**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý****  QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d)** |
|----------------------------------------------------------------------------------|
| **OF THE SECURITIES EXCHANGE ACT OF 1934**                                       |
|                                                                             |
| **For the  quarterly period ended March 31, 2005**                          |
|                                                                             |
| **OR**                                                                           |
|                                                                             |
| **o****  TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d)**     |
| **OF THE SECURITIES EXCHANGE ACT OF 1934**                                       |

 

**For thetransition period from            to              **

 

**Commission filenumber 001-32326**

 

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

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

 

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

 

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

 

 

(Former name, former address and former fiscal year, ifchanged since last report)

 

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 preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes ý No o*

 

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

 

The number of unitsoutstanding of the registrant’s common units as of May      ,2005 was 6,899,968.  At that date,6,899,968 subordinated units were also outstanding.

 

 

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**U.S. SHIPPING PARTNERS L.P.**

**FORM 10-Q FOR THE QUARTER ENDED MARCH 31,2005**

**TABLE OF CONTENTS**

 
|       | **PART I—FINANCIAL INFORMATION**                                                                                                          |   |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|       |                                                                                                                                                |   |
| Item 1.    | Financial Statements                                                                                                                                |   |
|       |                                                                                                                                                |   |
|       | Unaudited Condensed Consolidated Balance  Sheets as of March 31, 2005 and December 31, 2004                                               |   |
|       |                                                                                                                                                |   |
|       | Unaudited Condensed Consolidated Statements  of Operations and Comprehensive Income for the three-month periods ended  March 31, 2005 and 2004 |   |
|       |                                                                                                                                                |   |
|       | Unaudited Condensed Consolidated Statement  of Partners’ Capital for the three-month periods ended March 31, 2005                         |   |
|       |                                                                                                                                                |   |
|       | Unaudited Condensed Consolidated Statements  of Cash Flows for the three-month periods ended March 31, 2005 and 2004                           |   |
|       |                                                                                                                                                |   |
|       | Notes to Unaudited Condensed Consolidated  Financial Statements                                                                                     |   |
|       |                                                                                                                                                |   |
| Item 2.    | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                                         |   |
|       |                                                                                                                                                |   |
| Item 3.    | Quantitative and Qualitative Disclosures  About Market Risk                                                                                         |   |
|       |                                                                                                                                                |   |
| Item 4.    | Controls and Procedures                                                                                                                             |   |
|       |                                                                                                                                                |   |
|       | **PART II—OTHER INFORMATION**                                                                                                             |   |
|       | ** **                                                                                                                                          |   |
| Item 1.    | Legal Proceedings                                                                                                                                   |   |
|       |                                                                                                                                                |   |
| Item 2.    | Unregistered Sales of Equity Securities and  Use of Proceeds                                                                                        |   |
|       |                                                                                                                                                |   |
| Item 6.    | Exhibits                                                                                                                                            |   |
|       |                                                                                                                                                |   |
| SIGNATURES |

 

In this report, unlessthe context otherwise requires, the terms “we,” “us,” “our,” and “thePartnership” refer to U.S. Shipping Partners L.P., a Delaware limitedpartnership.

 

2

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# **PART I—FINANCIAL INFORMATION**

# ** **

## ***ITEM 1.*  Financial Statements**

## *** ***

**U.S.Shipping Partners L.P.**

**Unaudited Condensed Consolidated Balance Sheets**

**March 31,2005 and December 31, 2004**

**(inthousands)**

 
| ** **                                     | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Assets**                                     |       |                     |       |                        |       |
| Current assets                                 |       |                     |       |                        |       |
| Cash and equivalents                           |       | $                        | 34,643     |                        | $          | 30,258 |   |
| Accounts receivable, net                       |       | 4,855                    |       | 6,979                       |       |
| Prepaid expenses and other current assets      |       | 2,372                    |       | 2,450                       |       |
| Total current assets                           |       | 41,870                   |       | 39,687                      |       |
| Vessels and equipment, net                     |       | 201,860                  |       | 201,923                     |       |
| Deferred financing costs, net                  |       | 3,947                    |       | 3,962                       |       |
| Other assets                                   |       | 3,216                    |       | 1,733                       |       |
| Total assets                                   |       | $                        | 250,893    |                        | $          | 247,305 |   |
|                                           |       |                     |       |                        |       |
| **Liabilities and Partners’ Capital**     |       |                     |       |                        |       |
| Current liabilities                            |       |                     |       |                        |       |
| Current portion of long-term debt              |       | $                        | 1,500      |                        | $          | 1,500 |   |
| Accounts payable                               |       | 4,780                    |       | 2,945                       |       |
| Due to affiliates                              |       | 1,012                    |       | 1,430                       |       |
| Deferred revenue                               |       | 3,390                    |       | 2,325                       |       |
| Accrued expenses                               |       | 1,744                    |       | 3,656                       |       |
| Total current liabilities                      |       | 12,426                   |       | 11,856                      |       |
| Term loan                                      |       | 97,750                   |       | 98,125                      |       |
| Advances from Hess                             |       | 11,174                   |       | 11,387                      |       |
| Deferred income taxes                          |       | 2,481                    |       | 2,944                       |       |
| Other liabilities                              |       | —                   |       | 207                         |       |
| Total liabilities                              |       | 123,831                  |       | 124,519                     |       |
| Commitments and contingencies (Note 8)         |       |                     |       |                        |       |
|                                           |       |                     |       |                        |       |
| **Partners’ Capital**                     |       |                     |       |                        |       |
| Partners’ capital                         |       | 125,579                  |       | 122,993                     |       |
| Accumulated other comprehensive income  (loss) |       | 1,483                    |       | (207                        | )          |
| Total partners’ capital                   |       | 127,062                  |       | 122,786                     |       |
| Total liabilities and partners’ capital   |       | $                        | 250,893    |                        | $          | 247,305 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

3

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**U.S.Shipping Partners L.P.**

**Unaudited Condensed Consolidated Statements of Operations****and Comprehensive Income**

**(inthousands, except per unit data)**

 
| ** **                                              | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                              | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| ** **                                              |       |                                           |       |   |   |
| **Revenues**                                            |       | $                                              | 33,056     |   | $ | 25,684 |   |
| ** **                                              |       |                                           |       |   |   |
| **Operating expenses**                                  |       |                                           |       |   |   |
| Vessel operating expenses                               |       | 10,940                                         |       | 9,257 |   |
| Voyage expenses                                         |       | 6,078                                          |       | 4,217 |   |
| General and administrative expenses                     |       | 2,357                                          |       | 1,480 |   |
| Depreciation and amortization                           |       | 6,183                                          |       | 5,538 |   |
| Total operating expenses                                |       | 25,558                                         |       | 20,492 |   |
| Operating income                                        |       | 7,498                                          |       | 5,192 |   |
| Interest expense                                        |       | 1,375                                          |       | 2,448 |   |
| Other income                                            |       | (201                                           | )          | (34 | ) |
| Income before income taxes                              |       | 6,324                                          |       | 2,778 |   |
| (Benefit) provision for income taxes                    |       | (325                                           | )          | 18 |   |
| Net income                                              |       | 6,649                                          |       | 2,760 |   |
| **Other comprehensive income (loss)**                   |       |                                           |       |   |   |
| Fair market value adjustment for  derivatives           |       | 1,690                                          |       | (224 | ) |
| Comprehensive income                                    |       | $                                              | 8,339      |   | $ | 2,536 |   |
|                                                    |       |                                           |       |   |   |
| General partner’s interest in net income           |       | $                                              | 133        |   | $ | — |   |
|                                                    |       |                                           |       |   |   |   |   |
| **Limited partners’ interest in net income**       |       |                                           |       |   |   |
| Net income                                              |       | $                                              | 6,516      |   | $ | 2,760 |   |
| Net income per unit - basic and diluted                 |       | $                                              | 0.47       |   | $ | 0.35 |   |
| Weighted average units outstanding - basic  and diluted |       | 13,800                                         |       | 7,800 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

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**U.S.Shipping Partners L.P.**

**Unaudited Condensed Consolidated Statement of Changes in Partners’Capital**

**ThreeMonths Ended March 31, 2005**

**(inthousands)**

 
| ** **                                  | ** ** | ** **                 | ** ** | ** **       | ** ** | ** **        | ** ** | ** ** | ** ** | ** **  | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|----------------------------|------------|------------------|------------|-------------------|------------|------------|------------|-------------|------------|-----------------|------------|------------|------------|
| ** **                                  | ** ** | **Partners’ Capital** | ** ** | **Other**        | ** ** | ** **        | ** ** |
| ** **                                  | ** ** | **Limited Partners**       | ** ** | ** **       | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Common**                 | ** ** | **Subordinated** | ** ** | **General**       | ** ** | **Income** | ** ** | ** **  | ** ** |
| ** **                                  | ** ** | **Units**                  | ** ** | **$**            | ** ** | **Units**         | ** ** | **$**      | ** ** | **Partner** | ** ** | **(Loss)**      | ** ** | **Total**  | ** ** |
| ** **                                  | ** ** | ** **                 | ** ** | ** **       | ** ** | ** **        | ** ** | ** ** | ** ** | ** **  | ** ** | ** **      | ** ** | ** ** | ** ** |
| **Balance at December 31, 2004**       |       | 6,900                      |       | $                | 118,098    |              | 6,900      |       | $          | 4,703       |       | $               | 192        |       | $          | (207 | ) | $ | 122,786 |   |
| ** **                                  |       |                       |       |             |       |              |       |       |       |        |       |            |       |       |       |   |   |   |   |   |
| Net income                                  |       | —                     |       | 3,258            |       | —            |       | 3,258      |       | 133         |       | —          |       | 6,649      |       |
|                                        |       |                       |       |             |       |              |       |       |       |        |       |            |       |       |       |
| Fair maket value adjustment for derivatives |       | —                     |       | —           |       | —            |       | —     |       | —      |       | 1,690           |       | 1,690      |       |
|                                        |       |                       |       |             |       |              |       |       |       |        |       |            |       |       |       |
| Cash distributions                          |       | —                     |       | (1,991           | )          | —            |       | (1,991     | )          | (81         | )          | —          |       | (4,063     | )          |
|                                        |       |                       |       |             |       |              |       |       |       |        |       |            |       |       |       |
| **Balance at March 31, 2005**          |       | 6,900                      |       | $                | 119,365    |              | 6,900      |       | $          | 5,970       |       | $               | 244        |       | $          | 1,483 |   | $ | 127,062 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

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**U.S.Shipping Partners L.P.**

**Unaudited Condensed Consolidated Statements of Cash Flows**

**(inthousands)**

 
| ** **                                                                        | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| **Cash flows from operating activities**                                          |       |                                           |       |   |   |
| Net income                                                                        |       | $                                              | 6,649      |   | $ | 2,760 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities |       |                                           |       |   |   |
| Depreciation and amortization, including amortization  of deferred financing fees |       | 6,198                                          |       | 5,708 |   |
| Deferred income taxes                                                             |       | (453                                           | )          | — |   |
| Drydock advance payments                                                          |       | (21                                            | )          | — |   |
| Provision for accounts receivable                                                 |       | 42                                             |       |   |   |
| Changes in assets and liabilities:                                                |       |                                           |       |   |   |
| Accounts receivable                                                               |       | 2,082                                          |       | (580 | ) |
| Prepaid expenses and other current assets                                         |       | 78                                             |       | (1,436 | ) |
| Accounts payable                                                                  |       | 1,835                                          |       | (1,642 | ) |
| Deferred revenue                                                                  |       | 1,065                                          |       | — |   |
| Accrued expenses and other liabilities                                            |       | (2,340                                         | )          | 1,686 |   |
| Net cash provided by operating activities                                         |       | 15,135                                         |       | 6,496 |   |
|                                                                              |       |                                           |       |   |   |
| **Cash flows from investing activities**                                          |       |                                           |       |   |   |
| Proceeds from sale of vessels and equipment                                       |       | —                                         |       | 2,000 |   |
| Construction/purchase of vessels and equipment                                    |       | (6,099                                         | )          | (3,306 | ) |
| Change in restricted cash                                                         |       | —                                         |       | (2,192 | ) |
| (Payments to)/advances from Hess                                                  |       | (213                                           | )          | 853 |   |
| Net cash (used in) investing activities                                           |       | (6,312                                         | )          | (2,645 | ) |
|                                                                              |       |                                           |       |   |   |
| **Cash flows from financing activities**                                          |       |                                           |       |   |   |
| Repayment of debt                                                                 |       | (375                                           | )          | (7,200 | ) |
| Cash distributions                                                                |       | (4,063                                         | )          | — |   |
| Net cash (used in) financing activities                                           |       | (4,438                                         | )          | (7,200 | ) |
| Net increase (decrease) in cash                                                   |       | 4,385                                          |       | (3,349 | ) |
| Cash, beginning of period                                                         |       | 30,258                                         |       | 8,565 |   |
| Cash, end of period                                                               |       | $                                              | 34,643     |   | $ | 5,216 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

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**U.S.Shipping Partners L.P.**

**Notes to Unaudited Condensed Consolidated Financial Statements**

**(inthousands, except per unit data)**

 

**1.****             Formation and Nature of Operations**

 

On July 30,2004 U.S. Shipping Partners L.P. (the “Partnership”) was formed to acquire, ownand operate the business conducted by United States Shipping Master LLC and itssubsidiaries, (collectively, the “Predecessor”), which primarily consisted ofthe transportation of petroleum products by our integrated tug barge units(“ITBs”) and the transportation of specialty refined petroleum and chemicalproducts by our parcel tankers (“Parcel Tankers”). The vessels operate underthe regulatory provisions of the Jones Act.

 

On November 3, 2004, the Predecessorcontributed assets and liabilities constituting the business of the Predecessorto the Partnership in connection with the initial public offering of the commonunits representing limited partner interests in the Partnership (the “commonunits”).  In exchange for these assetsand liabilities, the Predecessor received 899,968 common units and 6,899,968subordinated units representing limited partner interests in the Partnership.  The Partnership’s general partner received a2% general partner interest and certain incentive distribution rights in thePartnership.  Incentive distributionrights represent the right to receive an increasing percentage of cash distributionsafter the minimum quarterly distribution, any cumulative arrearages on commonunits, and certain target distribution levels, have been achieved.  The Partnership is required to distribute allof its available cash from basic surplus, as defined in the Partnershipagreement.  The target distributionlevels entitle the general partner to receive 15% of quarterly cashdistributions in excess of $0.50 per unit until all unitholders have received$0.575 per unit, 25% of quarterly cash distributions in excess of $0.575 perunit until all unitholders have received $0.70 per unit, and 50% of quarterlycash distributions in excess of $0.70 per unit.

 

The transfer to the Partnership ofsubstantially all of the assets and liabilities constituting the business ofthe Predecessor represented a reorganization of entities under common controland was recorded at historical cost.

 

The unaudited interim consolidated financialstatements included in this report for the three month period ended March 31,2004 are for the Predecessor.  In theopinion of management, these financial statements reflect all adjustments(consisting of only normal recurring entries) necessary for a fair statement ofthe financial results of such interim periods. The results of operations for interim periods are not necessarilyindicative of the results of operations to be expected for a full year.  These financial statements should be readtogether with the consolidated financial statements and notes thereto includedin the Partnership’s Annual Report on Form 10-K for the year ended December 31,2004 (the “Form 10-K”).  The December 31,2004 financial information included in this report has been derived from the auditedconsolidated financial statements included in the Form 10-K.

 

**2.****             InitialPublic Offering**

 

On November 3, 2004, the Partnershipcompleted its initial public offering of 6,899,968 common units (including899,968 common units sold upon exercise of the underwriters’ over-

 

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allotment option) at a price of $22.25 per unit.  Total gross proceeds from this sale were$153,524.  Concurrent with this sale, thePartnership redeemed 899,968 common units held by the Predecessor at a cost of$18,600.  After the initial publicoffering, there were 6,899,968 common units and 6,899,968 subordinated unitsoutstanding.  As described in thepartnership agreement, during the subordination period the subordinated unitsare not entitled to receive any distributions until the common units havereceived their minimum quarterly distribution plus any arrearages from priorquarters.  The subordination period willend once the Partnership meets certain financial tests described in thepartnership agreement, but generally cannot end before December 31, 2009.  When the subordination period ends, allsubordinated units will convert into common units on a one-for-one basis andcommon units will no longer be entitled to arrearages.  If the Partnership meets certain financialtests described in the partnership agreement, 25% of the class A subordinatedunits can convert into common units on or after December 31, 2007 and anadditional 25% can convert into common units on or after December 31,2008.   If the Partnership meets certainfinancial tests described in the partnership agreement, 25% of the class Bsubordinated units can convert into common units on or after December 31,2008 and an additional 25% can convert into common units on or after December 31,2009.

 

The proceeds retained by the Partnership relatingto the sale of the common units totaled $153,524.  These proceeds were used to repay $93,750 inoutstanding term debt, pay $10,918 in underwriting and structuring fees, $4,242in professional fees and other offering expenses, $18,600 to redeem 899,968units held by United States Shipping Master LLC, and $1,332 in costs to amendand restate the credit facility.  Theremaining $24,682 was used for working capital purposes.

 

**3.****             DeferredRevenue**

 

Revenue is recognized on a daily basis duringthe contract period, with expenses recognized as incurred.  At March 31, 2005 and December 31,2004, we received advance payments of $3,390 and $2,325, respectively, forfreight revenue from a customer.  Thisdeferred revenue is classified as a liability until earned.

 

**4.****             NetIncome per Unit**

 

Basic netincome per unit is determined by dividing net income, after deducting theamount of net income allocated to the general partner’s interest, by theweighted average number of units outstanding during the period.  Diluted net income per unit is calculated inthe same manner as net income per unit, except that the weighted average numberof outstanding units is increased to include the dilutive effect of outstandingunit options or phantom units.  Therewere no options or phantom units outstanding during the three-months ended March 31,2005.  For periods prior to November 3,2004, the weighted average number of units are equal to the common andsubordinated units received by the Predecessor in exchange for the net assetscontributed to the Partnership, or 7,799,936.

 

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**5.****             Vessels and Equipment**

 

Vessels and equipment consist of thefollowing:

 
| ** **                       | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Vessels                          |       | $                        | 228,171    |                        | $          | 228,171 |   |
| Capitalized drydock expenditures |       | 12,469                   |       | 12,448                      |       |
| Construction in progress         |       | 14,028                   |       | 7,929                       |       |
| Total vessels and equipment      |       | 254,668                  |       | 248,548                     |       |
| Less: Accumulated depreciation   |       | 52,808                   |       | 46,625                      |       |
|                             |       |                     |       |                        |       |
| Total vessels and equipment, net |       | $                        | 201,860    |                        | $          | 201,923 |   |

 

Depreciation and amortization of vessels andequipment and capitalized drydock expenditures for the three months ended March 31,2005 and 2004 was $6,183, and $5,538, respectively.  Construction in-progress at March 31,2005 and December 31, 2004 includes amounts paid for the construction ofthe ATB (Note 8) and capitalized interest of $147 and $72, respectively.

 

**6.****             Hess Support Agreement**

 

On September 13, 2002, the Predecessorentered into an agreement (the “Support Agreement”) with Hess in which certaindaily charter rates were agreed for five years and based upon which supportpayments would be made by Hess to the Predecessor.  Under the terms of the Support Agreement,Hess agreed to pay the Partnership for the amount by which the Partnership’snegotiated third-party contract rates are less than the agreed charter rate.However, in the event that the charter rates the Partnership receives on theITBs are in excess of the Hess support rate, then the Partnership must pay suchexcess amounts to Hess until the Partnership has repaid Hess for all priorsupport payments made by Hess to the Partnership, and then the Partnership mustshare 50% of any additional excess amount with Hess. The differences resultingfrom these rates are calculated on a monthly basis. The net amounts received orpaid by the Partnership will be considered contingent purchase price until theend of the Support Agreement term (September 2007), at which time the netamount received or paid will be treated as a purchase price adjustment.

 

From September 13, 2002 to March 31,2005, the Partnership’s third-party contract rates have been less than theagreed charter rates by a cumulative amount of $11,174, which has beenclassified as advances from Hess.

 

**7.****             RelatedParty Transactions**

 

Hess is one of the Partnership’s significantcustomers. Voyage revenues earned from transactions with Hess (which do notinclude amounts under the Support Agreement) for the three-months ended March 31,2005 and 2004 were $3,150 and $4,228, respectively.  Accounts receivable 

 

9

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due under the Support Agreementwere $618 and $9 at March 31, 2005 and December 31, 2004,respectively.

 

On September 12, 2002, the Partnershipentered into a three-year agreement with an affiliate of one of the Predecessor’smembers whereby the affiliate provided certain business advisory and managementservices, including the assistance with the development of corporate strategy,budgeting and assistance in procuring financing, to the Predecessor for anannual fee of $500. A further agreement was made on May 6, 2003 with theaffiliate for similar additional services for an annual fee of $100.  For the three months ended March 31,2004, the Predecessor incurred and paid $150 for business advisory andmanagement services.  These agreementswere terminated concurrent with the closing of the Partnership’s initial publicoffering.  United States Shipping MasterLLC paid this affiliate $3,700 in connection with such termination.

 

Certain subsidiaries of the Partnership werenot contributed to the Partnership; however, these subsidiaries’ expenses areentirely reimbursable by the Partnership. Amounts reimbursable to these subsidiaries include general andadministrative expenses, and wages and benefits for crew members.  These amounts were $8,711 for the threemonths ended March 31, 2005.

 

**8.****             Commitmentsand Contingencies**

 

In August 2004, the Partnership enteredinto a fixed price contract for the construction of an ATB, which is scheduledto be delivered in early 2006. The contract price for the ATB is $45,400,including an anticipated $500 of supervision costs. The Partnership paid $6,099and $7,929 during the three months ended March 31, 2005 and year ended December 31,2004, respectively. The ATB construction contract provides the Partnership withoptions to purchase three additional ATBs over the next 24 months at fixedprices, subject to limited exceptions. If the Partnership does not exercise anyof the options, the Partnership must pay the shipyard an additional $375, and ifthe Partnership exercises the option only for one additional ATB, the Partnershipmust pay the shipyard $125.

 

**9.****             SubsequentEvents**

 

On May 2, 2005, theBoard of Directors of the general partner declared and the Partnershipannounced its regular cash distribution for the first quarter of 2005 of $0.45per unit. The distribution will be paid on all common, subordinated and generalpartner units on May 16, 2005 to all unitholders of record on May 9,2005. The aggregate amount of the distribution will be $6,337.

 

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## ***ITEM 2.*  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

## *** ***

**Overview**

 

We are a leading provider of long-haul marinetransportation services, principally for refined petroleum products, in theU.S. domestic “coastwise” trade. We are also involved, to a limited extent, inthe coastwise transportation of petrochemical and commodity chemical products.  Our fleet consists of eight tank vessels: sixintegrated tug barge units, or ITBs, and two parcel tankers. Our primarycustomers are major oil and chemical companies. A significant portion of ourfleet capacity is currently committed to these companies pursuant to contractswith initial terms of one year or more, which provides us with a relativelypredictable level of cash flow. We do not assume ownership of any of theproducts that we transport on our vessels.

 

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

 

We generate revenue by charging customers forthe transportation and distribution of their products utilizing our vessels.These services are generally provided under the following four basic types ofcontractual 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 rate per ton;

 

•      consecutivevoyage charters, which are charters for a specified period of time at anegotiated rate per ton; and

 

•      spotcharters, which are charters for shorter intervals, usually a singleround-trip, that are made on either a current market rate or lump sumcontractual basis.

 

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

 

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The table below illustrates the primarydistinctions among these types of contracts:

 
| ** **                | ** ** | **Time Charter**                                             | ** ** | **Contract of  Affreightment** | ** ** | **Consecutive  Voyage  Charter** | ** ** | **Spot Charter**      | ** ** |
|---------------------------|------------|--------------------------------------------------------------|------------|--------------------------------|------------|----------------------------------|------------|-----------------------|------------|
| Typical contract length   |       | One year or more                                             |       | One year or more               |       | One year or more                 |       | Single voyage         |       |
| Rate basis                |       | Daily                                                        |       | Per ton                        |       | Per ton                          |       | Varies                |       |
| Voyage expenses           |       | Customer pays                                                |       | We pay                         |       | We pay                           |       | We pay                |       |
| Vessel operating expenses |       | 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 pays if cargo not ready |       | Customer does not pay |       |

 

For the three months ending March 31,2005 and 2004, we derived approximately 66% and 75%, respectively, of ourrevenue under time charters, consecutive voyage charters and contracts ofaffreightment, and approximately 34% and 25%, respectively, of our revenue fromspot charters.

 

The amounts received from or paid to Hesspursuant to the Hess support agreement are not recognized as revenue or expensebut are deferred for accounting purposes and will be reflected as an adjustmentto the purchase price relating to the acquisition of the ITBs.

 

On July 30, 2004, U.S. Shipping PartnersL.P. (the “Partnership”) was formed to own and operate the petroleum, refinedpetroleum, and chemical product marine transportation, distribution and logisticsbusiness conducted by United States Shipping Master LLC and its subsidiaries(the “Predecessor”).  On November 3,2004, United States Shipping Master LLC contributed substantially all of itsassets and liabilities to the Partnership in connection with the initial publicoffering of common units representing limited partner interests in thePartnership (the “common units”).  Inexchange for these assets and liabilities, United States Shipping Master LLCreceived 899,968 common units and 6,899,968 subordinated units representinglimited partner interests in the Partnership.

 

On November 3, 2004, the Partnershipcompleted its initial public offering of 6,899,968 common units (including899,968 common units sold upon exercise of the underwriters’ over-allotmentoption) at a price of $22.25 per unit. Total gross proceeds from this sale were $153.5 million, beforeunderwriting and structuring fees of $10.9 million, and offering costs of approximately$4.2 million.  The Partnership usedproceeds to repay $93.8 million in outstanding term debt, provide $24.7 millionof working capital, pay $1.3 million of costs associated with amending andrestating our credit facility, and redeem the 899,968 common units held byUnited States Shipping Master LLC for $18.6 million.

 

12

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At the closingof the initial public offering, the Partnership entered into a second amendedand restated credit agreement with several banks which provides for a $100,000term loan and the ability to borrow up to an additional $120,000 of term loansunder certain circumstances.  Principaland interest is due and payable quarterly. The term loan matures on April 30, 2010.  The credit agreement also provides a $50,000revolving credit facility which expires November 2, 2009.  The loans are collateralized by all thePartnership’s assets including eight vessels owned by the Partnership.   The second amended and restated creditfacility contains various financial covenants including certain restrictions onthe sale or acquisition of assets and a requirement to adhere to specifiedfinancial ratios.

 

**Definitions**

 

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

 

•      *Voyage revenue*. Voyage revenue includesrevenue from time charters, contracts of affreightment, consecutive voyagecharters and spot charters. Voyage revenue is impacted by changes in charterand utilization rates and by the mix of business among the types of contractsdescribed in the preceding sentence.

 

•      *Voyage expenses*. Voyage expenses includeitems such as fuel, port charges, pilot fees, tank cleaning costs, canal tollsand other costs which are unique to a particular voyage. These costs can varysignificantly depending on the voyage trade route. Depending on the form ofcontract, either we or our customer is responsible for these expenses. If wepay voyage expenses, they are included in our results of operations when theyare incurred. Typically, our freight rates are higher when we pay voyageexpenses. Our contracts of affreightment and consecutive voyage chartersgenerally contain escalation clauses whereby certain cost increases, includinglabor and fuel, can be passed on to our customers.

 

•      *Net voyage revenue*. Net voyage revenue isequal to voyage revenue less voyage expenses. As explained above, the amount ofvoyage expenses we incur for a particular voyage depends upon the form of thecontract. Therefore, in comparing revenues between reporting periods, we usenet voyage revenue to improve the comparability of reported revenues that aregenerated by the different forms of contracts.

 

•      *Vessel operating expenses*. We pay thevessel operating expenses regardless of whether we are operating under a timecharter, contract of affreightment, consecutive voyage charter or spot charter.The most significant direct vessel operating expenses are crewing costs, vesselmaintenance and repairs, bunkers and lube oils and marine insurance.

 

•      *Depreciation and amortization*. We incurfixed charges related to the depreciation of the historical cost of our fleetand the amortization of expenditures for drydockings. The aggregate number ofdrydockings undertaken in a given period and the nature of the work performeddetermine the level of drydocking expenditures.

 

•      *General and administrative expenses*.General and administrative expenses consist of employment costs for shoresidestaff and cost of facilities, as well as legal, audit and other administrativecosts.

 

•      *Total vessel days*. Total vessel days areequal to the number of calendar days in the period

 

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multiplied bythe total number of vessels operating or in drydock during that period.

 

•      *Days worked.* Days worked are equal tototal vessel days less drydocking days and days off-hire.

 

•      *Drydocking days*. Drydocking days are daysdesignated for the inspection and survey of vessels, and resulting maintenancework, as required by the U.S. Coast Guard and the American Bureau of Shippingto maintain the vessels’ qualification to work in the U.S. coastwise trade.Both domestic (U.S. Coast Guard) and international (International MaritimeOrganization) regulatory bodies require that our ITBs be drydocked for majorrepair and maintenance every five years, with a mid-period underwater survey inlieu of drydocking, and our parcel tankers be drydocked twice every five years.Drydocking days also include unscheduled instances where vessels may have to bedrydocked in the event of accidents or other unforeseen damage.

 

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

 

•      *Time charter equivalent*. Time charterequivalent, another key measure of our operating performance, is equal to thenet voyage revenue earned by a vessel during a defined period, divided by thetotal number of actual days worked by that vessel during that period.Fluctuations in time charter equivalent result not only from changes in charterrates charged to our customers, but from external factors such as weather orother delays.

 

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**Results of Operations**

 

The following table summarizes our results ofoperations (dollars in thousands, except for daily rates):

 
| ** **                               | ** ** | **For the Three Months Ended** | ** ** |
|------------------------------------------|------------|--------------------------------|------------|
| ** **                               | ** ** | **March 31,**             | ** ** |
| ** **                               | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| Voyage revenue                           |       | $                              | 33,056     |   | $ | 25,684 |   |
| Vessel operating expenses                |       | 10,940                         |       | 9,257 |   |
| % of voyage revenue                      |       | 33.1                           | %          | 36.0 | % |
| Voyage expenses                          |       | 6,078                          |       | 4,217 |   |
| % of voyage revenue                      |       | 18.4                           | %          | 16.4 | % |
| General and administrative expenses      |       | 2,357                          |       | 1,480 |   |
| % of voyage revenue                      |       | 7.1                            | %          | 5.8 | % |
| Depreciation and amortization            |       | 6,183                          |       | 5,538 |   |
| Operating income                         |       | 7,498                          |       | 5,192 |   |
| % of voyage revenue                      |       | 22.7                           | %          | 20.2 | % |
| Interest expense                         |       | 1,375                          |       | 2,448 |   |
| Other income                             |       | (201                           | )          | (34 | ) |
| Income before provision for income taxes |       | 6,324                          |       | 2,778 |   |
| (Benefit) provision for income taxes     |       | (325                           | )          | 18 |   |
| Net income                               |       | $                              | 6,649      |   | $ | 2,760 |   |
|                                     |       |                           |       |   |   |
| Total vessel days                        |       | 720                            |       | 637 |   |
| Days worked                              |       | 717                            |       | 627 |   |
| Drydocking days                          |       | —                         |       | — |   |
| Net utilization                          |       | 99.5                           | %          | 98.4 | % |
| Average time charter equivalent rate     |       | $                              | 37,650     |   | $ | 34,238 |   |

 

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**U.S.Shipping Partners L.P.**

**UnauditedOther Financial Data**

**(inthousands)**

 
| ** **             | ** ** | **For the Three Months Ended** | ** ** |
|------------------------|------------|--------------------------------|------------|
| ** **             | ** ** | **March 31,**             | ** ** |
| ** **             | ** ** | **2005**                       | ** ** | **2004** | ** ** |
|                   |       |                           |       |   |   |
| Voyage revenues        |       | $                              | 33,056     |   | $ | 25,684 |   |
| Voyage expenses        |       | 6,078                          |       | 4,217 |   |
| Net voyage revenue (1) |       | $                              | 26,978     |   | $ | 21,467 |   |

 

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(1) Net voyage revenue is equal to voyage revenue less voyageexpenses.  Net voyage revenue is anon-GAAP financial measures which we use in our business when comparingperformance in different periods.  Netvoyage revenue is not calculated or presented in accordance with generallyaccepted accounting principles, or GAAP.

 

***Three Months Ended March 31,2005 Compared to Three Months Ended March 31, 2004***

 

*Voyage Revenue.*  Voyage revenue was $33.1 million for thethree months ended March 31, 2005, an increase of $7.4 million, or29%, as compared to voyage revenue of $25.7 million for the three monthsended March 31, 2004.  The *Charleston*, which we did not operate in the three monthsended March 31, 2004, accounted for $5.4 million of the $7.4 millionincrease in voyage revenue.  Theremaining increase is primarily attributable to a 7% increase in time charterequivalent rates due to contractually escalated rates as well as increased spotrates due to strong demand.  Net voyagerevenue was $27.0 for the three months ended March 31, 2005, an increaseof $5.5 million, or 26%, as compared to the three months ended March 31,2004.

 

*Vessel OperatingExpenses.* Vessel operating expenses were $10.9 million for the three monthsended March 31, 2005, an increase of $1.7 million, or 18%, ascompared to $9.3 million for the three months ended March 31, 2004.The *Charleston*, which we did notoperate in the three months ending March 31, 2004, contributed $1.9million of increased vessel operating expenses in the three months ending March 31,2005. This increase was partially offset by a $0.2 million reduction in vesseloperating expenses due to the timing of certain expenditures related tomaintenance and supplies.

 

*Voyage Expenses.*  Voyage expenses were $6.1 million for thethree months ended March 31, 2005, an increase of $1.9 million, or44%, as compared to voyage expenses of $4.2 million for the three monthsended March 31, 2004. Voyage expenses as a percentage of voyage revenueincreased from 16.4% in the three months ended March 31, 2004 to 18.4% inthe three months ended March 31, 2005. The increase in voyage expenses, both in dollars and as a percentage ofvoyage revenue, was primarily the result of operating the *Charleston* during the three months ended March 2005,which was

 

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not operated by us in the 2004 period. Additionally fuel increases of $0.4 million were included in voyageexpenses and passed on to our customers in the form of fuel escalation surcharges.

 

*General andAdministrative Expenses.*  General and administrative expenses were$2.4 million for the three months ended March 31, 2005, an increaseof $0.9 million, or 59%, compared to $1.5 million for the three monthsended March 31, 2004.  The increaseis attributable to increased costs associated with being a public entitycoupled with additional expenses necessary to accommodate the growth of ourfleet, including our acquisition of the *Charleston*.

 

*Depreciation andAmortization.* Depreciation and amortization was $6.2 million for the three monthsended March 31, 2005, an increase of $0.6 million, or 12%, ascompared to $5.5 million for the three months ended March 31, 2004.This increase is due to the depreciation of the *Charleston* which we acquired in April 2004.

 

*Interest Expense.*  Interest expense was $1.4 million forthe three months ended March 31, 2005, a decrease of $1.1 million, or44%, as compared to $2.4 million for the three months ended March 31,2004 due to lower outstanding loan balances in 2005.  Concurrent with our initial public offeringon November 3, 2004, we repaid $93.8 million of debt, resulting in a debtbalance of $100.0 million.   At the endof the first quarter 2005, our debt outstanding was $99.3 million compared to$137.2 million at March 31, 2004.

 

*(Benefit) Provisionfor Income Taxes.* The provision for income taxes represents federal and state income taxesfor our subsidiary that is a corporation subject to federal and state incometaxes, as well as state income taxes for those states that tax our limitedliability company subsidiaries as corporations. We recognized a benefit for the three months ended March 31, 2005as a result of the tax losses incurred in our subsidiary.

 

*Net Income.*  Net income was $6.6 million for thethree months ended March 31, 2005, an increase of $3.9 million, or141%, as compared to $2.8 million for the three months ended March 31,2004. This increase is primarily the result of increased operating income of$2.3 million coupled with a $1.1 decrease in interest expense.

 

**Liquidity and Capital Resources**

 

***Operating Cash Flows***

 

Net cash provided by operating activities was$15.1 million for the three months ended March 31, 2005, an increaseof $8.6 million, compared to $6.5 million for the three months ended March 31,2004. The increase is primarily the result of a $2.3 million increase inoperating income, a $4.7 million favorable working capital fluctuation, and a$1.1 million decrease in interest expense.

 

***Investing Cash Flows***

 

Net cash used in investing activities totaled$6.3 million for the three months ended March 31, 2005 and$2.6 million for the three months ended March 31, 2004.  During the 2005 period, we made

 

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$6.1 million in progress payments for the construction of the ATB.  In January 2004, we sold the *Stolt Spirit* as scrap for$2.0 million and made a $3.3 million deposit toward the purchase of the *Charleston*.

 

The amountsreceived from or paid to Hess pursuant to the Hess support agreement are notrecognized as revenue or expense but are deferred for accounting purposes andwill be reflected as an adjustment to the purchase price relating to theacquisition of the ITBs from Hess at the end of the Hess support agreement.Pending such adjustment, they are included in cash flows from investingactivities as advances from (payments to) Hess. If the rate for an ITB exceedsthe support rate set forth in the support agreement, we must pay the excess toHess to reimburse Hess for any payments made to us by Hess under the supportagreement and, once Hess has been fully reimbursed for all payments made underthe support agreement, we must pay Hess 50% of any remaining excess.  Payments to Hess under the support agreementwere $0.2 million for the three months ended March 31, 2005.  Payments from Hess to us under the supportagreement were $0.9 million for the three months ended March 31,2004. For the three months ended March 31, 2005 and 2004, five ITBs werecovered. One ITB is under contract with Hess at a charter rate less than thesupport rate; this vessel will be covered by the support agreement upon anytermination of that contract.

 

***Financing Cash Flows***

 

Net cash used in financing activities was$4.4 million for the three months ending March 31, 2005 and$7.2 million for the three months ended March 31, 2004. We madescheduled debt repayments of $0.4 million and $7.2 million for the three monthsended March 31, 2005 and 2004, respectively.  We also paid $4.1 million in distributions topartners as described in “Payments of Distributions” below.

 

***Payments of Distributions***

 

The board of directors of US Shipping GeneralPartner LLC declared a quarterly distribution to unitholders of $0.2885 perunit in respect of the quarter ended December 31, 2004, which was paid on February 14,2005 to unitholders of record on February 9, 2005.

 

***Ongoing CapitalExpenditures***

 

Marine transportation of refined petroleum,petrochemical and commodity chemical products is a capital intensive business,requiring significant investment to maintain an efficient fleet and to stay inregulatory compliance. Both domestic (U.S. Coast Guard) and international(International Maritime Organization) regulatory bodies require that our ITBsbe drydocked for major repairs and maintenance every five years and that weconduct a mid-period underwater survey in lieu of drydocking, and that ourparcel tankers be drydocked twice every five years. In addition, vessels mayhave to be drydocked in the event of accidents or other unforeseen damage.Periodically, we also make expenditures to acquire or construct additional tankvessel capacity and/or to upgrade our overall fleet efficiency.

 

Two of our six ITBs will be drydocked in2005, an additional two in 2006 and the remaining two in 2007. We estimate thatdrydocking these vessels will cost approximately $4.0 million to$6.0 million per vessel. In addition, our parcel tankers are required tobe drydocked in both 2006 and 2008. We estimate drydocking of the parceltankers will cost approximately $3.0 million to 

 

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$5.0 million per vessel. When drydocked, each of our ITBs will beout of service for approximately 45 to 55 days and each of our parceltankers will be out of service for approximately 35 to 50 days. At thetime we drydock these vessels, the actual cost of drydocking may be higher dueto inflation and other factors. In addition, vessels in drydock will notgenerate any income, which will reduce our revenue and cash available for distribution.

 

Our partnership agreement requires ourgeneral partner to deduct from basic surplus each quarter estimated maintenancecapital expenditures as opposed to actual maintenance capital expenditures inorder to reduce disparities in basic surplus caused by fluctuating maintenancecapital expenditures, such as retrofitting or drydocking. Because of thesubstantial capital expenditures we are required to make to maintain our fleet,our initial annual estimated maintenance capital expenditures for purposes ofcalculating basic surplus will be $17.2 million, including our currentestimate of the capital required to bring our ITBs into compliance with OPA 90by retrofitting our six ITBs with double-sides. The amount of estimatedmaintenance capital expenditures deducted from basic surplus is subject toreview and change by the board of directors of our general partner at leastonce a year, with any change approved by the conflicts committee. We may electto construct new double-hulled forebodies for some of our ITBs rather thanretrofitting them with double-sides. We estimate that the cost of these newforebodies will be substantially higher than the cost of retrofitting. The costof retrofitting the ITBs compared to the cost of new forebodies, market conditions,charter rates and the availability and cost of financing will be major factorsin our determination whether to retrofit the ITBs or construct new forebodies.If and when we conclude that our plan should be to construct new forebodies,the board of directors of our general partner, with the approval of ourconflicts committee, will determine what portion, if any, of the incrementalcost of constructing new forebodies represents a maintenance capitalexpenditure. Depending on this determination, the board could elect to increasesignificantly the annual amount of our estimated capital expenditures. In yearswhen estimated maintenance capital expenditures are higher than actualmaintenance capital expenditures, the amount of cash available for distributionto unitholders will be lower than if actual maintenance capital expenditureswere deducted from basic surplus.

 

The following table summarizes totalmaintenance capital expenditures, consisting of advanced payments of drydockingexpenditures, and expansion capital expenditures for the periods presented (inthousands):

 
| ** **                       | ** ** | **Three months ended** | ** ** |
|----------------------------------|------------|------------------------|------------|
| ** **                       | ** ** | **March 31,**     | ** ** |
| ** **                       | ** ** | **2005**               | ** ** | **2004** | ** ** |
| Maintenance capital expenditures |       | $                      | 21         |   | $ | — |   |
| Expansion capital expenditures   |       | 6,099                  |       | 3,306 |   |
| Total capital expenditures       |       | $                      | 6,120      |   | $ | 3,306 |   |

 

***Liquidity Needs***

 

Our primary short-term liquidity needs are topay our quarterly distributions and to fund general working capitalrequirements and drydocking expenditures while our long-term liquidity needs

 

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are primarily associated with expansion and other maintenance capitalexpenditures. Expansion capital expenditures are primarily for the purchase orconstruction of vessels, while maintenance capital expenditures includedrydocking expenditures and the cost of bringing our vessels into compliancewith OPA 90. Our primary sources of funds for our short-term liquidity needswill be cash flows from operations and borrowings under our credit facility,while our long-term sources of funds will be from cash from operations,long-term bank borrowings and other debt or equity financings.

 

We believe that cash flows from operationsand borrowings under our credit facility described below will be sufficient tomeet our short-term liquidity needs for the at least the next twelve months. Ifour plans or assumptions change or are inaccurate, or we make any additionalacquisitions, we may need to raise additional capital to finance our ongoingconstruction projects on a long-term basis. There can be no assurance that wewill be able to raise additional funds on favorable terms.

 

## ***ITEM 3.   Quantitative and Qualitative DisclosuresAbout Market Risk***

 

Our marketrisk is affected primarily by changes in interest rates. We are exposed to theimpact of interest rate changes primarily through our variable-rate borrowingsunder our credit facility. Significant increases in interest rates couldadversely affect our operating margins, results of operations and our abilityto service our indebtedness. Based on the aggregate $5.0 million of floatingrate debt outstanding at March 31, 2005, the impact of a 1% increase inLIBOR would result in an increase in interest expense of $12 thousand duringthe three months ended March 31, 2005.

 

We utilizeinterest rate swaps to reduce our exposure to market risk from changes ininterest rates. The principal objective of such contracts is to minimize therisks and/or costs associated with our variable rate debt. All derivativeinstruments held by us are designated as hedges and, accordingly, the gains andlosses from changes in derivative fair values are recognized as comprehensiveincome as required by SFAS 133. Gains and losses upon settlement arerecognized in the statement of operations or recorded as part of the underlyingasset or liability as appropriate. We are exposed to credit-related losses inthe event of nonperformance by counterparties to these financial instruments;however, counterparties to these agreements are major financial institutions,and the risk of loss due to nonperformance is considered by management to beminimal. We do not hold or issue interest rate swaps for trading purposes.

 

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We had two open interest rate swap agreementsas of March 31, 2005.  The intent ofthese agreements is to reduce interest rate risk by swapping an unknownvariable interest rate for a fixed rate. The following is a summary of theeconomic terms of this agreement at March 31, 2005:

 

| Notional amount        |   | $          | 32,250,000 |   |
|------------------------|--------|------------|------------|--------|
| Fixed rate paid        |   | 3.15       | %          |
| Variable rate received |   | 3.0925     | %          |
| Effective date         |   | 12/31/2002 |       |
| Expiration date        |   | 12/29/2006 |       |
|                   |   |       |       |
| Notional amount        |   | $          | 60,250,000 |   |
| Fixed rate paid        |   | 3.9075     | %          |
| Variable rate received |   | 3.0925     | %          |
| Effective date         |   | 4/19/2004  |       |
| Expiration date        |   | 12/31/2008 |       |

 

## ***ITEM 4.*  Controls and Procedures**

## *** ***

As of the end of the period covered by this report, our management,including the Chief Executive Officer and Chief Financial Officer, carried outan evaluation of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures. Based on that evaluation, the Company’sChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures are effective in alerting them to materialinformation, on a timely basis, required to be included in our periodic SECfilings. During our last fiscal quarter, there were no changes in our internalcontrol over financial reporting that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

# **PART II—OTHER INFORMATION**

# ** **

## ***ITEM 1. *Legal Proceedings**

## *** ***

The Partnership is subject to various claims and lawsuits in theordinary course of business for monetary relief principally from personalinjuries, collision or other casualty and to claims arising under vesselcharters.   Although the outcome of anyindividual claim or action cannot be predicted with certainty, we believe thatany adverse outcome, individually or in the aggregate, would be substantiallymitigated by applicable insurance or indemnification from previous owners ofour assets, and would not have a material adverse effect on our financialposition, results of operations or cash flows. We are subject to deductibles with respect to our insurance coverage whichrange up to $150,000 per incident, and we provide on a current basis forestimated payments thereunder.

 

## ***On April 14, 2005, U.S. Shipping Partners L.P. settleda claim against a vendor in the amount of $490,000.  The settlement includes reimbursement ofexpenses incurred in 2003 for maintenance***

 

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## ***and repair of the ITB Mobile and ITB Jacksonville as well aslegal, insurance, and other expenses incurred between 2003 and 2005.***

## *** ***

## ***ITEM 2.  Unregistered Sales of Equity Securities andUse of Proceeds***

## *** ***

The Partnership used the $24.7 million of offering proceeds allocatedto working capital for working capital during the first quarter of 2005.

 

## ***ITEM 6***.    Exhibits

** **
| **Exhibit  Number** | ** ** | ** ** | **Description**                                                                                               |
|---------------------|------------|------------|---------------------------------------------------------------------------------------------------------------|
| 31.1                |       | —     | Certification of the Chief Executive  Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                |       |       |                                                                                                          |
| 31.2                |       | —     | Certification of the Chief Financial  Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                |       |       |                                                                                                          |
| 32.1                |       | —     | Certification of the Chief Executive  Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|                |       |       |                                                                                                          |
| 32.2                |       | —     | Certification of the Chief Financial  Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

 

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

 
| Date: May 5, 2005 |                        |
|------------------------|-----------------------------|
|                   |                        |
|                   | U.S. SHIPPING PARTNERS L.P. |
|                   | By:                         | US Shipping General Partner LLC, |
|                   |                        | its general partner |
|                   |                        |
|                   |                        |
|                   | By:                         |   |   |
|                   |                        | Paul B. Gridley |
|                   |                        | Chairman, Chief Executive Officer |
|                   |                        | (principal executive officer) |
|                   |                        |
|                   |                        |
|                   | By:                         |   |   |
|                   |                        | Albert E. Bergeron |
|                   |                        | Vice President—Chief Financial Officer |
|                   |                        | (principal financial and accounting  officer) |
|                        |                             |  |  |  |  |  |

 

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