Table of Contents

 

 

 

**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q**

** **

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

 

**For the quarterly period ended JUNE 30, 2008**

 

**OR**

 

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

 

**For the transition period from                  to                  **

 

**Commission File Number 001-33806**

 

**OSGAMERICA L.P.**

(Exact name of registrant as specified in itscharter)

 

| **DELAWARE**                                                    |   | **11-3812936**                    |
|-----------------------------------------------------------------|--------|-----------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (IRS Employer Identification No.) |

 

| **Two Harbour Place, 302 Knights Run Avenue,  Suite 1200, Tampa, FL** |   | **33602**  |
|----------------------------------------------------------------------------|--------|------------|
| (Address of principal executive offices)                                   |   | (Zip Code) |

 

| **(813) 209-0600**                                       |
|----------------------------------------------------------|
| Registrant’s telephone number, including  area code |

 

| **None**                                                                          |
|-----------------------------------------------------------------------------------|
| Former name, former address and former  fiscal year, if changed since last report |

 

Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days.     Yes     x     No     o

 

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

 

# **Largeaccelerated filer **o      Acceleratedfiler o      Non-acceleratedfiler x      Smallerreporting company o

 

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

 

The number of common units outstanding as of July 31,2008 was 15,002,250.  The number ofsubordinated units outstanding as of that date was 15,000,000.

 

 

 

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TABLE OF CONTENTS

 
| ** **    | ** **                                                                                  | **Page** |
|---------------|---------------------------------------------------------------------------------------------|----------|
| PART I.  | FINANCIAL INFORMATION                                                                       |     |
|          |                                                                                        |     |
| Item. 1.      | Condensed Consolidated Financial Statements                                                 | 3        |
|          |                                                                                        |     |
| Item 2.       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 15       |
|          |                                                                                        |     |
| Item 3.       | Qualitative and Quantitative Disclosures  About Market Risk                                 | 25       |
|          |                                                                                        |     |
| Item 4(T).    | Controls and Procedures                                                                     | 26       |
|          |                                                                                        |     |
| PART II. | OTHER INFORMATION                                                                           |     |
|          |                                                                                        |     |
| Item 1.       | Legal Proceedings                                                                           | 26       |
|          |                                                                                        |     |
| Item 1A.      | Risk Factors                                                                                | 26       |
|          |                                                                                        |     |
| Item 2.       | Unregistered Sales of Equity Securities and  Use of Proceeds                                | 27       |
|          |                                                                                        |     |
| Item 6.       | Exhibits                                                                                    | 27       |
|          |                                                                                        |     |
| SIGNATURES    |                                                                                        | 29       |

 

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| ** **                                                         | ** **                                                                                                                                                                                                                           | **Page** |
|--------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART I – FINANCIAL INFORMATION**                       |
|                                                               |                                                                                                                                                                                                                                 |     |
| **ITEM 1.****  CONDENSED CONSOLIDATED  FINANCIAL STATEMENTS** |                                                                                                                                                                                                                                 |
|                                                               | ** **                                                                                                                                                                                                                           |     |
|                                                               | Condensed Consolidated Balance Sheets at  June 30, 2008 and December 31, 2007                                                                                                                                              | 4        |
|                                                               |                                                                                                                                                                                                                                 |     |
|                                                               | Condensed Consolidated Statements of  Operations for the three and six months ended June 30, 2008 and  Condensed Predecessor Combined Carve-out Statements of Operations for the  three and six months ended June 30, 2007 | 5        |
|                                                               |                                                                                                                                                                                                                                 |     |
|                                                               | Condensed Consolidated Statement of Cash  Flows for the six months ended June 30, 2008 and Condensed Predecessor  Combined Carve-out Statement of Cash Flows for six months ended June 30,  2007                           | 6        |
|                                                               |                                                                                                                                                                                                                                 |     |
|                                                               | Condensed Consolidated Statement of Changes  in Partners’ Capital for the six months ended June 30, 2008                                                                                                                   | 7        |
|                                                               |                                                                                                                                                                                                                                 |     |
|                                                               | Notes to Condensed Consolidated and  Condensed Predecessor Combined Carve-Out Financial Statements                                                                                                                                   | 8        |

 

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**OSG AMERICA L.P.**

**CONDENSED CONSOLIDATED BALANCESHEETS**

**DOLLARS IN THOUSANDS**

 
| ** **                                                                     | ** ** | **As of****June 30, 2008** | ** ** | **As of****December 31, 2007** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                     | ** ** | **(Unaudited)**                           | ** ** | ** **                                    | ** ** |
| **Assets**                                                                     | ** ** | ** **                                | ** ** | ** **                                    | ** ** |
| **Current Assets:**                                                            |       |                                      |       |                                          |       |
| Cash and cash equivalents                                                      |       | $                                         | 9,623      |                                          | $          | 3,380 |   |
| Voyage receivables, including  unbilled of $3,434 and $4,107                   |       | 19,843                                    |       | 26,263                                        |       |
| Other receivables                                                              |       | 5,393                                     |       | 7,146                                         |       |
| Inventory                                                                      |       | 4,107                                     |       | 2,997                                         |       |
| Prepaid expenses and other current  assets                                     |       | 3,795                                     |       | 3,961                                         |       |
| Total current assets                                                           |       | 42,761                                    |       | 43,747                                        |       |
|                                                                           |       |                                      |       |                                          |       |
| Vessels, less accumulated  depreciation of $75,441 and $59,568                 |       | 437,688                                   |       | 405,447                                       |       |
| Vessels under capital leases,  less accumulated amortization of $0 and $80,414 |       | —                                    |       | 21,246                                        |       |
| Deferred drydock expenditures,  net                                            |       | 27,372                                    |       | 16,177                                        |       |
| Investment in Alaska Tanker  Company, LLC                                      |       | 1,661                                     |       | 5,782                                         |       |
| Intangible assets, less  accumulated amortization of $7,283 and $4,983         |       | 84,717                                    |       | 87,017                                        |       |
| Goodwill                                                                       |       | 62,874                                    |       | 62,874                                        |       |
| Other assets                                                                   |       | 10,483                                    |       | 8,822                                         |       |
| Total assets                                                                   |       | $                                         | 667,556    |                                          | $          | 651,112 |   |
|                                                                           |       |                                      |       |                                          |       |
| **Liabilities and Partners’  Capital**                                    |       |                                      |       |                                          |       |
| **Current Liabilities:**                                                       |       |                                      |       |                                          |       |
| Accounts payable and accrued  expenses                                         |       | $                                         | 18,889     |                                          | $          | 19,522 |   |
| Advances from affiliated  companies                                            |       | 6,524                                     |       | —                                        |       |
| Current portion of debt                                                        |       | 2,920                                     |       | 2,834                                         |       |
| Current obligations under  capital leases                                      |       | —                                    |       | 6,375                                         |       |
| Total current liabilities                                                      |       | 28,333                                    |       | 28,731                                        |       |
|                                                                           |       |                                      |       |                                          |       |
| Long-term debt, less current  portion                                          |       | 104,272                                   |       | 46,753                                        |       |
| Obligations under capital  leases                                              |       | —                                    |       | 23,846                                        |       |
| Advances from affiliated  companies                                            |       | —                                    |       | 9,657                                         |       |
| Other non-current liabilities                                                  |       | 3,103                                     |       | 1,428                                         |       |
| Total liabilities                                                              |       | 135,708                                   |       | 110,415                                       |       |
|                                                                           |       |                                      |       |                                          |       |
| **Partners’ Capital**                                                     |       | 531,848                                   |       | 540,697                                       |       |
| Total liabilities and partners’  capital                                  |       | $                                         | 667,556    |                                          | $          | 651,112 |   |

 

See notes to condensedconsolidated financial statements.

 

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**OSG AMERICA L.P.**

**CONDENSEDCONSOLIDATED AND PREDECESSOR COMBINED CARVE-OUT**

**STATEMENTS OF OPERATIONS**

**DOLLARS IN THOUSANDS, EXCEPT PERSHARE AND PER UNIT AMOUNTS**

**(UNAUDITED)**

** **
| ** **                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **Three Months Ended**         | ** ** | **Six Months Ended**             | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **Successor****June 30, 2008** | ** ** | **Predecessor****June 30, 2007** | ** ** | **Successor****June 30, 2008** | ** ** | **Predecessor****June 30, 2007** | ** ** |
| **Shipping Revenues:**                                                                                                                                                                                                                                                                                                                                                      |       |                                     |       |                                       |       |   |   |   |   |
| Time and bareboat charter  revenues (including $4,570 from OSG for the three and six months ended  June 30, 2008)                                                                                                                                                                                                                                                      |       | $                                        | 36,592     |                                       | $          | 25,219 |   | $ | 69,098 |   | $ | 47,426 |   |
| Voyage charter revenues                                                                                                                                                                                                                                                                                                                                                     |       | 35,636                                   |       | 24,147                                     |       | 66,162 |   | 51,674 |   |
|                                                                                                                                                                                                                                                                                                                                                                        |       | 72,228                                   |       | 49,366                                     |       | 135,260 |   | 99,100 |   |
| **Operating Expenses:**                                                                                                                                                                                                                                                                                                                                                     |       |                                     |       |                                       |       |   |   |   |   |
| Voyage expenses                                                                                                                                                                                                                                                                                                                                                             |       | 12,298                                   |       | 7,419                                      |       | 22,938 |   | 14,844 |   |
| Vessel expenses                                                                                                                                                                                                                                                                                                                                                             |       | 23,534                                   |       | 18,819                                     |       | 45,968 |   | 36,112 |   |
| Charter hire expenses  (including $2,929 to OSG for the three and six months ended June 30,  2008)                                                                                                                                                                                                                                                                     |       | 12,169                                   |       | 1,843                                      |       | 18,845 |   | 3,009 |   |
| Depreciation and amortization                                                                                                                                                                                                                                                                                                                                               |       | 13,679                                   |       | 11,467                                     |       | 26,700 |   | 22,464 |   |
| General and administrative                                                                                                                                                                                                                                                                                                                                                  |       | 5,119                                    |       | —                                     |       | 11,005 |   | — |   |
| General and administrative  allocated from Overseas Shipholding Group, Inc.                                                                                                                                                                                                                                                                                            |       | —                                   |       | 5,239                                      |       | — |   | 10,112 |   |
| Total operating expenses                                                                                                                                                                                                                                                                                                                                                    |       | 66,799                                   |       | 44,787                                     |       | 125,456 |   | 86,541 |   |
| Income from vessel operations                                                                                                                                                                                                                                                                                                                                               |       | 5,429                                    |       | 4,579                                      |       | 9,804 |   | 12,559 |   |
| Equity in income of affiliated  companies                                                                                                                                                                                                                                                                                                                                   |       | 1,030                                    |       | 1,399                                      |       | 1,623 |   | 2,258 |   |
| Operating income                                                                                                                                                                                                                                                                                                                                                            |       | 6,459                                    |       | 5,978                                      |       | 11,427 |   | 14,817 |   |
| Other income /(expense)                                                                                                                                                                                                                                                                                                                                                     |       | 60                                       |       | (7                                         | )          | 121 |   | (8 | ) |
|                                                                                                                                                                                                                                                                                                                                                                        |       | 6,519                                    |       | 5,971                                      |       | 11,548 |   | 14,809 |   |
| Interest expense to a wholly  owned subsidiary of Overseas Shipholding Group, Inc.                                                                                                                                                                                                                                                                                     |       | —                                   |       | 2,069                                      |       | — |   | 4,170 |   |
| Interest expense, other                                                                                                                                                                                                                                                                                                                                                     |       | 1,594                                    |       | 1,386                                      |       | 2,858 |   | 2,538 |   |
| Income before federal income  taxes                                                                                                                                                                                                                                                                                                                                         |       | 4,925                                    |       | 2,516                                      |       | 8,690 |   | 8,101 |   |
| Provision/(benefit) for federal  income taxes                                                                                                                                                                                                                                                                                                                               |       | —                                   |       | (158                                       | )          | — |   | 1,224 |   |
| Net income                                                                                                                                                                                                                                                                                                                                                                  |       | $                                        | 4,925      |                                       | $          | 2,674 |   | $ | 8,690 |   | $ | 6,877 |   |
|                                                                                                                                                                                                                                                                                                                                                                        |       |                                     |       |                                       |       |   |   |   |   |
| General partner’s interest in  net income                                                                                                                                                                                                                                                                                                                              |       | $                                        | 99         |                                       |       |   | $ | 174 |   |   |   |
| Limited partners interest:                                                                                                                                                                                                                                                                                                                                                  |       |                                     |       |                                       |       |   |   |   |   |
| Net income                                                                                                                                                                                                                                                                                                                                                                  |       | $                                        | 4,826      |                                       |       |   | $ | 8,516 |   |   |   |
| Net income per unit - basic                                                                                                                                                                                                                                                                                                                                                 |       | $                                        | 0.16       |                                       |       |   | $ | 0.28 |   |   |   |
|                                       - diluted                                                                                                                               |       | $                                        | 0.16       |                                       |       |   | $ | 0.28 |   |   |   |
| Cash distribution declared per  unit                                                                                                                                                                                                                                                                                                                                        |       | $                                        | 0.375      |                                       |       |   | $ | 0.750 |   |   |   |
| Weighted average units  outstanding - basic                                                                                                                                                                                                                                                                                                                                 |       | 30,002,250                               |       |                                       |       | 30,002,250 |   |   |   |
|                                                            - diluted |       | 30,002,250                               |       |                                       |       | 30,002,250 |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                        |       |                                     |       |                                       |       |   |   |   |   |
| Basic and diluted net income  per share                                                                                                                                                                                                                                                                                                                                     |       |                                     |       | $                                          | 137.12     |   |   |   | $ | 352.65 |   |
| Shares used in computing basic  and diluted net income per share                                                                                                                                                                                                                                                                                                            |       |                                     |       | 19,500                                     |       |   |   | 19,500 |   |

 

See notes to condensed consolidated financialstatements.

 

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**OSG AMERICA L.P.**

**CONDENSED CONSOLIDATED ANDPREDECESSOR COMBINED CARVE-OUT**

**STATEMENTS OF CASH FLOW**

**DOLLARS IN THOUSANDS**

**(UNAUDITED)**

** **
| ** **                                                                        | ** ** | **Successor****Six Months Ended  June 30, 2008** | ** ** | **Predecessor****Six Months Ended  June 30, 2007** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| **Cash Flows from Operating  Activities:**                                        |       |                                                                 |       |                                                                   |       |
| Net income                                                                        |       | $                                                                    | 8,690      |                                                                   | $          | 6,877 |   |
| Items included in net income  not affecting cash flows:                           |       |                                                                 |       |                                                                   |       |
| Depreciation and amortization                                                     |       | 26,700                                                               |       | 22,464                                                                 |       |
| Deferred federal income tax  credit                                               |       | —                                                               |       | (2,268                                                                 | )          |
| Decrease in undistributed  earnings of affiliated companies, net of distributions |       | 4,121                                                                |       | 4,552                                                                  |       |
| Other – net                                                                  |       | 785                                                                  |       | —                                                                 |       |
| Payments for drydocking                                                           |       | (17,082                                                              | )          | (4,288                                                                 | )          |
| Changes in operating assets and  liabilities:                                     |       |                                                                 |       |                                                                   |       |
| Decrease (increase) in  receivables                                               |       | 8,173                                                                |       | (4,099                                                                 | )          |
| Increase in other assets                                                          |       | (944                                                                 | )          | (2,613                                                                 | )          |
| Increase in accrued federal  income taxes                                         |       | —                                                               |       | 168                                                                    |       |
| Increase in accounts payable,  accrued expenses and other liabilities             |       | 959                                                                  |       | 722                                                                    |       |
| Net cash provided by operating  activities                                        |       | 31,402                                                               |       | 21,515                                                                 |       |
|                                                                              |       |                                                                 |       |                                                                   |       |
| **Cash Flows from Investing  Activities:**                                        |       |                                                                 |       |                                                                   |       |
| Expenditures for vessels                                                          |       | (32,329                                                              | )          | (22,480                                                                | )          |
| Net cash used in investing  activities                                            |       | (32,329                                                              | )          | (22,480                                                                | )          |
|                                                                              |       |                                                                 |       |                                                                   |       |
| **Cash Flows from Financing  Activities:**                                        |       |                                                                 |       |                                                                   |       |
| Proceeds from borrowings under  revolving credit facility                         |       | 59,000                                                               |       | —                                                                 |       |
| Payments on debt and  obligations under capital leases                            |       | (31,617                                                              | )          | (5,154                                                                 | )          |
| Cash distributions paid                                                           |       | (17,221                                                              | )          | —                                                                 |       |
| Payments for initial public  offering transaction costs                           |       | (241                                                                 | )          | —                                                                 |       |
| Changes in advances from  affiliates                                              |       | (2,608                                                               | )          | 6,119                                                                  |       |
| Other                                                                             |       | (143                                                                 | )          | —                                                                 |       |
| Net cash provided by financing  activities                                        |       | 7,170                                                                |       | 965                                                                    |       |
| Net increase in cash and cash  equivalents                                        |       | 6,243                                                                |       | —                                                                 |       |
| Cash and cash equivalents at  beginning of period                                 |       | 3,380                                                                |       | 280                                                                    |       |
| Cash and cash equivalents at  end of period                                       |       | $                                                                    | 9,623      |                                                                   | $          | 280 |   |

 

See notes to condensed consolidated financialstatements.

 

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**OSG AMERICA L.P.**

**CONDENSED CONSOLIDATED STATEMENTOF CHANGES IN PARTNERS’ CAPITAL**

**DOLLARS AND UNITS IN THOUSANDS**

**(UNAUDITED)**

 
| ** **                                                                   | ** ** | **Limited Partners** | ** ** | ** **                  | ** ** | **Accumulated  Other** | ** ** | ** **        | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------|------------|-----------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                                                                   | ** ** | **Common Units**     | ** ** | **Subordinated Units** | ** ** | **General**            | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                                                                   | ** ** | **Units**                 | ** ** | **Amount**                  | ** ** | **Units**              | ** ** | **Amount**        | ** ** | **Partner** | ** ** | **Income/(Loss)** | ** ** | **Total** | ** ** |
| Balance at December 31, 2007                                            |       | 15,002                    |       | $                           | 263,368    |                   | 15,000     |              | $          | 266,453 |   | $ | 10,876 |   | $ | — |   | $ | 540,697 |   |
| Net income                                                                   |       | —                    |       | 4,258                       |       | —                 |       | 4,258             |       | 174 |   | — |   | 8,690 |   |
| Effect of derivative instruments                                             |       | —                    |       | —                      |       | —                 |       | —            |       | — |   | (84 | ) | (84 | ) |
| Comprehensive income                                                         |       |                      |       |                        |       |                   |       |              |       |   |   |   |   | 8,606 |   |
| Costs associated with issuance of units  pursuant to initial public offering |       | —                    |       | (241                        | )          | —                 |       | —            |       | — |   | — |   | (241 | ) |
| Amortization of restricted units awards                                      |       | —                    |       | 7                           |       | —                 |       | —            |       | — |   | — |   | 7 |   |
| Distributions to members                                                     |       | —                    |       | (8,438                      | )          | —                 |       | (8,438            | )          | (345 | ) | — |   | (17,221 | ) |
|                                                                         |       |                      |       |                        |       |                   |       |              |       |   |   |   |   |   |   |
| Balance at June 30, 2008                                                |       | 15,002                    |       | $                           | 258,954    |                   | 15,000     |              | $          | 262,273 |   | $ | 10,705 |   | $ | (84 | ) | $ | 531,848 |   |

 

See notes to condensed consolidated financialstatements.

 

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**Notes to CondensedConsolidated and Predecessor Combined Carve-Out Financial Statements**

** **

**Note A—Organization:**

 

OSG AmericaL.P., a Delaware limited partnership (the “Partnership”), was formed on May 14,2007 to ultimately own a 100% interest in OSG America Operating LLC (the “OperatingCompany”). The Partnership’s general partner, OSG America LLC (the “GeneralPartner”), is a wholly owned indirect subsidiary of Overseas Shipholding Group, Inc.,a publicly traded company incorporated in Delaware. Overseas Shipholding Group, Inc.and/or its wholly owned subsidiary, OSG Bulk Ships, Inc., a New Yorkcorporation, are referred to herein as “OSG”. The Partnership obtained the equity of the Operating Company inconnection with the initial public offering of its common units, which wasconsummated on November 15, 2007.

 

At or prior tothe completion of the offering, the following transactions occurred:

·                 The Partnership enteredinto a contribution agreement with OSG pursuant to which OSG transferred to thePartnership all of the outstanding membership interests of the 18 vesselsubsidiaries that own the vessels in the Partnership’s initial fleet and a37.5% membership interest in Alaska Tanker Company, LLC;

·                 OSG assigned to thePartnership the agreements to bareboat charter, from subsidiaries of AkerAmerican Shipping, Inc.,  sixnewbuild product carriers upon delivery of those vessels;

·                 The Partnership issued toOSG 7,500,000 common units and 15,000,000 subordinated units, representing a73.5% limited partner interest in the Partnership;

·                 The Partnership issued tothe General Partner a 2% general partner interest in the Partnership and all ofthe Partnership’s incentive distribution rights, which will entitle the GeneralPartner to increasing percentages of the cash the Partnership distributes inexcess of $0.43125 per unit per quarter;

·                 The Partnership issued7,500,000 of its common units to the public representing a 24.5% limitedpartner interest in the Partnership; and

·                 The Partnership satisfiedits obligation to reimburse OSG for approximately $129,256,000 of capitalexpenditures incurred prior to the initial public offering with the proceedsfrom the offering.

 

In addition, at or prior to the completion ofthe offering, the Partnership entered into the following agreements:

·                 a management agreementwith OSG Ship Management, Inc. (“OSGM”), a wholly owned subsidiary of OSG,pursuant to which OSGM agreed to provide the Partnership commercial andtechnical management services;

·                 an administrative servicesagreement with OSGM, pursuant to which OSGM agreed to provide the Partnershipadministrative services;

·                 an omnibus agreement withOSG, the General Partner and others, setting forth, among other things:

·                 when the Partnership andOSG may compete with each other;

·                 certain rights of firstoffer on Jones Act tank vessels;

·                 the grant to thePartnership of options to purchase the membership interests of one or moresubsidiaries of OSG that have entered into shipbuilding contracts with BenderShipbuilding & Repair Co., Inc. for six newbuild articulated tugbarges (“ATBs”);

·                 the grant to thePartnership of options to acquire the membership interests of one or moresubsidiaries of OSG that have entered into agreements to bareboat charter, fromsubsidiaries of Aker American Shipping, Inc., two newbuild productcarriers and two newbuild shuttle tankers, upon delivery of those vessels; and

·                                         a $200,000,000 seniorsecured revolving credit facility.

** **

**NoteB — Summary of Significant Accounting Policies:**

** **

*Basis ofPresentation and Description of Business.  *OSG America L.P. is engaged inproviding marine transportation services through the ownership and operation ofa fleet of tankers and ATBs.  Of the 22vessels in the operating fleet, 20 operate in the Jones Act trade and twooperate in the international market under the U.S. flag while participating inthe Maritime Security Program.  These twotankers are not eligible for Jones Act trading because they were not built inthe United States.  The management of OSGAmerica L.P. has determined that it operates in one segment. In addition, OSGAmerica L.P. owns a 37.5% ownership interest in a joint venture, Alaska TankerCompany, LLC.

 

The accompanying unaudited condensed consolidated and predecessorcombined carve-out financial statements have been prepared in accordance withU.S. generally accepted accounting principles for interim financial informationand with the instructions to Form 10-Q and Article 10 of RegulationS-X.  They do not include all of theinformation and footnotes required by generally accepted accountingprinciples.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  Operating results for the three and six

 

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months ended June 30, 2008are not necessarily indicative of the results that may be expected for the yearending December 31, 2008.  Thecondensed consolidated financial statements include the assets and liabilitiesof the Partnership and its wholly-owned subsidiaries.  All significant intercompany balances andtransactions have been eliminated in consolidation. Investments in 50% or lessowned affiliated companies, in which the Partnership exercises significantinfluence, but is not the primary beneficiary, are accounted for by the equitymethod.

 

For the three and six months ended June 30, 2008, the condensedconsolidated financial statements of the Company and its wholly ownedsubsidiaries reflect operations in which the Company operated as an independentcompany. For the three and six months ended June 30, 2007, the predecessorcombined carve-out financial statements presented herein have been carved outof the financial statements of OSG using specific identification.  In the preparation of the predecessorcarve-out financial statements, general and administrative expenses were notidentifiable as relating to the vessels. General and administrative expenses,consisting primarily of salaries and other employee related costs, office rent,legal and professional fees, and travel and entertainment were allocated basedon the Company’s proportionate share of OSG’s total ship-operating days for theperiod. Management believes these allocations reasonably present the results ofoperations and cash flows of OSG America Predecessor. However, the predecessorcombined carve-out statements of operations and cash flows may not beindicative of those that would have been realized had OSG America Predecessoroperated as an independent stand-alone entity for the period presented. Had OSGAmerica Predecessor operated as an independent stand-alone entity, its resultscould have differed significantly from those presented herein.

 

The consolidated balance sheet as of December 31, 2007 has beenderived from the audited financial statements at that date, but does notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.

 

For further information, refer to the consolidated financial statementsand footnotes thereto included in the Partnership’s Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

*Vessels, deferred drydockingexpenditures and other property.*Vessels are recorded at cost and aredepreciated to their estimated salvage value on the straight-line basis overthe lives of the vessels, which range from 20 to 25 years. Each vessel’ssalvage value is equal to the product of its lightweight tonnage and anestimated scrap rate.  Effective January 1,2008, the Partnership effected a change in estimate related to the estimatedscrap rate for substantially all of its barges and tankers from $150 perlightweight ton to $300 per lightweight ton. The resulting increase in salvagevalue will be applied prospectively and will reduce depreciation byapproximately $2,400,000 for the year ending December 31, 2008.  The change in accounting estimate decreaseddepreciation expenses by $582,000 and $1,164,000 for the three and six monthsended June 30, 2008, respectively, and increased basic and diluted netincome per unit by $0.02 and $0.04, respectively.

 

*Newly Issued Accounting Standards***. **In December 2007, the Financial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 141(revised 2007), “Business Combinations” (“FAS 141R”). FAS 141Restablishes principles and requirements for how an acquirer recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed, any noncontrolling interest in the acquiree and thegoodwill acquired. FAS 141R also establishes disclosure requirements toenable the evaluation of the nature and financial effects of the businesscombination. FAS 141R applies prospectively to business combinations forwhich the acquisition date is on or after the beginning of the first annualreporting period beginning on or after December 15, 2008.  An entity may not apply FAS 141R before thatdate.

 

InDecember 2007, the Financial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 160, “NoncontrollingInterests in Consolidated Financial Statements—an amendment of AccountingResearch Bulletin No. 51” (“FAS 160”). FAS 160 establishesaccounting and reporting standards for ownership interests in subsidiaries heldby parties other than the parent, the amount of consolidated net incomeattributable to the parent and to the noncontrolling interest, changes in aparent’s ownership interest and the valuation of retained noncontrolling equityinvestments when a subsidiary is deconsolidated. FAS 160 also establishesdisclosure requirements that clearly identify and distinguish between theinterests of the parent and the interests of the noncontrolling owners.FAS 160 is effective for fiscal years, and interim periods within thosefiscal years, beginning on or after December 15, 2008.  Earlier adoption is prohibited. Thisstatement is required to be applied prospectively as of the beginning of thefiscal year in which it initially applied, except for the presentation anddisclosure requirements, which must be applied retrospectively for all periodspresented.

 

InMarch 2008, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 161, “Disclosures about DerivativeInstruments and Hedging Activities, an amendment of Statement of FinancialAccounting Standards No. 133” (“FAS 161”). FAS 161 requires qualitative disclosures about an entity’s objectivesand strategies for using derivatives and quantitative disclosures about howderivative instruments and related hedged items affect an entity’s financialposition, financial performance and cash flows. FAS 161 is effective for fiscal years, and interim periods within thosefiscal years, beginning after November 15, 2008, with early applicationallowed.  FAS 161 allows but does notrequire, comparative disclosures for earlier periods at initial adoption.

 

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InMarch 2008, the Emerging Issues Task Force reached a consensus on EITF07-4, “Application of the Two-Class Method under FASB Statement No. 128,Earnings per Share, to Master Limited Partnerships.” EITF 07-4 requires masterlimited partnerships with incentive distribution rights (“IDRs”), to measureearnings per unit as it relates to IDRs consistent with the two-class method ofmeasuring earnings per unit. This issue is effective for financial statementsissued for fiscal years beginning after December 15, 2008, and interimperiods within those fiscal years.

 

**Note C —Alaska TankerCompany, LLC:**

 

In the first quarter of1999, OSG, BP Oil Shipping Company USA, Inc. (“BP”) and Keystone Alaska,LLC formed Alaska Tanker Company, LLC (“ATC”) to manage the vessels carryingAlaskan crude oil for BP. ATC, 37.5% of which is owned by the Partnership,provides marine transportation services in the environmentally sensitiveAlaskan crude oil trade.  Each member ofATC is entitled to receive its respective share of any incentive charter hirepayable by BP to ATC.  The Partnership isnot the primary beneficiary (as defined in FASB Interpretation 46(R) “Consolidationof Variable Interest Entities, an Interpretation of ARB No. 51”) withregard to ATC and accounts for its 37.5% interest in ATC according to theequity method.  The Partnership’s shareof the net income of ATC is classified as equity in income of affiliatedcompanies in the accompanying statements of operations.

 

A condensed summary ofthe results of operations of ATC follows:

 
| ** **                       | ** ** | **Three Months Ended****June 30,** | ** ** | **Six Months Ended****June 30,** | ** ** |
|----------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------|------------|
| **In  thousands**                | ** ** | **2008**                                          | ** ** | **2007**                                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Time charter equivalent revenues |       | $                                                 | 34,811     |                                            | $          | 33,514 |   | $ | 68,455 |   | $ | 65,761 |   |
| Ship operating expenses          |       | (32,063                                           | )          | (29,954                                         | )          | (64,125 | ) | (59,908 | ) |
|                             |       | $                                                 | 2,748      |                                            | $          | 3,560 |   | $ | 4,330 |   | $ | 5,853 |   |

 

**Note D —Derivatives and Fair Value Disclosures:**

 

*Interest Rate Swaps*

 

As of June 30, 2008, the Company is a party to forward startfloating-to-fixed interest rate swaps, which are being accounted for as cashflow hedges, with various major financial institutions covering notionalamounts aggregating $30,000,000 pursuant to which it pays fixed rates averaging4.35% and receives floating rates based on 3-month LIBOR (approximately 2.8% asof June 30, 2008). These swaps mature in 2012.  As of June 30, 2008, the Company hasrecorded a liability of $84,000 related to the fair values of these swaps.

 

The following table presents the fair values for liabilities measuredon a recurring basis as of June 30, 2008:

 
| **In thousands  Description** | ** ** | **Fair Value** | ** ** | **Level 1:  Quoted prices in active  markets for identical  liabilities** | ** ** | **Level 2:  Significant other  observable inputs** | ** ** |
|------------------------------------|------------|---------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| Liabilities:                       |       |                |       |                                                                                                    |       |                                                              |       |
| Interest rate swaps                |       | $                   | 84         |                                                                                                    | $          | —                                                            |       | $ | 84 |   |
|                                    |            |                     |            |                                                                                                         |            |                                                                   |            |  |  |  |

 

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**Note E—AccountsPayable and Accrued Expenses:**

** **

Accounts payable and accrued expenses consist of thefollowing:

 
| **In thousands**                | ** ** | **As of June 30, 2008** | ** ** | **As of December 31, 2007** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------|------------|
| Trade payables                       |       | $                                           | 4,312      |                                            | $          | 4,533 |   |
| Fuel accruals                        |       | 1,113                                       |       | 3,544                                           |       |
| Charter revenues received in advance |       | 5,071                                       |       | 3,074                                           |       |
| Drydock accrual                      |       | 3,770                                       |       | 2,523                                           |       |
| Insurance premiums                   |       | 268                                         |       | 2,253                                           |       |
| Payroll and benefits                 |       | 1,267                                       |       | 1,003                                           |       |
| Customs and duty                     |       | 1,583                                       |       | —                                          |       |
| Interest expense                     |       | 368                                         |       | 311                                             |       |
| Brokers commissions                  |       | 290                                         |       | 444                                             |       |
| Other                                |       | 847                                         |       | 1,837                                           |       |
|                                 |       | $                                           | 18,889     |                                            | $          | 19,522 |   |

 

**Note F—Advancesfrom Affiliated Companies:**

** **

Advances from affiliated companies represent the funding of operatingexpenses pursuant to the Partnership’s management and administrative agreementswith OSGM and are non interest bearing.

** **

**Note G—Long-termDebt:**

** **

In November 2007, OSG America Operating CompanyLLC, a wholly owned subsidiary of the Partnership, entered into a $200,000,000,five-year senior secured revolving credit agreement. Borrowings under thisfacility bear interest at a rate based on LIBOR. The facility may be extendedby 24 months subject to approval by lenders. As of June 30, 2008,$59,000,000 was outstanding under the facility at a weighted average interestrate of 3.39%. The Partnership has $141,000,000 available under this facilityat June 30, 2008.

 

Borrowingsunder the senior secured revolving credit facility are secured by, among otherthings, first preferred mortgages on certain owned vessels, and are guaranteedby the Partnership and certain of its subsidiaries.

 

The senior secured revolving credit facilityprevents the Partnership from declaring or making distributions if any event ofdefault, as defined in the senior secured revolving credit agreement, exists orwould result from such payments. In addition, the senior secured revolvingcredit facility contains covenants requiring the Partnership to adhere tocertain financial covenants.  The Partnership was in compliance with all of thefinancial covenants contained in our debt agreements as of June 30, 2008.

 

On June 25, 2008, the Partnershippurchased the *Overseas New Orleans* and the *Overseas Philadelphia,* each of which had been previouslyoperated under capital leases, for a total of $30,923,000. This acquisition wasfunded with borrowings under the senior secured revolving creditfacility.

 

Interest paid, excludingloans to affiliates and capitalized interest, for the six months ended June 30,2008 and 2007 amounted to $2,629,000 and $2,556,000 respectively.

 

**Note H—Taxes:**

 

The components of the Predecessor’s provision/(benefit) for federalincome taxes follow:

 
| **In thousands** | ** ** | **Three Months Ended  June 30, 2007** | ** ** | **Six Months Ended****June 30, 2007** | ** ** |
|-----------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Current               |       | $                                                         | 262        |                                                      | $          | 3,492 |   |
| Deferred              |       | (420                                                      | )          | (2,268                                                    | )          |
|                  |       | $                                                         | (158       | )                                                         | $          | 1,224 |   |

 

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The Partnership is not a taxable entity and does not incur a federalincome tax liability.  Instead, eachpartner of a partnership is required to take into account his share of items ofincome, gain, loss and deduction of the partnership in computing his federalincome tax liability, regardless of whether cash distributions are made to himby the partnership.  Distributions by apartnership to a partner are generally not taxable to the partner unless theamount of cash distributed exceeds the partner’s adjusted basis in hispartnership interest.

 

**NoteI — Leases:**

** **

*Charters-in:*

 

As of June 30,2008, the Partnership had commitments to charter-in eight vessels from AmericanShipping Corporation (“ASC”) and to time charter-in two vessels from OSG, allof which are, or will be, accounted for as operating leases.  The future minimum commitments and relatednumber of operating days under the operating leases are as follows:

 

Bareboat Charters

 
| ** **                         | ** ** | **As of June 30, 2008** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|
| **Dollars in thousands** | ** ** | **Amount**                                  | ** ** | **Operating Days** | ** ** |
| 2008                               |       | $                                           | 17,602     |   | 840 |   |
| 2009                               |       | 51,791                                      |       | 2,378 |   |
| 2010                               |       | 61,538                                      |       | 2,787 |   |
| 2011                               |       | 64,331                                      |       | 2,920 |   |
| 2012                               |       | 64,306                                      |       | 2,928 |   |
| Thereafter                         |       | 150,286                                     |       | 5,228 |   |
| Total                              |       | $                                           | 409,854    |   | 17,081 |   |

 

Time charters from OSG:

 
| ** **                         | ** ** | **As of June 30, 2008** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|
| **Dollars in thousands** | ** ** | **Amount**                                  | ** ** | **Operating Days** | ** ** |
| 2008                               |       | $                                           | 4,058      |   | 184 |   |
| 2009                               |       | 5,900                                       |       | 236 |   |
| Total                              |       | $                                           | 9,958      |   | 420 |   |

 

In June 2005, OSG signed agreements to bareboat charter in tenJones Act Product Tankers to be constructed by Aker Philadelphia Shipyard, Inc.(“APSI”). The order was increased to 12 ships in October 2007. Agreementsfor eight of such vessels are included in the Partnership. Followingconstruction, APSI will sell the vessels to leasing subsidiaries of ASC, whichwill charter the eight vessels to the Partnership for initial terms of five orseven years. The Partnership has extension options for the lives of thevessels. The charters provide for profit sharing with the owners of the vesselswhen revenues earned by such vessels exceed amounts defined in the charters.Four of these vessels, the *Overseas Houston,**Overseas Long Beach, Overseas Los Angeles*and *Overseas New York* have delivered fromthe shipyard in February 2007, June 2007, November 2007 and April 2008respectively. The remaining four vessels are scheduled to be delivered from theshipyard between late 2008 and early 2010. The bareboat charters will commenceupon delivery of the vessels.

 

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*Charters-out:*

 

The future minimum revenues, before reduction for brokeragecommissions, expected to be received on noncancelable time charters and therelated revenue days (revenue days represent calendar days less days vesselsare not available for employment due to repairs, drydock or lay-up) are asfollows:

 
| ** **                         | ** ** | **As of June 30, 2008** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|
| **Dollars in thousands** | ** ** | **Amount**                                  | ** ** | **Operating Days** | ** ** |
| 2008                               |       | $                                           | 80,146     |   | 2,215 |   |
| 2009                               |       | 138,774                                     |       | 3,241 |   |
| 2010                               |       | 124,116                                     |       | 2,637 |   |
| 2011                               |       | 109,601                                     |       | 2,233 |   |
| 2012                               |       | 62,803                                      |       | 1,290 |   |
| Thereafter                         |       | 66,049                                      |       | 1,391 |   |
| Total                              |       | $                                           | 581,489    |   | 13,007 |   |

 

Time charters to OSG:

 
| ** **                         | ** ** | **As of June 30, 2008** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|
| **Dollars in thousands** | ** ** | **Amount**                                  | ** ** | **Operating Days** | ** ** |
| 2008                               |       | $                                           | 16,284     |   | 552 |   |
| 2009                               |       | 32,391                                      |       | 1,098 |   |
| Total                              |       | $                                           | 48,675     |   | 1,650 |   |

 

Revenues from a time charter are generallynot received when a vessel is off-hire, which includes time required for normalperiodic maintenance of the vessel. In arriving at the minimum future charterrevenues, an estimated time off-hire to perform periodic maintenance on eachvessel has been deducted, although there is no assurance that such estimatewill be reflective of the actual off-hire in the future. The scheduled futureminimum revenues should not be construed to reflect total shipping revenues forany of the periods.

 

**Note J—Pension Plans:**

 

The Partnership makes contributions to jointly managed (company andunion) multi-employer pension plans covering seagoing personnel. Certainother seagoing personnel are covered under a defined contribution plan, thecost of which is funded as incurred. The costs of these plans were not materialfor the six months ended June 30, 2008 and 2007.

 

**NoteK — Commitments:**

 

As of June 30,2008, the Partnership had remaining commitments of $11,775,000 onnon-cancelable contracts for the construction of two tugs to be delivered in2008 and 2009. The Partnership expects these commitments to be funded fromexisting cash on hand, borrowings under the senior secured revolving creditfacility or additional long-term debt as required.

 

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**NoteL — Related Party Transactions:**

 

Effective April 1,2008, the Partnership entered into a time charter agreement with OSG for thecharter-in of the *OSG Liberty/OSG 300* and the *OSG Constitution/OSG 400*, which are two ATBs currentlyworking in the Delaware Bay lightering business, at fixed daily rates.  The agreement assigns the charter contractson these two ATBs to the Partnership. The terms of each of the charters end simultaneously with the completionof each unit’s lightering service, which is expected to occur in 2009.

 

Also effectiveApril 1, 2008, the Partnership entered into time charter agreements withOSG to charter-out five vessels, three of which were employed by thePartnership in the spot market (two ATBs, the *OSGColumbia/OSG 242* and the *OSG Independence/OSG 243*,and one product carrier, the *Overseas New Orleans)*andtwo product carriers (the *Overseas Philadelphia*and *Overseas Puget Sound*) upon thecompletion of their current time charters in 2009.  All five of these charter-out agreements areat fixed daily rates for terms commencing either on April 1, 2008 or uponthe expiry of such vessel’s then current charter and ending on or about December 31,2009.  Management believes that the fixeddaily rates in the charter-out agreements are at rates that approximateexisting market rates.

 

**NoteM — Subsequent Events:**

 

On July 24,2008, the Board of Directors of OSG America LLC, declared a quarterly distributionto all unit holders in the amount of $0.375 per unit for the three months endedJune 30, 2008.  The distribution ofapproximately $11.5 million, will be paid on August 13, 2008 to unitholders of record on August 5, 2008.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**FORWARD-LOOKING STATEMENTS**

 

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

 

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

 

· our ability tomake cash distributions on the units;

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

·delays or cost overruns in the building of new vessels and scheduled shipyardmaintenance;

· future supply of,and demand for, oil and refined petroleum products either globally or inparticular regions;

· risks inherent inmarine transportation and vessel operation, including accidents and dischargeof pollutants;

· the cost andavailability of insurance coverage;

· reliance on alimited number of customers for revenue;

· future spot marketcharter rates;

· competition thatcould affect our market share and revenues;

·potential reductions in the supply of tank vessels due to restrictions setforth by the Oil Pollution Act of 1990 (“OPA 90”);

· continuation offederal laws restricting U.S. point to point maritime shipping to U.S. vessels;

· changes indomestic refined petroleum product consumption;

· changes in U.S.refining capacity;

· the likelihood ofa repeal of, or a delay in the phase-out requirements for, single-hull vesselsmandated by OPA 90;

· our ability tomaintain long-term relationships with our customers;

· expected financialflexibility to pursue acquisitions and other expansion opportunities;

· our expected costof complying with OPA 90;

· estimated futuremaintenance capital expenditures;

· our ability toattract and retain experienced, qualified and skilled crewmembers;

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

· changes in thedemand for lightering services;

· customers’increasing emphasis on environmental and safety concerns;

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

· our businessstrategy and other plans and objectives for future acquisitions/operations

 

*These forward-looking statements are madebased upon management’s current plans, expectations, estimates, assumptions andbeliefs concerning future events impacting us and therefore involve a number ofrisks and uncertainties. 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” inItem 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31,2007,  for a list of important factorsthat could cause our actual results of operations or financial condition todiffer from the expectations reflected in these forward-looking statements.*

 

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**Overview**

 

We are thelargest operator, based on barrel-carrying capacity, of U.S. flag vesselstransporting refined petroleum products. We were recently formed by OverseasShipholding Group, Inc., a market leader in providing global energytransportation services. We plan to use the expertise, customer base andreputation of OSG to expand our marine transportation service.

 

On November 15,2007, upon completion of our initial public offering, OSG contributed to usentities owning or operating a fleet of ten product carriers, seven articulatedtug barges (“ATBs”) and one conventional tug/barge unit, with an aggregatecarrying capacity of approximately 4.9 million barrels. OSG alsocontributed to us a 37.5% ownership interest in Alaska Tanker Company, LLC, (“ATC”)a joint venture that transports crude oil from Alaska to the continental UnitedStates and which employs a fleet of five crude-oil tankers. OSG owns a 75.5%interest in us, including a 2% interest through our general partner, which OSGowns and controls. Our membership interests in our operating subsidiariesrepresent our only cash-generating assets.

 

Our market isprotected from direct foreign competition by the Merchant Marine Act of 1920 (“JonesAct”), which mandates that all vessels transporting cargo between U.S. portsmust be built in the United States, registered under the U.S. flag, manned byU.S. crews and owned and operated by U.S. organized companies that arecontrolled and at least 75% owned by U.S. citizens. Twenty of the 22vessels in our operating fleet at June 30, 2008 are operated in the U.S.coastwise trade in accordance with the Jones Act and all of our futurescheduled newbuild deliveries will qualify to operate under the Jones Act.

 

**Overview—OSG America Predecessor**

 

For the three and six months ended June 30, 2007, the combinedfinancial statements presented herein have been carved out of the consolidatedfinancial statements of OSG. Our financial position, results of operations andcash flows reflected in our combined financial statements are not indicative ofthose that would have been achieved had we operated as an independent stand-aloneentity for all periods presented or of future results.

 

To the extent that assets, liabilities, revenues and expenses relate tothe OSG America Predecessor (“Predecessor”), they have been identified andcarved out of OSG for inclusion in our combined financial statements. OSG’sother assets, liabilities, revenues and expenses that do not relate to thevessel interests are not included in our combined financial statements. Inaddition, the preparation of our combined carve-out financial statementsrequired the allocation of certain expenses where these items were notidentifiable as related to OSG America Predecessor.

 

General and administrative expenses, consisting primarily of salariesand other employee related costs, office rent, legal and professional fees andtravel and entertainment expenses were allocated based on the total number ofvessels (weighted by operating days) in the respective fleets of OSG AmericaPredecessor and OSG for each of the above periods presented. Managementbelieves that the allocation of general and administrative expenses was basedon a reasonable method.

 

All of the companies included in the Predecessor combined carve-outfinancial statements have been included in the OSG consolidated group for U.S.income tax purposes for periods through November 14, 2007. The Predecessorfinancial statements have been prepared on the basis that OSG was responsiblefor all taxes related to periods prior to January 1, 2002. The provisionfor income taxes in the Predecessor’s combined financial statements has beendetermined on a separate-return basis for all periods presented.

 

***Future Business***

 

We haveentered into agreements with OSG Ship Management, Inc. (“OSGM”) for theprovision of technical and commercial management of our vessels and for administrativeand accounting services. These agreements were effective November 15,2007.

 

In June 2005,OSG signed agreements to bareboat charter-in ten Jones Act product carriersfrom a subsidiary of Aker American Shipping, Inc. (“Aker”). In February 2007,OSG agreed in principle to charter up to six additional Jones Act productcarriers, which eventually resulted in OSG concluding agreements to charter twovessels. The charters on eight of these twelve vessels have been assigned tous. We have committed to charter five of the eight vessels for initial terms ofseven years and the other three vessels for initial terms of five years. Wehave extension options for the remaining lives of these vessels. Four of thesevessels, the *Overseas Houston,**Overseas Long Beach,**Overseas**Los Angeles*andthe *Overseas New York*, have already beendelivered from the shipyard in February 2007, June 2007, November 2007and April 2008,

 

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respectively. The remaining four vessels thatwe have committed to bareboat charter are scheduled to be delivered from theshipyard between late 2008 and early 2010.

 

We haveoptions to purchase from OSG up to six ATBs, to be constructed by BenderShipbuilding & Repair Co., Inc. (“Bender”) and scheduled fordelivery between late 2008 and late 2010. We also have options to acquire fromOSG the right to bareboat charter up to four of the remaining newbuild vesselsto be constructed by Aker Philadelphia Shipyard Inc., scheduled for deliverybetween 2010 and early 2011.

 

On June 25, 2008, the Partnershippurchased the *Overseas New Orleans* and the *Overseas Philadelphia,* each of which had been previouslyoperated under capital leases, for a total of $30,923,000. This acquisition wasfunded with borrowings under our senior secured revolving creditfacility.

 

**Update on Critical Accounting Policies**

 

Our financial statements are prepared in accordance with accountingprinciples generally accepted in the United States (“U.S. GAAP”), which requireus to make estimates in the application of our accounting policies based on thebest assumptions, judgments and opinions of management. For a description ofall of our material accounting policies, see Note B to our consolidatedfinancial statements included in our Annual Report on Form 10-K for theyear ended December 31, 2007.

 

***Vessel Lives andImpairment***

 

The carrying value of each of our vessels represents its original costat the time it was delivered or purchased less depreciation calculated using anestimated useful life of 25 years from the date that such vessel wasoriginally delivered from the shipyard or 20 years from the date our ATBswere rebuilt. Effective January 1, 2008, we effected a change in estimaterelated to the estimated scrap rate for substantially all of our barges andtankers from $150 per lightweight ton to $300 per lightweight ton.  The resulting increase in salvage value willreduce depreciation by approximately $2.4 million for the year ending December 31,2008 and by approximately $0.6 million for each quarter in 2008.  The assumptions used in the determination ofestimated salvage value took into account current scrap prices, which are inexcess of $700 per lightweight ton, the historic pattern of scrap rates overthe four years ended December 31, 2007, which ranged from $250 to over$500 per lightweight ton, estimated changes in future market demand for scrapsteel and estimated future demand for vessels. Although management believes that the assumptions used to determine thescrap rate are reasonable and appropriate, such assumptions are highlysubjective, in part, because of the cyclicality of the nature of future demandfor scrap steel.

 

***Newly Issued Accounting Standards***

 

InDecember 2007, the Financial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 141(revised 2007), “Business Combinations” (“FAS 141R”). FAS 141Restablishes principles and requirements for how an acquirer recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed, any noncontrolling interest in the acquiree and thegoodwill acquired. FAS 141R also establishes disclosure requirements to enablethe evaluation of the nature and financial effects of the business combination.FAS 141R applies prospectively to business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008.  An entity may not apply FAS 141R before thatdate.

 

InDecember 2007, the Financial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 160, “NoncontrollingInterests in Consolidated Financial Statements—an amendment of AccountingResearch Bulletin No. 51” (“FAS 160”). FAS 160 establishesaccounting and reporting standards for ownership interests in subsidiaries heldby parties other than the parent, the amount of consolidated net incomeattributable to the parent and to the noncontrolling interest, changes in aparent’s ownership interest and the valuation of retained noncontrolling equityinvestments when a subsidiary is deconsolidated. FAS 160 also establishesdisclosure requirements that clearly identify and distinguish between theinterests of the parent and the interests of the noncontrolling owners.FAS 160 is effective for fiscal years, and interim periods within thosefiscal years, beginning on or after December 15, 2008.  Earlier adoption is prohibited. Thisstatement is required to be applied prospectively as of the beginning of thefiscal year in which it initially applied, except for the presentation anddisclosure requirements, which must be applied retrospectively for all periodspresented.

 

InMarch 2008, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 161, “Disclosures about DerivativeInstruments and Hedging Activities,” an amendment of Statement of FinancialAccounting Standards No. 133” (“FAS 161”). FAS 161 requires qualitative disclosures about an entity’s objectivesand strategies for using derivatives and quantitative disclosures about howderivative instruments and related hedged items affect an entity’s financialposition, financial performance and cash flows. FAS 161 is effective for fiscal years, and interim periods within

 

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those fiscal years beginning after November 15,2008, with early application allowed. FAS 161 allows but does not require, comparative disclosures for earlierperiods at initial adoption.

 

In March 2008, the Emerging Issues Task Force reached a consensuson EITF 07-4, “Application of the Two-Class Method under FASB Statement No. 128,Earnings per Share, to Master Limited Partnerships.” EITF 07-4 requires masterlimited partnerships with incentive distribution rights (“IDRs”), to measureearnings per unit as it relates to IDRs consistent with the two-class method ofmeasuring earnings per unit. This issue is effective for financial statementsissued for fiscal years beginning after December 15, 2008, and interimperiods within those fiscal years.

* *

***IndustryOverview***

 

The table that followsshows the daily TCE rates that prevailed in markets in which our vesselsoperated for the periods indicated. It is important to note that the spotmarket is quoted in AR rates. AR is a list of calculated (or flat) rates forspecific voyage itineraries for a standard vessel, as defined.  The conversion of AR rates to the followingTCE rates required us to make certain assumptions as to brokerage commissions,port time, port costs, speed and fuel consumption, all of which will vary inactual usage. In each case, the rates may differ from the actual TCE ratesachieved by us in the period indicated because of the timing and length ofvoyages and the portion of revenue generated from long-term charters.

 

**U.S. Flag Jones Act ProductCarriers**

** **
| ** **                  | ** ** | **Average Spot Market TCE Rates for Jones Act Product Carriers and********Articulated Tug/Barges (ATBs)** | ** ** |
|-----------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                  | ** ** | **Three Months Ended June 30,**                                                                                                                   | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **                  | ** ** | **2008**                                                                                                                                                              | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| 40,000 dwt Product Carriers |       | $                                                                                                                                                                     | 38,900     |   | $ | 56,700 |   | $ | 44,500 |   | $ | 60,800 |   |
| 30,000 dwt ATBs             |       | 21,400                                                                                                                                                                |       | 37,000 |   | 26,500 |   | 39,500 |   |
|                             |            |                                                                                                                                                                       |            |  |  |  |  |  |  |  |  |  |  |

 

During the second quarterof 2008, rates for Jones Act Product Carriers and handysize ATBs averaged$38,900 per day and $21,400 per day, respectively. Rates for the productcarriers and ATBs were 24% and 32%, respectively, lower than the first quarterof 2008 and 31% and 42%, respectively, lower than rates in the second quarterof 2007.

 

The lower second quarter of 2008 rates reflected an increase in waitingtime for cargoes as U.S. Gulf Coast refining utilization rates declined from89% in the second quarter of 2007 to 87% in the second quarter of 2008. Inaddition, vessel operators recognized higher fuel costs that could not bepassed through to customers under the current spot market conditions. Lowerrefining utilization rates reduced product shipments from the Gulf Coast in2008.

 

The DelawareBay lightering business transported an average of 257,000 barrels per dayduring the quarter, which was 7% lower than the second quarter of 2007 but 3%higher than the first quarter 2008 volumes. U.S. East Coast refineryutilization was 80% in the second quarter of 2008 compared with 86% in thesecond quarter of 2007. Refinery utilization in the second quarter of 2008 washigher than the first quarter of 2008 due to a reduction in refineryturnarounds resulting in higher volumes moved.

 

During the second quarter of 2008,the *OSG 243* completed her conversion to adouble hull configuration and re-entered the operating fleet. In addition, anewly built tanker, the *Overseas New Yor*k,entered the market. As of June 30, 2008, the total Jones Actfleet of tankers, ATBs and ITBs (Integrated Tug Barges) consisted of 64vessels, or 3.0 million dwt.

 

The Jones ActProduct Carrier orderbook at June 30, 2008 consisted of 32 tankers andbarges in the 160,000 to 420,000 barrel size range, which are scheduled fordelivery through 2012, and an additional vessel scheduled for delivery beyond2011 resulting in a total orderbook of 33 vessels. The addition of thesevessels will be partially offset by 22 vessels that will be phased out duringthe next nine years in accordance with OPA 90 regulations.  An additional 8 double-hull tankers willlikely be retired during the same period given their age profile (over 35 yearsold) resulting in a total of 30 vessels to be phased out of the Jones Actmarket.

 

Freight ratesremain highly sensitive to an over supply in spot tonnage, severe weather andgeopolitical and economic events.  Spotmarket tonnage has increased due to redeliveries of older, non double hullvessels in response to the on time deliveries of the first four productcarriers from Aker. Additionally, hurricanes in the Gulf of Mexico could have apronounced effect on freight rates for both crude oil and product movementsdepending on the extent to which upstream and downstream facilities areaffected.

 

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***Income from Vessel Operations***

 

*Time Charter Equivalent Revenues*

 

The followingtable reconciles TCE revenues to shipping revenues, as reported in theconsolidated and combined statements of operations:

 
| ** **            | ** ** | **Three Months Ended********June 30,** | ** ** | **Six Months Ended********June 30,** | ** ** |
|-----------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **In thousands** | ** ** | **2008**                                              | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| TCE Revenues          |       | $                                                     | 59,930     |                                                | $          | 41,947 |   | $ | 112,322 |   | $ | 84,256 |   |
| Voyage Expenses       |       | 12,298                                                |       | 7,419                                               |       | 22,938 |   | 14,844 |   |
| Shipping Revenues     |       | $                                                     | 72,228     |                                                | $          | 49,366 |   | $ | 135,260 |   | $ | 99,100 |   |

 

Consistentwith general practice in the shipping industry, we use TCE revenues, whichrepresent shipping revenues less voyage expenses, as a measure to comparerevenues generated from voyage charters to revenues generated from timecharters. TCE revenues, a non-U.S. GAAP measure, provides additional meaningfulinformation in conjunction with shipping revenues, the most directly comparableU.S. GAAP measure, because it assists management in making decisions regardingthe deployment and use of our vessels and in evaluating their financialperformance.

 

The followingtable provides information with respect to average daily TCE rates earned andrevenue days for the three and six months ended June 30, 2008 and 2007:

 
| ** **                     | ** ** | **Three Months Ended********June 30,** | ** ** | **Six Months Ended********June 30,** | ** ** |
|--------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                     | ** ** | **2008**                                              | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenue Days:                  |       |                                                  |       |                                                |       |   |   |   |   |
| Jones Act ATBs                 |       | 801                                                   |       | 608                                                 |       | 1,396 |   | 1,196 |   |
| Jones Act Product Carriers     |       | 782                                                   |       | 517                                                 |       | 1,590 |   | 1,086 |   |
| Non-Jones Act Product Carriers |       | 155                                                   |       | 180                                                 |       | 300 |   | 356 |   |
|                           |       | 1,738                                                 |       | 1,305                                               |       | 3,286 |   | 2,638 |   |
|                           |       |                                                  |       |                                                |       |   |   |   |   |
| Average Daily TCE Rates:       |       |                                                  |       |                                                |       |   |   |   |   |
| Jones Act ATBs                 |       | $                                                     | 32,764     |                                                | $          | 23,441 |   | $ | 32,539 |   | $ | 25,921 |   |
| Jones Act Product Carriers     |       | $                                                     | 34,077     |                                                | $          | 36,027 |   | $ | 34,246 |   | $ | 35,030 |   |
| Non-Jones Act Product Carriers |       | $                                                     | 45,400     |                                                | $          | 50,383 |   | $ | 41,487 |   | $ | 42,730 |   |

 

Effective April 1, 2008, we entered into time charter agreementswith OSG for the charter-in of the *OSG Liberty/OSG 300*and the *OSG Constitution/OSG 400*, which are twoATBs currently working in the Delaware Bay lightering business, at fixed dailyrates.  The agreement assigns the chartercontracts on these two ATBs to us.  Theterms of each of the charters end simultaneously with the completion of eachunit’s lightering service, which is expected to occur in 2009.

 

TCE revenuesincreased $18.0 million, or 43%, from $41.9 million for the three months ended June 30, 2007 to $59.9 million forthe three months ended June 30,2008. The increase in TCE revenues resulted primarily from a net increase  of 433 revenue days in the three months endedJune 30, 2008 compared with thesame period in 2007 and included an extended idle period for the *Overseas Diligence*. These additional days were attributableprimarily to the delivery of the *OverseasLong Beach,**Overseas Los Angeles*and the *Overseas New York* in June 2007, November 2007and April 2008 respectively which added 91, 90 and 71 revenue days,respectively, in 2008 compared with 2007. On February 20, 2007, the barge *M211*, was takenout of service and entered the shipyard for her double hull conversion.  She re-entered service on April 24, 2008renamed the *OSG 243*, adding 65 revenue days to thethree months ended June 30, 2008 compared with the same period in 2007.The addition of the *OSG Liberty/OSG 300*and the *OSG Constitution/OSG 400* chartercontracts, discussed above, added 149 revenue days to the three months ended June 30,2008 compared with the same period in 2007.

 

TCE revenuesincreased $28.0 million, or 33%, from $84.3 million for the six months ended June 30, 2007 to $112.3 million forthe six months ended June 30,2008. The increase in TCE revenues resulted primarily from a net increase of648

 

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revenue days in the six months ended June 30, 2008 compared with the sameperiod in 2007 and included an extended idle period for the *Overseas Diligence*. These additional days were attributableprimarily to the delivery of the *OverseasHouston, Overseas Long Beach,**Overseas Los Angeles*and the *Overseas New York* in February 2007,June 2007, November 2007 and April 2008 respectively which added61, 182, 181 and 71 revenue days, respectively, in 2008 compared with the sameperiod in 2007. In the six months ended June 30, 2007, the barge *OSG 242* was in the shipyard being rebuilt to a double hullconfiguration.  Her return to serviceadded 86 revenue days to the six months ended June 30, 2008 compared withthe six months ended June 30, 2007. The addition of the *OSG Liberty/OSG 300*and the *OSG Constitution/OSG 400* chartercontracts, discussed above, added 149 revenue days to the six months ended June 30,2008 compared with the same period in 2007.

 

*Vessel Expenses*

 

The followingtable provides information with respect to average daily vessel expenses andoperating days for the three and six months ended June 30, 2008 and 2007:

 
| ** **                     | ** ** | **Three Months Ended********June 30,** | ** ** | **Six Months Ended********June 30,** | ** ** |
|--------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                     | ** ** | **2008**                                              | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Operating Days:                |       |                                                  |       |                                                |       |   |   |   |   |
| Jones Act ATBs                 |       | 876                                                   |       | 728                                                 |       | 1,604 |   | 1,448 |   |
| Jones Act Product Carriers     |       | 900                                                   |       | 641                                                 |       | 1,719 |   | 1,232 |   |
| Non-Jones Act Product Carriers |       | 182                                                   |       | 182                                                 |       | 364 |   | 362 |   |
|                           |       | 1,958                                                 |       | 1,551                                               |       | 3,687 |   | 3,042 |   |
|                           |       |                                                  |       |                                                |       |   |   |   |   |
| Average Daily Vessel Expenses: |       |                                                  |       |                                                |       |   |   |   |   |
| Jones Act ATBs                 |       | $                                                     | 8,352      |                                                | $          | 8,360 |   | $ | 7,981 |   | $ | 7,801 |   |
| Jones Act Product Carriers     |       | $                                                     | 16,627     |                                                | $          | 16,267 |   | $ | 16,932 |   | $ | 16,247 |   |
| Non-Jones Act Product Carriers |       | $                                                     | 13,681     |                                                | $          | 12,670 |   | $ | 14,398 |   | $ | 13,260 |   |

 

Vesselexpenses increased $4.7 million, or 25%, from $18.8 million for the threemonths ended June 30, 2007 to$23.5 million for the three months ended June 30, 2008.  The increase in expenses was primarily theresult of the delivery of the *Overseas Long Beach,Overseas Los Angeles* and the *Overseas New York*inJune 2007, November 2007 and April 2008 respectively. Operatingdays increased 258 days from the delivery of these vessels. Operating days alsoincreased 148 days from the addition of the *OSG Liberty/OSG 300*and the *OSG Constitution/OSG 400* chartercontracts. These days are excluded in calculating daily vessel expenses. Inaddition, more vessels were in the shipyard during the second quarter of 2007resulting in higher costs in 2008. We also recognized higher crew wages in 2008compared with the 2007 period.

 

Vesselexpenses increased $9.9 million, or 27%, from $36.1 million for the six monthsended June 30, 2007 to $46.0million for the six months ended June 30, 2008.  The increase in expenses was primarily theresult of the delivery of the *Overseas Houston*,*Overseas Long Beach, Overseas Los Angeles*and the *Overseas New York* in February 2007,June 2007, November 2007 and April 2008, respectively. Operatingdays increased 480 days from the delivery of these vessels.  Operating days also increased 148 days fromthe addition of the *OSG Liberty/OSG 300*and the *OSG Constitution/OSG 400* chartercontracts. These days are excluded in calculating daily vessel expenses. Wealso recognized higher crew wages in 2008 compared with the 2007 period.

 

*Charter Hire Expenses*

 

Charter hireexpenses increased $10.4 million from $1.8 million for the three months ended June 30,2007 to $12.2 million for the three months ended June 30, 2008. Charterhire expenses increased $15.8 million from $3.0 million for the six monthsended June 30, 2007 to $18.8 million for the six months ended June 30,2008. The deliveries of the *Overseas Houston,**Overseas Long Beach,**Overseas Los Angeles* and *Overseas New York*resulted in an additional 258 and 480 days of charter hire expense in the threeand six months ended June 30, 2008, respectively. In addition, werecognized $2.9 million of charter hire expense in both the three and sixmonths ended June 30, 2008 as a result of the *OSGLiberty/OSG 300* and *OSG Constitution/OSG 400*charter contracts, discussed above.

 

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*Depreciation and Amortization*

 

Depreciationand amortization increased $2.2 million, or 19%, from $11.5 million for thethree months ended June 30, 2007 to $13.7 million for the three months endedJune 30, 2008. Depreciation and amortization increased $4.2 million, or 19%,from $22.5 million for the six months ended June 30, 2007 to $26.7 million forthe six months ended June 30, 2008. This increase in both periods was primarilydue to the amortization of costs incurred on vessels in the former Maritransfleet that drydocked for the first time since the November 2006 acquisition,partially offset by a decrease of approximately $0.6 million and $1.2 millionfor the three and six months ended June 30, 2008, respectively, as a result ofthe change in salvage value of the vessels. Depreciation and amortization foreach of the three months ended June 30, 2008 and 2007 includes $1.2 million andfor each of the six months ended June 30, 2008 and 2007 includes $2.3 millionrelated to the amortization of intangibles resulting from the acquisition ofMaritrans.

 

*General and AdministrativeExpenses*

 

General and administrative expenses decreased$0.1 million, or 2%, from $5.2 million for the three months ended June 30, 2007to $5.1 million for the three months ended June 30, 2008. General andadministrative expenses increased $0.9 million, or 9%, from $10.1 million forthe six months ended June 30, 2007 to $11.0 million for the six months endedJune 30, 2008. Prior to November 14, 2007, general and administrative expenseswere allocated based on our fleet’s proportionate share of OSG’s totalship-operating (calendar) days. For the three and six months ended June 30,2007, ship-operating days were 1,551 and 3,042 days, respectively. Managementbelieves that such allocation reasonably presents the results of operations andcash flows of OSG America Predecessor for the period ended June 30, 2007.General and administrative expenses for the three and six months ended June 30,2008 reflect actual expenses incurred.

 

*Equity inIncome of Affiliated Companies*

* *

On a quarterlybasis, we recognize our share of the estimated incentive charter hire that hasbeen deemed earned through the reporting date that is not reversible subsequentthereto. ATC fully distributes its net income for each year by making adistribution in the first quarter of the following year. The portion ofincentive hire that is deemed to be earned on an annual basis is not recognizeduntil the fourth quarter. Equity in income of affiliated companies decreased by$0.4 million, or 26%, from $1.4 million for the three months ended June 30,2007 to $1.0 million for the 2008. Equity in income of affiliated companiesdecreased by $0.7 million, or 28%, from $2.3 million for the six months endedJune 30, 2007 to $1.6 million for the six months ended June 30, 2008. Thesedecreases were attributable to a decrease in the quarterly incentive hire rateearned by ATC in 2008 compared with 2007.

 

*InterestExpense, other*

* *

Interest expense on third party obligationsincreased $0.2 million, or 15%, from $1.4 million for the three months endedJune 30, 2007 to $1.6 million for the three months ended June 30, 2008.Interest expense on third party obligations increased $0.4 million, or 13%,from $2.5 million for the six months ended June 30, 2007 to $2.9 million forthe six months ended June 30, 2008. A decrease in interest expense incurredwith respect to secured term loans due to normal amortization was offset byinterest incurred on borrowings under the senior secured revolving creditfacility totaling $0.4 million and $0.7 million for the three and six monthsended June 30, 2008, respectively. Interest expense is net of $0.2 millioncapitalized in connection with vessel construction for each of the three monthsended June 30, 2008 and 2007. Interest expense for the six months ended June30, 2008 and 2007 is net of $0.6 million and $0.8 million, respectively,capitalized in connection with vessel construction. On June 25, 2008, the Partnership purchased the *Overseas NewOrleans* and the *Overseas Philadelphia,*each of which had been previously operated under capital leases, for a total of$30,923,000. This acquisition was funded with borrowings under the senior securedrevolving credit facility and will reduce interest expense in periodssubsequent to June 30, 2008.

 

*Provision forFederal Income Taxes*

* *

As a result ofour initial public offering as a partnership, we are not a taxable entity andwill incur no federal income tax liability. Instead, each unitholder will berequired to take into account his or her share of items of income, gain, loss,and deduction of the partnership in completing his federal income tax liabilitywithout regard to whether corresponding cash distributions are received fromthe partnership by him. The income tax provisions for the three and six monthsended June 30, 2007 were based on the pre-tax results determined on aseparate-return basis.

 

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**EBITDA**

 

EBITDArepresents net income plus interest expense, provision for income taxes anddepreciation and amortization expense. EBITDA is presented to provide investorswith meaningful additional information that management uses to monitor ongoingoperating results and evaluate trends over comparative periods.

 

EBITDA assists our management and investors by increasing thecomparability of our fundamental performance from period to period and againstthe fundamental performance of other companies in our industry that provideEBITDA information. This increased comparability is achieved by excluding thepotentially disparate effects between periods or companies of interest expense,taxes, depreciation or amortization, which items may significantly affect netincome between periods and are affected by various and possibly changingfinancing methods, capital structure and historical cost basis. We believe thatincluding EBITDA as a financial and operating measure benefits investors in(a) selecting between investing in us and other investment alternativesand (b) monitoring our ongoing financial and operational strength andhealth in assessing whether to continue to hold common units.

 

EBITDA allows us to assess the ability of assets to generate cashsufficient to service debt, make distributions and undertake capitalexpenditures. By eliminating the cash flow effect resulting from our existingcapitalization and other items such as drydocking expenditures and workingcapital changes (which may vary significantly from period to period), EBITDAprovides a consistent measure of our ability to generate cash over the longterm. Management uses this information as a significant factor in determining(a) our proper capitalization (including assessing how much debt to incurand whether changes to the capitalization should be made) and (b) whetherto undertake material capital expenditures and how to finance them, all inlight of existing cash distribution commitments to unitholders. Use of EBITDAas a liquidity measure also permits investors to assess our fundamental abilityto generate cash sufficient to meet cash needs, including distributions on ourcommon units.

 

EBITDA shouldnot be considered as a substitute for net income, cash flow from operatingactivities prepared in accordance with accounting principles generally acceptedin the United States or as a measure of profitability or liquidity. WhileEBITDA is frequently used as a measure of operating results and performance, itis not necessarily comparable to other similarly titled captions of othercompanies due to differences in methods of calculation.

 

The followingtable reconciles net income, as reflected in our statements of operations, toEBITDA:

 
| ** **                                    | ** ** | **Three Months Ended****June 30,** | ** ** | **Six Months Ended****June 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------|------------|
| **In thousands**                         | ** ** | **2008**                                          | ** ** | **2007**                                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income                                    |       | $                                                 | 4,925      |                                            | $          | 2,674 |   | $ | 8,690 |   | $ | 6,877 |   |
| Provision/(benefit) for federal income  taxes |       | —                                            |       | (158                                            | )          | — |   | 1,224 |   |
| Interest expense                              |       | 1,594                                             |       | 3,455                                           |       | 2,858 |   | 6,708 |   |
| Depreciation and amortization                 |       | 13,679                                            |       | 11,467                                          |       | 26,700 |   | 22,464 |   |
| EBITDA                                        |       | $                                                 | 20,198     |                                            | $          | 17,438 |   | $ | 38,248 |   | $ | 37,273 |   |

 

The followingtable reconciles net cash provided by operating activities, as reflected in ourstatements of cash flows, to EBITDA:

 
| ** **                                                      | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------------------|------------|
| **In thousands**                                           | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| Net cash provided by operating activities                       |       | $                                                 | 31,402     |   | $ | 21,515 |   |
| Payments for drydocking                                         |       | 17,082                                            |       | 4,288 |   |
| Interest expense                                                |       | 2,858                                             |       | 6,708 |   |
| Undistributed earnings from affiliated  companies               |       | (4,121                                            | )          | (4,552 | ) |
| Changes in operating assets and liabilities  (except for taxes) |       | (8,188                                            | )          | 5,990 |   |
| Federal income taxes                                            |       | —                                            |       | 3,324 |   |
| Other                                                           |       | (785                                              | )          | — |   |
| EBITDA                                                          |       | $                                                 | 38,248     |   | $ | 37,273 |   |

 

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***Liquidityand Sources of Capital***

* *

Workingcapital at June 30, 2008 was $14.4 million compared with $15.0 million atDecember 31, 2007. We operate in a capital intensive industry. In additionto distributions on our partnership units, our primary liquidity requirementsrelate to our operating expenses, including payments under our management andadministrative services agreements, drydocking expenditures, payments ofinterest and principal under our senior secured revolving credit facility andsecured debt obligations. Our long-term liquidity needs primarily relate tocapital expenditures for the purchase or construction of vessels.

 

The amount ofavailable cash we need to pay the minimum quarterly distributions for fourquarters on our common units, subordinated units and general partner interestis $45.9 million. There is no guarantee that we will pay the minimum quarterlydistribution on our common and subordinated units in any quarter and we will beprohibited from making any distributions to unitholders if it would cause anevent of default, or an event of default exists, under our credit agreement.

 

We anticipatethat our primary sources of funds for our short-term liquidity needs will becash flows from operations. We believe that cash flows from operations and bankborrowings from our senior secured revolving credit facility referred to belowwill be sufficient to meet our existing short-term liquidity needs for the next12 months.

 

In November, we entered into a$200 million five-year senior secured revolving credit facility. Borrowingsunder this facility bear interest at a rate based on LIBOR. The facility may beextended by 24 months subject to approval by lenders. As of June 30, 2008,$59.0 million was outstanding under the facility.

 

We were incompliance with all of the financial covenants contained in our debt agreementsas of June 30, 2008. The senior secured revolving credit facility will preventus from declaring or making distributions if any event of default, as definedin the senior secured revolving credit agreement, exists or would result fromsuch payments. In addition, the senior secured revolving credit facilityimposes certain operating restrictions and requires us to adhere to certainminimum financial covenants. Our failure to comply with any of the covenants inthe agreements could result in a default, which would permit lenders toaccelerate the maturity of the debt and to foreclose upon collateral securingthe debt. Under those circumstances, we might not have sufficient funds orother resources to satisfy our remaining obligations.

 

*Cash Flows*

 

*Operating  cash flows.*Net cashflow from operating activities was $31.4 million and $21.5 million for thesix months ended June 30, 2008 and 2007, respectively. The increase of$9.9 million was primarily attributable to a decrease in receivables onincreased revenues, higher net income and increased depreciation. Theseincreases were partially offset by an increase in payments for drydocking of$12.8 million in the first six months of 2008 compared with the same period in2007.

 

Net cash flow from operating activitiesdepends upon the timing and amount of drydocking expenditures, repairs andmaintenance activity, vessel additions and dispositions, changes in interestrates, fluctuations in working capital balances and spot market freight rates.The number of vessel drydockings varies from year to year.

 

*Investing cash flows.*Net cash used in investing activities was $32.3million and $22.5 million for the six months ended June 30, 2008 and 2007,respectively. Investing activities for the six months ended June 30, 2008related primarily to the double hulling of one barge, the drydocking of threebarges and progress payments for the two new tugs under construction. Investingactivities in 2007 related primarily to costs that were incurred double-hullingtwo barges.

 

*Financing cashflows.* Net cash provided by financing activities was$7.2 million and $1.0 million for the six months ended June 30, 2008 and2007, respectively. During the six months ended June 30, 2008, we borrowed$59.0 million under the senior secured revolving credit facility. Repayments ofdebt represent regularly scheduled installments under secured term loans andthe repayment of capital lease obligations in connection with the purchase ofthe *Overseas New Orleans* and the *Overseas Philadelphia* in June 2008.

 

*Ongoing Capital Expenditures*

 

Marine transportationof crude oil and refined petroleum products is a capital-intensive business,which requires significant investment to maintain an efficient fleet and stayin regulatory compliance.

 

Over the nextthree years, we estimate that we will spend an average of approximately $18 to$20 million per year for drydocking and classification society surveys. Wedrydock our vessels twice in every five-year period and, as our fleet maturesand expands, our drydocking expenses will likely increase. Ongoing costs forcompliance with environmental regulations are primarily included as part of ourdrydocking and classification society survey costs or are a component of ouroperating expenses. In addition, vessels may have to be drydocked in the eventof accidents or other unforeseen damage. Periodically, we also incurexpenditures to acquire or construct additional product carriers and bargesand/or to upgrade or

 

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double hull vessels in order to comply withstatutory regulations. We are not aware of any regulatory changes orenvironmental liabilities that will have a material impact on our current orfuture operations.

 

We believethat our cash flow from charters-out will be sufficient to cover the interestand principal payments under our debt agreements, amounts due under theadministrative services and management agreements, other general andadministrative expenses and other working capital requirements for the shortand medium term. To the extent we pursue other vessel acquisitions, we expectto finance any such commitments from existing long-term credit facilities andadditional long-term debt as required. The amounts of working capital and cashgenerated from operations that may, in the future, be utilized to financevessel commitments are dependent on the rates at which we can charter ourvessels. Such charter rates are volatile.

 

Because we distribute all of our available cash,we may not grow as fast as companies that reinvest their available cash. Weexpect that we will rely upon external financing sources, including bankborrowings and the issuance of debt and equity securities, to fund acquisitionsand expansion capital expenditures. As a result, to the extent we are unable tofinance growth externally, our cash distribution policy will significantlyimpair our ability to grow. To the extent we issue additional units inconnection with any acquisitions or expansion capital expenditures, the paymentof distributions on those additional units may increase the risk that we willbe unable to maintain or increase our per unit distribution level, which inturn may affect the available cash that we have to distribute on each unit. Ourpartnership agreement does not limit our ability to issue additional units,including units ranking senior to our common units. The incurrence ofadditional debt by us or our operating subsidiaries would result in increasedinterest expense, which in turn may also affect the available cash that we haveto distribute to our unitholders.

 

*Aggregate Contractual Obligations*

 

A summary ofour long-term contractual obligations as of June 30, 2008 follows:

 
| **In thousands**                                            | ** ** | **Balance of  2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Beyond  2012** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------|------------|---------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|------------------|------------|-----------|------------|
| Long-term debt (1)                                               |       | $                         | 3,898      |     | $          | 8,064    |       | $        | 8,065      |     | $          | 8,064            |       | $         | 66,855     |   | $ | 35,039 |   | $ | 129,985 |   |
| Operating lease obligations (chartered-in  vessels) (2)          |       | 17,602                    |       | 51,791   |       | 61,538   |       | 64,331   |       | 64,306   |       | 150,286          |       | 409,854   |       |
| Operating lease obligations with OSG  (chartered-in vessels) (3) |       | 4,058                     |       | 5,900    |       | —   |       | —   |       | —   |       | —           |       | 9,958     |       |
| Construction installments (4)                                    |       | 10,205                    |       | 1,570    |       | —   |       | —   |       | —   |       | —           |       | 11,775    |       |
| Total                                                            |       | $                         | 35,763     |     | $          | 67,325   |       | $        | 69,603     |     | $          | 72,395           |       | $         | 131,161    |   | $ | 185,325 |   | $ | 561,572 |   |

 

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(1)          Amounts shown includecontractual interest obligations.

(2)          As of June 30, 2008 wehad charter-in commitments for eight vessels on leases that are, or will be,accounted for as operating leases. These leases provide us with various renewaloptions.

(3)          Represents charter-incommitments for two vessels on time charter from OSG.

(4)          Represents remainingshipyard commitments and excludes capitalized interest and other constructioncosts.

 

*Senior Secured Revolving CreditFacility*

 

On November15, 2007, our wholly owned subsidiary OSG America Operating Company LLC,entered into a $200 million senior secured revolving credit facility with INGBank N.V. and DnB NOR Bank ASA. As of June 30, 2008, $59.0 million wasoutstanding under the facility, at an average interest rate of 3.39%.

 

Borrowingsunder the senior secured revolving credit facility are due and payable fiveyears after the date that the facility agreement was signed (the “closing date”),subject to a 24-month extension period which may be requested by us on or afterthe second anniversary of the closing date and which may be approved by thelenders. Drawings under the facility are available on a revolving basis untilthe earlier of one month prior to the applicable maturity date or the date onwhich the facility is permanently reduced to zero and the lenders are no longerrequired to make advances.

 

Borrowingsunder the senior secured revolving credit facility are secured by firstpreferred mortgages on certain owned vessels, and are guaranteed by us.

 

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OSG AmericaOperating Company LLC may, at its option, prepay all loans under our seniorsecured revolving credit facility at any time without penalty (other thancustomary breakage costs). The outstanding loans under the senior securedrevolving credit facility bear interest at a rate equal to LIBOR plus a margin(70 basis points per year until the fifth anniversary of the closing date and,if the extension option is exercised, 75 basis points per year thereafter).

 

The senior securedrevolving credit facility prevents us from declaring or making distributions ifany event of default, as defined in the senior secured revolving creditagreement, exists or would result from such payments. In addition, the seniorsecured revolving credit facility requires us to adhere to certain financialcovenants.

 

*Off Balance Sheet Arrangements*

 

We do not currently have any liabilities,contingent or otherwise, that we consider to be off balance sheet arrangements.

 

**ITEM 3.                  QUALITATIVE AND QUANTITATIVEDISCLOSURES ABOUT MARKET RISK**

 

***InterestRate Risk***

 

We are exposedto the impact of interest rate changes primarily through our unhedged floating-rateborrowings. Significant increases in interest rates could adversely affect ouroperating margins, results of operations and our ability to service our debt.From time to time, we may use interest rate swaps to reduce our exposure tomarket risk from changes in interest rates. The principal objective of thesecontracts would be to minimize the risks and costs associated with our floating-ratedebt. As of June 30, 2008, long-term debt except for the $59.0 milliondrawn on the senior secured revolving credit facility, consisted of fixed-ratesecured term loans. As of June 30, 2008, forward start interest rate swapseffectively convert our interest rate exposure on $30.0 million from a floatingrated based on LIBOR to a fixed rate of 4.35% commencing in 2009.

 

We intend toinvest our cash in financial instruments with maturities of less than threemonths within the parameters of our investment policy and guidelines.

 

We may useinterest rate swaps to manage the impact of interest rate changes on earningsand cash flows. Changes in the fair value of interest rate swaps are eitheroffset against the fair value of assets or liabilities through income, orrecognized in other comprehensive income until the hedged item is recognized inincome. The ineffective portion of an interest rate swap change in fair valueis immediately recognized in income. Premiums and receipts, if any, arerecognized as adjustments to interest expense over the lives of the individualcontracts.

 

***ForeignCurrency Risk***

 

The shippingindustry’s functional currency is the U.S. dollar. All of our revenues and mostof our operating costs are in U.S. dollars.

 

**Report of Independent Registered Public Accounting Firm on Review ofInterim Financial Information**

 

The condensed consolidated financial statements as of June 30, 2008 andfor the three and six months ended June 30, 2008 and the condensed predecessorcombined financial statements for the three and six months ended June, 2007 areunaudited; however, such financial statements have been reviewed by ourindependent registered public accounting firm.

 

**Available Information**

 

We are subject to the informationrequirements of the Securities Exchange Act of 1934 and, in accordancetherewith, we are required to file with the SEC periodic reports and otherinformation. These reports and other information may be inspected and copied atthe Public Reference Room maintained by the SEC at 100 F Street, N.E.,Washington, D.C. 20549 or obtained from the SEC’s website (http://www.sec.gov).Our website on the internet is located at http://www.osgamerica.com. Ourperiodic reports and other information filed with or furnished to the SEC areavailable, free of charge, through our website, as soon as reasonablypracticable after those reports and other information are electronically filedwith or furnished to the SEC.

 

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**ITEM 4(T).            CONTROLS AND PROCEDURES**

 

As of the end of the period covered by this Quarterly Report on Form 10-Q,an evaluation was performed under the supervision and with the participation ofthe Company’s management, including the Chief Executive Officer (“CEO”) andChief Financial Officer (“CFO”), of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures pursuant to Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “ExchangeAct”). Based on that evaluation, the Company’s management, including the CEOand CFO, concluded that the Company’s current disclosure controls andprocedures are effective to ensure that information required to be disclosed bythe Company in the reports the Company files or submits under the Exchange Actis (i) recorded, processed, summarized and reported, within the time periodsspecified in the Securities and Exchange Commission’s rules and forms and (ii)accumulated and communicated to the Company’s management, including the CEO andCFO, as appropriate to allow timely decisions regarding required disclosure. Therehave been no material changes in the Company’s internal controls or in otherfactors that could materially affect these controls during the period coveredby this Quarterly Report.

 

**PART II – OTHER INFORMATION**

 

**ITEM 1.                  LEGAL PROCEEDINGS**

 

We are party to routine, marine relatedclaims, lawsuits and labor arbitrations arising in the ordinary course of ourbusiness. The claims made in connection with our marine operations are coveredby insurance, subject to applicable policy deductibles that are not material asto any type of insurance coverage. We provide on a current basis for amounts weexpect to pay.

 

**ITEM 1A.               RISKFACTORS**

 

Therehave been no material changes in the Partnership’s risk factors from thosedisclosed in our Annual  Report on Form10-K for the year ended December 31, 2007, other than to the risk factors shownbelow.

 

***Our business wouldbe adversely affected if either we or our general partner failed to comply withthe Jones Act foreign ownership provisions.***

 

To maintain our privilege of operating our vessels in the Jones Acttrade we must maintain U.S citizen status for Jones Act purposes. To ensurecompliance with the Jones Act, both we and Overseas Shipholding Group, Inc. (“OSG”),through its ownership of our general partner, must be U.S. citizens qualifiedto document vessels for coastwise trade. Our partnership agreement restrictsownership by non-U.S. citizens of our outstanding partnership interests to apercentage equal to no more than 24% as determined from time to time by ourgeneral partner. Our general partner has determined to initially limit foreignownership of our partnership interests to 15%. OSG’s governing documentscontain similar provisions restricting foreign ownership as determined fromtime to time by OSG’s Board of Directors. OSG’s Board of Directors has limitedforeign ownership of OSG’s outstanding common stock to 23%.

 

On April 16, 2008, OSG announced that U.S. ownership of its commonstock at the close of business on April 15, 2008 had declined to 77%, theminimum percentage that its certificate of incorporation and by-laws mandatemust be owned by U.S. citizens.

 

If more than 25% of OSG’s outstanding common stock were owned orcontrolled by non-U.S. citizens, OSG would no longer qualify as a U.S. citizenfor Jones Act purposes. The consequences of OSG’s failure to qualify as a U.S.citizen under the Jones Act would have an adverse effect on us as we would beprohibited from operating our vessels in the U.S. coastwise trade.

 

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***American ShippingCorporation (“Aker”) has informed us and OSG that as a result of OSG’s order ofthree articulated tug barges (“ATBs”) from Bender Shipbuilding &Repair Co., Inc. (“Bender”), Aker is exercising a right it claims to haveunder its agreement with us and OSG to impose a five year extension of the termof each of the bareboat charters for the ten Jones Act product carriers thatsubsidiaries of OSG are chartering from subsidiaries of Aker.***

 

On October25, 2007, Aker informed us and OSG that Aker was exercising its alleged rightto extend the bareboat charters for an additional five year period as a resultof OSG’s order of the three ATBs from Bender. At that time, Aker also claimedthat both us and OSG lost our rights in the separate and independent provisionto reduce the fixed terms of the bareboat charters to three years (or one yearfor the charters in effect for two or more years) if Aker PhiladelphiaShipyard, Inc. (“APSI”) contracts to build product carriers or ocean going tankbarges for third parties.

 

We and OSGdispute Aker’s claims because, among other reasons, we believe that Aker waived,contracted away, and is otherwise estopped from asserting, its right under itsagreement with respect to the order for the tank barges and further that Akerviolated its agreement with OSG to use its best efforts to negotiate in goodfaith and agree upon the documentation of the clear agreement concerning ATBscontained in the Amendment Agreement.

 

On January11, 2008 Aker sent to OSG and us a notice demanding arbitration of Aker’sclaims against OSG and us. We (along with OSG) have denied Aker’s claims in thearbitration and have brought a counterclaim against Aker concerning its October2007 position with respect to our right to reduce the bareboat charter terms ofthe vessels should APSI contract to build product carriers or ocean going tankbarges for third parties.

 

The partieshave appointed an arbitration panel and have completed initial briefing. InApril 2008 the parties met with the panel and set forth a proposed schedule fordiscovery and other events in the arbitration. The hearings on the merits havebeen bifurcated, with the final dates not yet set.

 

A five yearextension of the initial term of the bareboat charters would lengthen theperiod we are required to charter these vessels. If we would not have exercisedour option to charter each vessel for the five year extension period, thismandatory extension could have an adverse effect on us, the quantification ofsuch adverse effect being dependent upon market conditions during such fiveyear period. Furthermore, permitting Aker to compete against us — based on theargument, which Aker has made and which we dispute, that we have each lost ourrights in the separate and independent provision to reduce the fixed terms ofthe bareboat charters to three years (or one year for charters in effect fortwo or more years) if APSI contracts to build product carriers or ocean goingtank barges for third parties — could have an adverse effect on us, thequantification of such adverse effect being dependent upon market conditionsduring the relevant period. No assurances can be given that our positions withrespect to Aker’s claims will be upheld in the arbitration.

 

**ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES ANDUSE OF PROCEEDS**

 

None.

 

**ITEM 6.  EXHIBITS**

 

SeeExhibit Index on page 30.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

TheBoard of Directors and Unitholders of OSG America L.P.

 

We havereviewed the condensed consolidated balance sheet of OSG America L.P. as ofJune 30, 2008 and the related condensed consolidated statements of operationsfor the three-month and six-month periods ended June 30, 2008, the condensedpredecessor combined carve-out statements of operations, for the three-monthand six-month periods ended June 30, 2007, the changes in partners’ capital forthe six-month period ended June 20, 3008, the condensed consolidated statementof cash flows for the six-month period ended June 30, 2008 and the condensedpredecessor combined carve-out statement of cash flows for the six-month periodended June 30, 2007.  These financial statements are the responsibility ofthe Partnership’s management.

 

Weconducted our review in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). A review of interim financialinformation consists principally of applying analytical procedures and makinginquiries of persons responsible for financial and accounting matters. It issubstantially less in scope than an audit conducted in accordance with thestandards of the Public Company Accounting Oversight Board, the objective ofwhich is the expression of an opinion regarding the financial statements takenas a whole. Accordingly, we do not express such an opinion.

 

Basedon our review, we are not aware of any material modifications that should bemade to the condensed consolidated financial statements or the predecessorcondensed combined carve-out financial statements referred to above for them tobe in conformity with U.S. generally accepted accounting principles.

 

We havepreviously audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheet ofOSG America L.P as of December 31, 2007, and the related consolidatedstatements of operations, cash flows and changes in partners’ capital for theyear then ended not presented herein, and in our report dated March 6, 2008, weexpressed an unqualified opinion on those consolidated financial statements. Inour opinion, the information set forth in the accompanying condensedconsolidated balance sheet as of December 31, 2007, is fairly stated, in allmaterial respects, in relation to the consolidated balance sheet from which ithas been derived.

 

 

/s/ Ernst & Young LLP

 

CertifiedPublic Accountants

 

Tampa,Florida

 

August1, 2008

 

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SIGNATURES

 

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

 
|   | OSG AMERICA L.P.                                                   |
|--------|--------------------------------------------------------------------|
|   |          (Registrant) |
|   |                                                               |
|   | by OSG America LLC, its general partner                            |
|   |                                                               |
| Date:  | August 5, 2008                                                     |   | /s/ Jonathan P. Whitworth |
|   | Jonathan P. Whitworth                                              |
|   | President and Chief Executive Officer                              |
|   |                                                               |
|   |                                                               |
| Date:  | August 5, 2008                                                     |   | /s/ Myles R. Itkin |
|   | Myles R. Itkin                                                     |
|   | Chief Financial Officer                                            |

 

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**EXHIBITINDEX**

 
| 10.8   |   | Time Charter dated  April 1, 2008                                                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                       |
| 10.9   |   | Time Charter dated April 1,  2008                                                                                                                                                     |
|   |   |                                                                                                                                                                                       |
| 10.10  |   | Time Charter dated  April 29, 2008                                                                                                                                                    |
|   |   |                                                                                                                                                                                       |
| 10.11  |   | Time Charter dated  April 29, 2008                                                                                                                                                    |
|   |   |                                                                                                                                                                                       |
| 10.12  |   | Time Charter dated  May 10, 2008                                                                                                                                                      |
|   |   |                                                                                                                                                                                       |
| 10.13  |   | Time Charter dated  May 10, 2008                                                                                                                                                      |
|   |   |                                                                                                                                                                                       |
| 10.14  |   | Time Charter dated  May 1, 2008                                                                                                                                                       |
|   |   |                                                                                                                                                                                       |
| 15     |   | Letter from Ernst &  Young LLP.                                                                                                                                                   |
|   |   |                                                                                                                                                                                       |
| 31.1   |   | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a),  as amended.                                                                                 |
|   |   |                                                                                                                                                                                       |
| 31.2   |   | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a),  as amended.                                                                                 |
|   |   |                                                                                                                                                                                       |
| 32     |   | Certification of Chief  Executive Officer and 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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