-line method over the estimated useful lives ofthe individual assets as follows: tank vessels—ten to twenty-five years;tugboats—twenty years; and pier and office equipment—five years. Forsingle-hull tank vessels, these useful lives are limited to the remainingperiod of operation prior to mandatory retirement as required by OPA 90. Alsoincluded in vessels are drydocking expenditures that are capitalized and amortizedover three years. Major renewals and betterments of assets are capitalized anddepreciated over the remaining useful lives of the assets. Maintenance andrepairs that do not improve or extend the useful lives of the assets areexpensed. To date, our experience confirms that these policies are reasonable,although there may be events or changes in circumstances in the future thatindicate the recovery of the carrying amount of a vessel might not be possible.Examples of events or changes in circumstances that could indicate that therecoverability of a vessel’s carrying amount should be assessed might include achange in regulations such as OPA 90, or continued operating losses, orprojections thereof, associated with a vessel or vessels. If events or changesin circumstances as set forth above indicate that a vessel’s carrying amountmay not be recoverable, we would then be required to estimate the undiscountedfuture cash flows expected to result from the use of the vessel and itseventual disposition. If the sum of the undiscounted expected future cash flowsis less than the carrying amount of the vessel, we would recognize animpairment loss to the extent the carrying value exceeds its fair value byappraisal. Our assumptions and estimates would include, but not be limited to,the estimated fair market value of the assets and their estimated future cashflows, which are based on additional assumptions such as asset utilization,length of service of the asset and estimated salvage values. Although webelieve our assumptions and estimates are reasonable, deviations from theassumptions and estimates could produce a materially different result.

**Amortizationof Drydocking Expenditures**

Drydocking expendituresare capitalized and amortized over three years. Drydocking of vessels isrequired by both the U.S. Coast Guard and by the applicable classificationsociety, which in our case is the American Bureau of Shipping. Such drydockingactivities include, but are not limited to, the inspection, refurbishment andreplacement of steel, engine components, tailshafts, mooring equipment andother parts of the vessel. Amortization of drydocking expenditures is includedin depreciation and amortization expense.

**Accounts Receivable**

We extend credit to ourcustomers in the normal course of business. We regularly review our accounts,estimate the amount of uncollectible receivables each period, and establish anallowance for uncollectible amounts. The amount of the allowance is based onthe age of unpaid amounts, information about the current financial strength ofcustomers, and other relevant information. Estimates of uncollectible amountsare revised each period, and changes are recorded in the period they becomeknown. Historically, credit risk with respect to our trade receivables hasgenerally been considered minimal because of the financial strength of ourcustomers.

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**Deferred Income Taxes**

We provide deferred taxesfor the tax effects of differences between the financial reporting and taxbases of assets and liabilities at enacted tax rates in effect in thejurisdictions where we operate for the years in which the differences areexpected to reverse. A valuation allowance is provided, if necessary, fordeferred tax assets that are not expected to be realized.

**New Accounting Pronouncements**

On December 16, 2004, the Financial AccountingStandards Board (“FASB”) issued FASB Statement No. 123(R), “Share-BasedPayment” (“FAS 123(R)”). FAS 123(R) revises FASB Statement No. 123, “Accountingfor Stock-Based Compensation” (“FAS 123”) and requires companies to expense thefair value of employee stock options and other forms of stock-basedcompensation. In addition to revising FAS 123, FAS 123(R) supersedesAccounting Principles Board (“APB”) Opinion No. 25, “Accounting for StockIssued to Employees”, and amends FASB Statement No. 95, “Statement of CashFlows.” We are required to adopt FASB 123(R) as of July 1, 2005. Theadoption will require us to recognize the fair value of unit options grantedunder our long-term incentive plan. To date, no unit options have been granted.

On April 4, 2005, the FASB issued Interpretation No. 47,“Accounting for Conditional Asset Retirement Obligations, an interpretation ofFASB Statement No. 143” (“FIN 47”). This interpretation clarifies that anentity is required to recognize a liability for the fair value of a conditionalasset retirement obligation when incurred if the liability’s fair value can bereasonably estimated. It also clarifies when an entity would have sufficientinformation to reasonably estimate the fair value of an asset retirementobligation. We are required to adopt FIN 47 as of June 30, 2006, and we donot expect that such adoption will have a significant impact on our financialposition, results of operations or cash flows.

On June 2, 2005, theFASB issued FASB Statement No. 154, “Accounting Changes and ErrorCorrections-a replacement of APB No. 20 and FAS No. 3” (“FAS 154”). FAS154 replaces APB Opinion No. 20, “Accounting Changes” (“APB 20”) and FASBStatement No. 3, “Reporting Accounting Changes in Interim FinancialStatements” (“FAS 3”) and changes the requirements for the accounting for andreporting of a change in accounting principle. This Statement applies to allvoluntary changes in accounting principle. It also applies to changes requiredby an accounting pronouncement in the unusual instance that the pronouncementdoes not include specific transition provisions. When a pronouncement includesspecific transition provisions, those provisions should be followed. We arerequired to adopt FAS 154 as of July 1, 2006, and we do not expectthat such adoption will have a significant impact on our financial position,results of operations or cash flows.

**RISK FACTORS**

*Limitedpartner interests are inherently different from the capital stock of acorporation, although many of the business risks to which we are subject aresimilar to those that would be faced by a corporation engaged in a similarbusiness. Unitholders should carefully consider the following risk factorstogether with all of the other information included elsewhere in this report.*

***We may not havesufficient cash from operations to enable us to pay the minimum quarterlydistribution following establishment of cash reserves and payment of fees andexpenses, including payments to our general partner.***

We may not havesufficient available cash each quarter to pay the minimum quarterlydistribution. The amount of cash we can distribute on our common unitsprincipally depends upon the amount of cash we generate from our operations,which will fluctuate from quarter to quarter based on, among other things:

·       thelevel of consumption of refined petroleum products in the markets in which weoperate;

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·       theprices we obtain for our services;

·       thelevel of our operating costs, including payments to our general partner; and

·       prevailingeconomic conditions.

Additionally, theactual amount of cash we have available for distribution depends on otherfactors such as:

·       thelevel of capital expenditures we make, including for acquisitions, retrofittingof vessels and compliance with new regulations;

·       therestrictions contained in our debt instruments and our debt servicerequirements;

·       fluctuationsin our working capital needs;

·       ourability to make working capital borrowings; and

·       theamount, if any, of reserves, including reserves for future capital expendituresand other matters, established by our general partner in its discretion.

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

***Our business wouldbe adversely affected if we failed to comply with the Jones Act provisions oncoastwise trade, or if those provisions were modified, repealed or waived.***

We are subject to the Jones Act and other federal lawsthat restrict maritime transportation between points in the United States tovessels 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 unitsand other partnership interests. If we do not comply with these restrictions,we would be prohibited from operating our vessels in U.S. coastwise trade, andunder certain circumstances we would be deemed to have undertaken an unapprovedforeign transfer, resulting in severe penalties, including permanent loss ofU.S. coastwise trading rights for our vessels, fines or forfeiture of thevessels. For information about the Jones Act and other maritime laws, pleaseread “Regulation—Coastwise Laws” in Items 1 and 2 of this report.

During the past several years, interest groups havelobbied Congress to repeal the Jones Act to facilitate foreign flag competitionfor trades and cargoes currently reserved for U.S.-flag vessels under the JonesAct and cargo preference laws. We believe that continued efforts will be madeto modify or repeal the Jones Act and cargo preference laws currentlybenefiting U.S.-flag vessels. If these efforts are successful, it could resultin increased competition, which could reduce our revenues and cash availablefor distribution.

The Secretary of theDepartment of Homeland Security is vested with the authority and discretion towaive the coastwise laws to such extent and upon such terms as he may prescribewhenever he deems that such action is necessary in the interest of nationaldefense. In response to the effects of Hurricane Katrina, on September 1,2005 the Secretary of the Department of Homeland Security waived the coastwiselaws generally for the transportation of petroleum products until September 19,2005 and further waived the coastwise laws generally for the transportation ofpetroleum released from the Strategic Petroleum Reserve undertaken in responseto circumstances arising from Hurricane Katrina. Any waiver of the coastwiselaws, whether in response to natural disasters or otherwise, could result inincreased competition, which could reduce our revenues and cash available fordistribution.

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***We must makesubstantial expenditures to maintain the operating capacity of our fleet, whichwill reduce our cash available for distribution.***

We must make substantial capital expenditures,including drydocking expenses and the replacement or retrofitting of oursingle-hull vessels under OPA 90, to maintain the operating capacity of ourfleet. We currently expect to spend an average of $12.0 million per yearin drydocking and other general capital expenditures to maintain the operatingcapacity of our fleet, excluding any additional drydocking and other generalcapital expenditures that would be required if our acquisition of Sea CoastTowing, Inc. is consummated.

Prior to January 1, 2015, we intend to retire orretrofit 22 single-hull vessels, which represents approximately 28% of ourbarrel-carrying capacity as of June 30, 2005. We estimate that thecurrent cost to replace this capacity with newbuildings and by retrofittingcertain of our existing vessels ranges from $58.0 million to$66.0 million. This capacity can also be replaced by acquiring existingdouble-hull tank vessels as opportunities arise. At the time we make theseexpenditures, the actual cost could be higher due to inflation and otherfactors.

Please read “Incalculating our available cash from operating surplus each quarter, we arerequired to deduct estimated maintenance capital expenditures, which may resultin less cash available for distribution to unitholders than if actualmaintenance capital expenditures were deducted” for information about ourrequirement to deduct estimated maintenance capital expenditures in calculatingour available cash from operating surplus.

***In calculating ouravailable cash from operating surplus each quarter, we are required to deductestimated maintenance capital expenditures, which may result in less cashavailable for distribution to unitholders than if actual maintenance capitalexpenditures were deducted.***

Our partnership agreement requires us to deductestimated maintenance capital expenditures from operating surplus each quarter,as opposed to actual maintenance capital expenditures, in order to reducedisparities in operating surplus caused by the fluctuating level of maintenancecapital expenditures, such as drydocking. Because of the substantial capitalexpenditures we intend to make by January 1, 2015 to replace the operatingcapacity of our single-hull vessels, our annual estimated maintenance capitalexpenditures for purposes of calculating operating surplus also includes$1.5 million to reduce the fluctuation in operating surplus that wouldotherwise be caused by the required expenditures.

The amount of estimated maintenance capitalexpenditures we deduct from operating surplus is subject to review and changeby the board of directors of K-Sea General Partner GP LLC, with the concurrenceof the conflicts committee of such board. In years when estimated maintenancecapital expenditures are higher than actual maintenance capital expenditures,as we expect will be the case in some years until we actually make expendituresfor the OPA 90 replacements and retrofitting, the amount of cash available fordistribution to unitholders will be lower than if actual maintenance capitalexpenditures were deducted from operating surplus.

Please read “We must makesubstantial expenditures to maintain the operating capacity of our fleet, whichwill reduce our cash available for distribution” for information regardingsubstantial expenditures that we must make to maintain the operating capacityof our fleet.

***Capitalexpenditures and other costs necessary to operate and maintain a vessel varydepending on the age of the vessel and changes in governmental regulations,safety or other equipment standards.***

Capital expenditures and other costs necessary tooperate and maintain a vessel increase with the age of the vessel. In addition,changes in governmental regulations, safety or other equipment standards, aswell as compliance with standards imposed by maritime self-regulatoryorganizations and customer 

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requirements orcompetition, may require us to make additional expenditures. For example, wemay be required to make significant expenditures for alterations or theaddition of new equipment to satisfy requirements of the U.S. Coast Guard andthe American Bureau of Shipping. In addition, we may be required to take ourvessels out of service for extended periods of time, with corresponding lossesof revenues, in order to make such alterations or to add such equipment. In thefuture, market conditions may not justify these expenditures or enable us tooperate our older vessels profitably during the remainder of their economiclives.

In order to fund thesecapital expenditures, we will either incur borrowings or raise capital throughthe sale of debt or equity securities. Our ability to access the capitalmarkets for future offerings may be limited by our financial condition at thetime as well as by adverse market conditions resulting from, among otherthings, general economic conditions and contingencies and uncertainties thatare beyond our control. Our failure to obtain the funds for necessary futurecapital expenditures would limit our ability to continue to operate some of ourvessels and could have a material adverse effect on our business and on ourability to make distributions to unitholders.

***A decline in demandfor, and level of consumption of, refined petroleum products, particularly inthe East Coast and Gulf Coast regions, could cause demand for tank vesselcapacity and charter rates to decline, which would decrease our revenues andprofitability.***

The demand for tankvessel capacity is influenced by the demand for refined petroleum products andother factors including:

·       globaland regional economic and political conditions;

·       developmentsin international trade;

·       changesin seaborne and other transportation patterns, including changes in thedistances that cargoes are transported;

·       environmentalconcerns; and

·       competitionfrom alternative sources of energy, such as natural gas, and alternatetransportation methods.

Any of these factors could adversely affect the demandfor tank vessel capacity and charter rates. Any decrease in demand for tankvessel capacity or decrease in charter rates could adversely affect ourbusiness, financial condition and results of operations.

In addition, we operateour tank vessels in the East Coast and Gulf Coast regions, markets that havehistorically exhibited seasonal variations in demand and, as a result, incharter rates. Movements of certain clean oil products, such as motor fuels,generally increase during the summer driving season. Movements of black oilproducts and certain clean oil products, such as heating oil, generallyincrease during the winter months, while movements of asphalt productsgenerally increase in the spring through fall months. Unseasonably mild winterscan result in significantly lower demand for heating oil in the northeasternUnited States, which is a significant market for our tank barge services. Inaddition, unpredictable weather patterns and variations in oil reserves disruptvessel scheduling. Seasonality could materially affect our business, financialcondition and results of operations in the future.

***Marine transportation is an inherently risky business.***

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

·       marinedisasters;

·       badweather;

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·       mechanicalfailures;

·       grounding,fire, explosions and collisions;

·       humanerror; and

·       warand terrorism.

All of these hazards canresult in death or injury to persons, loss of property, environmental damages,delays or rerouting. If one of our vessels were involved in an accident, withthe potential risk of environmental contamination, the resulting media coveragecould have a material adverse effect on our business, financial condition andresults of operations. Please read “Legal Proceedings” in Item 3 of thisreport.

***Our insurance may not be adequate to cover our losses.***

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

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

***We rely on alimited number of customers for a significant portion of our revenues. The lossof any of these customers could adversely affect our business and operatingresults.***

Our customers consistprimarily of major oil companies, oil traders and refineries. The portion ofour revenues attributable to any single customer changes over time, dependingon the level of relevant activity by the customer, our ability to meet thecustomer’s needs and other factors, many of which are beyond our control. Twocustomers accounted for 26% and 16%, respectively, of our consolidated revenuesfor fiscal 2005. If we were to lose either of these customers or if either ofthese customers significantly reduced its use of our services, our business andoperating results could be adversely affected.

***We may not be able to grow or effectively manage ourgrowth.***

A principal focusof our strategy is to continue to grow by expanding our business in the EastCoast and Gulf Coast regions and to expand into other geographic markets. Forexample, we recently entered into an agreement to acquire Sea Coast Towing, Inc.,which is engaged in the maritime transportation of refined petroleum productsand related businesses along the West Coast of the United States and Alaska. Ourfuture growth will depend upon a number of factors, some of which we cancontrol and some of which we cannot. These factors include our ability to:

·       identifybusinesses engaged in managing, operating or owning vessels for acquisitions orjoint ventures;

·       identifyvessels for acquisition;

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·       consummateacquisitions or joint ventures, including our pending acquisition of Sea CoastTowing, Inc;

·       integrateany acquired businesses or vessels successfully with our existing operations;

·       hire,train and retain qualified personnel to manage and operate our growing businessand fleet;

·       identifynew geographic markets;

·       improveour operating and financial systems and controls; and

·       obtainrequired financing for our existing and new operations.

A deficiency in any ofthese factors would adversely affect our ability to achieve anticipated levelsof cash flows or realize other anticipated benefits. In addition, competitionfrom other buyers could reduce our acquisition opportunities or cause us to paya higher price than we might otherwise pay.

***We may not be able to successfully integrate theoperations of Sea Coast Towing with our current operations.***

In August 2005,we entered into a definitive agreement to acquire Sea Coast Towing, Inc.,which operates 15 tank barges (representing approximately 705,000 barrels ofcapacity) and 15 tugboats along the West Coast of the United States and Alaska.If we complete our acquisition of Sea Coast, the integration of Sea Coast’soperations with our current operations will be a complex, time consuming andcostly process. Failure to timely and successfully integrate Sea Coast may havea material adverse effect on our business, financial condition and results ofoperations. The difficulties of integrating Sea Coast will present challengesto our management including:

·       operatinga significantly larger combined company with operations in geographic areas inwhich we have not previously operated;

·       managingrelationships with new customers for whom we have not previously providedservices;

·       integratingpersonnel with diverse backgrounds and organizational cultures;

·       experiencingoperational interruptions or the loss of key employees, customers or suppliers;

·       establishingthe internal controls and procedures for the combined entity that we arerequired to maintain under the Sarbanes-Oxley Act of 2002; and

·       consolidatingother corporate and administrative functions.

We will also be exposed torisks that are commonly associated with transactions similar to thisacquisition, such as unanticipated liabilities and costs, some of which may bematerial, and diversion of management’s attention. As a result, the anticipatedbenefits of the acquisition may not be fully realized, if at all.

***Because we obtainsome of our insurance through protection and indemnity associations, we alsomay be subject to calls, or premiums, in amounts based not only on our ownclaim records, but also the claim records of all other members of theprotection and indemnity associations.***

We may be subject tocalls, or premiums, in amounts based not only on our own claim records but alsothe claim records of all other members of the protection and indemnityassociations through which we receive insurance coverage for tort liability,including pollution-related liability. Our payment of these calls couldresult in significant expenses to us, which could reduce our profits or causelosses. Moreover, the protection and indemnity clubs and other insuranceproviders reserve the right to make changes in insurance coverage with littleor no advance notice.

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***We may not be ableto renew time charters, consecutive voyage charters, contracts of affreightmentand bareboat charters when they expire.***

We received approximately74% of our revenue from time charters, consecutive voyage charters, contractsof affreightment and bareboat charters during fiscal 2005. These arrangements,which are generally for periods of one year or more, may not be renewed, or ifrenewed, may not be renewed at similar rates. If we are unable to obtain newcharters at rates equivalent to those received under the old charters, ourprofitability may be adversely affected.

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

During fiscal 2005, wederived approximately 26% of ourrevenue from single voyage charters. Voyage charter rates fluctuatesignificantly based on tank vessel availability, the demand for refinedpetroleum products and other factors. Increased dependence on the voyagecharter market by us could result in a lower utilization of our vessels anddecreased profitability. Future voyage charters may not be available at ratesthat will allow us to operate our vessels profitably.

***Our purchase of existing vessels carries risksassociated with the quality of those vessels.***

Our fleet renewal andexpansion strategy includes the acquisition of existing vessels as well as theordering of newbuildings. Unlike newbuildings, existing vessels typically donot carry warranties with respect to their condition. While we generallyinspect any existing vessel prior to purchase, such an inspection wouldnormally not provide us with as much knowledge of its condition as we wouldpossess 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 andmay be more substantial than for vessels we have operated since they werebuilt. These costs could decrease our profits and reduce our liquidity.

***We are subject tocomplex laws and regulations, including environmental regulations, that canadversely affect the cost, manner or feasibility of doing business.***

Increasingly stringent federal, state and local lawsand regulations governing worker health and safety and the manning,construction and operation of vessels significantly affect our operations. Manyaspects of the marine industry are subject to extensive governmental regulationby the U.S. Coast Guard, the National Transportation Safety Board, the U.S.Customs Service and MARAD, and to regulation by private industry organizationssuch as the American Bureau of Shipping. The U.S. Coast Guard and the NationalTransportation Safety Board set safety standards and are authorized toinvestigate vessel accidents and recommend improved safety standards. The U.S.Coast Guard is authorized to inspect vessels at will.

Our operations are alsosubject to federal, state, local and international laws and regulations thatcontrol the discharge of pollutants into the environment or otherwise relate toenvironmental protection. Compliance with such laws, regulations and standardsmay require installation of costly equipment or operational changes. Failure tocomply with applicable laws and regulations may result in administrative andcivil penalties, criminal sanctions or the suspension or termination of ouroperations. Some environmental laws often impose strict liability forremediation of spills and releases of oil and hazardous substances, which couldsubject us to liability without regard to whether we were negligent or atfault. Under OPA 90, owners, operators and bareboat charterers are jointly andseverally strictly liable for the discharge of oil within the 200-mileexclusive economic zone around the United States. Additionally, an oil spillcould result in significant liability, including fines, penalties, criminalliability and costs for natural resource damages. The potential for thesereleases could increase as we increase our fleet capacity. Most statesbordering on a navigable waterway have enacted legislation providing forpotentially unlimited liability for the discharge of pollutants within theirwaters.

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***Terrorist attackshave resulted in increased costs and have disrupted our business. Continuedhostilities in the Middle East or other sustained military campaigns mayadversely impact our results of operations.***

After the terrorist attacks of September 11,2001, New York Harbor was shut down temporarily, resulting in the suspension ofour local operations in the New York City area for four days and the loss ofrevenue related to these operations. The long-term impact that terroristattacks and the threat of terrorist attacks may have on the petroleum industryin general, and on us in particular, is not known at this time. Uncertaintysurrounding continued hostilities in the Middle East or other sustainedmilitary campaigns may affect our operations in unpredictable ways, includingdisruptions of petroleum supplies and markets, and the possibility thatinfrastructure facilities could be direct targets of, or indirect casualtiesof, an act of terror.

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

***We depend uponunionized labor for the provision of our services. Any work stoppages orlabor disturbances could disrupt our business.***

All of our seagoingpersonnel other than tug and tanker captains, or approximately 75% of ourworkforce, are employed under a contract with a division of the InternationalLongshoreman’s Association that expires on June 30, 2008. Any work stoppages orother labor disturbances could have a material adverse effect on our business,financial condition and results of operations.

***Increasedcompetition in the domestic tank vessel industry could result in reducedprofitability and loss of market share for us.***

Contracts for ourvessels are generally awarded on a competitive basis, and competition in themarkets we serve is intense. The most important factors determining whether acontract will be awarded include:

·       availabilityand capability of the vessels;

·       abilityto meet the customer’s schedule;

·       price;

·       safetyrecord;

·       reputation;and

·       experience.

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

We also face competitionfrom refined petroleum product pipelines. Long-haul transportation of refinedpetroleum products is generally less costly by pipeline than by tank vessel.The construction of new pipeline segments to carry petroleum products into ourmarkets, including pipeline segments that connect with existing pipelinesystems, and the conversion of existing non-refined petroleum productpipelines, could adversely affect our ability to compete in particularlocations.

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***Our employees arecovered by federal laws that may subject us to job-related claims in additionto those provided by state laws.***

Some of our employees arecovered by provisions of the Jones Act and general maritime law. These lawstypically operate to make liability limits established by state workers’compensation laws inapplicable to these employees and to permit these employeesand their representatives to pursue actions against employers for job-relatedinjuries in federal courts. Because we are not generally protected by thelimits imposed by state workers’ compensation statutes, we may have greaterexposure for claims made by these employees.

***We depend on key personnel for the success of ourbusiness.***

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

***Due to our lack ofasset diversification, adverse developments in our marine transportationbusiness would reduce our ability to make distributions to our unitholders.***

We rely exclusively on therevenues generated from our marine transportation business. Due to our lack ofasset diversification, an adverse development in this business would have asignificantly greater impact on our business, financial condition and resultsof operations than if we maintained more diverse assets.

***Changes ininternational trade agreements could affect our ability to provide marinetransportation services at competitive rates.***

Currently, vessel trade ormarine transportation between two points within the same country, generally knownas cabotage or coastwise trade, is not included in the General Agreement onTrade in Services or the North American Free Trade Agreement. In addition, theJones Act restricts maritime cargo transportation between U.S. ports toU.S.-flag vessels qualified to engage in U.S. coastwise trade. If maritimeservices were deemed to include cabotage and included in the General Agreementon Trade in Services, the North American Free Trade Agreement or othermulti-national trade agreements, transportation of maritime cargo between U.S.ports could be opened to foreign-flag vessels. Foreign vessels would have lowerconstruction costs and would generally operate at significantly lower coststhan we do in U.S. markets, which would likely have a material adverse effecton our ability to compete.

***K-Sea GeneralPartner L.P. and its affiliates have conflicts of interest and limitedfiduciary duties, which may permit them to favor their own interests to thedetriment of our unitholders.***

Our affiliatesindirectly own the general partner interest and a 46.2% limited partnerinterest in us and own and control the general partner of our general partner. Conflictsof interest may arise between our general partner and our affiliates, on theone hand, and us and our unitholders, on the other hand. As a result of theseconflicts, our general partner may favor its own interests and the interests ofour affiliates over the interests of our unitholders. These conflicts include,among others, the following situations:

·       ourgeneral partner is allowed to take into account the interests of parties otherthan us, such as the interests of its affiliates, in resolving conflicts ofinterest, which has the effect of limiting its fiduciary duty to ourunitholders;

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·       ourgeneral partner may limit its liability and reduce its fiduciary duties, whilealso restricting the remedies available to our unitholders for actions that,without the limitations, might constitute breaches of fiduciary duty. As aresult of purchasing common units, our unitholders consent to some actions andconflicts of interest that might otherwise constitute a breach of fiduciary orother duties under applicable state law;

·       ourgeneral partner determines the amount and timing of asset purchases and sales,capital expenditures, borrowings, issuance of additional partnership securitiesand reserves, each of which can affect the amount of cash that is distributedto our unitholders;

·       insome instances, our general partner may cause us to borrow funds in order topermit the payment of cash distributions, even if the purpose or effect of theborrowing is to make a distribution on the subordinated units or to makeincentive distributions or to hasten the expiration of the subordinationperiod;

·       ourgeneral partner determines which costs incurred by it and its affiliates,including K-Sea General Partner GP LLC, are reimbursable by us;

·       ourpartnership agreement does not restrict our general partner from causing us topay it or its affiliates for any services rendered on terms that are fair andreasonable to us or entering into additional contractual arrangements with anyof these entities on our behalf;

·       ourgeneral partner controls the enforcement of obligations owed to us by it andits affiliates; and

·       our general partner decideswhether to retain separate counsel, accountants or others to perform servicesfor us.

***Our partnershipagreement currently limits the ownership of our partnership interests byindividuals or entities that are not U.S. citizens. This restriction couldlimit the liquidity of our common units.***

In order to ensurecompliance with Jones Act citizenship requirements, the board of directors ofthe general partner of our general partner has adopted a requirement that atleast 85% of our partnership interests must be held by U.S. citizens. Thisrequirement may have an adverse impact on the liquidity or market value of ourcommon units, because unitholders will be unable to sell units to non-U.S.citizens. Any purported transfer of common units in violation of these provisionswill be ineffective to transfer the common units or any voting, dividend orother rights in respect of the common units.

***The IRS could treatus as a corporation for tax purposes, which would substantially reduce cashavailable for distribution to unitholders.***

The federal income tax benefit of an investment in usdepends largely on our being treated as a partnership for federal income taxpurposes. The IRS has not provided any ruling on this matter. If we weretreated as a corporation for federal income tax purposes, we would pay tax onour income at corporate rates, currently 35%, distributions would generally betaxed again to unitholders as corporate distributions and no income, gains,losses, or deductions would flow through to unitholders. Because a tax would beimposed upon us as an entity, cash available for distribution to unitholderswould be substantially reduced. Treatment of us as a corporation would resultin a material reduction in the anticipated cash flow and after-tax return tounitholders and thus would likely result in a substantial reduction in thevalue of the common units.

Current law may change andcause us to be treated as a corporation for federal income tax purposes orotherwise subject us to entity-level taxation. Our partnership agreementprovides that, if a law is enacted or existing law is modified or interpretedin a manner that subjects us to taxation as a corporation or otherwise subjectsus to entity-level taxation for federal, state, or local income tax purposes,the minimum 

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quarterlydistribution amount and the target distribution amounts will be decreased toreflect the impact of that law on us. Finally, because of widespread statebudget deficits, several states are evaluating ways to subject partnerships toentity level taxation through the imposition of state income, franchise andother forms of taxation. If any of these states were to impose a tax on us, thecash available for distribution to unitholders would be reduced.

**ITEM 7A.**        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our Title XI bonds and oneoutstanding term loan bear interest at fixed interest rates ranging from 6.17%to 6.26%. Borrowings under our credit agreement and two outstanding term loansbear interest at a floating rate based on LIBOR, which will subject us toincreases or decreases in interest expense resulting from movements in thatrate. Based on an aggregate $65.1 million of floating rate debt outstanding asof June 30, 2005, the impact of a 1% increase in interest rates wouldresult in an increase in interest expense, and a corresponding decrease inincome before income taxes, of approximately $0.7 million annually.

**ITEM 8.**                FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.

The financial statementsset forth on pages F-1 to F-21 of this report are incorporated herein byreference.

**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

**ITEM 9A.**        CONTROLSAND PROCEDURES.

***Evaluation of Disclosure Controls and Procedures***

In accordance withExchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, underthe supervision and with the participation of management, including our ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of ourdisclosure controls and procedures as of the end of the period covered by thisreport. Based on that evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures wereeffective as of June 30, 2005 to provide reasonable assurance thatinformation required to be disclosed in the reports that we file or submitunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the Securities and Exchange Commission’s rules andforms.

***Changes in Internal Control Over Financial Reporting***

There has been no changein our internal control over financial reporting that occurred during the threemonths ended June 30, 2005 that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

***Management’s Report on Internal Control Over FinancialReporting***

Our management is responsible for establishing andmaintaining adequate internal control over financial reporting. Our internalcontrol over financial reporting is a process designed under the supervision ofour Chief Executive Officer and Chief Financial Officer to provide reasonableassurance regarding the reliability of financial reporting and the preparationof our financial statements for external purposes in accordance with generallyaccepted accounting principles.

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As of June 30, 2005, management assessed theeffectiveness of our internal control over financial reporting based on theframework in “Internal Control—Integrated Framework,” issued by the Committeeof Sponsoring Organizations of the Treadway Commission. Based on thatassessment, management concluded that our internal control over financialreporting was effective as of June 30, 2005, based on those criteria.

Our management’sassessment of the effectiveness of our internal control over financialreporting as of June 30, 2005 has been audited by PricewaterhouseCoopersLLP, an independent registered public accounting firm, as stated in theirreport which is included under the heading “Report of Independent RegisteredPublic Accounting Firm” on page F-2 herein.

**ITEM 9B.**       OTHERINFORMATION.

None.

**PART III**

**ITEM 10.**         DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT.

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

Setforth below is information concerning the directors and executive officers ofK-Sea General Partner GP LLC as of September 12, 2005. Executive officersand directors are elected for one-year terms.
| **Name**              | ** ** | ** ** | ** ** | **Age** | ** ** | **Position with K-Sea General Partner GP LLC** | ** ** |
|-----------------------|------------|------------|------------|---------|------------|------------------------------------------------------------------------------|------------|
| James J. Dowling      |       |       | 59         |    |       | Chairman  of the Board                                                       |       |
| Timothy J. Casey      |       |       | 45         |    |       | President,  Chief Executive Officer and Director                             |       |
| Anthony S. Abbate     |       |       | 65         |    |       | Director                                                                     |       |
| Barry J. Alperin      |       |       | 65         |    |       | Director                                                                     |       |
| Brian P. Friedman     |       |       | 49         |    |       | Director                                                                     |       |
| Frank Salerno         |       |       | 46         |    |       | Director                                                                     |       |
| John J. Nicola        |       |       | 51         |    |       | Chief  Financial Officer                                                     |       |
| Thomas M.  Sullivan   |       |       | 46         |    |       | Vice  President, Operations                                                  |       |
| Richard P. Falcinelli |       |       | 44         |    |       | Vice President,  Administration and Secretary                                |       |

 

*James J. Dowling*has served as our Chairman of the Board since July 2003, has served asChairman of the Board of EW Transportation LLC (formerly K-Sea TransportationLLC) since January 2002 and has served as a director of EW TransportationLLC since its formation in April 1999. Mr. Dowling has been aManaging Director of Jefferies Capital Partners, a private investment firm,since January 2002, and is a director of a private company in whichJefferies Capital Partners has an interest. Jefferies Capital Partners is themanager of Furman Selz Investors II L.P. and its affiliated entities.

*Timothy J. Casey*has served as our President, Chief Executive Officer and Director since July 2003.Mr. Casey has served as President, Chief Executive Officer and Director ofEW Transportation LLC since April 1999. Mr. Casey is also a boardmember for American Waterways Operators and The Seamen’s Church Institute.

*Anthony S. Abbate*has served as a Director since February 2004. Mr. Abbate has beenPresident and Chief Executive Officer of Interchange Financial ServicesCorporation, a bank holding company, since 1984 and President and ChiefExecutive Officer of its principal subsidiary, Interchange Bank, since 1981. 

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Mr. Abbate also serves asChairman of the Executive Committee of both Interchange Financial ServicesCorporation and Interchange Bank.

*Barry J. Alperin*has served as a Director since February 2004. Mr. Alperin is abusiness consultant who retired from Hasbro Inc. in 1996 after11 years in various senior executive positions, including Vice Chairmanand Director. Mr. Alperin is currently on the board of Henry Schein, Inc.,a distributor of healthcare products to office-based practitioners, and TheHain Celestial Group, Inc., a natural and organic beverage, snack,specialty food and personal care products company.

*Brian P. Friedman*has served as a director since July 2003. Mr. Friedman has been amanaging member of Jefferies Capital Partners, a private investment firm, andaffiliated entities since 1997. Mr. Friedman also serves as Chairman ofthe Executive Committee of Jefferies & Company, Inc. Mr. Friedmanserves as a director of Jefferies Group, Inc., an investment banking firm, IowaTelecommunications Services, Inc., a provider of telecommunicationsservices, Real Mex Restaurants, Inc., a restaurant chain operator, TelexCommunications, Inc., a manufacturer of audio and wireless communicationsequipment, Pacific Basin Limited, an international transportation company, andvarious private companies in which Jefferies Capital Partners or its affiliateshave an interest.

*Frank Salerno* hasserved as a Director since February 2004. From mid-1999 until hisretirement in February 2004, Mr. Salerno was Managing Director andChief Operating Officer of Merrill Lynch Investment Advisors—AmericasInstitutional Division, an investment advisory company.

*John J. Nicola* hasserved as our Chief Financial Officer since July 2003, and has served asChief Financial Officer of EW Transportation LLC since July 2000.Mr. Nicola was employed from November 1993 to July 2000 byMaersk Sealand, a container shipping company, in various senior financialmanagement roles, including Chief Financial Officer of Maersk’s East Coast andGulf terminal operating subsidiary. Mr. Nicola is a Certified Public Accountantand a member of the American Institute of Certified Public Accountants.

*Thomas M. Sullivan*has served as our Vice President of Operations since July 2003. Mr. Sullivanserved as Vice President of Operations for EW Transportation LLC since April 1999.Mr. Sullivan also served as Vessel Supervisor for EW Transportation LLC’spredecessor from March 1995 until April 1999.

*RichardP. Falcinelli* has served as our Vice President ofAdministration and Secretary since July 2003. Mr. Falcinelli hasserved as Vice President of Administration and Secretary of EW TransportationLLC since April 1999.

**Meetingsand Committees of the Board of Directors**

***Meetings***

K-Sea General Partner GPLLC’s board of directors held four meetings during fiscal 2005. During fiscal2005, each director attended at least 75% of the aggregate of (1) thetotal number of meetings of the board of directors of K-Sea General Partner GPLLC and (2) the total number of meetings held by all committees of suchboard on which he served.

***Audit Committee***

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

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audit committee financialexpert within the meaning of the rules of the Securities and ExchangeCommission.

The primary responsibilities of the audit committeeare to assist the board of directors of K-Sea General Partner GP LLCin overseeing (1) the integrity of our financial statements, (2) ourindependent registered public accounting firm’s qualifications, independence,and performance, (3) the effectiveness of our internal controls andprocedures and our internal audit function, and (4) our compliance withlegal and regulatory requirements. The audit committee has the sole authorityto appoint, retain and terminate our independent registered public accountingfirm, which reports directly to the audit committee.

The audit committee hasestablished procedures for the receipt, retention and treatment of complaintswe receive regarding accounting, internal accounting controls or auditingmatters and the confidential, anonymous submission by our employees of concernsregarding questionable accounting or auditing matters.

***Compensation Committee***

K-Sea General Partner GPLLC has a standing compensation committee consisting of Messrs Alperin, Dowlingand Friedman. The compensation committee, among other tasks, determines andapproves the chief executive officer’s compensation, makes recommendations tothe board with respect to other executive officer compensation, and reviewsfrom time to time the compensation and benefits of non-employeedirectors.

***Conflicts Committee***

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

**Director Independence**

The board of directors of K-Sea General Partner GP LLChas determined that Messrs. Abbate, Alperin and Salerno are independentwithin the meaning of the listing standards for general independence of the NewYork Stock Exchange. Under the listing standards, the audit committee isrequired to be composed solely of directors who are independent. The standardsfor audit committee membership include additional requirements under rules ofthe SEC.

The listingstandards relating to general independence consist of both a requirement for aboard determination that the director has no material relationship with thelisted company and a listing of several specific relationships that precludeindependence. To assist it in making determinations of independence, the boardhas adopted categorical standards as permitted under the listing standards.Although the board considers all relevant facts and circumstances in assessingwhether a director is independent, relationships falling within the categoricalstandards are not required to be disclosed or separately discussed in thisreport in connection with the board’s independence determinations. Arelationship falls within the categorical standards adopted by the board if it:

·       isa type of relationship addressed in

·        therules of the SEC requiring proxy statement disclosure of relationships andtransactions, or

·        theprovisions of the New York Stock Exchange Listed Company Manual listingrelationships that preclude a determination of independence,

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but under those rules neitherrequires disclosure nor precludes a determination of independence, or

·       consistsof charitable contributions by us to an organization where a director is anexecutive officer and does not exceed the greater of $1 million or 2% ofthe organization’s gross revenue in any of the last three years.

None of the independent directors had relationshipsrelevant to an independence determination that were outside the scope of theboard’s categorical standards.

Because we are a limitedpartnership, the listing standards of the New York Stock Exchange do notrequire K-Sea General Partner GP LLC to have a majority of independentdirectors or a nominating/corporate governance or compensation committee.

**Code of Business Conduct and Ethics**

The board of directors ofK-Sea General Partner GP LLC has adopted a code of business conduct and ethicsfor all employees, including our principal executive officer and principalfinancial and accounting officer. If any amendments are made to the code or ifK-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 orwaiver on our website or in a current report on Form 8-K.

**Corporate Governance Guidelines**

The board of directors ofK-Sea General Partner GP LLC has also adopted corporate governance guidelinesin accordance with the rules of the New York Stock Exchange.

**Availabilityof Corporate Governance Documents**

Copies of the boardcommittee charters, code of business conduct and ethics and corporategovernance guidelines are available, without charge, on our website at *www.k-sea.com* and in print, free of charge,upon written request to the Secretary, K-Sea General Partner GP LLC, 3245Richmond Terrace, Staten Island, NY 10303.

**Annual Certification**

We have filed the requiredcertifications under Section 302 of the Sarbanes-Oxley Act of 2002 asExhibits 31.1 and 31.2 to this report. In 2004, we submitted to the NYSE theCEO certification required by Section 303A.12(a) of the NYSE’s ListedCompany Manual. In 2005, we expect to submit this certification to the NYSEwithin 30 days after filing this report.

**ExecutiveSessions of the Board of Directors**

Messrs. Abbate, Alperin, Dowling, Friedman andSalerno, who are non-management directors of K-Sea General Partner GPLLC, meet at regularly scheduled executive sessions without management. Thesemeetings are chaired on a rotating basis by the chairmen of the audit committeeand compensation committee. Persons wishing to communicate with ournon-management directors may do so by writing to them at K-Sea General PartnerGP LLC, c/o Board of Directors, 3245 Richmond Terrace, Staten Island, New York10303.

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

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**Communicationswith Independent Directors**

Persons wishing tocommunicate with our independent non-management directors may do so by writingto them at K-Sea General Partner GP LLC, c/o Board of Directors, 3245 RichmondTerrace, Staten Island, New York 10303.

**Payments to our General Partner**

K-Sea General Partner LPdoes not receive any management fee or other compensation in connection withits management of us; however, K-Sea General Partner LP or its affiliates whoperform services for us and/or our subsidiaries are reimbursed at cost for allexpenses incurred on our behalf which are necessary or appropriate to theconduct of our business. These costs totaled approximately $0 and $17,000during fiscal 2005 and fiscal 2004, respectively. We also directly pay the feesof the independent directors of K-Sea General Partner GP LLC and reimbursemeeting-related expenses of all directors of K-Sea General Partner GP LLC.

**Section 16(a) BeneficialOwnership Reporting Compliance**

Section 16(a) of the Securities Exchange Actof 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 beneficialownership and changes in beneficial ownership with the SEC. Officers, directorsand greater than 10% unitholders are required by SEC regulations to furnish uswith copies of all Section 16(a) forms.

Based solely on our reviewof the copies of such forms we received, or representations from certainreporting persons that no Form 4s were required for those persons, webelieve that during the fiscal year ended June 30, 2005, all of ourofficers, directors, and greater than 10% beneficial owners complied on atimely basis with all applicable filing requirements under Section 16(a) ofthe Securities Exchange Act of 1934, except that two Form 4s for Frank Salerno werenot timely filed.

**ITEM 11.**         EXECUTIVECOMPENSATION.

The following table sets forth the annual salary,bonus and all other compensation awards and payouts made to our President andChief Executive Officer, and our three other executive officers, in respect offiscal 2005 and 2004:

**SummaryCompensation Table(1)**
|                                               | ** ** | ** ** | ** ** | ** **           | ** ** | **Long-Term  Compensation**  | ** ** | ** **      | ** ** |
|-----------------------------------------------|------------|------------|------------|----------------------|------------|------------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | ** ** | ** ** | ** **           | ** ** | ** **                   | ** ** | ** **      | ** ** | **Restricted** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** ** | ** ** | ** **           | ** ** | **Annual Compensation** | ** ** | **Unit**        | ** ** | **All Other** | ** ** |
| Name and Principal Position    | ** ** | ** ** | ** ** | **Fiscal Year** | ** ** | **Salary($)**                | ** ** | **Bonus($)(2)** | ** ** | **Awards($)(3)** | ** ** | **Compensation($)(4)** | ** ** |
| Timothy J. Casey                              |       |       | 2005       |                 |       | 242,308                      |       |            | —     |   |   |   | 468,750 |   |   |   | 17,546 |   |   |
| President and Chief Executive  Officer        |       |       | 2004       |                 |       | 233,077                      |       |            | 161,500    |   |   |   | — |   |   |   | 16,495 |   |   |
| John J. Nicola                                |       |       | 2005       |                 |       | 153,654                      |       |            | —     |   |   |   | 156,250 |   |   |   | 14,073 |   |   |
| Chief Financial Officer                       |       |       | 2004       |                 |       | 149,038                      |       |            | 66,500     |   |   |   | — |   |   |   | 13,652 |   |   |
| Thomas M. Sullivan                            |       |       | 2005       |                 |       | 153,654                      |       |            | —     |   |   |   | 156,250 |   |   |   | 14,073 |   |   |
| Vice President, Operations                    |       |       | 2004       |                 |       | 149,038                      |       |            | 65,000     |   |   |   | — |   |   |   | 13,784 |   |   |
| Richard P. Falcinelli                         |       |       | 2005       |                 |       | 153,654                      |       |            | —     |   |   |   | 156,250 |   |   |   | 14,073 |   |   |
| Vice President,  Administration and Secretary |       |       | 2004       |                 |       | 149,038                      |       |            | 65,000     |   |   |   | — |   |   |   | 14,015 |   |   |

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(1)          K-Sea TransportationPartners L.P. and K-Sea General Partner GP LLC, the general partner of ourgeneral partner, were formed in July 2003; however, neither paidcompensation to its directors or 

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officers prior to January 14,2004, the closing date of our initial public offering. The data in the tableabove for fiscal 2004 reflects payments to our executive officers by us and byour predecessor companies in respect of fiscal 2004.

(2)          Bonuses are earned basedon the results of operations for each fiscal year and are reported above forthe fiscal year in which they were earned. Bonuses for the fiscal year ended June 30,2005 have not yet been awarded.

(3)          Represents the value ofthe executive officer’s restricted unit award under the K-Sea TransportationPartners L.P. Long-Term Incentive Plan (calculated by multiplying the closingmarket price of our common units on the date of grant by the number of restrictedunits awarded). As of June 30, 2005, Mr. Casey had 15,000 restrictedunits with a value of $513,750, and each of Messrs. Nicola, Sullivan andFalcinelli had 5,000 restricted units with a value of $171,250. The restrictedunits vest in five equal installments beginning October 1, 2005. Eachrestricted unit includes an associated distribution equivalent right, whichentitles the recipient to receive an amount in cash equal to, and at the sametime as, the cash distributions made by us with respect to a common unit duringthe period such restricted unit is outstanding.

(4)          Consistsof contributions to our 401(k) and money purchase defined contributionplans.

**Unit Option Awards**

No unit options wereawarded during fiscal 2005.

**Employment Agreements**

The executive officers of K-Sea General Partner GPLLC, including Timothy J. Casey, John J. Nicola, Thomas M. Sullivan and RichardP. Falcinelli, have entered into employment agreements with K-Sea Transportation Inc.,our indirect wholly owned corporate subsidiary. The following is a summary ofthe material provisions of those employment agreements, copies of which havebeen previously filed as exhibits. All of these employment agreements aresubstantially similar, with certain exceptions as set forth below.

The employment agreements contemplate that eachemployee will serve as an officer of K-Sea General Partner GP LLCand other affiliates. Each of the employment agreements had an initial term ofone year. The term of each employment agreement is automatically extended forsuccessive one-year terms unless either party gives 30-days writtennotice prior to the end of the term that such party desires not to renew theemployment agreement.

Mr. Casey receives a base annual salary of$245,000 and each of Messrs. Nicola, Falcinelli and Sullivan receive abase annual salary of $155,000. Under the employment agreement, each employeeis eligible to receive an annual bonus award based upon the financialperformance of us and our subsidiaries. The board of directors of K-Sea GeneralPartner GP LLC will determine the amount of any bonus award and may issueadditional awards to each employee in the amounts and at the times it sodetermines. Further, each employee is entitled to an automobile and certainother benefits.

If the employee’s employment is terminated withoutcause (as defined in the employment agreement) or if the employee resigns forgood reason (as defined in the employment agreement), the employee will beentitled to severance in an amount equal to the greater of (a) the productof 1.3125 (1.75 multiplied by .75) multiplied by the employee’s basesalary at the time of termination or resignation and (b) the product of1.75 multiplied by the remaining term of the employee’s non-competitionprovisions multiplied by the employee’s base salary at the time of terminationor resignation. In addition, K-Sea Transportation Inc. will pay on behalf ofeach employee the premiums necessary to provide coverage continuation rightsunder certain insurance policies for a one-year period after termination orresignation.

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The employment agreementsalso provide for a non-competition period that will continue for two yearsafter the termination of the employee’s employment, except that thenon-competition period may terminate earlier as determined by the board ofdirectors of K-Sea General Partner GP LLC if (a) the employee isterminated other than for cause and (b) such termination does not occurwithin 30 days after a “change in control,” as defined therein. During thenon-competition period, the employee is generally prohibited from engaging inany business that competes with us or our affiliates in areas in which weconduct business as of the date of termination and from soliciting or inducingany of our employees to terminate their employment with us or accept employmentwith anyone else or interfere in a similar manner with our business.

**Long-Term Incentive Plan**

K-Sea General Partner GP LLC has adopted the K-SeaTransportation Partners L.P. Long-Term Incentive Plan for directors andemployees of K-Sea General Partner GP LLC and its affiliates, including K-SeaOperating Partnership L.P. and K-Sea Transportation Inc. The long-termincentive plan permits the grant of awards covering an aggregate of 440,000common units in the form of unit options and restricted units. The plan isadministered by the compensation committee of the board of directors of K-SeaGeneral Partner GP LLC, and will continue in effect until the earlier of thedate determined by the board of directors of K-Sea General Partner GP LLC orthe date common units are no longer available for the payment of awards underthe plan.

K-Sea General Partner GP LLC’s board of directors orits compensation committee at its discretion are able to terminate, suspend ordiscontinue the long-term incentive plan at any time with respect to any unitsfor which a grant has not yet been made. K-Sea General Partner GP LLC’s boardof directors or its compensation committee also have the right to alter oramend the long-term incentive plan or any part thereof from time to time,including increasing the number of units that may be granted subject tounitholder approval as required by the exchange upon which the common units arelisted at that time. However, no change in any outstanding grant may be madethat would materially impair the rights of the participant without the consentof the participant.

*Restricted Units.  *Arestricted unit is a “phantom” unit that entitles the grantee to receive acommon unit upon the vesting of the phantom unit or, in the discretion of thecompensation committee, cash equivalent to the fair market value of a commonunit. The compensation committee may determine to make grants under the plan toemployees and directors containing such terms as the compensation committeeshall determine under the plan, including the period over which restrictedunits granted to employees and directors will vest. The compensation committeewill be able to base its vesting determination upon the achievement ofspecified performance objectives. In addition, subject to additional orcontrary provisions in a unit award agreement, the restricted units will vestupon a change in control of K-Sea Transportation Partners L.P. or our generalpartner.

If a grantee’s employment or membership on the boardof directors terminates for any reason, the grantee’s restricted units will beautomatically forfeited unless, and to the extent, the compensation committeeprovides otherwise or unless otherwise provided in a written employmentagreement between the grantee and K-Sea General Partner GP LLC or itsaffiliates. Common units to be delivered upon the vesting of restricted unitsmay be common units acquired by the general partner of our general partner inthe open market, common units already owned by the general partner of ourgeneral partner, common units acquired by the general partner of our generalpartner directly from us or any other person or any combination of theforegoing, as determined by the compensation committee at its discretion. K-Sea GeneralPartner GP LLC will be entitled to reimbursement by us for the cost incurred inacquiring common units. Thus, the cost of the restricted units will be borne byus. If we issue new common units upon vesting of the restricted units, thetotal number of common units outstanding will increase. The compensationcommittee, in its discretion, may grant tandem distribution equivalent units (“DERs”)with 

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respect to restrictedunits, which entitle the recipient to receive an amount in cash equal to, andat the same time as, the cash distributions made by us with respect to a commonunit during the period such restricted unit is outstanding.

We intend the issuance of the common units uponvesting of the restricted units under the plan to serve as a means of incentivecompensation for superior performance and not primarily as an opportunity toparticipate in the equity appreciation of the common units. Therefore, planparticipants will not pay any consideration for the common units they receive,and we will receive no remuneration for the units.

*Unit Options.  *Thelong-term incentive plan will permit the grant of options covering commonunits. The compensation committee will be able to make grants under the plan toemployees and directors containing such terms as the committee determines. Unitoptions will not have an exercise price that is less than the fair market valueof the units on the date of grant. In general, unit options granted will becomeexercisable over a period determined by the compensation committee. Inaddition, the unit options will become exercisable upon a change in control ofK-Sea Transportation Partners L.P. or K-Sea Operating Partnership L.P. or uponthe achievement of specified performance objectives. Unless otherwise providedin an award agreement, unit options may be exercised only by the participantduring his lifetime or by the person to whom the participant’s right will passby will or the laws of descent and distribution.

If a grantee’s employmentor membership on the board of directors terminates for any reason, the grantee’sunvested options will be automatically forfeited unless, and to the extent, thecompensation committee provides otherwise or unless otherwise provided in awritten employment agreement between the grantee and K-Sea General Partner GPLLC or its affiliates. Upon exercise of a unit option, K-Sea GeneralPartner GP LLC will acquire common units in the open market or directly from usor any other person or use common units that it already owns, or anycombination of the foregoing, as determined by the compensation committee inits discretion. K-Sea General Partner GP LLC will be entitled to reimbursementby us for the difference between the cost incurred in acquiring these commonunits and the proceeds received from an optionee at the time of exercise. Thus,the cost of the unit options will be borne by us. If we issue new common unitsupon exercise of the unit options, the total number of common units outstandingwill increase, and the general partner of our general partner will pay us theproceeds it receives from the optionee upon exercise of the unit option. Theunit option plan has been designed to furnish additional compensation toemployees and directors and to align their economic interests with those ofcommon unitholders.

**Unit Purchase Plan**

We have a unit purchaseplan for employees of our general partner and its affiliates. The number ofcommon units initially available for purchase under this plan is 200,000. Theunit purchase plan is intended to serve as a means of encouraging participantsto invest in common units and to encourage participants to devote their bestefforts to the business of the partnership. Our general partner pays thebrokerage commissions, transfer taxes and other costs and expenses of the plan.All common units acquired under the plan will be subject to a one-year holdingperiod from the date of purchase. If a participant sells or otherwise disposesof his common units during this one-year holding period, the participant willthereafter be precluded from participating in the unit purchase plan until thefirst unit purchase period following the first anniversary of the date of thepledge, transfer, sale or other distribution of common units. The plan isadministered by the compensation committee of the board of directors of K-SeaGeneral Partner GP LLC. The plan may be terminated at any time by thecompensation committee and will automatically terminate when all of theavailable common units under the plan have been purchased. The plan may beamended from time to time by the compensation committee.

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**Director Compensation**

K-Sea General Partner GP LLC pays no additionalremuneration to its employees for serving as directors.

Thefollowing table provides information on compensation and reimbursementpractices for independent directors of K-Sea General Partner GP LLC (Messrs. Abbate,Alperin and Salerno):
| ** **                                                            | ** ** | **Fiscal 2006(1)**  | ** ** | **Fiscal 2005** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------|------------|----------------------|------------|
| Annual retainer  (payable quarterly)                                  |       | $5,000                   |       | Not  Applicable      |       |
| Additional fee  for attendance at each board meeting                  |       | $1,000                   |       | Not  Applicable      |       |
| Additional fee  for attendance at each audit committee meeting(2)     |       | $1,000                   |       | $750                 |       |
| Additional fee  for chairman at each audit committee meeting     |       | $1,000                   |       | $1,000               |       |
| Additional fee  for attendance at each compensation committee meeting |       | $1,000                   |       | $750                 |       |
| Equity-based  compensation                                            |       | 250  restricted units(3) |       | Not  Applicable(4)   |       |
| Reimbursement of  expenses attendant to board membership              |       | Yes                      |       | Yes                  |       |

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(1)   Theboard of directors of K-Sea General Partner GP LLC established compensation andreimbursement policies for fiscal 2006 at its regularly scheduled meeting on September 8,2005. These policies will apply to subsequent fiscal years unless changed by theboard of directors of K-Sea General Partner GP LLC or the compensationcommittee thereof.

(2)   Additionalfee is only $500 if the audit committee meeting occurs on the same day as aboard meeting.

(3)   Restrictedunits vest on the first anniversary of the date of grant, subject to earliervesting in the event of a change in control, death, disability or retirementand to such other terms as are set forth in the award agreement, a form ofwhich has been filed as an exhibit to this report. The date of grant for fiscal2006 is September 8, 2005; the date of grant for subsequent fiscal yearswill be the date of the first regularly scheduled board meeting during suchfiscal year. Grants of restricted units include associated DERs.

(4)   On February 23,2004, the independent directors were each granted 3,000 restricted units andassociated DERs. The restricted units vest in four equal annual installmentsbeginning on February 23, 2005, subject to earlier vesting in the event ofa change in control, death, disability or retirement and to such other terms asare set forth in the award agreement.

On October 1, 2004, the compensation committee ofthe board of directors of K-Sea General Partner GP LLC granted 15,000restricted units and associated DERs to Mr. Dowling under the K-Sea TransportationPartners L.P. Long-Term Incentive Plan. The restricted units vest in five equalannual installments beginning on October 1, 2005.

Except as described above, neither Mr. Dowlingnor Mr. Friedman has received any remuneration for serving as a director.We also reimburse Mr. Dowling and Mr. Friedman for expenses attendantto board membership.

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**ITEM12.**         SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITYHOLDER MATTERS.

A diagram depicting ourcurrent organizational structure is presented below.

****

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**K-SeaTransportation Partners L.P.**

Thefollowing table sets forth the beneficial ownership of units of K-SeaTransportation Partners L.P. as of September 12, 2005 by beneficial owners of5% or more of such units by each director and executive officer of K-SeaGeneral Partner GP LLC and by all directors and executive officers as a group.
| ** **                                                        | ** ** | ** ** | ** ** | **Common**   | ** ** | **Percentage  of  Common** | ** ** | **Subordinated** | ** ** | **Percentage  of  Subordinated** | ** ** | **Percentage of  Total  Common  and  Subordinated** | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|--------------|------------|----------------------------|------------|------------------|------------|----------------------------------|------------|----------------------------------------------------------|------------|
| **Name of Beneficial Owners(1)**                   | ** ** | ** ** | ** ** | **Units(2)** | ** ** | **Units**                  | ** ** | **Units**        | ** ** | **Units**                        | ** ** | **Units**                                                | ** ** |
| ***Beneficial  Owners of 5% or More***                            |       |       |       |         |       |                       |       |             |       |                             |       |                                                     |       |   |   |   |   |   |   |
| EW Transportation  LLC(3)                                         |       | —     |       |         | —     |                       |       |             | 4,165,000  |                             |       |                                                     | 100.0      | % |   |   | 47.2 | % |   |
| EW Holding Corp.(4)                                               |       | —     |       |         | —     |                       |       |             | 1,181,818  |                             |       |                                                     | 28.4       | % |   |   | 13.4 | % |   |
| EW Transportation  Corp.                                          |       | —     |       |         | —     |                       |       |             | 454,545    |                             |       |                                                     | 10.9       | % |   |   | 5.1 | % |   |
| Tortoise Energy  Infrastructure Corporation(5)                    |       | 571,300    |       |         | 12.2       | %                          |       |             | —     |                             |       |                                                     | —     |   |   |   | 6.5 | % |   |
| Tortoise Capital  Advisors, L.L.C.(5)                             |       | 666,533    |       |         | 14.3       | %                          |       |             | —     |                             |       |                                                     | —     |   |   |   | 7.5 | % |   |
| ***Directors  and Executive Officers***                           |       |       |       |         |       |                       |       |             |       |                             |       |                                                     |       |   |   |   |   |   |   |
| James J. Dowling                                                  |       | 6,000      |       |         | *          |                       |       |             | —     |                             |       |                                                     | —     |   |   |   | * |   |   |
| Timothy J. Casey                                                  |       | 4,000      |       |         | *          |                       |       |             | —     |                             |       |                                                     | —     |   |   |   | * |   |   |
| Anthony S. Abbate                                                 |       | 2,750      |       |         | *          |                       |       |             | —     |                             |       |                                                     | —     |   |   |   | * |   |   |
| Barry J. Alperin                                                  |       | 3,750      |       |         | *          |                       |       |             | —     |                             |       |                                                     | —     |   |   |   | * |   |   |
| Brian P.  Friedman(6)                                             |       | 10,800     |       |         | *          |                       |       |             | 4,165,000  |                             |       |                                                     | 100.0      | % |   |   | 47.3 | % |   |
| Frank Salerno                                                     |       | 2,050      |       |         | *          |                       |       |             | —     |                             |       |                                                     | —     |   |   |   | * |   |   |
| John J. Nicola                                                    |       | 8,500      |       |         | *          |                       |       |             | —     |                             |       |                                                     | —     |   |   |   | * |   |   |
| Thomas M.  Sullivan                                               |       | 1,600      |       |         | *          |                       |       |             | —     |                             |       |                                                     | —     |   |   |   | * |   |   |
| Richard P.  Falcinelli                                            |       | 2,200      |       |         | *          |                       |       |             | —     |                             |       |                                                     | —     |   |   |   | * |   |   |
| All directors and  executive officers as a group (9 persons) |       | 41,650     |       |         | *          |                       |       |             | 4,165,000  |                             |       |                                                     | 100.0      | % |   |   | 47.6 | % |   |

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*                    Less than 1%.

(1)   Unlessotherwise noted, each beneficial owner has sole voting and dispositive powerwith respect to the common and subordinated units set forth opposite suchholder’s name.

(2)          Holders of restrictedunits do not have voting or investment power with respect to such units priorto vesting. Restricted units that vest within 60 days of the dateof this report are deemed outstanding for purposes of determining thebeneficial ownership and computing the percentage ownership of such person, butare not deemed outstanding for purposes of computing the percentage ownershipof any other person. Accordingly, the following common units that may be issuedupon the vesting of restricted units are included in the table: Mr. Dowling—3,000;Mr. Casey—3,000; Mr. Nicola—1,000; Mr. Sullivan—1,000; and Mr. Falcinelli—1,000.

(3)          EW Transportation LLC isowned by individual investors, including certain of our directors and executiveofficers, and by KSP Investors A L.P., KSP Investors B L.P. and KSP Investors CL.P. (each, a “KSP Entity”). The table below sets forth the economic interestin, and beneficial ownership of equity interests of, EW Transportation LLC,which beneficial ownership includes units beneficially owned by EW HoldingCorp. and EW Transportation Corp., its wholly owned subsidiaries. The addressof EW Transportation LLC is 3245 Richmond Terrace, Staten Island, New York10303.

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(4)          EW Holding Corp.’sbeneficial ownership includes units beneficially owned by EW TransportationCorp., its wholly owned subsidiary. The address of each entity is 3245 RichmondTerrace, Staten Island, New York 10303.

(5)          Based solely on aSchedule 13G filed with the Securities and Exchange Commission on August 12,2005 by Tortoise Energy Infrastructure Corporation (“TEIC”) and TortoiseCapital Advisors, L.L.C., an investment advisor to TEIC and certain managedaccounts (“TCA”). TCA, by virtue of an investment advisory agreement with TEIC,has all investment and voting power over common units owned of record by TEIC. TCAand TEIC have reported that they share voting power and dispositive power overthe common units owned of record by TEIC. TCA also acts as an investmentadvisor to certain managed accounts. Including shares owned of record by TEIC,TCA has shared voting power with respect to 629,227 common units and shareddispositive power with respect to 666,533 common units. TCA is not the recordowner of any common units and disclaims any beneficial interest in such commonunits. The address of each entity is 10801 Mastin Boulevard, Suite 222, OverlandPark, Kansas 66210.

(6)          Mr. Friedmanowns 51% of Park Avenue Transportation Inc., the general partner of each KSPEntity and, therefore, may be deemed to beneficially own the subordinated unitsheld by EW Transportation LLC. The address of each KSP Entity and Park AvenueTransportation Inc. is 520 Madison Avenue, 12th Floor, New York, New York10022.

**EW Transportation LLC**

Thefollowing table sets forth the economic interest in, and the beneficialownership of equity interests of, EW Transportation LLC as of September 12,2005:
| **Name of Beneficial Owner**                                                       | ** ** | ** ** | ** ** | **Economic  Interest** | ** ** | **Equity  Interest** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------|------------|------------------------|------------|----------------------|------------|
| KSP Investors A L.P.                                                                              |       |       | 57.6       | %                      |       |                 | 62.9       | % |   |
| KSP Investors B L.P.                                                                              |       |       | 19.8       | %                      |       |                 | 21.7       | % |   |
| KSP Investors C L.P.                                                                              |       |       | 12.6       | %                      |       |                 | 13.7       | % |   |
| Park Avenue  Transportation Inc.(1)                                                               |       |       | 90.0       | %                      |       |                 | 98.3       | % |   |
| James J. Dowling(2)                                                                               |       |       | —     |                   |       |                 | —     |   |   |
| Timothy J. Casey                                                                                  |       |       | 5.5        | %                      |       |                 | *          |   |   |
| Anthony S. Abbate                                                                                 |       |       | —     |                   |       |                 | *          |   |   |
| Barry J. Alperin                                                                                  |       |       | —     |                   |       |                 | *          |   |   |
| Brian P. Friedman(1)                                                                              |       |       | 90.0       | %                      |       |                 | 98.3       | % |   |
| Frank Salerno                                                                                     |       |       | —     |                   |       |                 | *          |   |   |
| John J. Nicola                                                                                    |       |       | 1.3        | %                      |       |                 | *          |   |   |
| Thomas M. Sullivan                                                                                |       |       | 1.3        | %                      |       |                 | *          |   |   |
| Richard P. Falcinelli                                                                             |       |       | 1.3        | %                      |       |                 | *          |   |   |
| All directors and executive officers of K-Sea  General Partner GP LLC as a group (9 persons) |       |       | 99.3       | %                      |       |                 | 99.9       | % |   |

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*                    Less than 1%.

(1)          Park Avenue Transportation Inc.is the general partner of each of KSP Investors A L.P., KSP Investors B L.P.and KSP Investors C L.P. (each, a “KSP Entity”) and, therefore, has sole votingand dispositive power with respect to the equity interests of EW TransportationLLC owned by each KSP Entity. Mr. Friedman owns 51% of the outstandingshares of capital stock of Park Avenue Transportation Inc., the general partnerof each KSP Entity. In addition, Mr. Friedman has an economic interest inFS Private Investments LLC, which in turn has an economic interest in each KSPEntity.

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(2)          Mr. Dowlingis a limited partner in KSP Investors C L.P. and has an effective 1.38%economic interest in EW Transportation LLC.

**K-Sea General Partner GP LLC**

Thefollowing table sets forth the economic interest in, and the beneficialownership of equity interests of, K-Sea General Partner GP LLC, the generalpartner of our general partner, as of September 12, 2005:
| **Name of Beneficial Owner**                                                       | ** ** | ** ** | ** ** | **Economic Interest/  Equity Interest** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------|------------|---------------------------------------------------|------------|
| KSP 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                                                                                     |       |       | —     |                                              |       |
| John J. Nicola                                                                                    |       |       | 1.3        | %                                                 |       |
| Thomas M. Sullivan                                                                                |       |       | 1.3        | %                                                 |       |
| Richard P. Falcinelli                                                                             |       |       | 1.3        | %                                                 |       |
| All directors and executive officers of K-Sea  General Partner GP LLC as a group (9 persons) |       |       | 99.3       | %                                                 |       |

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(1)          Park AvenueTransportation Inc. is the general partner of each of KSP Investors AL.P., KSP Investors B L.P. and KSP Investors C L.P. (each, a “KSP Entity”) and,therefore, has sole voting and dispositive power with respect to the equityinterests of K-Sea General Partner GP LLC owned by each KSP Entity. Mr. Friedmanowns 51% of the outstanding shares of capital stock of the general partner ofeach KSP Entity.

(2)          Mr. Dowlinghas an effective 1.38% economic interest in K-Sea General Partner GP LLC.

**EquityCompensation Plan Information**

Thefollowing table sets forth in tabular format a summary of our equity planinformation as of September 12, 2005:
| ** **                                                 | ** ** | **(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)  |       |       | —     |                                                                                                                                         |       |                                                                                                | —     |   |   |   | 378,250 | (2) |   |
| Equity compensation  plans not approved by securityholders |       |       | —     |                                                                                                                                         |       |                                                                                                | —     |   |   |   | — |   |   |
| Total                                                      |       |       | —     |                                                                                                                                         |       |                                                                                                | —     |   |   |   | 378,250 |   |   |
|                                                            |            |            |            |                                                                                                                                              |            |                                                                                                     |            |  |  |  |  |  |  |  |  |

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(1)          The K-Sea TransportationPartners L.P. Long-Term Incentive Plan is our only equity compensation plan. Nooptions, warrants or rights have been issued under this plan. For a descriptionof the material 

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features of this plan,please read “Executive Compensation—Long-Term Incentive Plan” in Item 11 ofthis report.

(2)          Anaggregate of 61,750 restricted units have been issued under the K-SeaTransportation Partners L.P. Long-Term Incentive Plan.

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS.

**Distributionsand Payments to Our General Partner and Its Affiliates**

We generally distribute 98% of our available cash toour unitholders, including EW Transportation LLC, EW Holding Corp. and EWTransportation Corp. in their capacity as holders of an aggregate of 4,165,000subordinated units, and the remaining 2% of our available cash to our generalpartner. If distributions exceed the $0.50 per unit minimum quarterlydistribution and other higher target levels, our general partner is entitled toincreasing percentages of the distributions, up to 50% of the distributionsabove the highest target level. We refer to the rights to the increasingdistributions as “incentive distribution rights.” Please read “Market ForRegistrant’s Common Equity, Related Securityholder Matters and Issuer Purchasesof 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 ouroutstanding units, our general partner would receive an annual distribution of$360,500 on its 2% general partner interest, and affiliates of our generalpartner receive an annual distribution of approximately $8,330,000 on theirsubordinated units.

Our general partner and its affiliates do not receivea 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 generalpartner has sole discretion in determining the amount of these expenses. Thesereimbursed expenses totaled approximately $0 and $17,000 in fiscal 2005 andfiscal 2004, respectively.

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

Upon our liquidation, thepartners, including our general partner, will be entitled to receiveliquidating distributions according to their particular capital accountbalances.

**Omnibus Agreement**

We are a party to anomnibus agreement with KSP Investors A L.P. (“KSP A”), KSP Investors B L.P. (“KSPB”), KSP Investors C L.P. (“KSP C” and, together with KSP A and KSP B, the “KSPEntities”), EW Transportation LLC, EW Acquisition Corp., EW Holding Corp., EWTransportation Corp., K-Sea General Partner LP (our general partner), K-SeaGeneral Partner GP LLC (the general partner of our general partner), K-Sea OLPGP LLC (the general partner of our operating partnership) and K-Sea OperatingPartnership L.P. (our operating partnership).

***Noncompetition***

Under the omnibusagreement, neither the KSP Entities nor their controlled affiliates may engage,either directly or indirectly, in the business of providing refined petroleumproduct marine transportation, distribution and logistics services in theUnited States to the extent such business generates qualifying income forfederal income tax purposes. The restriction does not apply to the assets thatwere retained by our predecessors at the closing of our initial public offeringin January 2004. Except as provided above, neither the KSP Entities northeir controlled affiliates are prohibited from engaging in activities in which

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theycompete directly or indirectly with us. Jefferies Capital Partners, and thefunds it manages, are not prohibited from owning assets or engaging inbusinesses that compete directly or indirectly with us.

***Indemnification***

Under the omnibusagreement, the KSP Entities, EW Transportation LLC and the subsidiaries of EW TransportationLLC (collectively, “the Indemnitors”) have jointly and severally agreed toindemnify us until January 14, 2009 against certain environmental andtoxic tort liabilities and, until January 14, 2014, against certain othertoxic tort liabilities associated with the operation of the assets before January 14,2004. Liabilities resulting from changes in law after the closing of ourinitial public offering are excluded from the environmental indemnity. We haveagreed to indemnify the Indemnitors for events and conditions associated withthe operation of our assets that occur on or after January 14, 2004 to theextent the Indemnitors are not required to indemnify us. There is an aggregatecap of $10 million on the amount of indemnity coverage provided by theIndemnitors for the environmental and toxic tort liabilities.

TheIndemnitors have also agreed to indemnify us for liabilities related to:

·       certaindefects in title to the assets contributed to us and failure to obtain certainconsents and permits necessary to conduct our business that arise before January 14,2008;

·       eventsand conditions associated with any assets retained by the Indemnitors or any oftheir respective affiliates, whether occurring before or after January 14,2004;

·       certainliabilities retained by EW Holding Corp., EW Transportation LLC and EWTransportation Corp.; and

·       certainincome tax liabilities attributable to the operation of the assets contributedto us prior to the time they were contributed to us in connection with ourinitial public offering.

***Amendments***

The omnibus agreement maynot be amended without the prior approval of the conflicts committee if theproposed amendment will, in the reasonable discretion of our general partner,adversely affect holders of our common units.

**Properties**

We lease our office andpier facilities from, and charter certain vessels to, affiliates of anemployee. Additionally, we utilize one of these affiliates for tank cleaningservices. Please read note 7 to our audited consolidated financialstatements included elsewhere in this report.

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**ITEM14.**         PRINCIPAL ACCOUNTANT FEESAND SERVICES.

The following tablepresents fees for services rendered by PricewaterhouseCoopers LLP during fiscal2005 and fiscal 2004.
| ** **            | ** ** | **Year Ended  June 30, 2005** | ** ** | **Year Ended  June 30, 2004** | ** ** |
|-----------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| Audit fees(1)         |       |                                         | $          | 348,235                                      |       |   |   | $ | 657,721 |   |   |
| Audit-related fees(2) |       |                                         | 162,923    |                                         |       |   | 23,770 |   |   |
| Tax fees(3)           |       |                                         | 492,691    |                                         |       |   | 314,828 |   |   |
| All other fees        |       |                                         | —     |                                         |       |   | — |   |   |
| Total                 |       |                                         | $          | 1,003,849                                    |       |   |   | $ | 996,319 |   |   |

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(1)          Feesfor audit of annual financial statements and internal controls over financialreporting under the Sarbanes Oxley Act of 2002, reviews of the relatedquarterly financial statements, and reviews of documents filed with the SEC.

(2)          Fees for professionalservices for consultations related to financial accounting and reportingstandards, compliance with the Sarbanes Oxley Act of 2002, and due diligencerelated to acquisitions.

(3)          Fees related toprofessional services for tax compliance, tax advice and tax planning.

The audit committee hasconsidered whether the provision of the non-audit services described above iscompatible with maintaining the independence of PricewaterhouseCoopers LLP anddetermined that the provision of such services was compatible with maintainingsuch independence.

**AuditCommittee Policies and Procedures for Pre-approval of Audit and Non-AuditServices**

Consistent with SECpolicies regarding auditor independence, the audit committee is responsible forpre-approving all audit and non-audit services performed by the independentregistered public accounting firm. In addition to its approval of the auditengagement, the audit committee takes action at least annually to authorize theperformance by the independent registered public accounting firm of severalspecific types of services within the categories of audit-relatedservices and tax services. Audit-related services include assurance andrelated services that are reasonably related to the performance of the audit orreview of the financial statements. Authorized tax services include compliance-relatedservices such as services involving tax filings, as well as consulting servicessuch as tax planning, transaction analysis and opinions. Services are subjectto pre-approval of the specific engagement if they are outside the specifictypes of services included in the periodic approvals covering servicecategories or if they are in excess of specified fee limitations. The auditcommittee may delegate pre-approval authority to subcommittees. During 2005, nopre-approval requirements were waived.

71

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**PART IV**

**ITEM 15.**         EXHIBITSAND FINANCIAL STATEMENT SCHEDULES.

**(a)(1)   Financial Statements.**

See “Index to FinancialStatements” set forth on page F-1.

**(a)(2)   Financial Statement Schedules.**

None.

**(a)(3)   Exhibits.**
| Exhibit   Number | ** ** | ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **Description** |
|------------------|------------|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|
| 2.1*             |       |       |       | Membership Interest Purchase Agreement dated  August 23, 2005 by and among K-Sea Operating Partnership L.P., the  Partnership, Marine Resources Group, Inc. and Saltchuk  Resources, Inc. (incorporated by reference to Exhibit 10.1 to the  Partnership’s Current Report on Form 8-K dated August 23, 2005).  Schedules have been omitted but will be furnished supplementally to the Securities  and Exchange Commission on request. |
| 3.1*             |       | —     |       | 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 on July 16, 2003).                                                                                                                                               |
| 3.2*             |       | —     |       | Second 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 3.2 to the Partnership’s Quarterly Report on Form 10-Q  for the period ended December 31, 2003).                                                                                                                                               |

 

72

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| Exhibit   Number | ** ** | ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **Description** |
|------------------|------------|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|
| 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).                                                                                                                                                                                                                                                                                                            |
| 4.1*             |       | —     |       | Trust Indenture relating  to United States Government Guaranteed Ship Financing Obligations among K-Sea  Transportation LLC, EW Holding Corp. and JPMorgan Chase Bank dated as of  June 7, 2002 (incorporated by reference to Exhibit 4.1.1 to the  Registration Statement).                                                                                                                                                                                                                                                                                  |
| 4.2*             |       | —     |       | Supplemental  Indenture No. 1, dated as of January 14, 2004, to the Trust  Indenture relating to United States Government Guaranteed Ship Financing  Obligations among JPMorgan Chase Bank, EW Holding Corp., K-Sea  Transition 4 Corp., K-Sea LP4, L.P., K-Sea Transportation LLC, K-Sea  LP1, L.P., K-Sea LP2, L.P., K-Sea Transportation Partners L.P.  and K-Sea Operating Partnership L.P. (incorporated by reference to  Exhibit 4.1.2 to the Partnership’s Quarterly Report on Form 10-Q  for the period ended December 31, 2003). |
| 4.3*             |       | —     |       | Registration Rights  Agreement dated as of June 1, 2005 by and between the Partnership and  Tortoise Energy Infrastructure Corporation (incorporated by reference to  Exhibit 4.1 to the Partnership’s Current Report on Form 8-K dated  June 1, 2005).                                                                                                                                                                                                                                                                                        |
| 10.1*            |       | —     |       | 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*          |       | —     |       | Commitment to Guarantee  Obligations by The United States of America Accepted by K-Sea  Transportation LLC and EW Holding Corp., Shipowners, dated June 7, 2002  (incorporated by reference to Exhibit 10.4.1 to the Registration  Statement).                                                                                                                                                                                                                                                                                                                |

72

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| 10.3.2*      |   | — |   | Amendment No. 1 to Commitment to Guarantee  Obligations, dated as of January 14, 2004, made and entered by the  United States of America and accepted by K-Sea Transportation Partners  L.P. and K-Sea Operating Partnership L.P. (incorporated by reference to  Exhibit 10.4.2 to the Partnership’s Quarterly Report on Form 10-Q  for the period ended December 31, 2003).                                                                                               |
|--------------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.4*        |   | — |   | Amended and Restated  Security Agreement, dated as of January 14, 2004, among K-Sea  Transportation Partners L.P., K-Sea Operating Partnership L.P., and the  United States of America (incorporated by reference to Exhibit 10.5 to  the Partnership’s Quarterly Report on Form 10-Q for the period  ended December 31, 2003).                                                                                                                                                 |
| 10.5*        |   | — |   | Restated Title XI  Reserve Fund and Financial Agreement, dated as of January 14, 2004,  among K-Sea Transportation Partners L.P., K-Sea Operating  Partnership L.P., K-Sea Transportation Inc. and The United States of  America (incorporated by reference to Exhibit 10.6 to the Partnership’s  Quarterly Report on Form 10-Q for the period ended  December 31, 2003).                                                                                                       |
| 10.6.1*      |   | — |   | 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).                                                                                                                                                                                                                                                                                   |
| 10.6.2*      |   | — |   | Form of Director  Phantom Unit Award Agreement (incorporated by reference to Exhibit 10.1  to the Partnership’s Current Report on Form 8-K dated October 1,  2005).                                                                                                                                                                                                                                                                                                             |
| 10.6.3*      |   | — |   | Form of Employee  Phantom Unit Award Agreement (incorporated by reference to Exhibit 10.2  to the Partnership’s Current Report on Form 8-K dated October 1,  2005).                                                                                                                                                                                                                                                                                                             |
| 10.7*        |   | — |   | 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).                                                                                                                                                                                                                                                      |
| 10.8*†  |   | — |   | 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).                                                                                                                                                                                                                           |
| 10.9*†  |   | — |   | Employment Agreement,  dated as of January 14, 2004, between K-Sea Transportation Inc.  and John J. Nicola (incorporated by reference to Exhibit 10.10 to the  Partnership’s Quarterly Report on Form 10-Q for the period ended  December 31, 2003).                                                                                                                                                                                                                            |
| 10.10*† |   | — |   | 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).                                                                                                                                                                                                                     |
| 10.11*† |   | — |   | 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).                                                                                                                                                                                                                        |
| 10.12†  |   | — |   | Form of  Indemnification Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.13*       |   | — |   | Loan and Security  Agreement dated as of March 24, 2005 by and among K-Sea Operating  Partnership L.P., as Borrower, the Lenders party thereto, LaSalle Bank  National Association, as Syndication Agent, and KeyBank National Association,  as Administrative Agent and Collateral Trustee for the Lenders (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  March 30, 2005). |

73

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| 10.14* |   | — |   | Loan and Security Agreement dated as of  March 24, 2005 by and between The CIT Group/Equipment  Financing, Inc., as Lender, and K-Sea Operating Partnership L.P., as  Borrower (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 March 30, 2005). |
|--------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.15* |   | — |   | 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).                                                                                    |
| 10.16  |   | — |   | Loan Agreement, dated as  of June 28, 2005, between K-Sea Operating Partnership L.P. and Citizens  Asset Finance, a d/b/a of Citizens Leasing Corporation.                                                                                                                                                                                                                 |
| 10.17* |   | — |   | Common Unit Purchase  Agreement dated as of June 1, 2005 by and between the Partnership and  Tortoise Energy Infrastructure Corporation (incorporated by reference to  Exhibit 10.1 to the Partnership’s Current Report on Form 8-K dated  June 1, 2005).                                                                                              |
| 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.                                                                                                                                                                                                                  |

----

*                    Incorporated byreference, as indicated.

†                    Managementcontract, compensatory plan or arrangement.

74

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                         | K-SEA TRANSPORTATION  PARTNERS L.P. |
|-------------------------|-------------------------------------|
|                    |                                | By: | K-SEA GENERAL PARTNER  L.P., |
|                    |                                | its General Partner. |
|                    |                                | By: | K-SEA GENERAL PARTNER GP  LLC, |
|                    |                                | its General Partner |
| September 13, 2005 | By:                                 | /s/ TIMOTHY J. CASEY |
|                    |                                | Timothy J. Casey |
|                    |                                | *President and Chief Executive Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons in the capacities and on the datesindicated:
|                        | **Signature** | ** **                          | ** ** |                         | **Title** | ** ** | ** ** |  | **Date** | ** ** | ** ** |
|------------------------|---------------|-------------------------------------|------------|-------------------------|-----------|------------|------------|--|----------|------------|------------|
| /s/  TIMOTHY J. CASEY  |          | President and Chief  Executive      |       | September 13, 2005 |      |
| Timothy J. Casey       |          | Officer and Director  (Principal    |       |                    |      |
|                   |          | Executive Officer)                  |       |                    |      |
| /s/  JOHN J. NICOLA    |          | Chief Financial Officer  (Principal |       | September 13, 2005 |      |
| John J. Nicola         |          | Financial and Accounting  Officer)  |       |                    |      |
| /s/  JAMES J. DOWLING  |          | Chairman of the Board  and Director |       | September 13, 2005 |      |
| James J. Dowling       |          |                                |       |                    |      |
| /s/  ANTHONY S. ABBATE |          | Director                            |       | September 13, 2005 |      |
| Anthony S. Abbate      |          |                                |       |                    |      |
| /s/  BARRY J. ALPERIN  |          | Director                            |       | September 13, 2005 |      |
| Barry J. Alperin       |          |                                |       |                    |      |
| /s/  BRIAN P. FRIEDMAN |          | Director                            |       | September 13, 2005 |      |
| Brian P. Friedman      |          |                                |       |                    |      |
| /s/  FRANK SALERNO     |          | Director                            |       | September 13, 2005 |      |
| /s/ Frank Salerno      |          |                                |       |                    |      |

 

 

75

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**INDEXTO CONSOLIDATED STATEMENTS**
|                                                                                                                                       |        | **Page** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|
| Report of Independent  Registered Public Accounting Firm                                                                              |   | F-2      |       |
| Consolidated Balance Sheets as of  June 30, 2005 and 2004                                                                        |   | F-4      |       |
| Consolidated Statements of  Operations for the fiscal years ended  June 30, 2005, 2004 and 2003                                  |   | F-5      |       |
| Consolidated Statements of  Partners’ Capital/Members’ Equity for the fiscal years ended  June 30, 2005, 2004 and 2003 |   | F-6      |       |
| Consolidated Statements of  Cash Flows for the fiscal years ended  June 30, 2005, 2004 and 2003                                  |   | F-7      |       |
| Notes to Consolidated  Financial Statements                                                                                           |   | F-8      |       |

 

F-1

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**Report of Independent Registered Public AccountingFirm**

To the General Partner and Unitholders of K-SeaTransportation Partners L.P.

We have completed anintegrated audit of K-Sea Transportation Partners L.P.’s 2005 consolidatedfinancial statements and of its internal control over financial reporting as ofJune 30, 2005 and audits of its 2004 and 2003 consolidated financialstatements in accordance with the standards of the Public Company AccountingOversight Board (United States). Ouropinions, based on our audits, are presented below.

*Consolidated financial statements*

In our opinion, the consolidated financial statements listed inthe index appearing under Item 15(a)(1) present fairly, in allmaterial respects, the financial position of K-Sea Transportation Partners L.P.and its subsidiaries at June 30, 2005 and 2004, and the results of theiroperations and their cash flows for each of the three years in the period endedJune 30, 2005 in conformity with accounting principles generally acceptedin the United States of America. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements****based on ouraudits. We conducted our audits of these statements in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit of financial statements includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

*Internal controlover financial reporting*

Also, in our opinion, management’s assessment,included in Management’s Report on Internal Control Over Financial Reportingappearing under Item 9A, that the Company maintained effective internal controlover financial reporting as of June 30, 2005 based on criteria establishedin *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO), is fairly stated, in all material respects, based on those criteria. Furthermore,in our opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of June 30, 2005, based oncriteria established in *Internal Control—IntegratedFramework* issued by the COSO. The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express opinions on management’s assessmentand on the effectiveness of the Company’s internal control over financialreporting based on our audit. We conducted our audit of internal control over financialreporting in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in all materialrespects. An audit of internal control over financial reporting includesobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we consider necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinions.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the 

F-2

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assets of the company; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financialstatements.

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.
| /s/ PRICEWATERHOUSECOOPERS  LLP |   |
|---------------------------------|--------|
| New York, New  York             |
| September 12,  2005        |

 

F-3

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**K-SEA TRANSPORTATION PARTNERS L.P. (Note 1)Successor to K-Sea Transportation LLC (Predecessor)CONSOLIDATED BALANCE SHEETS(in thousands)**
| ** **                                        | ** ** | **June 30,** | ** **  |
|---------------------------------------------------|------------|-------------------|-------------|
| ** **                                        | ** ** | **2005**          | ** **  | **2004** | ** ** |
| **Assets**                                        |       |              |        |   |   |
| **Current Assets**                                |       |              |        |   |   |
| Cash and cash equivalents                         |       | $                 | 88          |   | $ | 379 |   |
| Title XI reserve fund                             |       | 1,190             |        | 1,220 |   |
| Accounts receivable, net                          |       | 14,299            |        | 11,810 |   |
| Deferred taxes                                    |       | 43                |        | 40 |   |
| Prepaid expenses and other current assets         |       | 4,328             |        | 2,389 |   |
| **Total current assets**                          | ** ** | **19,948**        | ** **  | **15,838** | ** ** |
| Vessels and equipment, net                        |       | 235,490           |        | 193,646 |   |
| Construction in progress                          |       | 8,266             |        | 7,722 |   |
| Title XI reserve fund                             |       | 1,570             |        | 1,570 |   |
| Deferred financing costs, net                     |       | 3,489             |        | 4,172 |   |
| Other assets                                      |       | 4,499             |        | 5,196 |   |
| **Total assets**                                  | ** ** | **$**             | **273,262** | ** ** | **$** | **228,144** | ** ** |
| **Liabilities  and Partners’ Capital**       |       |              |        |   |   |
| **Current Liabilities**                           |       |              |        |   |   |
| Current portion of long-term debt                 |       | $                 | 2,897       |   | $ | 4,066 |   |
| Accounts payable                                  |       | 9,077             |        | 6,811 |   |
| Accrued expenses and other current liabilities    |       | 5,646             |        | 4,141 |   |
| **Total current liabilities**                     | ** ** | **17,620**        | ** **  | **15,018** | ** ** |
| Title XI bonds                                    |       | 35,791            |        | 37,409 |   |
| Term loans                                        |       | 28,205            |        | 32,942 |   |
| Credit line borrowings                            |       | 47,112            |        | 4,400 |   |
| Deferred taxes                                    |       | 2,594             |        | 2,677 |   |
| **Total liabilities**                             | ** ** | **131,322**       | ** **  | **92,446** | ** ** |
| Commitments and  contingencies                    |       |              |        |   |   |
| **Partners’  Capital**                       |       | 141,940           |        | 135,698 |   |
| **Total  liabilities and partners’ capital** | ** ** | **$**             | **273,262** | ** ** | **$** | **228,144** | ** ** |

 

See accompanying notes to consolidated financial statements.

F-4

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**K-SEA TRANSPORTATION PARTNERS L.P. (Note 1)Successor to K-Sea Transportation LLC (Predecessor)CONSOLIDATED STATEMENTSOF OPERATIONS(in thousands, except per unit amounts)**
| ** **                                                                                                                                                                                                                                                                                                                                                                                      | ** ** | **For the Years Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                      | ** ** | **2005**                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| Voyage revenue                                                                                                                                                                                                                                                                                                                                                                                  |       | $                                                         | 118,811    |   | $ | 93,899 |   | $ | 83,942 |   |
| Bareboat charter  and other revenue                                                                                                                                                                                                                                                                                                                                                             |       | 2,583                                                     |       | 1,900 |   | 3,753 |   |
| **Total revenues**                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **121,394**                                               | ** ** | **95,799** | ** ** | **87,695** | ** ** |
| Voyage expenses                                                                                                                                                                                                                                                                                                                                                                                 |       | 24,220                                                    |       | 16,339 |   | 14,151 |   |
| Vessel operating  expenses                                                                                                                                                                                                                                                                                                                                                                      |       | 49,296                                                    |       | 38,809 |   | 36,326 |   |
| General and  administrative expenses                                                                                                                                                                                                                                                                                                                                                            |       | 11,163                                                    |       | 8,149 |   | 7,047 |   |
| Depreciation and  amortization                                                                                                                                                                                                                                                                                                                                                                  |       | 21,399                                                    |       | 18,643 |   | 16,293 |   |
| Net (gain) loss  on sale of vessels                                                                                                                                                                                                                                                                                                                                                             |       | (264                                                      | )          | 255 |   | (275 | ) |
| Total operating expenses                                                                                                                                                                                                                                                                                                                                                                        |       | 105,814                                                   |       | 82,195 |   | 73,542 |   |
| **Operating income**                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **15,580**                                                | ** ** | **13,604** | ** ** | **14,153** | ** ** |
| Interest expense,  net                                                                                                                                                                                                                                                                                                                                                                          |       | 5,949                                                     |       | 6,370 |   | 8,808 |   |
| Net loss on  reduction of debt                                                                                                                                                                                                                                                                                                                                                                  |       | 1,359                                                     |       | 3,158 |   | 4 |   |
| Other (income)  expense, net                                                                                                                                                                                                                                                                                                                                                                    |       | (27                                                       | )          | (253 | ) | 29 |   |
| **Income before provision (benefit) for income  taxes**                                                                                                                                                                                                                                                                                                                                         | ** ** | **8,299**                                                 | ** ** | **4,329** | ** ** | **5,312** | ** ** |
| Provision  (benefit) for income taxes                                                                                                                                                                                                                                                                                                                                                           |       | 163                                                       |       | (16,845 | ) | 340 |   |
| **Net income**                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **$**                                                     | **8,136**  | ** ** | **$** | **21,174** | ** ** | **$** | **4,972** | ** ** |
| **General partner’s interest in net income (note  3)**                                                                                                                                                                                                                                                                                                                                     | ** ** | **$**                                                     | **163**    | ** ** | **$** | **6,629** |   |   |   |
| **Limited  partners’ interest:**                                                                                                                                                                                                                                                                                                                                                           |       |                                                      |       |   |   |   |   |
| **Net income**                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **$**                                                     | **7,973**  | ** ** | **$** | **14,545** | ** ** | **$** | **4,972** | ** ** |
| **Net income per unit—basic**                                                                                                                                                                                                                                                                                                                                                              | ** ** | **$**                                                     | **0.95**   | ** ** | **$** | **2.26** | ** ** | **$** | **1.03** | ** ** |
| **                                   —diluted**                                                                                                                                                                       | ** ** | **$**                                                     | **0.95**   | ** ** | **$** | **2.25** | ** ** | **$** | **1.03** | ** ** |
| **Weighted average units outstanding—basic**                                                                                                                                                                                                                                                                                                                                               | ** ** | **8,372**                                                 | ** ** | **6,446** | ** ** | **4,830** | ** ** |
| **                                                             —diluted** | ** ** | **8,419**                                                 | ** ** | **6,453** | ** ** | **4,830** | ** ** |

 

See accompanying notes to consolidated financial statements.

F-5

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**K-SEA TRANSPORTATION PARTNERS L.P. (Note 1)Successor to K-Sea Transportation LLC (Predecessor)CONSOLIDATED STATEMENTOF PARTNERS’ CAPITAL/MEMBERS’ EQUITY(in thousands)**
| ** **                                                                                          | ** ** | ** **        | ** ** | **PARTNERS’ CAPITAL** | ** ** | ** **       | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-------------------|------------|---------------------------------|------------|------------------|------------|
| ** **                                                                                          | ** ** | ** **        | ** ** | **Limited Partners**       | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                                                                                          | ** ** | **MEMBERS’** | ** ** | **Common**                      | ** ** | **Subordinated** | ** ** | **General** | ** ** | ** ** | ** ** |
| ** **                                                                                          | ** ** | **EQUITY**        | ** ** | **Units**                       | ** ** | **$**            | ** ** | **Units** | ** ** | **$** | ** ** | **Partner** | ** ** | **TOTAL** | ** ** |
| ** **                                                                                          | ** ** | **(Predecessor)** | ** ** | ** **                      | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance of  Members’ Equity at June 30, 2002                                         |       |              | $          | 36,267                          |       |             |       |   |   |   |   |   |   |   |   |   |   |   | $ | 36,267 |   |
| Members’  contributions                                                                        |       |              | 123        |                            |       |             |       |   |   |   |   |   |   |   |   |   |   | 123 |   |
| Less notes  receivable on members’ contributions                                          |       |              | (123       | )                               |       |             |       |   |   |   |   |   |   |   |   |   |   | (123 | ) |
| Collection on  notes receivable from members, net of interest accrued                          |       |              | 51         |                            |       |             |       |   |   |   |   |   |   |   |   |   |   | 51 |   |
| Net income                                                                                          |       |              | 4,972      |                            |       |             |       |   |   |   |   |   |   |   |   |   |   | 4,972 |   |
| Balance of  Members’ Equity at June 30, 2003                                         |       |              | 41,290     |                            |       |             |       |   |   |   |   |   |   |   |   |   |   | 41,290 |   |
| Collection on  notes receivable from members, net of interest accrued                          |       |              | 46         |                            |       |             |       |   |   |   |   |   |   |   |   |   |   | 46 |   |
| Net income for the  period July 1, 2003 to January 13, 2004                                    |       |              | 1,776      |                            |       |             |       |   |   |   |   |   |   |   |   |   |   | 1,776 |   |
| Balance of  Members’ Equity at January 13, 2004                                      |       |              | 43,112     |                            |       |             |       |   |   |   |   |   |   |   |   |   |   | 43,112 |   |
| Adjustment to  reflect net liabilities not contributed to the Partnership                 |       |              | 5,334      |                            |       |             |       |   |   |   |   |   |   |   |   |   |   | 5,334 |   |
| Book value of net  assets contributed to the Partnership                                            |       |              | (48,446    | )                               |       | 665              |       | $ | 6,537 |   | 4,165 |   | $ | 40,941 |   |   | $ | 968 |   |   | — |   |
| Proceeds from  initial public offering of common units, net of offering costs of  $11,776 |       |              |       |                            |       | 4,165            |       | 86,101 |   |   |   |   |   |   |   |   |   | 86,101 |   |
| Redemption of  common units, net of offering costs of $1,035                                        |       |              |       |                            |       | (665             | )          | (14,592 | ) |   |   |   |   |   |   |   |   | (14,592 | ) |
| Distributions to  partners                                                                          |       |              |       |                            |       |             |       | (1,791 | ) |   |   | (1,791 | ) |   | (73 | ) |   | (3,655 | ) |
| Net income for the  period January 14,  2004 to June 30, 2004                                       |       |              |       |                            |       |             |       | 9,505 |   |   |   | 9,505 |   |   | 388 |   |   | 19,398 |   |
| Balance of  Partners’ Capital at June 30, 2004                                       |       |              |       |                            |       | 4,165            |       | 85,760 |   | 4,165 |   | 48,655 |   |   | 1,283 |   |   | 135,698 |   |
| Issuance of common  units under long-term incentive plan                                            |       |              |       |                            |       | 2                |       | 65 |   |   |   |   |   |   |   |   |   | 65 |   |
| Issuance of common  units, net of costs of $54                                                      |       |              |       |                            |       | 500              |       | 15,946 |   |   |   |   |   |   |   |   |   | 15,946 |   |
| Capital  contribution                                                                               |       |              |       |                            |       |             |       |   |   |   |   |   |   |   | 328 |   |   | 328 |   |
| Distributions to  partners                                                                          |       |              |       |                            |       |             |       | (8,935 | ) |   |   | (8,934 | ) |   | (364 | ) |   | (18,233 | ) |
| Net income                                                                                          |       |              |       |                            |       |             |       | 4,006 |   |   |   | 3,967 |   |   | 163 |   |   | 8,136 |   |
| Balance of  Partners’ Capital at June 30, 2005                                       |       |              | $          | —                          |       |             | 4,667      |   | $ | 96,842 |   | 4,165 |   | $ | 43,688 |   |   | $ | 1,410 |   |   | $ | 141,940 |   |

 

See accompanying notes to consolidated financial statements.

F-6

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**K-SEA TRANSPORTATION PARTNERS L.P. (Note 1)Successor to K-Sea Transportation LLC (Predecessor)CONSOLIDATED STATEMENTSOF CASH FLOWS(in thousands)**
| ** **                                                                         | ** ** | **For the Years Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Cash flows from operating activities:**                                          |       |                                                      |       |   |   |   |   |
| Net income                                                                         |       | $                                                         | 8,136      |   | $ | 21,174 |   | $ | 4,972 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                                      |       |   |   |   |   |
| Depreciation and  amortization                                                     |       | 21,945                                                    |       | 19,256 |   | 16,816 |   |
| Payment of  drydocking expenditures                                                |       | (7,654                                                    | )          | (7,011 | ) | (7,491 | ) |
| Provision for  doubtful accounts                                                   |       | 213                                                       |       | 100 |   | 81 |   |
| Deferred income  taxes                                                             |       | (86                                                       | )          | (16,845 | ) | 323 |   |
| Net (gain) loss on  sale of vessels                                                |       | (264                                                      | )          | 255 |   | (275 | ) |
| Accrued  supplemental interest                                                     |       | —                                                    |       | 360 |   | 713 |   |
| Unit compensation  costs                                                           |       | 310                                                       |       | 19 |   | — |   |
| Net loss on  reduction of debt                                                     |       | 1,359                                                     |       | 3,158 |   | 4 |   |
| Other                                                                              |       | 108                                                       |       | 92 |   | (192 | ) |
| Changes in operating  working capital:                                             |       |                                                      |       |   |   |   |   |
| Accounts  receivable                                                               |       | (2,702                                                    | )          | (3,338 | ) | (1,477 | ) |
| Prepaid expenses  and other current assets                                         |       | (1,930                                                    | )          | (376 | ) | (125 | ) |
| Accounts payable                                                                   |       | 3,966                                                     |       | 36 |   | (871 | ) |
| Accrued expenses  and other current liabilities                                    |       | 1,260                                                     |       | 534 |   | 431 |   |
| Other assets                                                                       |       | (233                                                      | )          | 411 |   | 326 |   |
| **Net cash  provided by operating activities**                                     | ** ** | **24,428**                                                | ** ** | **17,825** | ** ** | **13,235** | ** ** |
| **Cash flows from investing activities:**                                          |       |                                                      |       |   |   |   |   |
| Vessel  acquisitions                                                               |       | (30,684                                                   | )          | (34,120 | ) | (3,539 | ) |
| Construction of  tank vessels                                                      |       | (16,816                                                   | )          | (26,543 | ) | (18,703 | ) |
| Capital  expenditures                                                              |       | (9,023                                                    | )          | (9,542 | ) | (5,173 | ) |
| Proceeds from  Title XI escrow funds                                               |       | —                                                    |       | 10,737 |   | 26,811 |   |
| Net proceeds on  sale of vessels                                                   |       | 622                                                       |       | 301 |   | 364 |   |
| **Net cash  used in investing activities**                                         | ** ** | **(55,901**                                               | **)**      | **(59,167** | **)** | **(240** | **)** |
| **Cash flows from financing activities:**                                          |       |                                                      |       |   |   |   |   |
| Net increase  (decrease) in credit line borrowings                                 |       | 42,712                                                    |       | (4,125 | ) | (2,005 | ) |
| Gross proceeds  from issuance of common units                                      |       | 16,000                                                    |       | 97,877 |   | — |   |
| Redemption of  common units held by predecessor                                    |       | —                                                    |       | (14,592 | ) | — |   |
| Payments to Title  XI reserve fund                                                 |       | (3,990                                                    | )          | (1,689 | ) | — |   |
| Proceeds from  issuance of long-term debt                                          |       | 38,794                                                    |       | 43,248 |   | — |   |
| Payment of term  loans                                                             |       | (42,299                                                   | )          | (57,971 | ) | (9,781 | ) |
| Financing costs  paid—equity offerings                                        |       | (54                                                       | )          | (10,516 | ) | (1,202 | ) |
| Financing costs  paid—debt issuance                                           |       | (930                                                      | )          | (1,637 | ) | (346 | ) |
| Book overdrafts                                                                    |       | (853                                                      | )          | 898 |   | 289 |   |
| Prepayment costs  on long-term debt                                                |       | (293                                                      | )          | (6,192 | ) | (4 | ) |
| Collection on  members’ notes receivable                                      |       | —                                                    |       | 49 |   | 65 |   |
| Capital  contribution from general partner                                         |       | 328                                                       |       | — |   | — |   |
| Distributions to  partners                                                         |       | (18,233                                                   | )          | (3,655 | ) | — |   |
| **Net cash  provided by (used in) financing activities**                           | ** ** | **31,182**                                                | ** ** | **41,695** | ** ** | **(12,984** | **)** |
| **Cash and cash equivalents:**                                                     |       |                                                      |       |   |   |   |   |
| Net (decrease)  increase                                                           | ** ** | **(291**                                                  | **)**      | **353** | ** ** | **11** | ** ** |
| Balance at beginning  of year                                                      |       | 379                                                       |       | 26 |   | 15 |   |
| **Balance  at end of year**                                                        | ** ** | **$**                                                     | **88**     | ** ** | **$** | **379** | ** ** | **$** | **26** | ** ** |
| **Supplemental disclosure of cash flow  information:**                             |       |                                                      |       |   |   |   |   |
| Cash paid during the year  for:                                                    |       |                                                      |       |   |   |   |   |
| Interest, net of  amounts capitalized                                              |       | $                                                         | 5,323      |   | $ | 5,263 |   | $ | 8,247 |   |
| Income taxes                                                                       |       | $                                                         | 55         |   | $ | 7 |   | $ | 2 |   |
| **Supplemental disclosure of non-cash  investing and financing activities:**       |       |                                                      |       |   |   |   |   |
| Notes receivable  from members for contributions                                   |       |                                                      |       |   |   | $ | 123 |   |

 

See accompanying notes to consolidated financial statements.

F-7

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**K-SEA TRANSPORTATION PARTNERS L.P.Successor to K-Sea Transportation LLC (Predecessor)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands, except unit and per unit amounts)**

**Note 1:   Basis of Presentation**

On July 8, 2003, K-Sea Transportation PartnersL.P. (the “Partnership”) was formed to own and operate the refined petroleumproduct marine transportation, distribution and logistics business conducted byK-Sea Transportation LLC (since renamed EW Transportation LLC, or “EW LLC”) andits subsidiaries K-Sea Acquisition Corp., EW Holding Corp. and K-SeaTransportation Corp. (since renamed EW Transportation Corp.) (collectively, the“Predecessor”). The Partnership and its predecessor companies have since 1959engaged in the transportation of refined petroleum products in the northeasternUnited States and Gulf of Mexico. On January 14, 2004, the Predecessorcontributed assets and liabilities constituting the business of the Predecessorto the Partnership in connection with the initial public offering of commonunits representing limited partner interests in the Partnership (the “commonunits”). In exchange for these assets and liabilities, the Predecessor received665,000 common units and 4,165,000 subordinated units representing limitedpartner interests in the Partnership. The Partnership’s general partnerreceived a 2% general partner interest and certain incentive distributionrights in the Partnership. Incentive distribution rights represent the right toreceive an increasing percentage of cash distributions after the minimumquarterly distribution, any cumulative arrearages on common units, and certaintarget distribution levels, have been achieved. The target distribution levelsentitle the general partner to receive 15% of quarterly cash distributions inexcess of $0.55 per unit until all unitholders have received $0.625 per unit,25% of quarterly cash distributions in excess of $0.625 per unit until allunitholders have received $0.75 per unit, and 50% of quarterly cashdistributions in excess of $0.75 per unit. The Partnership is required todistribute all of its available cash from operating surplus, as defined in thepartnership agreement.

The transfer to thePartnership of the assets and liabilities constituting the business of thePredecessor represented a reorganization of entities under common control andwas recorded at historical cost. The net assets transferred were $5,334 greaterthan the net assets of the Predecessor due to the retention by the Predecessorof certain net liabilities. The consolidated financial statements includedherein are for the Predecessor for all periods prior to January 14, 2004.

**Note 2:   Initial Public Offering**

On January 14, 2004, the Partnership completedits initial public offering of 3,625,000 common units at a price of $23.50 perunit. On January 21, 2004, the Partnership sold an additional 540,000common units to the underwriters in connection with the exercise of theirover-allotment option. Total gross proceeds from these sales were $97,877,before offering costs and underwriting fees of $11,776. Concurrent with thesesales, the Partnership redeemed the 665,000 common units held by EW LLC (seenote 1) at a cost of $14,592. After the initial public offering andrelated redemption, there were 4,165,000 common units and 4,165,000subordinated units outstanding. As described in the partnership agreement,during the subordination period the subordinated units are not entitled toreceive any distributions until the common units have received their minimumquarterly distribution plus any arrearages from prior quarters. Thesubordination period will end once the Partnership meets certain financialtests described in the partnership agreement, but it generally cannot endbefore December 31, 2008. When the subordination period ends, allsubordinated units will convert into common units on a one-for-one basis, andthe common units will no longer be entitled to arrearages. If the Partnershipmeets certain financial tests described in 

F-8

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the partnership agreement,25% of the subordinated units can convert into common units on or after December 31,2006, and an additional 25% can convert into common units on or after December 31,2007.

The proceeds retained bythe Partnership relating to the sale of the common units in the initial publicoffering totaled $83,285. These proceeds were used to repay $73,941 inoutstanding term and revolving credit debt, including prepayment fees andmake-whole amounts, and to pay $5,939 in underwriting fees and $3,405 inprofessional fees and other offering expenses.

**Note 3:   Summaryof Significant Accounting Policies**

*Basis of Consolidation.  *Theseconsolidated financial statements are for the Partnership and its wholly ownedsubsidiaries. For all periods prior to January 14, 2004, the business wasoperated by the Predecessor, and therefore the consolidated financialstatements are for the Predecessor (see note 1) for those periods. Allmaterial inter-company transactions and balances have been eliminated inconsolidation.

*Cash and Cash Equivalents.  *Cashequivalents include time deposits with maturities of three months or less whenpurchased and cash on deposit at a financial institution.

*Vessels and Equipment.  *Vesselsand equipment are recorded at cost, including capitalized interest whereappropriate, and depreciated using the straight-line method over the estimateduseful lives of the individual assets as follows: tank vessels—ten totwenty-five years; tugboats—twenty years; and pier and office equipment—fiveyears. For single-hull tank vessels, such useful lives are limited to theremaining period of operation prior to mandatory retirement as required by theOil Pollution Act of 1990 (“OPA 90”). OPA 90 requires that the Partnership’s22 single-hull vessels, representing approximately 28% of total barrel-carryingcapacity as of June 30, 2005, be retired or retrofitted to double-hull by December 31, 2014.

Included in vessels and equipment are drydockingexpenditures that are capitalized and amortized over three years. Drydocking ofvessels is required both by the United States Coast Guard and by the applicableclassification society, which in the Partnership’s case is the American Bureauof Shipping. Such drydocking activities include, but are not limited to, theinspection, refurbishment and replacement of steel, engine components,tailshafts, mooring equipment and other parts of the vessel.

Major renewals and betterments of assets arecapitalized and depreciated over the remaining useful lives of the assets. Leaseholdimprovements are capitalized and depreciated over the shorter of their usefullives or the remaining term of the lease. Maintenance and repairs that do notimprove or extend the useful lives of the assets are expensed.

The Partnership assesses impairment on long-livedassets used in operations when indicators of impairment are present and theundiscounted cash flows estimated to be generated by those assets are less thanthe assets’ carrying amounts. An impairment loss would be recognized to theextent the carrying value exceeds fair value by appraisal.

When property itemsare retired, sold or otherwise disposed of, the related cost and accumulateddepreciation are removed from the accounts with any gain or loss on thedispositions included in income. Assets to be disposed of are reported at thelower of their carrying amounts or fair values, less the estimated costs ofdisposal.

*Fuel Supplies.  *Fuelused to operate the Partnership’s vessels, and on hand at the end of theperiod, is recorded at cost. Such amounts totaled $2,473 and $1,170 as of June 30,2005 and 2004, respectively, and are included in prepaid expenses and othercurrent assets in the consolidated balance sheets.

*Deferred Financing Costs.  *Directcosts associated with obtaining long-term financing are deferred and amortizedover the terms of the related financings. Deferred financing costs are statednet of accumulated amortization which, at June 30, 2005 and 2004, amountedto $815 and $675, respectively.

F-9

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*Revenue Recognition.  *ThePartnership earns revenue under contracts of affreightment, voyage charters,time charters and bareboat charters. For contracts of affreightment and voyagecharters, revenue is recognized based upon the relative transit time in eachperiod, with expenses recognized as incurred. Although contracts of affreightmentand certain contracts for voyage charters may be effective for a period inexcess of one year, revenue is recognized over the transit time of individualvoyages, which are generally less than ten days in duration. For time chartersand bareboat charters, revenue is recognized ratably over the contract period,with expenses recognized as incurred. Estimated losses on contracts ofaffreightment and charters are accrued when such losses become evident.

*Use of Estimates.  *Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statements, andrevenues and expenses during the reporting period. The most significantestimates relate to depreciation of the vessels, liabilities incurred fromworkers’ compensation, commercial and other claims, the allowance for doubtfulaccounts and deferred income taxes. Actual results could differ from theseestimates.

*Concentrations of Credit Risk.  *Financialinstruments which potentially subject the Partnership to concentrations ofcredit risk are primarily cash and cash equivalents and trade accountsreceivable. The Partnership maintains its cash and cash equivalents on depositat a financial institution in amounts that, at times, may exceed insurablelimits.

With respect toaccounts receivable, the Partnership extends credit based upon an evaluation ofa customer’s financial condition and generally does not require collateral. ThePartnership maintains an allowance for doubtful accounts for potential losses,totaling $667 and $571 at June 30, 2005 and 2004, respectively, and doesnot believe it is exposed to concentrations of credit risk that are likely tohave a material adverse effect on its financial position, results of operationsor cash flows. For the fiscal years ended June 30, 2005, 2004 and 2003,the Partnership’s allowance for doubtful amounts was impacted by additionalcharges of $213, $100, and $81, and write-offs of $117, $5 and $8,respectively.

*Income Taxes.  *ThePartnership’s effective tax rate comprises the New York City UnincorporatedBusiness Tax on its operating partnership, plus federal, state, local andforeign corporate income taxes on the taxable income of the operatingpartnership’s corporate subsidiaries. Prior to the initial public offering, EWLLC was a limited liability company and treated as a partnership for income taxpurposes. Accordingly, it was not responsible for federal, state and localincome taxes, as its profits and losses were passed directly to its members forinclusion in their income tax returns. EW LLC was subject to the New York CityUnincorporated Business Tax, and its subsidiaries were C corporations that weresubject to federal, state and local income taxes.

Deferred taxesrepresent the tax effects of differences between the financial reporting andtax bases of the Partnership’s and Predecessor’s assets and liabilities, asapplicable, at enacted tax rates in effect for the years in which thedifferences are expected to reverse. The recoverability of deferred tax assetsis evaluated and a valuation allowance established when it is more likely thannot that some portion or all of the deferred tax assets will not be realized.

*Unit-Based Compensation.  *ThePartnership has adopted a long-term incentive plan that permits the granting ofawards to directors and employees in the form of restricted units and unitoptions. The Partnership recognizes compensation cost for the restricted unitsunder the intrinsic value method based on the market value of the common unitsat the grant date. The market values are amortized over the vesting periods,which range from four to five years, on a straight-line basis. No unit optionshave been granted.

F-10

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*Net Income per Unit.  *Basicnet income per unit is determined by dividing net income, after deducting theamount of net income allocated to the general partner interest from itsissuance date of January 14, 2004, as described below, by theweighted average number of units outstanding during the period. Diluted netincome 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 toinclude the dilutive effect of outstanding unit options or restricted units.For periods prior to January 14, 2004, such units are equal to the commonand subordinated units received by the Predecessor in exchange for the netassets contributed to the Partnership, or 4,830,000 units.

As required by Emerging Issues Task Force Issue No. 03-6,“Participating Securities and the Two-Class Method under FASB Statement No. 128,Earnings per Share” (“EITF 03-6”), which is effective for periods beginningafter March 31, 2004, the general partner’s interest in net income iscalculated as if all net income for the year was distributed according to theterms of the partnership agreement, regardless of whether those earnings wouldor could be distributed. The partnership agreement does not provide for thedistribution of net income; rather, it provides for the distribution ofavailable cash, which is a contractually defined term that generally means allcash on hand at the end of each quarter after establishment of cash reserves. Unlikeavailable cash, net income is affected by non-cash items, such as deferred taxbenefits.

As described innote 1 above, the general partner’s incentive distribution rights entitleit to receive an increasing percentage of distributions when the quarterly cashdistribution exceeds $0.55 per unit. For purposes of EITF 03-6, the Partnershipmust treat net income as if it were distributable. Therefore, since net incomeexceeded $0.55 per unit in the third quarter of fiscal 2004 due to recognitionin that quarter of a deferred tax benefit of $17,561, the assumed distributionof all net income, pursuant to EITF 03-6, results in use of the increasingpercentages to calculate the general partner’s interest in net income for thequarter ended March 31, 2004. Notwithstanding the foregoing, the deferredtax benefit is not included in the calculation of available cash under thepartnership agreement and, therefore, the general partner did not and will notreceive any incentive distributions of available cash as a result of suchdeferred tax benefit.

**Note 4:   Vesselsand Equipment and Construction in Progress**

At June 30,2005 and 2004, vessels and equipment and construction in progress comprised thefollowing:
| ** **                                      | ** ** | **2005** | ** **  | **2004**   | ** ** |
|-------------------------------------------------|------------|----------|-------------|------------|------------|
| Vessels                                         |       | $        | 305,752     |       | $          | 251,295 |   |
| Pier and office  equipment                      |       | 3,945    |        | 2,189      |       |
|                                            | ** ** | 309,697  |        | 253,484    |       |
| Less accumulated  depreciation and amortization |       | (74,207  | )           | (59,838    | )          |
| Vessels and  equipment, net                     | ** ** | **$**    | **235,490** | ** ** | **$**      | **193,646** | ** ** |
| Construction in progress                        | ** ** | **$**    | **8,266**   | ** ** | **$**      | **7,722** | ** ** |

 

Depreciation and amortization of vessels and equipmentfor the fiscal years ended June 30, 2005, 2004 and 2003 was $20,584,$18,256 and $16,006, respectively. Such depreciation and amortization includesamortization of drydocking expenditures for the fiscal years ended June 30,2005, 2004 and 2003 of $6,823, $7,421 and $7,158, respectively.

On December 8, 2004, the Partnership acquired tentank barges and seven tugboats. The addition of this capacity represented a10.6% increase in the aggregate barrel-carrying capacity of the Partnership’sfleet at the time of the acquisition. The purchase price of $21,184 (includingacquisition related costs) included a water treatment facility. The transactionwas financed using the Partnership’s available credit 

F-11

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lines and the purchaseprice allocated to the individual assets acquired based on independentappraisals. These assets are included in vessels and equipment, net, in theconsolidated balance sheet.

On June 28, 2005, the Partnership acquired an80,000-barrel capacity double-hull tank barge for a purchase price of $10,000,excluding certain modifications made to the barge. The acquisition was financedusing borrowings under a new term loan. The vessel is included in vessels andequipment, net, in the consolidated balance sheet.

In September 2004, the Partnership completed thedouble-hulling of the KTC 155, now renamed the DBL 155, and accepted deliveryof the vessel. The Partnership also signed an agreement with a shipyard in September 2004to construct a new 100,000-barrel tank barge which is expected to be deliveredduring the fall of 2005. The total cost, after addition of certain specialequipment and integration with an existing tugboat, is expected to be in therange of $13,000 to $14,000. Additionally, the Partnership signed an agreementwith a shipyard in February 2005 to construct two new 28,000-barrel tankbarges which are expected to be delivered during the first calendar quarter of2006 and which are expected to cost, in the aggregate and after the addition ofcertain special equipment, in the range of $9,000 to $10,000. Construction inprogress at June 30, 2005 includes expenditures on the new 100,000-barreland 28,000-barrel tank barges.

On January 29, 2004, the Partnership acquired a140,000-barrel capacity double-hull tank barge and an 8,000 horsepower tugboat,both built in 2000. The purchase price of $34,120 was financed using availablecash and $25,048 in borrowings under a new term loan. The Partnership alsosigned a new multi-year contract with the sellers to transport petroleumproducts in the northeastern United States. The portion of the purchase pricein excess of the fair value of the vessels, as determined by appraisal, wasallocated to the related contract and is included in other assets. Such amountis being amortized over the contract period.

During fiscal 2004, the Partnership also completed therebuilding of the DBL 105 for petroleum transportation. This vessel, along witha tugboat, was purchased in fiscal 2003 for $3,539, funded by credit lineborrowings.

In March 2001, K-SeaTransportation Corp. and Bollinger Gretna, L.L.C. signed a contract for theconstruction of four double-hull tank vessels to be built over three years. Theaggregate cost of these four vessels was $46,193, including financing and otherfees and certain special equipment. Delivery of the first vessel occurred in July 2002,the second in February 2003, the third in June 2003, and the fourthvessel in January 2004.

**Note 5:   Financing**

***Credit Agreement***

In March 2005, thePartnership entered into a new, five-year $80,000 revolving credit agreementwith a syndicate of banks. The new agreement replaced the Partnership’sexisting $47,000 revolving credit agreement, which was repaid and terminated. Thenew agreement contains a $20,000 sublimit for letters of credit and allows thePartnership to request an increase in the total availability under the newagreement by up to $20,000, up to a maximum of $100,000, so long as no defaultor event of default has occurred and is continuing. Obligations under the newagreement are collateralized by a first priority security interest, subject topermitted liens, on certain of our vessels having an orderly liquidation valueequal to the greater of (a) $50,000 and (b) 1.25 times the amount ofthe obligations (including letters of credit) outstanding. Borrowings under thecredit facility bear interest, at the option of the Partnership, at a rateequal to (a) the greater of the prime rate and the federal funds rate plus0.5% (a “base rate loan”), or (b) 30-day London Interbank Offered Rate (“LIBOR”)plus a margin of 1.00% to 2.00% based upon the ratio of Total Funded Debt toEBITDA, as defined in the agreement. The Partnership also incurs commitmentfees, 

F-12

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payablequarterly, on the unused amount of the facility at a rate ranging from 0.175%to 0.375% based upon the ratio of Total Funded Debt to EBITDA, as defined inthe agreement. As of June 30, 2005, outstanding borrowings under thisfacility totaled $47,112.

***Term Loans***

Termloans outstanding at June 30, 2005 and 2004 were as follows:
| ** **                                                                                                                                                                                                                                                                                                                       | ** ** | **2005** | ** ** | **2004**   | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|------------|------------|
| Term loan payable  in monthly principal installments with a balloon payment due at  maturity. Interest on the unpaid principal is payable monthly at 30-day  LIBOR  plus 1.05%                                                                                                                                              |       | $        | 6,435      |       | $          | — |   |
| Term loan payable  in monthly principal installments of $70, with a balloon payment  of $9,195 due in 2008. Interest on the unpaid principal is payable monthly  at an interest rate of 6.25%                                                                                                                               |       | 11,492   |       | —     |       |
| Term loan payable  in monthly principal installments with a balloon payment due at  maturity. Interest on the unpaid principal is payable monthly at the interest  rates referred to below                                                                                                                             |       | 11,557   |       | —     |       |
| Term loan payable  in monthly principal installments of $139, with a balloon payment of  $13,498 due at maturity in 2011. Interest on the unpaid principal at 30-day  LIBOR plus 2.95%, payable monthly. This loan was repaid in connection  with the refinancing of the credit agreement in March 2005 |       | —   |       | 24,491     |       |
| Term loan payable  in monthly principal installments of $65, with a balloon payment  of $5,514 due in 2011. Interest on the unpaid principal at 30-day LIBOR  plus 2.40%, payable monthly. This loan was repaid in connection with the  refinancing  of the credit agreement in March 2005                             |       | —   |       | 10,899     |       |
|                                                                                                                                                                                                                                                                                                                             |       | 29,484   |       | 35,390     |       |
| Less current portion                                                                                                                                                                                                                                                                                                             |       | 1,279    |       | 2,448      |       |
|                                                                                                                                                                                                                                                                                                                             | ** ** | **$**    | **28,205** | ** ** | **$**      | **32,942** | ** ** |

 

In March 2005, the Partnership entered into anagreement to borrow up to $11,000 to partially finance construction of the new100,000-barrel tank barge described in note 4. The loan bears interest at30-day LIBOR plus 1.05%; interest only is payable monthly through the earlierof October 31, 2005 or delivery of the tank barge. Thereafter, monthlypayments of principal, plus accrued interest, are payable over seven years,with the remaining principal amount payable at maturity. The loan iscollateralized by the related tank barge. Borrowings outstanding on this loantotal $6,435 at June 30, 2005.

In March 2005 the Partnership entered into a new,three-year term loan in the amount of $11,700 bearing interest at a fixedrate of 6.25% annually. The loan is payable in monthly principal installmentsof $70, with the remaining principal amount payable at maturity. The loan iscollateralized by three vessels and the proceeds were used to refinance anexisting term loan. Borrowings outstanding on this loan total $11,492 at June 30,2005.

In June 2005, the Partnership entered into anagreement to borrow up to $18,000 to finance the purchase of the 80,000-barreldouble-hull tank barge and construction of the new 28,000-barrel double-hulltank barges described in note 4. The loan bears interest at 30-day LIBOR plus1.60% for the interim financing period, which is the earlier of April 30,2006 or the delivery of the two 28,000-barrel tank barges, and 30-day LIBORplus 1.75% thereafter. Interest only is payable monthly through the interimfinancing period. Thereafter, monthly payments of principal, plus accruedinterest, are payable over seven years, with the remaining principal amountpayable at maturity. The loan is collateralized by the related tank barges. Borrowingsoutstanding on this loan total $11,557 at June 30, 2005.

F-13

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In connection with the acquisition of an integratedtug-barge unit in January 2004, the Partnership entered into a seven-year,$25,048 term loan. In May 2004, the Partnership entered into an agreementwith a financial institution for $20,000 of loans to provide term financing fortwo vessel rebuilding and retrofitting projects. These term loans were repaidupon closing of the refinanced credit agreement and three-year term loandescribed above. A net loss of $1,359, representing prepayment fees andwriteoff of the related deferred financing costs, was recorded in connectionwith prepayment of the term loans and termination of the old credit facility.

In connection with thePartnership’s initial public offering, all of the Predecessor’s debt, exclusiveof $12,950 in subordinated notes, was contributed to the Partnership. Thecontributed short-term and long-term debt (excluding the Title XI bonds,as described below) aggregated $73,941, and was repaid using proceeds of theoffering. Such repayments included $6,041 in prepayment and make-whole amounts,of which $3,274 had previously been accrued by the Predecessor as supplementalinterest which would have been payable upon maturity of certain of these loans,resulting in a loss on prepayment of $2,767. In addition, $240 in deferredfinancing costs related to the contributed debt was also written off. In thefourth quarter of fiscal 2004, an additional $151 was paid as a finaladjustment to the make-whole payment.

***Title XI Bonds***

On June 7, 2002, the Predecessor issued bondsaggregating $40,441, in four series, through a private placement for thepurpose of providing long-term financing for the construction of four newdouble-hull tank vessels. The bonds are guaranteed by the MaritimeAdministration of the U.S. Department of Transportation (“MARAD”) pursuant toTitle XI of the Merchant Marine Act of 1936 (the “Title XI bonds”). Theguarantee agreements required the net bond proceeds of $39,115, net of $1,326of guarantee fees paid directly to MARAD, to be held in a restricted account(the “Title XI escrow account”) maintained at the U.S. Department of Treasuryfor subsequent drawdown, by series, as each vessel was delivered and accepted.The Title XI escrow account was substantially drawn down upon delivery of thefinal vessel in January 2004. Each series is payable over 25 yearsfrom the delivery date of the related vessel. The guarantee is collateralizedby, among other things, the newbuild vessels.

In connection with the Partnership’s initial publicoffering in January 2004, the agreements with MARAD governing the Title XIborrowings were restructured. The Partnership is required to make available toMARAD additional collateral in the form of (a) a total of $8,000 inadditional funds in the form of escrowed cash (with a minimum of $1,519) andstandby letters of credit, and (b) additional vessels having an orderlyliquidation value of at least $10,000. As of June 30, 2005, thePartnership had escrowed with MARAD $1,519 in cash and $6,485 in standbyletters of credit, and has pledged the additional vessels. In addition, thePartnership is obligated each month to place in escrow with MARAD one-sixth ofthe next semi-annual debt service payment due for each series of the Title XIbonds, which deposits are used to make such semi-annual payments.

F-14

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At June 30,2005 and 2004, Title XI bonds outstanding comprised the following:
| ** **                                                                                                      | ** ** | **2005** | ** ** | **2004**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------|------------|------------|------------|
| Bond payable in  semi-annual principal installments of $218 through July 2027, with  interest at 6.17%     |       | $        | 9,815      |       | $          | 10,251 |   |
| Bond payable in  semi-annual principal installments of $193 through February 2028,  with interest at 6.20% |       | 8,861    |       | 9,247      |       |
| Bond payable in  semi-annual principal installments of $188 through June 2028, with  interest at 6.23%     |       | 8,626    |       | 9,001      |       |
| Bond payable in  semi-annual principal installments of $211 through January 2029,  with interest at 6.26%  |       | 10,107   |       | 10,528     |       |
|                                                                                                            |       | 37,409   |       | 39,027     |       |
| Less current portion                                                                                            |       | 1,618    |       | 1,618      |       |
|                                                                                                            | ** ** | **$**    | **35,791** | ** ** | **$**      | **37,409** | ** ** |

 

***Restrictive Covenants***

The agreements governingthe $80,000 credit facility, the Title XI borrowings and the term loans containrestrictive covenants that, among others, (a) prohibit distributions underdefined 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 fixed charge coverage and funded debt to EBITDA(earnings before interest, taxes, depreciation and amortization, as defined),and a minimum balance of partners’ capital.

***Interest***

Interestexpense, net of amounts capitalized, and interest income, was as follows:
| ** **                 | ** ** | **For the Years Ended June 30,** | ** ** |
|----------------------------|------------|-----------------------------------------------------------|------------|
| ** **                 | ** ** | **2005**                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| Interest costs  incurred   |       | $                                                         | 6,611      |   | $ | 7,205 |   | $ | 9,953 |   |
| Less interest  capitalized |       | 570                                                       |       | 672 |   | 656 |   |
| Interest expense           | ** ** | 6,041                                                     |       | 6,533 |   | 9,297 |   |
| Interest income            |       | (92                                                       | )          | (163 | ) | (489 | ) |
| Interest expense, net      | ** ** | **$**                                                     | **5,949**  | ** ** | **$** | **6,370** | ** ** | **$** | **8,808** | ** ** |

 

The weighted averageinterest rate on the Title XI bonds and term loans was 5.8% and 5.2% at June 30,2005 and 2004, respectively, which debt is subject to prepayment fees. Interestpayable totaled $1,125 and $972 as of June 30, 2005 and 2004,respectively, and is included in accrued expenses and other current liabilitiesin the consolidated balance sheets. At June 30, 2005 and 2004, accountspayable included book overdrafts of $853 and $0, respectively, representingoutstanding checks.

***Maturities of Long-Term Debt***

As of June 30,2005, maturities of long-term debt for each of the next five years were asfollows:
| 2006 |   | $      | 2,897  |   |
|------|--------|--------|--------|--------|
| 2007 |   | 3,739  |   |
| 2008 |   | 12,726 |   |
| 2009 |   | 2,904  |   |
| 2010 |   | 50,016 |   |

 

F-15

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***Equity Financing***

On June 1, 2005, thePartnership issued and sold 500,000 common units to Tortoise EnergyInfrastructure Corporation (“Tortoise”) in a private placement for proceeds of$16.0 million, before expenses associated with the offering. The proceeds wereused to repay indebtedness incurred under the Partnership’s revolving creditfacility in connection with its December 2004 vessel acquisition. Theoffer and sale of the common units was made pursuant to an exemption fromregistration under section 4(2) of the Securities Act of 1933, as amended.No underwriting discounts or commissions were paid in connection with theprivate placement. Pursuant to the terms of a registration rights agreement,the Partnership has agreed to register the resale of the common units with theSecurities and Exchange Commission. Tortoise has agreed not to sell any of thecommon units prior to December 1, 2005.

**Note 6:   Income Taxes**

Thecomponents of the provision (benefit) for income taxes for the fiscal yearsended June 30, 2005, 2004 and 2003 are as follows:
| ** **                            | ** ** | **2005** | ** ** | **2004**   | ** ** | **2003**    | ** ** |
|---------------------------------------|------------|----------|------------|------------|------------|-------------|------------|
| Current:                              |       |     |       |       |       |        |       |
| Federal                               |       | $        | —     |       | $          | —      |       | $ | — |   |
| State and local                       |       | 159      |       | —     |       | 17          |       |
| Foreign                               |       | 90       |       | —     |       | —      |       |
|                                  |       | 249      |       | —     |       | 17          |       |
| Deferred:                             |       |     |       |       |       |        |       |
| Federal                               |       | (267     | )          | (16,582    | )          | 162         |       |
| State and local                       |       | 181      |       | (263       | )          | 161         |       |
|                                  |       | (86      | )          | (16,845    | )          | 323         |       |
| Provision (benefit) for  income taxes | ** ** | **$**    | **163**    | ** ** | **$**      | **(16,845** | **)**      | **$** | **340** | ** ** |

 

Certain net assets contributed to the Partnership atthe time of the initial public offering in January 2004 were transferredby EW LLC’s corporate subsidiaries. These net assets had tax bases that werelower than their carrying values for financial reporting purposes, whichresulted in deferred tax liabilities relating to these temporary differences. Thefuture reversal of these differences will be subject to the Partnership’seffective tax rate, which is significantly lower than the effective tax rate ofEW LLC’s corporate subsidiaries. The effect of the change in tax ratesapplicable to these differences is reflected as a deferred tax benefit of$17,561 for the fiscal year ended June 30, 2004.

Areconciliation of income tax expense, as computed using the federal statutoryincome tax rate of 34%, to the Partnership and Predecessor provisions(benefits) for income taxes for the fiscal years ended June 30, 2005, 2004and 2003 is as follows:
| ** **                                                                                                      | ** ** | **2005** | ** ** | **2004**   | ** ** | **2003**    | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------|------------|------------|------------|-------------|------------|
| Tax at federal  statutory rate of 34%                                                                           |       | $        | 2,822      |       | $          | 1,472       |       | $ | 1,806 |   |
| Entities not  subject to federal income taxes                                                                   |       | (3,080   | )          | (1,081     | )          | (1,736      | )          |
| State and local  income taxes, net of federal benefit                                                           |       | 342      |       | 296        |       | 102         |       |
| Foreign taxes                                                                                                   |       | 188      |       | —     |       | —      |       |
| Reduction in  deferred taxes resulting from change in tax rates upon transfer of net assets  to the Partnership |       | —   |       | (17,561    | )          | —      |       |
| Valuation  allowance                                                                                            |       | 201      |       | —     |       | —      |       |
| Other                                                                                                           |       | (310     | )          | 29         |       | 168         |       |
| Total                                                                                                           | ** ** | **$**    | **163**    | ** ** | **$**      | **(16,845** | **)**      | **$** | **340** | ** ** |

 

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Significantcomponents of deferred income tax liabilities and assets as of June 30,2005 and 2004 are as follows:
| ** **                                                  | ** ** | **2005** | ** ** | **2004**   | ** ** |
|-------------------------------------------------------------|------------|----------|------------|------------|------------|
| Deferred tax liabilities:                                   |       |     |       |       |       |
| Book basis of vessels and equipment in excess of tax  basis |       | $        | 3,364      |       | $          | 2,737 |   |
| Pension costs                                               |       | —   |       | 24         |       |
| Total deferred tax liabilities                              | ** ** | **$**    | **3,364**  | ** ** | **$**      | **2,761** | ** ** |
| Deferred tax  assets:                                       |       |     |       |       |       |
| Allowance for doubtful accounts                             |       | $        | 33         |       | $          | 15 |   |
| Accrued expenses                                            |       | 350      |       | 25         |       |
| Net operating loss carry-forwards                           |       | 746      |       | 84         |       |
| Valuation allowance                                         |       | (316     | )          | —     |       |
| Total deferred  tax assets                                  | ** ** | **$**    | **813**    | ** ** | **$**      | **124** | ** ** |

 

The Partnership had temporary differences at June 30,2005 primarily related to the excess of the book basis of vessels and equipmentover the related tax basis in the amount of $90,483. This amount will result intaxable income, in the years these differences reverse, that will be includedin the overall allocation of taxable income to the unitholders of thePartnership.

A valuation allowance has been established dueprimarily to the uncertainty of realizing certain net operating losscarry-forwards of the Partnership’s corporate subsidiaries.

At June 30, 2005, thePartnership’s corporate subsidiaries had federal net operating losses of $1,364which begin to expire in 2024, state net operating losses of $429 which beginto expire in 2024, and foreign net operating losses of $289 which begin toexpire in 2008.

**Note 7:   Commitmentsand Contingencies**

The Partnership leases its New York office and pierfacilities from an affiliate of an employee under an agreement which extendsthrough April 2009. Terms of the agreement provide for annual rentalpayments of $400 annually through April 2009, which increased as of May 1,2004 from $352 annually. Rent expense was $400, $360 and $352 for the fiscalyears ended June 30, 2005, 2004 and 2003, respectively. In addition, asubsidiary of the Partnership leases office and pier facilities and a watertreatment facility in Virginia under an agreement with a third party thatextends through January 2010. The Virginia lease agreement requires annualrental 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 at any timeafter the first anniversary date of the lease for an aggregate purchase priceof $4,200. Rent expense, net of the sublease, for the fiscal year ended June 30,2005 was $97. The Partnership and subsidiary are also responsible for realestate taxes, insurance and all other costs associated with occupying theseproperties.

Included in total revenues are time charter andbareboat charter revenues of $21,747, $9,751 and $8,996 for the fiscal yearsended June 30, 2005, 2004 and 2003, respectively. Such revenues include$513, $778, and $1,455 for the fiscal years ended June 30, 2005, 2004 and2003, respectively, related to vessels chartered to an affiliate of anemployee. The Partnership also utilizes such affiliate for tank cleaningservices at a cost of $2,318, $2,916 and $1,664 for the years ended June 30,2005, 2004 and 2003, respectively. The Partnership’s time charters and bareboatcharters extend over various periods which expire between 2005 and 2009.

F-17

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At June 30,2005, minimum contractually agreed future revenue under time and bareboatcharters was as follows:
| **Year ending June 30,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|
| 2006                                    |       | $          | 15,394     |       |
| 2007                                    |       | 4,544      |       |
| 2008                                    |       | 2,690      |       |
| 2009                                    |       | 304        |       |
| 2010                                    |       | —     |       |
| Total                                   | ** ** | **$**      | **22,932** | ** ** |

 

The Partnership entered into employment agreementswith its executive officers in January 2004. Each of the employmentagreements had an initial term of one year. The term of each employment agreementis automatically extended for successive one-year terms unless either partygives 30-days written notice prior to the end of the term that such partydesires not to renew the employment agreement. The employment agreementscurrently provide for annual base salaries aggregating $710. In addition, eachemployee is eligible to receive an annual bonus award based upon theconsolidated financial performance of the Partnership. If the employee’semployment is terminated without cause or if the employee resigns for goodreason, the employee will be entitled to severance in an amount equal to thegreater of (a) the product of 1.3125 (1.75 multiplied by .75) multipliedby the employee’s base salary at the time of termination or resignation and (b) theproduct of 1.75 multiplied by the remaining term of the employee’snon-competition provisions multiplied by the employee’s base salary at the timeof termination or resignation.

EW Transportation Corp., a predecessor to thePartnership, and many other marine transportation companies operating in NewYork have come under audit with respect to the New York State PetroleumBusiness Tax (“PBT”), which is a tax on vessel fuel consumed while operating inNew York State territorial waters. The boundaries of these waters have neverbeen defined. An industry group in which EW Transportation Corp. and thePartnership participate have proposed to the New York taxing authority that itadopt a calculation methodology for the PBT that it has applied, for purposesof a different tax, for many years. The taxing authority has not yet respondedto this proposal. The Partnership has begun filing monthly tax returns, and hasaccrued an estimated liability using the industry’s proposed calculationmethodology. In accordance with the agreements entered into in connection withthe Partnership’s initial public offering, any liability resulting from the PBTprior to January 14, 2004 (the effective date of the offering) is aretained liability of the Predecessor.

The Partnership is thesubject of various claims and lawsuits in the ordinary course of business formonetary relief arising principally from personal injuries, collisions andother casualties. Although the outcome of any individual claim or action cannotbe predicted with certainty, the Partnership believes that any adverse outcome,individually or in the aggregate, would be substantially mitigated byapplicable insurance or indemnification from previous owners of the Partnership’sassets, and would not have a material adverse effect on the Partnership’sfinancial position, results of operations or cash flows. The Partnership isalso subject to deductibles with respect to its insurance coverage that rangefrom $25 to $100 per incident and provides on a current basis for estimatedpayments thereunder.

**Note 8:   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-SeaTransportation Partners L.P. Long-term Incentive Plan (the “Plan”) fordirectors and employees of K-Sea General Partner GP LLC and its affiliates. ThePlan currently permits the grant of awards covering an aggregate of 440,000common units in the form of restricted units and unit 

F-18

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options and isadministered by the Compensation Committee of the Board of Directors of K-SeaGeneral Partner GP LLC. The Board of Directors of K-Sea General Partner GP LLC,in its discretion, may terminate the Plan at any time with respect to anyrestricted units for which a grant has not yet been made, and also reserves theright to alter or amend the Plan from time to time, including increasing thenumber of common units with respect to which awards may be granted subject tounitholder approval as required by the New York Stock Exchange. No change inany outstanding grant may be made, however, which would materially impair therights of the participant without the consent of such participant. Subject tocertain exceptions, restricted units are subject to forfeiture if employment isterminated prior to vesting. As the restricted units vest, K-Sea GeneralPartner GP LLC has the option to either acquire common units in the open marketfor delivery to the recipient or distribute newly issued common units from thePartnership. In all cases, K-Sea General Partner GP LLC is reimbursed by the Partnershipfor such expenditures.

During the years ended June 30,2005 and 2004, 52,000 and 9,000 restricted units, respectively, were grantedfor which the unit price on the respective grant dates was $31.25 and $28.70. Theserestricted units vest over periods ranging from four to five years. In 2005,2,250 restricted units vested, and the Partnership issued 2,250 common units tothe recipients. At June 30, 2005 and 2004, 58,750 and 9,000 unvestedrestricted units were outstanding. Unit compensation expense amounted to $413and $23, for the years ended June 30, 2005 and 2004, respectively.

**Note 9:   Retirement Plans**

The Partnership has a money purchase pension plan, andalso a defined contribution plan that qualifies under Section 401(k) ofthe Internal Revenue Code. These plans cover all eligible employees. Under theterms of the money purchase pension plan, the Partnership contributes fivepercent of each eligible employee’s annual compensation, as defined in the plandocument. The 401(k) plan provides that eligible employees may makecontributions, subject to Internal Revenue Code limitations, and thePartnership will match the first two percent of employee compensationcontributed, subject to a maximum amount. For the money purchase plan, expensestotaled $1,000, $836 and $862 for the fiscal years ended June 30, 2005,2004 and 2003, respectively. For the 401(k) plan, expenses totaled $443,$402 and $286 for the fiscal years ended June 30, 2005, 2004 and 2003,respectively.

Accrued expenses for themoney purchase plan totaled $1,077 and $871 as of June 30, 2005 and 2004,respectively, and are included in accrued expenses and other currentliabilities in the consolidated balance sheets. Additionally, accrued expensesfor payroll-related costs totaled $1,431 and $1,348 as of June 30, 2005and 2004, respectively, which are also included in accrued expenses and othercurrent liabilities in the consolidated balance sheets.

**Note 10:   Major Customers**

Two customers accountedfor 26% and 16% of consolidated revenues for the fiscal year ended June 30,2005, two customers accounted for 28% and 14% of consolidated revenues for thefiscal year ended June 30, 2004, and three customers accounted for 15%,13% and 11% of consolidated revenues for the fiscal year ended June 30,2003.

**Note 11:   FairValue of Financial Instruments**

As of June 30, 2005,the fair value of long-term debt was approximately $118,200 based on theborrowing rates currently available to the Partnership for bank loans withsimilar terms and average maturities. The fair value of the Partnership’s otherfinancial instruments approximated their cost bases as such instruments areshort-term in nature or were recently negotiated.

F-19

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**Note12:   New Accounting Pronouncements**

On December 16, 2004, the Financial AccountingStandards Board (“FASB”) issued FASB Statement No. 123(R), “Share-BasedPayment” (“FAS 123(R)”). FAS 123(R) revises FASB Statement No. 123, “Accountingfor Stock-Based Compensation” (“FAS 123”) and requires companies to expense thefair value of employee stock options and other forms of stock-basedcompensation. In addition to revising FAS 123, FAS 123(R) supersedesAccounting Principles Board (“APB”) Opinion No. 25, “Accounting for StockIssued to Employees”, and amends FASB Statement No. 95, “Statement of CashFlows.” The Partnership is required to adopt FASB 123(R) as of July 1,2005. The adoption will require the Partnership to recognize the fair value ofunit options granted under its long-term incentive plan. To date, no unitoptions have been granted.

On April 4, 2005, the FASB issued Interpretation No. 47,“Accounting for Conditional Asset Retirement Obligations, an interpretation ofFASB Statement No. 143” (“FIN 47”). This interpretation clarifies that anentity is required to recognize a liability for the fair value of a conditionalasset retirement obligation when incurred if the liability’s fair value can bereasonably estimated. It also clarifies when an entity would have sufficientinformation to reasonably estimate the fair value of an asset retirementobligation. The Partnership is required to adopt FIN 47 as of June 30,2006, and does not expect that such adoption will have a significant impact onits financial position, results of operations or cash flows.

On June 2, 2005, theFASB issued FASB Statement No. 154, “Accounting Changes and ErrorCorrections-a replacement of APB No. 20 and FAS No. 3” (“FAS 154”). FAS154 replaces APB Opinion No. 20, “Accounting Changes” (“APB 20”) and FASBStatement No. 3, “Reporting Accounting Changes in Interim FinancialStatements” and changes the requirements for the accounting for and reportingof a change in accounting principle. This Statement applies to all voluntarychanges in accounting principle. It also applies to changes required by anaccounting pronouncement in the unusual instance that the pronouncement doesnot include specific transition provisions. When a pronouncement includesspecific transition provisions, those provisions should be followed. ThePartnership is required to adopt FAS 154 as of July 1, 2006, and does notexpect that such adoption will have a significant impact on its financialposition, results of operations or cash flows.

**Note 13:   QuarterlyResults of Operations (Unaudited)**

Thefollowing summarizes certain quarterly results of operations for each of thefiscal years ended June 30, 2005 and 2004:
| ** **                                     | ** ** | **Three Months Ended**                                     | ** ** |
|------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **June 30**                                                     | ** ** | **March 31** | ** ** | **December 31** | ** ** | **September 30** | ** ** |
| ** **                                     | ** ** | **(in thousands, except per unit amounts)** | ** ** |
| **Fiscal 2005**                                |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                 |       | $                                                                    | 33,686     |   |   | $ | 30,837 |   |   |   | $ | 27,818 |   |   |   | $ | 29,053 |   |   |
| Operating income                               |       | $                                                                    | 4,558      |   |   | $ | 3,594 |   |   |   | $ | 2,932 |   |   |   | $ | 4,496 |   |   |
| Net income                                     |       | $                                                                    | 3,046      |   |   | $ | 584 |   |   |   | $ | 1,369 |   |   |   | $ | 3,137 |   |   |
| General partners’  interest in net income |       | $                                                                    | 61         |   |   | $ | 12 |   |   |   | $ | 27 |   |   |   | $ | 63 |   |   |
| Limited partners’  interest in net income |       | $                                                                    | 2,985      |   |   | $ | 572 |   |   |   | $ | 1,342 |   |   |   | $ | 3,074 |   |   |
| Net income per limited  partner unit:          |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                          |       | $                                                                    | 0.35       |   |   | $ | 0.07 |   |   |   | $ | 0.16 |   |   |   | $ | 0.37 |   |   |
| Diluted                                        |       | $                                                                    | 0.35       |   |   | $ | 0.07 |   |   |   | $ | 0.16 |   |   |   | $ | 0.37 |   |   |

F-20

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| ** **                                     | ** ** | **Three Months Ended**                                     | ** ** |
|------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **June 30**                                                     | ** ** | **March 31** | ** ** | **December 31** | ** ** | **September 30** | ** ** |
| ** **                                     | ** ** | **(in thousands, except per unit amounts)** | ** ** |
| **Fiscal 2004**                                |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                 |       | $                                                                    | 25,269     |   |   | $ | 26,028 |   |   |   | $ | 21,071 |   |   |   | $ | 23,431 |   |   |
| Operating income                               |       | $                                                                    | 2,903      |   |   | $ | 4,809 |   |   |   | $ | 2,219 |   |   |   | $ | 3,673 |   |   |
| Net income                                     |       | $                                                                    | 1,309      |   |   | $ | 18,355 |   |   |   | $ | 205 |   |   |   | $ | 1,305 |   |   |
| General partners’  interest in net income |       | $                                                                    | 26         |   |   | $ | 6,603 |   |   |   | — |   |   |   | — |   |   |
| Limited partners’  interest in net income |       | $                                                                    | 1,283      |   |   | $ | 11,752 |   |   |   | $ | 205 |   |   |   | $ | 1,305 |   |   |
| Net income per limited  partner unit:          |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                          |       | $                                                                    | 0.15       |   |   | $ | 1.43 |   |   |   | $ | 0.04 |   |   |   | $ | 0.27 |   |   |
| Diluted                                        |       | $                                                                    | 0.15       |   |   | $ | 1.43 |   |   |   | $ | 0.04 |   |   |   | $ | 0.27 |   |   |

 

**Note 14:   Subsequent Event**

On August 23, 2005, the Partnership entered into a definitive purchase agreement withMarine Resources Group, Inc. and Saltchuk Resources, Inc. to acquire SeaCoast Towing, Inc. (“Sea Coast”), a wholly-owned subsidiary of MarineResources Group, based in Seattle, Washington. Sea Coast is engaged in themarine transportation of refined petroleum products along the West Coast of theUnited States and Alaska. The purchase price will consist of $77,000 in cashand 125,000 common units. The transaction is expected to close in late October,subject to customary closing conditions.

F-21

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**EXHIBIT INDEX**
| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1*             |       | Membership Interest Purchase Agreement dated  August 23, 2005 by and among K-Sea Operating Partnership L.P., the  Partnership, Marine Resources Group, Inc. and Saltchuk  Resources, Inc. (incorporated by reference to Exhibit 10.1 to the  Partnership’s Current Report on Form 8-K dated August 23, 2005).  Schedules have been omitted but will be furnished supplementally to the  Securities and Exchange Commission on request.                                                                                               |
| 3.1*             | —     | 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 on July 16, 2003).                                                                                                                                                                                                                                             |
| 3.2*             | —     | Second 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 3.2 to the Partnership’s Quarterly  Report on Form 10-Q for the period ended December 31, 2003).                                                                                                                                                                                                                                             |
| 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).                                                                                                                                                                                                                                                                                                            |
| 4.1*             | —     | Trust Indenture relating  to United States Government Guaranteed Ship Financing Obligations among K-Sea  Transportation LLC, EW Holding Corp. and JPMorgan Chase Bank dated as of  June 7, 2002 (incorporated by reference to Exhibit 4.1.1 to the  Registration Statement).                                                                                                                                                                                                                                                                                  |
| 4.2*             | —     | Supplemental Indenture  No. 1, dated as of January 14, 2004, to the Trust Indenture  relating to United States Government Guaranteed Ship Financing Obligations  among JPMorgan Chase Bank, EW Holding Corp., K-Sea Transition 4 Corp.,  K-Sea LP4, L.P., K-Sea Transportation LLC, K-Sea LP1, L.P.,  K-Sea LP2, L.P., K-Sea Transportation Partners L.P. and K-Sea  Operating Partnership L.P. (incorporated by reference to Exhibit 4.1.2  to the Partnership’s Quarterly Report on Form 10-Q for the period  ended December 31, 2003). |
| 4.3*             | —     | Registration Rights  Agreement dated as of June 1, 2005 by and between the Partnership and  Tortoise Energy Infrastructure Corporation (incorporated by reference to  Exhibit 4.1 to the Partnership’s Current Report on Form 8-K dated  June 1, 2005).                                                                                                                                                                                                                                                                                        |

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| 10.1*        | — | 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*      | — | Commitment to Guarantee  Obligations by The United States of America Accepted by K-Sea  Transportation LLC and EW Holding Corp., Shipowners, dated June 7, 2002  (incorporated by reference to Exhibit 10.4.1 to the Registration  Statement).                                                                                                                                                                                                                                |
| 10.3.2*      | — | Amendment No. 1 to  Commitment to Guarantee Obligations, dated as of January 14, 2004, made  and entered by the United States of America and accepted by K-Sea  Transportation Partners L.P. and K-Sea Operating Partnership L.P.  (incorporated by reference to Exhibit 10.4.2 to the Partnership’s  Quarterly Report on Form 10-Q for the period ended  December 31, 2003).                                                                             |
| 10.4*        | — | Amended and Restated  Security Agreement, dated as of January 14, 2004, among K-Sea  Transportation Partners L.P., K-Sea Operating Partnership L.P., and the  United States of America (incorporated by reference to Exhibit 10.5 to  the Partnership’s Quarterly Report on Form 10-Q for the period  ended December 31, 2003).                                                                                                                                |
| 10.5*        | — | Restated Title XI  Reserve Fund and Financial Agreement, dated as of January 14, 2004,  among K-Sea Transportation Partners L.P., K-Sea Operating  Partnership L.P., K-Sea Transportation Inc. and The United States of  America (incorporated by reference to Exhibit 10.6 to the Partnership’s  Quarterly Report on Form 10-Q for the period ended  December 31, 2003).                                                                                      |
| 10.6.1*      | — | 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).                                                                                                                                                                                                                                                                  |
| 10.6.2*      | — | Form of Director  Phantom Unit Award Agreement (incorporated by reference to Exhibit 10.1  to the Partnership’s Current Report on Form 8-K dated October 1,  2005).                                                                                                                                                                                                                                                                                            |
| 10.6.3*      | — | Form of Employee  Phantom Unit Award Agreement (incorporated by reference to Exhibit 10.2  to the Partnership’s Current Report on Form 8-K dated October 1,  2005).                                                                                                                                                                                                                                                                                            |
| 10.7*        | — | 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).                                                                                                                                                                                                                                     |
| 10.8*†  | — | 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).                                                                                                                                                                                                          |
| 10.9*†  | — | Employment Agreement,  dated as of January 14, 2004, between K-Sea Transportation Inc.  and John J. Nicola (incorporated by reference to Exhibit 10.10 to the  Partnership’s Quarterly Report on Form 10-Q for the period ended  December 31, 2003).                                                                                                                                                                                                           |
| 10.10*† | — | 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).                                                                                                                                                                                                    |

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| 10.11*† | — | 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).                                                                                                                                                                                                                        |
|--------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.12†  | — | Form of  Indemnification Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.13*       | — | Loan and Security  Agreement dated as of March 24, 2005 by and among K-Sea Operating  Partnership L.P., as Borrower, the Lenders party thereto, LaSalle Bank  National Association, as Syndication Agent, and KeyBank National Association,  as Administrative Agent and Collateral Trustee for the Lenders (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  March 30, 2005). |
| 10.14*       | — | Loan and Security  Agreement dated as of March 24, 2005 by and between The CIT  Group/Equipment Financing, Inc., as Lender, and K-Sea Operating  Partnership L.P., as Borrower (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 March 30, 2005).                                                                                                                          |
| 10.15*       | — | 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).                                                                                                                                                                                                             |
| 10.16        | — | Loan Agreement, dated as  of June 28, 2005, between K-Sea Operating Partnership L.P. and Citizens  Asset Finance, a d/b/a of Citizens Leasing Corporation.                                                                                                                                                                                                                                                                                                                                          |
| 10.17*       | — | Common Unit Purchase  Agreement dated as of June 1, 2005 by and between the Partnership and  Tortoise Energy Infrastructure Corporation (incorporated by reference to  Exhibit 10.1 to the Partnership’s Current Report on Form 8-K dated  June 1, 2005).                                                                                                                                                                                                                       |
| 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.                                                                                                                                                                                                                                                                                                                                           |

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*       Incorporatedby reference, as indicated.

†       Managementcontract, compensatory plan or arrangement.

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