Table ofContents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

** **
| **x**                                                                                                                                     | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                      |
| **For the  quarterly period ended MARCH 31, 2009**                                                                                   |
|                                                                                                                                      |
| **OR**                                                                                                                                    |
|                                                                                                                                      |                                                                                                     |
| **o**                                                                                                                                     | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                      |
| **For the  transition period from          to          ** |

 

**CommissionFile Number 001-33806**

** **

**OSG AMERICA L.P.**

(Exact name ofregistrant as specified in its charter)

 

| **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 checkmark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.   Yes x  No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Webs site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (Section 232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).   Yes o  No o

 

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

 
| Large accelerated filer  o | Accelerated filer x          |
|----------------------------|------------------------------|
|                       |                         |
| Non-accelerated filer o    | Smaller reporting  company o |

 

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

 

APPLICABLE ONLY TOCORPORATE ISSUERS:

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.

 

Common unitsoutstanding as of April 30, 2009 — 15,004,500.

Subordinated unitsoutstanding as of April 30, 2009 — 15,000,000.

##  

 

##  

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TABLE OF CONTENTS

 
| ** **    | ** **                                                                                  | ** ** | **Page** |
|---------------|---------------------------------------------------------------------------------------------|------------|----------|
| PART I.  | FINANCIAL INFORMATION                                                                       |       |     |
|          |                                                                                        |       |     |
| Item. 1.      | Consolidated Financial Statements                                                           |       | 3        |
|          |                                                                                        |       |     |
| Item 2.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       | 16       |
|          |                                                                                        |       |     |
| Item 3.       | Qualitative  and Quantitative Disclosures About Market Risk                                 |       | 24       |
|          |                                                                                        |       |     |
| Item 4(T).    | Controls and  Procedures                                                                    |       | 25       |
|          |                                                                                        |       |     |
| PART II. | OTHER INFORMATION                                                                           |       |     |
|          |                                                                                        |       |     |
| Item 1.       | Legal Proceedings                                                                           |       | 25       |
|          |                                                                                        |       |     |
| Item 1A.      | Risk Factors                                                                                |       | 25       |
|          |                                                                                        |       |     |
| Item 2.       | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 26       |
|          |                                                                                        |       |     |
| Item 6.       | Exhibits                                                                                    |       | 26       |
|          |                                                                                        |       |     |
| SIGNATURES    |                                                                                        | 28         |
|               |                                                                                             |            |          |  |  |

 

i

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** **

**PART I — FINANCIAL INFORMATION**

 
| **ITEM 1.** | **CONSOLIDATED FINANCIAL  STATEMENTS** |   |
|-------------|----------------------------------------|--------|

 
| ** ** | ** **                                                                                                            | **Page** |
|------------|-----------------------------------------------------------------------------------------------------------------------|----------|
|       |                                                                                                                  |     |   |
|       | Consolidated  Balance Sheets at March 31, 2009 and December 31, 2008                                        |     | 4 |
|       |                                                                                                                  |     |   |
|       | Consolidated  Statements of Operations for the three months ended March 31, 2009 and  2008                       |     | 5 |
|       |                                                                                                                  |     |   |
|       | Consolidated  Statements of Cash Flows for the three months ended March 31, 2009 and  2008                       |     | 6 |
|       |                                                                                                                  |     |   |
|       | Consolidated  Statement of Changes in Partners’ Capital for the three months ended  March 31, 2009 and 2008 |     | 7 |
|       |                                                                                                                  |     |   |
|       | Notes to Consolidated Financial Statements                                                                            |     | 8 |

 

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**OSG AMERICA L.P.**

**CONSOLIDATED BALANCE SHEETS**

**DOLLARS IN THOUSANDS**

 
| ** **                                                             | ** ** | **As of****March 31, 2009** | ** ** | **As of****December 31, 2008** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------------------|------------|
| ** **                                                             | ** ** | **(Unaudited)**                  | ** ** | ** **                          | ** ** |
| **ASSETS**                                                             |       |                             |       |                                |       |
| **Current Assets:**                                                    |       |                             |       |                                |       |
| Cash and cash equivalents                                              |       | $                                | 11,803     |                                | $          | 10,529 |   |
| Voyage receivables, including unbilled of $4,245 and $6,186            |       | 13,601                           |       | 18,900                              |       |
| Other receivables                                                      |       | 4,187                            |       | 4,129                               |       |
| Inventory                                                              |       | 1,883                            |       | 1,855                               |       |
| Prepaid expenses and other current assets                              |       | 5,455                            |       | 4,770                               |       |
| Total current assets                                                   |       | 36,929                           |       | 40,183                              |       |
|                                                                   |       |                             |       |                                |       |
| Vessels, less accumulated depreciation of $93,467 and $85,819          |       | 401,887                          |       | 404,462                             |       |
| Vessel held for sale                                                   |       | 1,310                            |       | 1,310                               |       |
| Deferred drydock expenditures, net                                     |       | 22,816                           |       | 26,536                              |       |
| Investment in Alaska Tanker Company, LLC                               |       | 601                              |       | 5,382                               |       |
| Intangible assets, less accumulated amortization of $10,733 and $9,583 |       | 81,267                           |       | 82,417                              |       |
| Other assets                                                           |       | 16,277                           |       | 14,271                              |       |
| Total assets                                                           |       | $                                | 561,087    |                                | $          | 574,561 |   |
|                                                                   |       |                             |       |                                |       |
| **LIABILITIES AND PARTNERS’ CAPITAL**                             |       |                             |       |                                |       |
| **Current Liabilities:**                                               |       |                             |       |                                |       |
| Accounts payable, accrued expenses and other current liabilities       |       | $                                | 19,621     |                                | $          | 19,282 |   |
| Accounts payable to affiliated companies                               |       | 14,372                           |       | 12,586                              |       |
| Current portion of debt                                                |       | 3,052                            |       | 3,007                               |       |
| Total current liabilities                                              |       | 37,045                           |       | 34,875                              |       |
|                                                                   |       |                             |       |                                |       |
| Long-term debt, less current portion                                   |       | 77,966                           |       | 88,746                              |       |
| Other non-current liabilities                                          |       | 8,299                            |       | 7,994                               |       |
| Total liabilities                                                      |       | 123,310                          |       | 131,615                             |       |
|                                                                   |       |                             |       |                                |       |
| **Partners’ Capital**                                             |       | 437,777                          |       | 442,946                             |       |
| Total liabilities and partners’ capital                           |       | $                                | 561,087    |                                | $          | 574,561 |   |

 

*See notesto consolidated financial statements.*

 

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**OSG AMERICA L.P.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**DOLLARS IN THOUSANDS, EXCEPT PERUNIT AMOUNTS**

**(UNAUDITED)**

** **
| ** **                                                                                                                                     | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                                     | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| **Shipping Revenues:**                                                                                                                         |       |                                  |       |   |   |
| Time and bareboat charter revenues (including $8,886 and $0,  respectively, from OSG for the three months ended March 31, 2009 and  2008) |       | $                                     | 45,167     |   | $ | 32,506 |   |
| Voyage charter revenues                                                                                                                        |       | 28,941                                |       | 30,526 |   |
|                                                                                                                                           |       | 74,108                                |       | 63,032 |   |
| **Operating Expenses:**                                                                                                                        |       |                                  |       |   |   |
| Voyage expenses                                                                                                                                |       | 6,648                                 |       | 10,639 |   |
| Vessel expenses                                                                                                                                |       | 26,444                                |       | 22,434 |   |
| Charter hire expenses (including $903 and $0, respectively, to OSG for  the three months ended March 31, 2009 and 2008)                   |       | 13,615                                |       | 6,677 |   |
| Depreciation and amortization                                                                                                                  |       | 12,594                                |       | 13,021 |   |
| General and administrative allocated from OSGM                                                                                                 |       | 5,909                                 |       | 5,886 |   |
| Severance and relocation costs                                                                                                                 |       | 2,026                                 |       | — |   |
| Total operating expenses                                                                                                                       |       | 67,236                                |       | 58,657 |   |
| Income from vessel operations                                                                                                                  |       | 6,872                                 |       | 4,375 |   |
| Equity in income of affiliated companies                                                                                                       |       | 565                                   |       | 593 |   |
| Operating income                                                                                                                               |       | 7,437                                 |       | 4,968 |   |
| Other income                                                                                                                                   |       | 16                                    |       | 61 |   |
|                                                                                                                                           |       | 7,453                                 |       | 5,029 |   |
| Interest expense                                                                                                                               |       | 1,251                                 |       | 1,264 |   |
| Income before federal income taxes                                                                                                             |       | 6,202                                 |       | 3,765 |   |
| Provision for federal income taxes                                                                                                             |       | —                                |       | — |   |
| **Net income**                                                                                                                                 |       | $                                     | 6,202      |   | $ | 3,765 |   |
|                                                                                                                                           |       |                                  |       |   |   |
| General partner’s interest in net income                                                                                                  |       | $                                     | 124        |   | $ | 75 |   |
| Limited partners’ interest:                                                                                                               |       |                                  |       |   |   |
| Net income                                                                                                                                     |       | $                                     | 6,078      |   | $ | 3,690 |   |
| Net income per unit – basic and diluted                                                                                                   |       | $                                     | 0.20       |   | $ | 0.12 |   |
| Cash distribution declared per unit                                                                                                            |       | $                                     | 0.375      |   | $ | 0.375 |   |
|                                                                                                                                           |       |                                  |       |   |   |
| Weighted average units outstanding - basic and diluted                                                                                         |       | 30,004,500                            |       | 30,002,250 |   |

 

*See notes to consolidated financial statements.*

 

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**OSG AMERICA L.P.**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**DOLLARS IN THOUSANDS**

**(UNAUDITED)**

** **
| ** **                                                                        | ** ** | **Three Months Ended  March 31, 2009** | ** ** | **Three Months Ended  March 31, 2008** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| **Cash Flows from Operating Activities:**                                         |       |                                        |       |                                        |       |
| Net income                                                                        |       | $                                           | 6,202      |                                        | $          | 3,765 |   |
| Items included in net income not affecting cash flows:                            |       |                                        |       |                                        |       |
| Depreciation and amortization                                                     |       | 12,594                                      |       | 13,021                                      |       |
| Decrease in undistributed earnings of affiliated companies, net of  distributions |       | 4,781                                       |       | 5,151                                       |       |
| Other — net                                                                  |       | 631                                         |       | 325                                         |       |
| Payments for drydocking                                                           |       | (76                                         | )          | (9,139                                      | )          |
| Changes in operating assets and liabilities:                                      |       |                                        |       |                                        |       |
| Decrease in receivables                                                           |       | 5,241                                       |       | 6,432                                       |       |
| (Increase)/decrease in other assets                                               |       | (713                                        | )          | 1,402                                       |       |
| Increase/(decrease) in accounts payable, accrued expenses and other  liabilities  |       | 750                                         |       | (3,807                                      | )          |
| Net cash provided by operating activities                                         |       | 29,410                                      |       | 17,150                                      |       |
|                                                                              |       |                                        |       |                                        |       |
| **Cash Flows from Investing Activities:**                                         |       |                                        |       |                                        |       |
| Expenditures for vessels                                                          |       | (3,125                                      | )          | (13,012                                     | )          |
| Net cash used in investing activities                                             |       | (3,125                                      | )          | (13,012                                     | )          |
|                                                                              |       |                                        |       |                                        |       |
| **Cash Flows from Financing Activities:**                                         |       |                                        |       |                                        |       |
| Net (repayments on)/proceeds from borrowings under revolving credit  facility     |       | (10,000                                     | )          | 15,000                                      |       |
| Payments on debt and obligations under capital leases                             |       | (735                                        | )          | (2,374                                      | )          |
| Cash distributions paid                                                           |       | (11,481                                     | )          | (5,740                                      | )          |
| Payments for initial public offering transaction costs                            |       | —                                      |       | (241                                        | )          |
| Payments for deferred financing costs                                             |       | —                                      |       | (2                                          | )          |
| Changes in advances from affiliates                                               |       | (2,795                                      | )          | 1,647                                       |       |
| Net cash (used in)/provided by financing activities                               |       | (25,011                                     | )          | 8,290                                       |       |
| Net increase in cash and cash equivalents                                         |       | 1,274                                       |       | 12,428                                      |       |
| Cash and cash equivalents at beginning of period                                  |       | 10,529                                      |       | 3,380                                       |       |
| Cash and cash equivalents at end of period                                        |       | $                                           | 11,803     |                                        | $          | 15,808 |   |

 

*See notesto consolidated financial statements.*

 

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**OSG AMERICA L.P.**

**CONSOLIDATED STATEMENT OF CHANGESIN 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, 2008                                           |       | 15,004                    |       | $                           | 216,743    |                   | 15,000     |              | $          | 220,058 |   | $ | 8,982 |   | $ | (2,837 | ) | $ | 442,946 |   |
| Net income                                                                   |       |                      |       | 3,039                       |       |                   |       | 3,039             |       | 124 |   |   |   | 6,202 |   |
| Effect of  derivative instruments                                            |       |                      |       |                        |       |                   |       |              |       |   |   | 105 |   | 105 |   |
| Comprehensive income                                                         |       |                      |       |                        |       |                   |       |              |       |   |   |   |   | 6,307 |   |
| Amortization of  restricted units awards                                     |       |                      |       | 5                           |       |                   |       |              |       |   |   |   |   | 5 |   |
| Distributions to  members                                                    |       |                      |       | (5,627                      | )          |                   |       | (5,625            | )          | (229 | ) |   |   | (11,481 | ) |
|                                                                         |       |                      |       |                        |       |                   |       |              |       |   |   |   |   |   |   |
| Balance at  March 31, 2009                                              |       | 15,004                    |       | $                           | 214,160    |                   | 15,000     |              | $          | 217,472 |   | $ | 8,877 |   | $ | (2,732 | ) | $ | 437,777 |   |
|                                                                         |       |                      |       |                        |       |                   |       |              |       |   |   |   |   |   |   |
| Balance at  December 31, 2007                                           |       | 15,002                    |       | $                           | 263,368    |                   | 15,000     |              | $          | 266,453 |   | $ | 10,876 |   | $ | — |   | $ | 540,697 |   |
| Net income                                                                   |       |                      |       | 1,845                       |       |                   |       | 1,845             |       | 75 |   |   |   | 3,765 |   |
| Effect of  derivative instruments                                            |       |                      |       |                        |       |                   |       |              |       |   |   |   |   | — |   |
| Comprehensive income                                                         |       |                      |       |                        |       |                   |       |              |       |   |   |   |   | 3,765 |   |
| Costs associated  with issuance of units pursuant to initial public offering |       |                      |       | (241                        | )          |                   |       |              |       |   |   |   |   | (241 | ) |
| Amortization of  restricted units awards                                     |       |                      |       | 4                           |       |                   |       |              |       |   |   |   |   | 4 |   |
| Distributions to  members                                                    |       |                      |       | (2,813                      | )          |                   |       | (2,812            | )          | (115 | ) |   |   | (5,740 | ) |
|                                                                         |       |                      |       |                        |       |                   |       |              |       |   |   |   |   |   |   |
| Balance at  March 31, 2008                                              |       | 15,002                    |       | $                           | 262,163    |                   | 15,000     |              | $          | 265,486 |   | $ | 10,836 |   | $ | — |   | $ | 538,485 |   |

 

*See notesto consolidated financial statements.*

 

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**Notes to Consolidated andFinancial Statements**

 

**NOTE A—ORGANIZATION:**

** **

On May 14, 2007,Overseas Shipholding Group, Inc. (“OSG) formed OSG America L.P. a DelawareLimited Partnership (the “Partnership”) to acquire from OSG a fleet of 18vessels (ten product carriers, seven ATBs, and one conventional tug-barge unit)and to accept the assignment from OSG of the bareboat charter-in agreements forsix product carriers being constructed by Aker Philadelphia Shipyard, Inc.On November 15, 2007, the Partnership completed its initial publicoffering of 7,500,000 common units representing a 24.5% limited partnerinterest in the Partnership and, in connection therewith, issued to OSG7,500,000 common units and 15,000,000 subordinated units, representing a 73.5%limited partner interest in the Partnership. The Partnership’s general partner,OSG America LLC (the “General Partner”), which is a wholly-owned indirectsubsidiary of OSG, received a 2% general partner interest.

 

OSG, through itswholly-owned subsidiary OSG Ship Management Inc., (“OSGM”) provides commercial,technical, and administrative services to the Partnership in accordance withrelated agreements.

 

**NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:**

** **

*Basis ofPresentation and Description of Business. *OSG AmericaL.P. is engaged in providing marine transportation services through theownership and operation of a fleet of tankers and ATBs.  Of the 22 vessels in the operating fleet asof March 31, 2009, 20 operate in the Jones Act trade and two operate inthe international market under the U.S. flag while participating in theMaritime 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 reportable segment. Inaddition, OSG America L.P. owns a 37.5% ownership interest in a joint venture,Alaska Tanker Company, LLC.

 

The accompanying unauditedconsolidated financial statements have been prepared in accordance with U.S.generally accepted accounting principles for interim financial information andwith the instructions to Form 10-Q and Article 10 of Regulation S-X.  They do not include all of the informationand footnotes required by generally accepted accounting principles.  In the opinion of management, all adjustments(consisting of normal recurring accruals) considered necessary for a fairpresentation have been included.  Operatingresults for the three months ended March 31, 2009 are not necessarilyindicative of the results that may be expected for the year endingDecember 31, 2009.  The consolidatedfinancial statements include the assets and liabilities of the Partnership andits wholly-owned subsidiaries.  Allsignificant intercompany balances and transactions have been eliminated inconsolidation. Investments in 50% or less owned affiliated companies, in whichthe Partnership exercises significant influence, but is not the primarybeneficiary, are accounted for by the equity method.

 

The consolidated balancesheet as of December 31, 2008 has been derived from the audited financialstatements at that date, but does not include all of the information andfootnotes required by generally accepted accounting principles for completefinancial statements.

 

For further information,refer to the consolidated financial statements and footnotes thereto includedin the Partnership’s Annual Report on Form 10-K for the year ended December 31,2008.

 

*Vessels,deferred drydocking expenditures 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 $300 per lightweight ton.

 

On June 25, 2008, thePartnership purchased the *Overseas NewOrleans* and the *OverseasPhiladelphia,* each of which had been previously operated undercapital leases. The useful lives of these vessels was determined based on theirOPA retirement dates. In the third quarter of 2008, the Partnership effected achange in estimate related to the useful lives of the *Overseas Galena Bay* and the *Overseas Puget Sound* to extend theiruseful lives to match their OPA retirement dates. As a result, depreciationexpense decreased by approximately $726,000, or $0.02 per common unit, in thequarter ended March 31, 2009.

 

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**NOTE C —NET INCOME PERLIMITED PARTNER AND GENERAL PARTNER UNIT:**

 

The Partnership adoptedthe provisions of Emerging Issues Task Force (“EITF”) Issue No. 07-4,“Application of the Two-Class Method under FASB Statement No. 128 toMaster Limited Partnerships” (“EITF no. 07-4”) effective January 1,2009.  As required by EITF 03-6,“Participating Securities and the Two-Class Method under FASB Statement No. 128,Earnings per Share” (“EITF 03-6”), the general partner’s interest in net incomeis calculated as if all net income for the period was distributed according tothe terms of the partnership agreement, regardless of whether those earnings wouldor could be distributed.  The partnershipagreement does not provide for the distribution of net income; rather, itprovides for the distribution of available cash, a contractually defined termthat generally means all cash on hand at the end of each quarter afterprovisions for certain cash requirements.

 

The general partner’sincentive distribution rights entitle it to receive an increasing percentage ofdistributions when the quarterly cash distribution exceeds $0.43125 perunit.  For purposes of EITF 03-6, thePartnership must calculate the general partner’s share of net income under theassumption that such net income was distributable.  Since net income did not exceed $0.43125 perunit for the three months ended March 31, 2009 or 2008, the Partnershipdid not use any increased percentages in calculating the general partner’sinterest in net income.  The formula fordistributing available cash as defined in the partnership agreement follows:

 
| ** **                      | ** ** | **Total Quarterly  Distribution** | ** ** | **Marginal Percentage Interest   in Distributions** | ** ** |
|---------------------------------|------------|-----------------------------------|------------|----------------------------------------------------------|------------|
| ** **                      | ** ** | **Target Amount**                 | ** ** | **Unitholders**                                          | ** ** | **General Partner** | ** ** |
| Minimum  Quarterly Distribution |       | $0.37500                          |       | 98                                                       | %          | 2 | % |
| First Target  Distribution      |       | up to $0.43125                    |       | 98                                                       | %          | 2 | % |
| Second  Target Distribution     |       | above $0.43125 up to $0.46875     |       | 85                                                       | %          | 15 | % |
| Third Target  Distribution      |       | above $0.46875 up to $0.56250     |       | 75                                                       | %          | 25 | % |
| Thereafter                      |       | above $0.56250                    |       | 50                                                       | %          | 50 | % |

 

The calculation of netincome per limited partner unit follows:

 
| ** **                                                   | ** ** | **Three Months Ended****March 31,** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------|------------|
| **In thousands, except units and  per unit amounts**         | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
| Net income                                                   |       | $                                        | 6,202      |   | $ | 3,765 |   |
| Less distributions earned:                                   |       |                                     |       |   |   |
| Distributed earnings to general partner  (2%)                |       | (230                                     | )          | (230 | ) |
| Distributed earnings to limited partners  (98%)              |       | (11,251                                  | )          | (11,250 | ) |
| Total distributed earnings                                   |       | (11,481                                  | )          | (11,480 | ) |
| Undistributed (overdistributed) earnings                     |       | $                                        | (5,279     | ) | $ | (7,715 | ) |
|                                                         |       |                                     |       |   |   |
| Limited partners’ basic and diluted  earnings per unit: |       |                                     |       |   |   |
| Distributed earnings per unit                                |       | $                                        | 0.37  | (1) | $ | 0.37  | (1) |
| Undistributed/(overdistributed) earnings  per unit           |       | $                                        | (0.17)     | (2) | $ | (0.25) | (2) |
| Net income per limited per unit                              |       | $                                        | 0.20       |   | $ | 0.12 |   |
|                                                         |       |                                     |       |   |   |
| Weighted average units outstanding – basic  and diluted |       | 30,004,500                               |       | 30,002,250 |   |

 

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(1)   Equal to the total distributed earnings (98%)to limited partners divided by the weighted average number of limited partnerinterests outstanding for the period.

 

(2)   Equal to the limited partners’ share (98%) ofoverdistributed earnings divided by the weighted average number of limitedpartner interest outstanding for the period.

 

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**NOTE D—ALASKA TANKER COMPANY, LLC:**

 

Inthe first quarter of 1999, OSG, BP Oil Shipping Company USA, Inc. (“BP”)and Keystone Alaska, LLC formed Alaska Tanker Company, LLC (“ATC”) to managethe vessels carrying Alaskan crude oil for BP. ATC, 37.5% of which is now ownedby the Partnership, provides marine transportation services in theenvironmentally sensitive Alaskan crude oil trade.  Each member of ATC is entitled to receive itsrespective share of any incentive charter hire payable by BP to ATC.  The Partnership is not the primarybeneficiary (as defined in FASB Interpretation 46(R) “Consolidation ofVariable Interest Entities, an Interpretation of ARB No. 51”) with regardto ATC and accounts for its 37.5% interest in ATC according to the equitymethod.  The Partnership’s share of thenet income of ATC is classified as equity in income of affiliated companies inthe accompanying statements of operations.

 

Acondensed summary of the results of operations of ATC follows:

 
| ** **                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------|------------|----------------------------------------|------------|
| **In thousands**                  | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Time charter equivalent  revenues |       | $                                      | 33,042     |   | $ | 33,644 |   |
| Ship operating expenses           |       | (31,541                                | )          | (32,062 | ) |
|                              |       | $                                      | 1,501      |   | $ | 1,582 |   |

 

**NOTE E —DERIVATIVES AND FAIR VALUE DISCLOSURES:**

 

*InterestRate Risk*

 

 The Partnership usesinterest rate swaps for the management of interest rate risk exposure.  The interest rate swaps effectively convert aportion of the Partnership’s debt from a floating to a fixed rate and aredesignated and qualify as cash flow hedges. The Partnership is a party to floating-to-fixed interest rate swaps withtwo major financial institutions covering notional amounts aggregating$30,000,000 at March 31, 2009 pursuant to which it pays fixed ratesaveraging 4.35% and receives floating rates based on three-month Londoninterbank offered rate (“LIBOR”) (approximately 1.2% as of March 31,2009). These agreements contain no leverage features and mature in 2012.

 

*Tabulardisclosure of derivatives location*

 

Derivatives are recorded inthe balance sheet on a net basis by counterparty when a legal right of setoffexists.  The following tables presentinformation with respect to the fair values of derivatives reflected in thebalance sheet on a gross basis.  Thetables also present information with respect to gains and losses on derivativepositions reflected in the statement of operations or in the balance sheet, asa component of accumulated other comprehensive income/(loss).

 

*FairValues of Derivative Instruments Designated as Hedging Instruments under FAS133:*

* *
| ** **                                                        | ** ** | **Liability Derivatives**                                        | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| **In thousands at March 31, 2009**                           | ** ** | **Balance Sheet Location**                                       | ** ** | **Amount of Loss** | ** ** |
| Interest rate swaps:                                              |       |                                                             |       |   |   |
| Current portion                                                   |       | Accounts payable, accrued expenses and other current liabilities |       | $ | 736 |   |
| Long-term portion                                                 |       | Other liabilities                                                |       | 1,996 |   |
|                                                              |       |                                                             |       |   |   |
| Total derivatives designated as hedging instruments under FAS 133 |       | $                                                                | 2,732      |   |

 

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**NOTE E —DERIVATIVES AND FAIR VALUE DISCLOSURES (continued):**

 

The effect of cash flowhedging relationships on the balance sheet as of March 31, 2009 and thestatement of operations for the three months ended March 31, 2009 are asfollows:

 
| ** **          | ** ** | **Balance Sheet**                                                                | ** ** | **Statement of Operations** | ** **       |
|---------------------|------------|----------------------------------------------------------------------------------|------------|-----------------------------|------------------|
| ** **          | ** ** | **Effective Portion**                                                            | ** ** |
| ** **          | ** ** | **Gain/(Loss) In or Reclassified from  Accumulated Other  Comprehensive Income** | ** ** |
| **In thousands**    | ** ** | ** **                                                                       | ** ** | **Location**                | ** **       | **Amount** | ** ** |
|                |       |                                                                             |       |                        |             |   |   |
| Interest rate swaps |       | $                                                                                | (2,732     | )                           | Interest expense |   | $ | (218 | ) |
| Total               |       | $                                                                                | (2,732     | )                           |             |   | $ | (218 | ) |

 

*Fair ValueHierarchy*

 

The following table presentsthe fair values for liabilities measured on a recurring basis as ofMarch 31, 2009:

 
| **In  thousands  Description** | ** ** | **Fair Value** | ** ** | **Level 2:  Significant other  observable inputs** | ** ** |
|--------------------------------|------------|----------------|------------|----------------------------------------------------|------------|
| Liabilities:                   |       |           |       |                                               |       |
| Interest rate swaps            |       | $              | 2,732      |                                               | $          | 2,732 |   |
|                                |            |                |            |                                                    |            |  |  |

** **

**NOTE F—ACCOUNTS PAYABLE AND ACCRUED EXPENSES:**

** **

Accountspayable and accrued expenses consist of the following:

 
| **In thousands**     | ** ** | **As of March 31, 2009** | ** ** | **As of December 31, 2008** | ** ** |
|----------------------|------------|-------------------------------|------------|----------------------------------|------------|
| Trade payables       |       | $                             | 1,777      |                             | $          | 2,430 |   |
| Fuel accruals        |       | 416                           |       | 1,983                            |       |
| Deferred revenues    |       | 8,083                         |       | 6,983                            |       |
| Insurance premiums   |       | 1,687                         |       | 2,796                            |       |
| Payroll and benefits |       | 3,124                         |       | 869                              |       |
| Customs and duty     |       | 2,851                         |       | 3,048                            |       |
| Interest expense     |       | 332                           |       | 327                              |       |
| Other                |       | 1,351                         |       | 846                              |       |
|                 |       | $                             | 19,621     |                             | $          | 19,282 |   |

 

**NOTE G—ADVANCES FROM AFFILIATED COMPANIES:**

** **

Advancesfrom affiliated companies represent the funding of operating expenses pursuantto the Partnership’s administrative agreement with OSGM and are non-interestbearing.  These advances are repaidmonthly.

 

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**NOTE H—LONG-TERM DEBT:**

** **

InNovember 2007, OSG America Operating Company LLC, a wholly ownedsubsidiary of the Partnership, entered into a $200,000,000, five-year,non-amortizing, Senior Secured Revolving Credit Facility with a group of banks(the “Lenders”). The facility may be extended by 24 months subject to approvalof the Lenders.  Borrowings under thisfacility bear interest at a rate equal to LIBOR plus a margin (70 basis pointsper year until the fifth anniversary of the closing date and, if the extensionoption is exercised, 75 basis points per year thereafter).  As of March 31, 2009, $35,000,000 wasoutstanding under the facility at a weighted average interest rate of 4.59%,taking into account related interest rate swaps. The Partnership has$165,000,000 available under this facility at March 31, 2009.

 

Borrowings under the SeniorSecured Revolving Credit Facility are secured by, among other things, firstpreferred mortgages on certain owned vessels, and are guaranteed by thePartnership and certain of its subsidiaries.

 

The Senior Secured RevolvingCredit Facility prevents the Partnership from declaring or making distributionsif any event of default, as defined, exists or would result from such payments.In addition, the Senior Secured Revolving Credit Facility requires thePartnership to adhere to certain financial covenants.  The Partnership was in compliance with all ofthe financial covenants contained in our debt agreements as of March 31,2009.

 

On June 25, 2008, thePartnership purchased the *Overseas NewOrleans* and the *OverseasPhiladelphia,* each of which had been previously operated undercapital leases, for a total of $30,923,000. This acquisition was funded withborrowings under the Senior Secured Revolving Credit Facility.

 

At March 31, 2009, allbut one of the Partnership’s vessels were pledged as collateral under eitherthe Senior Secured Revolving Credit Facility or various fixed-rate, amortizing,secured term loans maturing through 2014.

 

Interest paid, excludingcapitalized interest, for the three months ended March 31, 2009 and 2008amounted to $1,163,000 and $1,156,000, respectively.

 

**NOTE I—TAXES:**

 

The Partnership is not ataxable entity and does not incur a federal income tax liability.  Instead, each partner of a partnership isrequired to take into account his share of items of income, gain, loss anddeduction of the partnership in computing his federal income tax liability,regardless of whether cash distributions are made to him by thepartnership.  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.

 

**NOTE J — LEASES:**

** **

*Charters-in:*

 

As of March 31, 2009,the Partnership had commitments to bareboat charter in eight vessels fromsubsidiaries of American Shipping Company (“AMSC”) and to bareboat charter inone vessel from OSG, all of which are accounted for as operating leases or willbe once the vessels are delivered.

 

The future minimumcommitments under the bareboat charters in are as follows:

 
| **Dollars in thousands** | ** ** | **As of March 31, 2009** | ** ** |
|--------------------------|------------|-------------------------------|------------|
| 2009                     |       | $                             | 40,353     |   |
| 2010                     |       | 60,509                        |       |
| 2011                     |       | 64,331                        |       |
| 2012                     |       | 64,306                        |       |
| 2013                     |       | 64,225                        |       |
| Thereafter               |       | 88,094                        |       |
| Total                    |       | $                             | 381,818    |   |

 

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** **

**NOTE J — LEASES (continued):**

** **

Futureminimum commitments under the bareboat charter in from OSG are as follows:

 
| **Dollars in thousands** | ** ** | **As of March 31, 2009** | ** ** |
|--------------------------|------------|-------------------------------|------------|
| 2009                     |       | $                             | 3,128      |   |
| Total                    |       | $                             | 3,128      |   |

 

In June 2005, OSGsigned agreements to bareboat charter in ten Jones Act Product Tankers to beconstructed by Aker Philadelphia Shipyard, Inc. (“APSI”). The order wasincreased to 12 ships in October 2007. The bareboat charter agreements foreight such vessels were assigned to the Partnership at the time of its IPO.Following construction, APSI will sell the vessels to leasing subsidiaries ofAMSC, which will charter eight vessels to the Partnership for initial terms offive or seven years. The Partnership has extension options for the lives of thevessels. The bareboat charters provide for profit sharing with AMSC. Six ofthese vessels**have delivered fromthe shipyard as follows:

 
| **Vessel**           | ** ** | **Delivery Date** |
|----------------------|------------|------------------------|
| Overseas Houston     |       | February 2007     |
| Overseas Long Beach  |       | June 2007         |
| Overseas Los Angeles |       | November 2007     |
| Overseas New York    |       | April 2008        |
| Overseas Texas City  |       | September 2008    |
| Overseas Boston      |       | February 2009     |

 

The remaining two vesselsare scheduled to be delivered by APSI in June 2009 and June 2010. Thebareboat charters will commence upon delivery of the vessels.

 

In February 2009, AMSCand OSG signed a nonbinding agreement in principle (“Nonbinding Agreement”) toprovide for a global settlement of a number of outstanding issues between them,including, among other things, settlement of the arbitration.  Implementation of the Nonbinding Agreement issubject to negotiation and signing of definitive agreements and certain otherconditions.  The Nonbinding Agreementcontains a number of provisions materially altering the prior agreementsbetween the parties. No assurance can be given that the Partnership, OSG andAMSC will enter into definitive agreements and satisfy the required conditionsto implement the Nonbinding Agreement.

 

*Charters-out:*

** **

The future minimum revenues,before reduction for brokerage commissions, expected to be received onnoncancelable time charters are as follows:

 
| **Dollars in thousands** | ** ** | **As of March 2009** | ** ** |
|------------------------------------|------------|-------------------------------------|------------|
| 2009                               |       | $                                   | 131,544    |   |
| 2010                               |       | 137,108                             |       |
| 2011                               |       | 108,546                             |       |
| 2012                               |       | 65,080                              |       |
| 2013                               |       | 43,987                              |       |
| Thereafter                         |       | 24,393                              |       |
| Total                              |       | $                                   | 510,658    |   |

 

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**NOTE J — LEASES (continued):**

** **

The future minimum revenuesexpected to be received on time charters out to OSG are as follows:

 
| **Dollars in thousands** | ** ** | **As of March 31, 2009** | ** ** |
|--------------------------|------------|-------------------------------|------------|
| 2009                     |       | $                             | 27,020     |   |
| Total                    |       | $                             | 27,020     |   |

 

Revenues from time chartersare not received when vessels are off-hire, which includes time required fornormal periodic maintenance. In arriving at the minimum future charterrevenues, an estimate of off-hire has been deducted.

 

**NOTE K —VESSELS:**

 

On March 13, 2009, thePartnership canceled the contract with Bender Shipbuilding & RepairCo., Inc., for the construction of two 8,000 horsepower tug boats to benamed *OSG Courageous* and *OSG Endurance* because of repeated deliverydelays, Bender’s request for substantial price increases to completeconstruction, and the Partnership’s concern about Bender’s financial viability.

 

By the terms of thetermination agreement, the Partnership received title to the tugs. ThePartnership has agreed to pay Bender for the costs associated with positioningthe tugs for transportation to an alternative shipyard.  In addition, the Partnership has agreed topay certain vendors for work already performed and to assume certain specifiedobligations related to material ordered to complete the units. No agreement yetexists with an alternative yard. The tugs will not be ready to be moved untilthe second half of May. The Partnership estimates that the future cost tocomplete the units is approximately $28,000,000.

 

**NOTE L —IMPAIRMENT OF VESSEL:**

 

Duringthe third quarter of 2008, the Partnership decided to forego the scheduleddrydocking of one of the older product carriers, which was a requirement forher to continue operating.  The vesselceased operations and was placed in lay-up during the fourth quarter of2008.  Accordingly, the Partnershiprecorded a charge of $19,319,000 in the third quarter of 2008 and $1,783,000 inthe fourth quarter of 2008 to write down the vessel’s carrying amount to herestimated net fair value as of December 31, 2008. This vessel has beenclassified as held for sale at March 31, 2009 and December 31, 2008.

 

**NOTE M —RELATED PARTY TRANSACTIONS:**

 

Effective April 1,2008, the Partnership entered into time charter agreements to charter out fivevessels to OSG (two ATBs, the *OSG 242/OSGColumbia* and the *OSG 243/OSGIndependence*, and three product carriers, the *Overseas New Orleans,* the *OverseasPhiladelphia* and *Overseas PugetSound).*  All five of thesecharter-out agreements are at fixed daily rates for terms commencing either onApril 1, 2008 or upon the expiry of such vessel’s then current charter andending on or about December 31, 2009. The charter out of the Overseas Philadelphia to OSG has not startedbecause the then-current charter was extended.

 
| **Vessel**               | ** ** | **Start Date**  |
|--------------------------|------------|----------------------|
| OSG 242/OSG Columbia     |       | April 1,  2008  |
| Overseas New Orleans     |       | April 1,  2008  |
| OSG 243/OSG Independence |       | April 24,  2008 |
| Overseas Puget Sound     |       | March 3,  2009  |
| Overseas Philadelphia    |       | N/A                  |

 

At the time of theagreement, management believed that the fixed daily rates in the charter outagreements were at rates that approximated market rates.

 

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**NOTE M —RELATED PARTY TRANSACTIONS (continued):**

 

OSG, as the charterer, hasthe option, after consultation with the Partnership, to require the Partnershipto lay up the vessels at a safe place nominated by OSG, in which case the hireto be paid under this charter is to be adjusted to reflect any net increases inexpenditure reasonably incurred or any net saving realized by the Partnershipas a result of such lay up.  OSG mayexercise this option any number of times during the charter period.  In March 2009, OSG exercised its rightto request that the Partnership lay up the Overseas Puget Sound.

 

Effective April 1,2008, the Partnership entered into time charter agreements with OSG for thecharter in at fixed daily rates of the *M300*/*Liberty* and the *OSG 400/OSG Constitution*, two ATBs working in the DelawareBay lightering business.  Simultaneously,OSG assigned the Contracts of Affreightment on these two ATBs to thePartnership.  On October 10, 2008,the Partnership converted the time charter in agreement with OSG on the *OSG 400/OSG Constitution* to a bareboatcharter in agreement. The bareboat charter commenced with the completion of the*OSG Constitution’s* shipyard period onNovember 22, 2008. The term of the bareboat charter ends December 31, 2009.In December 2008, the *M300/Liberty’s*time charter agreement with OSG ended.

 

**NOTE N —SEVERANCE AND RELOCATION COSTS:**

 

During the quarter endedMarch 31, 2009, OSGM entered into agreements in connection with thetermination of certain Tampa-based employees dedicated to providing commercial,technical, and administrative services to the Partnership, including one of itssenior officers. The agreements provide for payments aggregating approximately$1,500,000 to be made in accordance with OSG’s amended and restated SeveranceProtection Plan, which was effective January 1, 2009.  The Partnership recognized the expense in thefirst quarter of 2009.

 

In addition, OSGM recognizedapproximately $500,000 of relocation expense related to certain employees whohave agreed as of March 31, 2009 to move to the Tampa, Florida office.

 

**NOTE O —SUBSEQUENT EVENTS:**

 

On April 27, 2009, theBoard of Directors of OSG America LLC, declared a quarterly distribution to allunitholders in the amount of $0.375 per unit for the three months endedMarch 31, 2009.  The distribution ofapproximately $11,500,000 will be paid on May 15, 2009 to unitholders ofrecord on May 8, 2009.

 

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**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

**Overview**

 

We are the largest operator, based on barrel-carrying capacity, of U.S.flag vessels transporting refined petroleum products. We were formed in May 2007by Overseas Shipholding Group, Inc. (OSG) a market leader in providingglobal energy transportation services, to acquire a fleet of U.S. Flag vesselsfrom OSG.

 

On November 15, 2007, upon completion of our initial publicoffering, OSG contributed to us entities owning or operating a fleet of tenproduct carriers, seven articulated tug barges (“ATBs”) and one conventionaltug/barge unit, with an aggregate carrying capacity of approximately 4.9million barrels, as well as a 37.5% ownership interest in Alaska TankerCompany, LLC, (“ATC”) a joint venture that transports crude oil from Alaska tothe continental United States using a fleet of four modern crude-oil tankers.In exchange for its contribution, OSG received common and subordinated unitsrepresenting a 73.5% interest in us. Through an open-market purchase of units by OSG in 2008, that percentageincreased.  As of March 31, 2009,OSG owned a 77.1% interest in us, including a 2% interest through our generalpartner, which OSG wholly owns and controls. Our membership interests in ouroperating subsidiaries represent our only cash-generating assets.

 

Our market is protected from direct foreign competition by the MerchantMarine Act of 1920 (“Jones Act”), which mandates that all vessels transportingcargo between U.S. ports must be built in the United States, registered underthe U.S. flag, manned by U.S. crews and owned and operated by U.S. organizedcompanies that are controlled and at least 75% owned by U.S. citizens. Twentyof the twenty-two vessels in our operating fleet at March 31, 2009 areoperated in the U.S. coastwise trade in accordance with the Jones Act.

 

In June 2005, OSG signed agreements to bareboat charter-in tenJones Act product carriers from subsidiaries of American Shipping Company (“AMSC”).In February 2007, OSG agreed in principle to charter up to six additionalJones Act product carriers from AMSC, which eventually resulted in OSGconcluding agreements to charter two vessels. The charters on eight of thesetwelve vessels have been assigned to us by OSG, and we have options to acquirefrom OSG the charters on the remaining four vessels. We have committed tocharter five of the eight vessels for initial terms of seven years and theother three vessels for initial terms of five years. We have extension optionsfor the remaining lives of these vessels. Six of these vessels have deliveredfrom the shipyard as follows:

 
| **Vessel**           | ** ** | **Delivery Date** |
|----------------------|------------|------------------------|
| Overseas Houston     |       | February 2007     |
| Overseas Long Beach  |       | June 2007         |
| Overseas Los Angeles |       | November 2007     |
| Overseas New York    |       | April 2008        |
| Overseas Texas City  |       | September 2008    |
| Overseas Boston      |       | February 2009     |

 

The remaining two vessels that we have committed to bareboat charter inare scheduled to be delivered from the shipyard in June 2009 and June 2010.

 

We have options topurchase from OSG up to two ATBs currently under construction, which weestimate will be delivered by the yard to OSG in November 2009 and June 2010.We also have options to acquire from OSG the right to bareboat charter in fourof the remaining vessels from AMSC, which are to be completed by AkerPhiladelphia Shipyard Inc., between late 2009 and early 2011.

 

OnJune 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$30.9 million. This acquisition was funded with borrowings under our senior secured revolving credit facility.

 

In February 2009,AMSC and OSG signed a nonbinding agreement in principle (“Nonbinding Agreement”)to provide for a global settlement of a number of outstanding issues betweenthem, including, among other things, settlement of the arbitration describedherein.  Implementation of the NonbindingAgreement is subject to negotiation and signing of definitive agreements andcertain other conditions.  The NonbindingAgreement contains a number of provisions materially altering the prioragreements between the parties. No assurance can be given that we, OSG and AMSCwill enter into definitive agreements and satisfy the required conditions toimplement the Nonbinding Agreement.

 

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**Updateon Critical Accounting Policies**

 

Our financial statementshave been prepared in accordance with accounting principles generally acceptedin the United States (“U.S. GAAP”), which require us to make estimates in theapplication of our accounting policies based on the best assumptions, judgmentsand opinions of management. For a description of all of our material accountingpolicies, see Note B to our consolidated financial statements included in ourAnnual Report on Form 10-K for the year ended December 31, 2008.

 

***Vessel Lives and Impairment***

 

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.

 

The carrying values of our vessels may not represent the fair marketvalue at any point in time since the market prices of second-hand vessels tendto fluctuate with changes in charter rates and the cost of newbuildings.  Historically, both charter rates and vesselvalues tend to be cyclical. We record impairment losses only when events occurthat cause us to believe that the future cash flows for any individual vesselwill be less than its carrying value. The carrying amounts of vessels held andused are reviewed for potential impairment whenever events or changes incircumstances indicate that the carrying amount of a particular vessel may notbe fully recoverable.  In such instances,an impairment charge would be recognized if the estimate of the future cashflows expected to result from the use of the vessel and its eventualdisposition is less than the vessel’s carrying amount.  This assessment is made at the individualvessel level since separately identifiable cash flow information for eachvessel is available.

 

In developing estimates of future cash flows, we must make assumptionsabout future charter rates, ship operating expenses, and the estimatedremaining useful lives of the vessels. These assumptions are based on historical trends as well as futureexpectations.  Although managementbelieves that the assumptions used to evaluate potential impairment arereasonable and appropriate, such assumptions are highly subjective.

 

During the third quarter of 2008, we decided to forego the scheduleddrydocking of one of our older product carriers, which is a requirement for herto continue operating.  The vessel ceasedoperations and was placed in lay up during the fourth quarter of 2008.Accordingly, we recorded impairment charges aggregating $21.1 million to writedown the carrying amount of this vessel to her estimated net fair value as of December 31,2008. We have classified this vessel as held for sale at March 31, 2009and December 31, 2008.

 

OnJune 25, 2008, the Partnership purchased the *Overseas NewOrleans* and the *Overseas Philadelphia,*each of which had been previously operated under capital leases. The usefullives of these vessels were determined based on their OPA retirement dates. Inthe third quarter of 2008, the Partnership effected a change in estimaterelated to the useful lives of the Overseas Galena Bay and the Overseas PugetSound to extend their useful lives to match their OPA retirement dates. As aresult, depreciation expense decreased by approximately $0.7 million in thequarter ended March 31, 2009.

 

***Industry Overview***

* *

The table below shows thedaily TCE rates that prevailed in markets in which our vessels operated for theperiods indicated. It is important to note that the spot market is quoted in ARrates. AR is a list of freight rates for specific voyage itineraries for astandard size vessel, as defined.  Theconversion of AR rates to the following TCE rates required us to make certainassumptions as to brokerage commissions, port time, port costs, speed and fuelconsumption, all of which will vary in actual usage. In each case, the ratesmay differ from the actual TCE rates achieved by us in the period indicatedbecause of the actual length of voyages, waiting time between voyages, and theportion 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  March 31,**                                                                  | ** ** |
| ** **                   | ** ** | **2009**                                                                                                | ** ** | **2008** | ** ** |
| 45,000 dwt  Product Carriers |       | $                                                                                                       | 46,600     |   | $ | 51,000 |   |
| 30,000 dwt ATBs              |       | $                                                                                                       | 30,500     |   | $ | 31,500 |   |

 

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Spot-market TCE rates forJones Act Product Carriers averaged $46,600 per day during the first quarter of2009, down approximately 9% from both the first and fourth quarters of2008.  Rates for ATBs averaged $30,500per day during the first quarter of 2009, down 3% from both the first andfourth quarters of 2008.

 

Inresponse to weaker demand for refined petroleum products, U.S. Gulf Coastrefinery utilization rates fell to 81.4% in the first quarter of 2009 from83.7% during the first quarter of 2008. This development limited the quantity of products available for seabornemovements from the Gulf Coast region and resulted in an increase in waiting time,adversely impacting Product Carrier rates.

 

The Delaware Bay lightering business transported anaverage of 194,000 barrels per day during the first quarter of 2009, which wasapproximately 27% below both the first quarter and fourth quarter levels of2008.  The lower lightering volumes reflectedthe planned maintenance at Valero’s Delaware City refinery and reduced refineryruns at other East Coast refineries.

 

Two new vessels, including our newly built tanker, the *OverseasBoston*, were delivered during the first quarter of 2009, and three tankerswere eliminated, including our tanker, the *Overseas Integrity*.As of March 31, 2009, the total Jones Act Product Carrier fleet of ATBsand ITBs tankers in the 160,000 to 420,000 barrel size range, consisted of 64vessels, or 2.84 million dwt.  The Jones Act Product Carrier orderbookat March 31, 2009 consisted of 24 tankers and barges totaling 1.0 milliondwt, which are scheduled for delivery between 2009 and 2013. These additionswill be partially offset by 13 tanker deletions totaling 784 thousand dwtbetween 2011 and 2014 as required by OPA 90 regulations.

 

Freight rates remain highly sensitive to severeweather and geopolitical events. Hurricanes in the Gulf of Mexico could have a pronounced effect onfreight rates for both crude oil and product movements depending on the extentto which upstream and downstream facilities are affected.

 

***Income from Vessel Operations***

* *

*TimeCharter Equivalent Revenues*

 

The following table reconciles TCE revenues to shipping revenues, asreported in the consolidated statements of operations:

 
| ** **         | ** ** | **Three Months Ended****March 31,** | ** ** |
|--------------------|------------|------------------------------------------|------------|
| **In thousands**   | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
| TCE Revenues       |       | $                                        | 67,460     |   | $ | 52,393 |   |
| Voyage Expenses    |       | 6,648                                    |       | 10,639 |   |
| Shipping  Revenues |       | $                                        | 74,108     |   | $ | 63,032 |   |

 

Consistent with general practice in the shipping industry, we use TCErevenues, which represent shipping revenues less voyage expenses, as a measureto compare revenues generated from voyage charters to revenues generated fromtime charters. TCE revenues, a non-U.S. GAAP measure, provides additionalmeaningful information in conjunction with shipping revenues, the most directlycomparable U.S. GAAP measure, because it assists management in making decisionsregarding the deployment and use of our vessels and in evaluating theirfinancial performance.

 

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The following table provides information with respect to average dailyTCE rates earned and revenue days for the three months ended March 31,2009 and 2008:

 
| ** **                      | ** ** | **Three Months Ended****March 31,** | ** ** |
|---------------------------------|------------|------------------------------------------|------------|
| ** **                      | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
| Revenue Days:                   |       |                                     |       |   |   |
| Jones Act ATBs                  |       | 791                                      |       | 595 |   |
| Jones Act  Product Carriers     |       | 928                                      |       | 808 |   |
| Non-Jones Act  Product Carriers |       | 180                                      |       | 145 |   |
|                            |       | 1,899                                    |       | 1,548 |   |
|                            |       |                                     |       |   |   |
| Average Daily  TCE Rates:       |       |                                     |       |   |   |
| Jones Act ATBs                  |       | $                                        | 31,118     |   | $ | 32,235 |   |
| Jones Act  Product Carriers     |       | $                                        | 39,406     |   | $ | 34,411 |   |
| Non-Jones Act  Product Carriers |       | $                                        | 34,872     |   | $ | 37,303 |   |

 

Effective April 1, 2008, we entered into timecharter agreements with OSG for the charter in of the *M300/Liberty*and the *OSG 400/OSG Constitution*, two ATBsworking in the Delaware Bay lightering business, at fixed daily rates.  Simultaneously, OSG assigned the contracts ofaffreightment on these two ATBs to us. On October 10, 2008, we converted the time-charter in agreementwith OSG on the *OSG 400/OSGConstitution* to abareboat charter-in agreement. The bareboat charter commenced with thecompletion of the*OSG Constitution’s* shipyardperiod on November 22, 2008. The term of the bareboat charter ends December31, 2009.  In December 2008, the *M300/Liberty’s* time charter agreement with OSG ended.

 

TCE revenues increased $15.1 million, or 29%, from $52.4 million forthe three months ended March 31, 2008 to $67.5 million for the threemonths ended March 31, 2009.The increase in TCE revenues resulted primarily from a net increase of 351revenue days in the three months ended March 31,2009 compared with the same period in 2008. These additional days wereattributable to the delivery of the *Overseas New York,Overseas Texas City* and the *Overseas Boston*in April 2008, September 2008, and February 2009, respectively,which added 213 revenue days in the first quarter of 2009 compared with thesame quarter in 2008.  The *OSG 243* re-entered service on April 24, 2008 after completingher double hull conversion,  adding 90revenue days in the three months ended March 31, 2009.  The addition of the *OSG 400/OSGConstitution* charter contract, added 79 revenue days to the threemonths ended March 31, 2009 compared with the same period in 2008.  Partially offsetting these increases was the *Overseas Integrity*, which ceased operating in the forthquarter of 2008 resulting in a decrease of 91 revenue days for the three monthsended March 31, 2009 compared with the three months ended March 31,2008.

 

*VesselExpenses*

 

The following table provides information with respect to average dailyvessel expenses and operating days for the three months ended March 31, 2009 and 2008:

 
| ** **                      | ** ** | **Three Months Ended****March 31,** | ** ** |
|---------------------------------|------------|----------------------------------------------------|------------|
| ** **                      | ** ** | **2009**                                           | ** ** | **2008** | ** ** |
| Operating Days:                 |       |                                               |       |   |   |
| Jones Act ATBs                  |       | 810                                                |       | 728 |   |
| Jones Act  Product Carriers     |       | 941                                                |       | 819 |   |
| Non-Jones Act  Product Carriers |       | 180                                                |       | 182 |   |
|                            |       | 1,931                                              |       | 1,729 |   |
|                            |       |                                               |       |   |   |
| Average Daily  Vessel Expenses: |       |                                               |       |   |   |
| Jones Act ATBs                  |       | $                                                  | 9,704      |   | $ | 7,610 |   |
| Jones Act  Product Carriers     |       | $                                                  | 18,206     |   | $ | 17,270 |   |
| Non-Jones Act  Product Carriers |       | $                                                  | 8,067      |   | $ | 15,110 |   |

 

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Vessel expenses increased $4.0 million, or 18%, from $22.4 million forthe three months ended March 31, 2008 to $26.4 million for the threemonths ended March 31, 2009.  Theincrease in vessel expenses resulted primarily from a net increase of 202operating days in the three months ended March 31,2009 compared with the same period in 2008. These additional days wereattributable to the delivery of the *OverseasNew York, Overseas Texas City,*and the*Overseas Boston*, whichadded 220 operating days and $3.7 million in 2009 compared with the same periodin 2008, and the operation of the *OSG 400/OSG Constitution*,which added 90 days.  Expense increaseswere  partially offset by the *Overseas Integrity*, which ceased operations during thefourth quarter of 2008.

 

Non-Jones Act Product Carriers vessel expenses for the three monthsended March 31, 2009 decreased compared with the same 2008 period as aresult of a retroactive increase in the subsidy received under the MSP program,lower crew costs and stores and spares expenses and the reversal of a reservefor a custome duty that is no longer required.

 

*CharterHire Expenses*

 

Charter hire expenses increased $6.9 million from $6.7 million for thethree months ended March 31, 2008 to $13.6 million for the three monthsended March 31, 2009.  Deliveries ofthe *Overseas New York, Overseas Texas City*and the*Overseas Boston* resulted in additional charter hire expensein the three months ended March 31, 2009. In addition, we recognized $0.9 million of charter hire expense in thethree months ended March 31, 2009 as a result of chartering in the *OSG 400/OSG Constitution* from OSG.

 

*Depreciationand Amortization*

 

Depreciation andamortization decreased $0.4 million, or 3%, from $13.0 million for the threemonths ended March 31, 2008 to $12.6 million for the three months ended March 31,2009.  The decrease was primarily due tothe extension of the useful lives ofour single hull tankers to match their OPA retirement dates in the secondquarter of 2008, partially offset by increased amortization of costsincurred on the eight vessels that completed drydockings in 2008.

 

*Generaland Administrative Expenses and Severance and Relocation Costs*

 

General andadministrative expenses excluding severance and relocation expenses, was $5.9million for the three months ended March 31, 2009,  unchanged from the three months ended March 31,2008.  During the quarter ended March 31,2009, OSGM restructured, terminating certain employees, including one of itssenior officers and relocating others. The Partnership recorded accrualsaggregating $1.5 million for payments to be made in accordance with OSG’sSeverance Protection Plan, and approximately $0.5 million for relocationexpenses related to certain employees who have agreed as of March 31, 2009to move to the Tampa, Florida office.

 

*Equity in Income of Affiliated Companies*

* *

On a quarterly basis, we recognize our share of theestimated incentive charter hire that has been deemed earned through thereporting date that is not reversible subsequent thereto.  ATC fully distributes its net income for eachyear by making a distribution in the first quarter of the following year.  The portion of incentive hire that is basedon annual targets is not recognized until the fourth quarter when deemedearned.

 

*Interest Expense*

* *

Interest expense of $1.25million for the three months ended March 31, 2009 decreased $0.01 millioncompared with the three months ended March 31, 2008.  Interest capitalized in connection with vessel construction totaled $0.1 millionand $0.4 million for the three months ended March 31, 2009 and 2008,respectively.  In June 2008, the Partnership purchased the *Overseas NewOrleans* and the *Overseas Philadelphia,*which had been previously operated under capital leases, for a total of $30.9million. This acquisition was funded with borrowings under the Senior SecuredRevolving Credit Facility resulting in lower interest expense in the threemonths ended March 31, 2009 compared with the same period in 2008.

 

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** **

**EBITDA**

 

EBITDA represents net income plus interest expense, provision forincome taxes, and depreciation and amortization expense. EBITDA is presented toprovide investors with meaningful additional information that management usesto monitor ongoing operating results and evaluate trends over comparativeperiods.

 

EBITDA assists managementand investors by increasing the comparability of our fundamental performancefrom period to period and against the fundamental performance of othercompanies in our industry that provide EBITDA information. This increasedcomparability is achieved by excluding the potentially disparate effectsbetween periods or companies of interest expense, taxes, depreciation or amortization,which items may significantly affect net income between periods and areaffected by various and possibly changing financing methods, capital structureand historical cost basis. We believe that including EBITDA as a financial andoperating measure benefits investors in (a) selecting between investing inus and other investment alternatives and (b) monitoring our ongoingfinancial and operational strength and health in assessing whether to continueto hold common units.

 

EBITDA allows us toassess the ability of assets to generate cash sufficient to service debt, makedistributions and undertake capital expenditures. By eliminating the cash floweffect resulting from our existing capitalization and other items such asdrydocking expenditures and working capital changes (which may varysignificantly from period to period), EBITDA provides a consistent measure ofour ability to generate cash over the long term. Management uses thisinformation as a significant factor in determining (a) our propercapitalization (including assessing how much debt to incur and whether changesto the capitalization should be made) and (b) whether to undertakematerial capital expenditures and how to finance them, all in light of existingcash distribution commitments to unitholders. Use of EBITDA as a liquiditymeasure also permits investors to assess our fundamental ability to generatecash sufficient to meet cash needs, including distributions on our commonunits.

 

EBITDA should not be considered as a substitute for net income, cashflow from operating activities prepared in accordance with accountingprinciples generally accepted in the United States or as a measure ofprofitability or liquidity.  While EBITDAis frequently used as a measure of operating results and performance, it is notnecessarily comparable to other similarly titled captions of other companiesdue to differences in methods of calculation.

 

The following table reconciles net income, as reflected in ourstatements of operations, to EBITDA:

 
| ** **                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------|------------|----------------------------------------|------------|
| **In thousands**               | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Net income                     |       | $                                      | 6,202      |   | $ | 3,765 |   |
| Interest expense               |       | 1,251                                  |       | 1,264 |   |
| Depreciation and  amortization |       | 12,594                                 |       | 13,021 |   |
| EBITDA                         |       | $                                      | 20,047     |   | $ | 18,050 |   |

 

The following table reconciles net cash provided by operating activities,as reflected in our statements of cash flows, to EBITDA:

 
| ** **                                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|
| **In thousands**                                  | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Net cash  provided by operating activities        |       | $                                      | 29,410     |   | $ | 17,150 |   |
| Payments for  drydocking                          |       | 76                                     |       | 9,139 |   |
| Interest expense                                  |       | 1,251                                  |       | 1,264 |   |
| Undistributed  earnings from affiliated companies |       | (4,781                                 | )          | (5,151 | ) |
| Changes in  operating assets and liabilities      |       | (5,278                                 | )          | (4,027 | ) |
| Other                                             |       | (631                                   | )          | (325 | ) |
| EBITDA                                            |       | $                                      | 20,047     |   | $ | 18,050 |   |

 

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***Liquidity and Sources of Capital***

* *

Working capital at March 31, 2009 was (0.1) million compared with$5.3 million at December 31, 2008. We operate in a capital intensiveindustry. In addition to distributions on our partnership units, our primaryliquidity requirements relate to our operating expenses, including paymentsunder our management and administrative services agreements, drydockingexpenditures, payments of interest and principal under our senior securedrevolving credit facility and secured term loans. Our long-term liquidity needsprimarily relate to capital expenditures for the purchase or construction ofvessels.

 

The amount of available cash we need to pay the minimum quarterlydistributions for four quarters on our common units, subordinated units andgeneral partner interest is $45.9 million. There is no guarantee that we willpay the minimum quarterly distribution on our common and subordinated units inany quarter and we will be prohibited from making any distributions tounitholders if it would cause an event of default, or an event of defaultexists, under our Senior Secured Revolving Credit Facility.

 

We were in compliance with all of the financialcovenants contained in our debt agreements as of March 31, 2009.  The Senior Secured Revolving Credit Facilitywill prevent us from declaring or making distributions if any event of default,as defined in the Senior Secured Revolving Credit agreement, exists or wouldresult from such payments. In addition, the Senior Secured Revolving CreditFacility imposes certain operating restrictions and requires us to adhere tocertain minimum financial covenants. Our failure to comply with any of thecovenants in the agreements could result in a default, which would permitlenders to accelerate the maturity of the debt and to foreclose upon collateralsecuring the debt. Under those circumstances, we might not have sufficientfunds or other resources to satisfy our remaining obligations.

 

We anticipate that our primary sources of funds for our short-termliquidity needs will be cash flows from operations. We believe that cash flowsfrom operations and bank borrowings from our Senior Secured Revolving CreditFacility referred to below will be sufficient to meet our existing short-termliquidity needs for the next 12 months.

 

In November 2007, we entered into a $200 million five-year SeniorSecured Revolving Credit Facility. Borrowings under this facility bear interest at a rate based on LIBOR.The facility may be extended by 24 months subject to approval by lenders. As ofMarch 31, 2009, $35.0 million was outstanding under the facility.

 

*Cash Flows*

 

*Operating  cash flows.*  Net cash flowprovided by operating activities was $29.4 million and $17.1 million forthe three months ended March 31, 2009 and 2008, respectively. The increaseof $12.3 million was primarily attributable to higher operating earnings, adecrease in payments for drydocking, and the increase in net operating assetsand liabilities compared with the same period in 2008.

 

Net cash flow from operating activities depends upon the timing andamount of drydocking expenditures, repairs and maintenance activity, changes ininterest rates, fluctuations in working capital balances and spot marketfreight rates. The number of vessel drydockings varies from year to year.

 

*Investingcash flows.*  Net cash used in investing activities was$3.1 million and $13.0 million for the three months ended March 31, 2009and 2008, respectively. Investing activities for the three months ended March 31,2009 primarily related to start-up costs associated with the AMSC tankers.  Investing activities for the same period in2008 related primarily to the double hulling of one barge (*OSG 243*)and progress payments for the two new tugs under construction.

 

*Financingcash flows.* Netcash used in financing activities was $25.0 million for the three months ended March 31,2009 compared with cash provided by financing activities of $8.3 million forthe three months ended March 31, 2008. During the three months ended March 31, 2009, we repaid $10.0million that had been borrowed under the Senior Secured Revolving CreditFacility compared with borrowing $15.0 million under this facility in the sameperiod of 2008.  Repayments of debtrepresent regularly scheduled installments under secured term loans, and in2008, capital lease obligations. Distributions to unitholders during the three months ended March 31,2009 and 2008 were $11.5 million and $5.7 million, respectively, with theamount paid in the first quarter of 2008 being for the partial period from thedate of our IPO (November 15, 2007) until December 31, 2007.

 

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*Ongoing Capital Expenditures*

 

Marine transportation of crude oil and refined petroleum products is acapital-intensive business, which requires significant investment to maintainan efficient fleet and stay in regulatory compliance.

 

Over the next three years, we estimate that we will spend an average ofapproximately $10 to $20 million per year for drydocking and classificationsociety surveys. We drydock our vessels twice in every five-year period and, asour fleet matures and expands, our drydocking expenses will likely increase.Ongoing costs for compliance with environmental regulations are primarilyincluded as part of our drydocking and classification society survey costs orare a component of our operating expenses. In addition, vessels may have to bedrydocked in the event of accidents or other unforeseen damage. Periodically,we also incur expenditures to acquire or construct additional product carriersand barges and/or to upgrade vessels in order to comply with statutoryregulations. We are not aware of any regulatory changes or environmentalliabilities that will have a material impact on our current or futureoperations.

 

We believe that our cash flow from charters out will be sufficient tocover the interest and principal payments under our debt agreements, amountsdue under the administrative services and management agreements, other generaland administrative expenses and other working capital requirements for theshort and medium term. To the extent we pursue other vessel acquisitions, weexpect to finance any such commitments from existing long-term creditfacilities and additional long-term debt as required. The amounts of workingcapital and cash generated from operations that may, in the future, be utilizedto finance vessel commitments are dependent on the rates at which we cancharter out our vessels. Such charter rates are volatile.

 

Because we distribute allof our available cash, we may not grow as fast as companies that reinvest theiravailable cash. We expect that we will rely upon external financing sources,including bank borrowings and the issuance of debt and equity securities, tofund acquisitions and expansion capital expenditures. As a result, to theextent we are unable to finance growth externally, our cash distribution policywill significantly impair our ability to grow. To the extent we issueadditional units in connection with any acquisitions or expansion capitalexpenditures, the payment of distributions on those additional units mayincrease the risk that we will be unable to maintain or increase our per unitdistribution level, which in turn may affect the available cash that we have todistribute on each unit. Our partnership agreement does not limit our abilityto issue additional units, including units ranking senior to our common units.The incurrence of additional debt by us or our operating subsidiaries wouldresult in increased interest expense, which in turn may also affect theavailable cash that we have to distribute to our unitholders.

 

*AggregateContractual Obligations*

 

A summary of our long-term contractual obligations as of March 31,2009 follows:

 
| **In  thousands**                                                | ** ** | **Balance  of  2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **Beyond  2013** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|------------------|------------|-----------|------------|
| Long-term debt  (1)                                              |       | $                     | 5,409      |     | $          | 7,136    |       | $        | 7,136      |     | $          | 42,007           |       | $         | 18,574     |   | $ | 16,465 |   | $ | 96,727 |   |
| Operating lease  obligations (chartered-in vessels) (2)          |       | 40,353                |       | 60,509   |       | 64,331   |       | 64,306   |       | 64,225   |       | 88,094           |       | 381,818   |       |
| Operating lease  obligations with OSG (chartered-in vessels) (3) |       | 3,128                 |       | —   |       | —   |       | —   |       | —   |       | —           |       | 3,128     |       |
| Construction  installments (4)                                   |       | 19,000                |       | 9,000    |       | —   |       | —   |       | —   |       | —           |       | 28,000    |       |
| Total                                                            |       | $                     | 67,890     |     | $          | 76,645   |       | $        | 71,467     |     | $          | 106,313          |       | $         | 82,799     |   | $ | 104,559 |   | $ | 509,673 |   |

 

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(1)          Amounts shown includecontractual interest obligations.  Theinterest obligations for floating rate debt of $35,000,000 as of March 31,2009, have been estimated based on the fixed rates stated in relatedfloating-to-fixed interest rate swaps, where applicable, or the three monthLIBOR rate at March 31, 2009 of 1.2%. We are party to floating-to-fixed interest rate swaps covering notionalamounts aggregating approximately $30,000,000 at March 31, 2009 thateffectively convert our interest rate exposure from a floating rate based onLIBOR to an average fixed rate of 4.35%.

 

(2)          As of March 31, 2009, wehad charter-in commitments for eight vessels on leases that are accounted foras operating leases, or will be once the vessels are delivered,  These leases provide us with various renewaloptions.

 

(3)          Represents charter-incommitment for one vessel on charter from OSG.

 

(4)          Represents the estimated costto complete the construction of two 8,000 horsepower tug boats previously underconstruction at Bender Shipbuilding & Repair for which the contractwas terminated March 13, 2009.

 

The Partnership has used interest rate swaps to convert a portion ofits debt from a floating rate to a fixed rated based on management’sinterest-rate outlook at various times. These agreements contain no leverage features and mature in 2012.

 

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*Senior Secured Revolving Credit Facility*

 

On November 15, 2007, our wholly owned subsidiary OSG AmericaOperating Company LLC, entered into a $200 million Senior Secured RevolvingCredit Facility.  As of March 31,2009, $35.0 million was outstanding under the facility, at a weighted averageinterest rate of 4.59% taking into account $30 million of related interest rateswaps.  The amount available under thisfacility at March 31, 2009 was $165.0 million.

 

Borrowings under the Senior Secured Revolving Credit Facility are dueand payable five years after the date that the facility agreement was signed(the “closing date”), subject to a 24-month extension period which may berequested by us on or after the second anniversary of the closing date andwhich may be approved by the lenders. Drawings under the facility are availableon a revolving basis until the earlier of one month prior to the applicablematurity date or the date on which the facility is permanently reduced to zeroand the lenders are no longer required to make advances.

 

Borrowings under the Senior Secured Revolving Credit Facility aresecured by first preferred mortgages on certain owned vessels, and are guaranteedby the Partnership.

 

OSG America Operating Company LLC may, at its option, prepay all loansunder our senior secured revolving credit facility at any time without penalty(other than customary breakage costs). The outstanding loans under the Senior Secured Revolving Credit Facilitybear interest at a rate equal to LIBOR plus a margin (70 basis points per yearuntil the fifth anniversary of the closing date and, if the extension option isexercised, 75 basis points per year thereafter).

 

The Senior Secured Revolving Credit Facility prevents us from declaring ormaking distributions if any event of default, as defined in the senior securedrevolving credit agreement, exists or would result from such payments. Inaddition, the Senior Secured Revolving Credit Facility requires us to adhere tocertain financial covenants.

 

*Off Balance Sheet Arrangements*

 

We do not currently haveany liabilities, contingent or otherwise, that we consider to be off balancesheet arrangements.

 

**ITEM 3.          QUALITATIVEAND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK**

 

***Interest Rate Risk***

 

We are exposed to the impact of interest rate changes primarily throughour unhedged floating-rate borrowings. Significant increases in interest rates could adversely affect ouroperating margins, results of operations and our ability to service ourdebt.  From time to time, we may useinterest rate swaps to reduce our exposure to market risk from changes ininterest rates.  The principal objectiveof these contracts would be to minimize the risks and costs associated with ourfloating-rate debt. We use such derivative financial instruments as riskmanagement tools and not for speculative or trading purposes.  As of March 31, 2009, interest rateswaps effectively convert our interest rate exposure on $30.0 million from afloating rated based on LIBOR to a fixed rate of 4.35%.

 

We intend to invest our cash in financial instruments with maturitiesof less than three months within the parameters of our investment policy andguidelines.

 

***Foreign Currency Risk***

 

The shipping industry’s functional currency is the U.S. dollar. All ofour revenues and most of our operating costs are in U.S. dollars.

 

**Report of Independent RegisteredPublic Accounting Firm on Review of Interim Financial Information**

 

The consolidatedfinancial statements as of March 31, 2009 and for the three months ended March 31,2009 and 2008 are unaudited; however, such financial statements have beenreviewed by our independent registered public accounting firm.

 

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**Available Information**

 

The Partnership makesavailable free of charge through our website (www.osgamerica.com), our AnnualReport on Form 10-K, quarterly reports on Form 10-Q, current reportson Form 8-K and amendments to these reports filed or furnished pursuant toSection 13(a) or 15(d) of the Securities Exchange Act of 1934(the “Exchange Act”), as amended, as soon as reasonably practicable after thosereports and other information are electronically filed with or furnished to theSecurities and Exchange Commission.

 

The Partnership alsomakes available on our website, our corporate governance guidelines, our codeof business conduct, and charters of the Audit Committee, CompensationCommittee and Corporate Governance and Nominating Committee of the Board ofDirectors.

 

**ITEM 4.          CONTROLSAND PROCEDURES**

 

As of the end of theperiod covered by this Quarterly Report on Form 10-Q, an evaluation wasperformed under the supervision and with the participation of the Partnership’smanagement, including the Chief Executive Officer (“CEO”) and Chief FinancialOfficer (“CFO”), of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures pursuant to Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).  Based on that evaluation, the Partnership’smanagement, including the CEO and CFO, concluded that the Partnership’s currentdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed by the Partnership in the reports the Partnershipfiles or submits under the Exchange Act is (i) recorded, processed,summarized and reported, within the time periods specified in the Securitiesand Exchange Commission’s rules and forms and (ii) accumulated andcommunicated to the Partnership’s management, including the CEO and CFO, asappropriate to allow timely decisions regarding required disclosure.  There have been no material changes in thePartnership’s internal controls or in other factors that could materiallyaffect these controls during the period covered by this Quarterly Report.

 

**PART II – OTHER INFORMATION**

 

**ITEM 1.          LEGALPROCEEDINGS**

 

We are party to routine,marine related claims, lawsuits and labor arbitrations arising in the ordinarycourse of our business. The claims made in connection with our marineoperations are covered by insurance, subject to applicable policy deductiblesthat are not material as to any type of insurance coverage. We provide on acurrent basis for amounts we expect to pay.

 

**ITEM 1A.       RISKFACTORS**

 

Therehave been no material changes in the Partnership’s risk factors from thosedisclosed in our Annual Report on Form 10-K for the year ended December 31,2008, other than to the risk factors shown below:

 

***Bender Shipbuilding & Repair Col., Inc.’s (“Bender”)inability to deliver and incurrence of cost overruns in constructing newvessels has adversely affected us and OSG..***

 

In March 2009, we, OSG and Bender terminated the constructionagreements pursuant to which Bender was building six ATBs and two tugs for theCompany.  These agreements wereterminated because of Bender’s lack of performance under such agreements andits lack of liquidity and poor financial condition.  We and OSG intend to complete two of the sixATBs and two tugs at alternative yards.

 

***WeakeningMarket Conditions and Other Factors May Have an Effect on the Partnership’sCurrent Cash Distribution Policy***

 

U.S. oil demand in thefirst quarter of 2009 decreased approximately 6% compared with the firstquarter of 2008, resulting in less seaborne movements of products and increasedwaiting time for cargoes, adversely affecting spot rates.  As a result of the weakening marketconditions, challenging credit markets that may hinder the Partnership’sability to exercise options granted to the Partnership to acquire newbuildingsand increased costs from any settlement with American Shipping Company ASA(formerly named Aker American Shipping ASA) that raise pressure to take stepsto preserve capital, the Board of Directors of the general partner of thePartnership will carefully monitor all of these factors over the course of theyear and consider their effect, if any, on the Partnership’s current cashdistribution policy

 

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**ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 6.          EXHIBITS**

 

See Exhibit Index on page 29.

 

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REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

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

 

We havereviewed the consolidated balance sheet of OSG America L.P. as of March 31,2009 and the related consolidated statements of operations, the consolidatedstatements of cash flows and the consolidated statements of changes in partners’capital for the three-month periods ended March 31, 2009 and 2008.  These financial statements are theresponsibility of the 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 is substantially less in scope than anaudit conducted in accordance with the standards of the Public CompanyAccounting Oversight Board, the objective of which is the expression of anopinion regarding the financial statements taken as a whole.  Accordingly, we do not express such anopinion.

 

Basedon our review, we are not aware of any material modifications that should bemade to the consolidated financial statements referred to above for them to bein 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, 2008, 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 4,2009, we expressed an unqualified opinion on those consolidated financialstatements.  In our opinion, the informationset forth in the accompanying consolidated balance sheet as of December 31,2008, is fairly stated, in all material respects, in relation to theconsolidated balance sheet from which it has been derived.

 

 
|                          | /s/ Ernst & Young LLP |
|-------------------------------|--------------------------------|
|                          |                           |
| Certified  Public Accountants |                           |
|                          |                           |
| Tampa,  Florida               |                           |
|                          |                           |
| May 11,  2009            |                           |

 

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SIGNATURES

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|   | OSG AMERICA L.P.                         |
|--------|------------------------------------------|
|   | (Registrant)                             |
|   |                                     |
|   | by OSG America LLC, its  general partner |
|   |                                     |
| Date:  | May 11, 2009                        |   | /s/ Myles R. Itkin |
|   |                                     | Myles R. Itkin |
|   |                                     | President and Chief  Executive Officer |
|   |                                     |   |
|   |                                     |   |
| Date:  | May 11, 2009                        |   | /s/ Henry P. Flinter |
|   | Henry P. Flinter                         |
|   | Chief Financial Officer                  |

 

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**EXHIBITINDEX**

** **
| 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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