**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

** **

**x****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended MARCH 31, 2008**

 

**OR**

 

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

 

**For thetransition period from             to           **

 

**CommissionFile Number      001-33806**

 

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

 

Indicate by 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 o      Non-accelerated filer x        Smaller reporting company o

 

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

 

The number ofcommon units outstanding as of April 30, 2008 was 15,002,250.  The number of subordinated units outstandingas of that date was 15,000,000.

 

 

## 

 

## TABLEOF CONTENTS

 
| ** **    | ** **                                                                                  | **Page** |
|---------------|---------------------------------------------------------------------------------------------|----------|
| PART I.  | FINANCIAL INFORMATION                                                                       |     |
|          |                                                                                        |     |
| Item. 1.      | Condensed Consolidated  Financial Statements (Unaudited)                                    | 3        |
|          |                                                                                        |     |
| Item 2.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 14       |
|          |                                                                                        |     |
| Item 3.       | Qualitative  and Quantitative Disclosures About Market Risk                                 | 23       |
|          |                                                                                        |     |
| Item 4.       | Controls and  Procedures                                                                    | 23       |
|          |                                                                                        |     |
| PART II. | OTHER INFORMATION                                                                           |     |
|          |                                                                                        |     |
| Item 1.       | Legal Proceedings                                                                           | 24       |
|          |                                                                                        |     |
| Item 1A.      | Risk Factors                                                                                | 24       |
|          |                                                                                        |     |
| Item 2.       | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 24       |
|          |                                                                                        |     |
| Item 6.       | Exhibits                                                                                    | 24       |
|          |                                                                                        |     |
| SIGNATURES    |                                                                                        | 26       |

 

2

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**PART I – FINANCIAL INFORMATION**

 

**ITEM 1.****                             CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

 
| ** ** | ** **                                                                                                                                                                                                            | **Page** |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|       | Condensed  Consolidated Balance Sheets at March 31, 2008 and December 31, 2007                                                                                                                              | 4        |
|       |                                                                                                                                                                                                                  |     |
|       | Condensed  Consolidated Statement of Operations for the three months ended  March 31, 2008 and Predecessor Condensed Combined Carve-out Statements  of Operations for the three months ended March 31, 2007 | 5        |
|       |                                                                                                                                                                                                                  |     |
|       | Condensed  Consolidated Statement of Cash Flows for the three months ended  March 31, 2008 and Predecessor Condensed Combined Carve-out Statement of  Cash Flows for the three months ended March 31, 2007  | 6        |
|       |                                                                                                                                                                                                                  |     |
|       | Condensed  Consolidated Statement of Changes in Partners’ Capital for the three months  ended March 31, 2008                                                                                                | 7        |
|       |                                                                                                                                                                                                                  |     |
|       | Notes to Condensed Consolidated Financial Statements                                                                                                                                                                  | 8        |

 

3

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**OSG AMERICA L.P.**

**CONDENSED CONSOLIDATED BALANCESHEETS**

**DOLLARS IN THOUSANDS**

 
| ** **                                                                          | ** ** | **As of****March 31,  2008** | ** ** | **As of****December 31,  2007** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                          | ** ** | **(Unaudited)**                        | ** ** | ** **                                | ** ** |
| **Assets**                                                                          |       |                                   |       |                                      |       |
| **Current Assets:**                                                                 |       |                                   |       |                                      |       |
| Cash and cash equivalents                                                           |       | $                                      | 15,808     |                                      | $          | 3,380 |   |
| Voyage receivables, including unbilled of $7,693 and $4,107                         |       | 21,793                                 |       | 26,263                                    |       |
| Other receivables                                                                   |       | 5,184                                  |       | 7,146                                     |       |
| Inventory                                                                           |       | 2,115                                  |       | 2,997                                     |       |
| Prepaid expenses and other current assets                                           |       | 3,441                                  |       | 3,961                                     |       |
| Total current assets                                                                |       | 48,341                                 |       | 43,747                                    |       |
|                                                                                |       |                                   |       |                                      |       |
| Vessels, less accumulated depreciation of $67,281 and $59,568                       |       | 409,399                                |       | 405,447                                   |       |
| Vessels under capital leases, less accumulated amortization of $81,787  and $80,414 |       | 19,898                                 |       | 21,246                                    |       |
| Deferred drydock expenditures, net                                                  |       | 22,530                                 |       | 16,177                                    |       |
| Investment in Alaska Tanker Company, LLC                                            |       | 631                                    |       | 5,782                                     |       |
| Intangible assets, less accumulated amortization of $6,133 and $4,983               |       | 85,867                                 |       | 87,017                                    |       |
| Goodwill                                                                            |       | 62,874                                 |       | 62,874                                    |       |
| Other assets                                                                        |       | 9,301                                  |       | 8,822                                     |       |
| Total assets                                                                        |       | $                                      | 658,841    |                                      | $          | 651,112 |   |
|                                                                                |       |                                   |       |                                      |       |
| **Liabilities and Partners’ Capital**                                          |       |                                   |       |                                      |       |
| **Current Liabilities:**                                                            |       |                                   |       |                                      |       |
| Accounts payable and accrued expenses                                               |       | $                                      | 15,020     |                                      | $          | 19,522 |   |
| Advances from affiliated companies                                                  |       | 10,779                                 |       | —                                    |       |
| Current portion of debt                                                             |       | 2,877                                  |       | 2,834                                     |       |
| Current obligations under capital leases                                            |       | 6,535                                  |       | 6,375                                     |       |
| Total current liabilities                                                           |       | 35,211                                 |       | 28,731                                    |       |
|                                                                                |       |                                   |       |                                      |       |
| Long-term debt, less current portion                                                |       | 61,018                                 |       | 46,753                                    |       |
| Obligations under capital leases                                                    |       | 22,004                                 |       | 23,846                                    |       |
| Advances from affiliated companies                                                  |       | —                                 |       | 9,657                                     |       |
| Other non-current liabilities                                                       |       | 2,123                                  |       | 1,428                                     |       |
| Total liabilities                                                                   |       | 120,356                                |       | 110,415                                   |       |
|                                                                                |       |                                   |       |                                      |       |
| **Partners’ capital**                                                          |       | 538,485                                |       | 540,697                                   |       |
| Total liabilities and partners’ capital                                        |       | $                                      | 658,841    |                                      | $          | 651,112 |   |

 

See notes to condensed consolidated financialstatements.

 

4

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**OSG AMERICA L.P.**

**CONDENSEDCONSOLIDATED AND PREDECESSOR COMBINED CARVE-OUT**

**STATEMENTS OF OPERATIONS**

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

**(UNAUDITED)**

 
| ** **                                                                              | ** **   | **Successor  Three months ended  March 31, 2008** | ** ** | **Predecessor  Three months ended  March 31, 2007** | ** ** |
|-----------------------------------------------------------------------------------------|--------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| **Shipping Revenues:**                                                                  |         |                                                                  |       |                                                                    |       |
| Time charter revenues                                                                   |         | $                                                                     | 32,506     |                                                                    | $          | 22,207 |   |
| Voyage charter revenues                                                                 |         | 30,526                                                                |       | 27,527                                                                  |       |
|                                                                                    |         | 63,032                                                                |       | 49,734                                                                  |       |
| **Operating Expenses:**                                                                 |         |                                                                  |       |                                                                    |       |
| Voyage expenses                                                                         |         | 10,639                                                                |       | 7,425                                                                   |       |
| Vessel expenses                                                                         |         | 22,434                                                                |       | 17,293                                                                  |       |
| Bareboat charter expenses                                                               |         | 6,677                                                                 |       | 1,166                                                                   |       |
| Depreciation and amortization                                                           |         | 13,021                                                                |       | 10,997                                                                  |       |
| General and administrative                                                              |         | 5,886                                                                 |       | —                                                                  |       |
| General and administrative allocated from Overseas Shipholding  Group, Inc.        |         | —                                                                |       | 4,873                                                                   |       |
| Total operating expenses                                                                |         | 58,657                                                                |       | 41,754                                                                  |       |
| Income from vessel operations                                                           |         | 4,375                                                                 |       | 7,980                                                                   |       |
| Equity in income of affiliated companies                                                |         | 593                                                                   |       | 859                                                                     |       |
| Operating income                                                                        |         | 4,968                                                                 |       | 8,839                                                                   |       |
| Other income /(expense)                                                                 |         | 61                                                                    |       | (1                                                                      | )          |
|                                                                                    |         | 5,029                                                                 |       | 8,838                                                                   |       |
| Interest expense to a wholly-owned subsidiary of Overseas Shipholding  Group, Inc. |         | —                                                                |       | 2,101                                                                   |       |
| Interest expense, other                                                                 |         | 1,264                                                                 |       | 1,152                                                                   |       |
| Income before federal income taxes                                                      |         | 3,765                                                                 |       | 5,585                                                                   |       |
| Provision for federal income taxes                                                      |         | —                                                                |       | 1,382                                                                   |       |
| Net income                                                                              |         | $                                                                     | 3,765      |                                                                    | $          | 4,203 |   |
|                                                                                    |         |                                                                  |       |                                                                    |       |
| General partner’s interest in net income                                           |         | $                                                                     | 75         |                                                                    |       |   |
|                                                                                    |         |                                                                  |       |                                                                    |       |
| Limited partners’ interest:                                                        |         |                                                                  |       |                                                                    |       |
| Net income                                                                              |         | $                                                                     | 3,690      |                                                                    |       |   |
| Net income per unit                                                                     | – basic |                                                                  | $          | 0.12                                                                    |       |   |   |
|                                                                                    | - diluted    |                                                                  | $          | 0.12                                                                    |       |   |   |
| Cash distribution declared per unit                                                     |         | $                                                                     | 0.375      |                                                                    |       |   |
| Weighted average units outstanding                                                      | - basic      |                                                                  | 30,002,250 |                                                                    |       |   |
|                                                                                    | - diluted    |                                                                  | 30,002,250 |                                                                    |       |   |
|                                                                                    |         |                                                                  |       |                                                                    |       |
| Basic and diluted net income per share                                                  |         |                                                                  |       | $                                                                       | 215.52     |   |
| Shares used in computing basic and diluted net income per share                         |         |                                                                  |       | 19,500                                                                  |       |
|                                                                                         |              |                                                                       |            |                                                                         |            |  |  |  |  |

 

See notes to condensedconsolidated financial statements.

 

5

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**OSG AMERICA L.P.**

**CONDENSED CONSOLIDATED ANDPREDECESSOR COMBINED CARVE-OUT**

**STATEMENTS OF CASH FLOW**

**DOLLARS IN THOUSANDS**

**(UNAUDITED)**

** **
| ** **                                                                        | ** ** | **Successor  Three months ended  March 31, 2008** | ** ** | **Predecessor  Three months ended  March 31, 2007** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| **Cash Flows from Operating Activities:**                                         |       |                                                                  |       |                                                                    |       |
| Net income                                                                        |       | $                                                                     | 3,765      |                                                                    | $          | 4,203 |   |
| Items included in net income not affecting cash flows:                            |       |                                                                  |       |                                                                    |       |
| Depreciation and amortization                                                     |       | 13,021                                                                |       | 10,997                                                                  |       |
| Deferred federal income tax credit                                                |       | —                                                                |       | (1,848                                                                  | )          |
| Decrease in undistributed earnings of affiliated companies, net of  distributions |       | 5,151                                                                 |       | 5,951                                                                   |       |
| Other – net                                                                  |       | 325                                                                   |       | 31                                                                      |       |
| Payments for drydocking                                                           |       | (9,139                                                                | )          | (14                                                                     | )          |
| Changes in operating assets and liabilities:                                      |       |                                                                  |       |                                                                    |       |
| Decrease (increase) in receivables                                                |       | 6,432                                                                 |       | (2,988                                                                  | )          |
| Decrease (increase) in other assets                                               |       | 1,402                                                                 |       | (861                                                                    | )          |
| Decrease in accrued federal income taxes                                          |       | —                                                                |       | (95                                                                     | )          |
| Decrease in accounts payable, accrued expenses and other liabilities              |       | (3,807                                                                | )          | (2,231                                                                  | )          |
| Net cash provided by operating activities                                         |       | 17,150                                                                |       | 13,145                                                                  |       |
|                                                                              |       |                                                                  |       |                                                                    |       |
| **Cash Flows from Investing Activities:**                                         |       |                                                                  |       |                                                                    |       |
| Expenditures for vessels                                                          |       | (13,012                                                               | )          | (13,788                                                                 | )          |
| Net cash used in investing activities                                             |       | (13,012                                                               | )          | (13,788                                                                 | )          |
|                                                                              |       |                                                                  |       |                                                                    |       |
| **Cash Flows from Financing Activities:**                                         |       |                                                                  |       |                                                                    |       |
| Proceeds from borrowings under senior secured revolver                            |       | 15,000                                                                |       | —                                                                  |       |
| Payments on debt and obligations under capital leases                             |       | (2,374                                                                | )          | (2,550                                                                  | )          |
| Cash dividends paid                                                               |       | (5,740                                                                | )          | —                                                                  |       |
| Payments for initial public offering transaction costs                            |       | (241                                                                  | )          | —                                                                  |       |
| Changes in advances from affiliates                                               |       | 1,647                                                                 |       | 3,193                                                                   |       |
| Other                                                                             |       | (2                                                                    | )          | —                                                                  |       |
| Net cash provided by financing activities                                         |       | 8,290                                                                 |       | 643                                                                     |       |
| Net increase in cash and cash equivalents                                         |       | 12,428                                                                |       | —                                                                  |       |
| Cash and cash equivalents at beginning of period                                  |       | 3,380                                                                 |       | 280                                                                     |       |
| Cash and cash equivalents at end of period                                        |       | $                                                                     | 15,808     |                                                                    | $          | 280 |   |

 

Seenotes to condensed consolidated financial statements.

 

6

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**OSG AMERICA L.P.**

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

**DOLLARS AND UNITS IN THOUSANDS**

**(UNAUDITED)**

 
| ** **                                                                   | ** ** | **Limited Partners** | ** ** | ** **                  | ** ** | ** **  | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------|------------|-----------------------------|------------|-------------|------------|
| ** **                                                                   | ** ** | **Common Units**     | ** ** | **Subordinated Units** | ** ** | **General** | ** ** | ** ** | ** ** |
| ** **                                                                   | ** ** | **Units**                 | ** ** | **Amount**                  | ** ** | **Units**   | ** ** | **Amount** | ** ** | **Partner** | ** ** | **Total** | ** ** |
| Balance at  December 31, 2007                                           |       | 15,002                    |       | $                           | 263,368    |        | 15,000     |   | $ | 266,453 |   | $ | 10,876 |   | $ | 540,697 |   |
| Costs associated  with issuance of units pursuant to initial public offering |       | —                    |       | (241                        | )          | —      |       | — |   | — |   | (241 | ) |
| Amortization of  restricted units awards                                     |       | —                    |       | 4                           |       | —      |       | — |   | — |   | 4 |   |
| Dividends  distributed to members                                            |       | —                    |       | (2,813                      | )          | —      |       | (2,812 | ) | (115 | ) | (5,740 | ) |
| Net income                                                                   |       | —                    |       | 1,845                       |       | —      |       | 1,845 |   | 75 |   | 3,765 |   |
| Balance at  March 31, 2008                                              |       | 15,002                    |       | $                           | 262,163    |        | 15,000     |   | $ | 265,486 |   | $ | 10,836 |   | $ | 538,485 |   |

 

Seenotes to condensed consolidated financial statements.

 

7

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** **

**Notesto Condensed Consolidated and Predecessor Combined Carve-Out FinancialStatements:**

** **

**Note A—Organization:**

** **

OSG America L.P., a Delaware limited partnership (the “Partnership”),was formed on May 14, 2007 to ultimately own a 100% interest in OSG AmericaOperating LLC (the “Operating Company”). The Partnership’s general partner, OSGAmerica LLC (the “General Partner”), is a wholly owned indirect subsidiary ofOverseas Shipholding Group, Inc., a publicly traded company incorporatedin Delaware. Overseas Shipholding Group, Inc. and/or its wholly ownedsubsidiary, OSG Bulk Ships, Inc. a New York corporation, are referred toherein as “OSG”.  The Partnershipobtained the foregoing assets in connection with the initial public offering ofits common units, which was consummated on November 15, 2007.

 

At or prior to the completion of the offering, the followingtransactions occurred:

·                  The Partnership entered into a contribution agreement with OSG pursuantto which OSG transferred to the Partnership all of the outstanding membershipinterests of the 18 vessel subsidiaries that own the vessels in the Partnership’sinitial fleet and a 37.5% membership interest in Alaska Tanker Company, LLC;

·                  OSG assigned to the Partnership the agreements to bareboat charter,from subsidiaries of Aker American Shipping, Inc.,  six newbuild product carriers upon deliveryof those vessels;

·                  The Partnership issued to OSG 7,500,000 common units and 15,000,000subordinated units, representing a 73.5% limited partner interest in thePartnership;

·                  The Partnership issued to the General Partner a 2% general partnerinterest in the Partnership and all of the Partnership’s incentive distributionrights, which will entitle the General Partner to increasing percentages of thecash the Partnership distributes in excess of $0.43125 per unit per quarter;

·                  The Partnership issued 7,500,000 of its common units to the publicrepresenting a 24.5% limited partner interest in the Partnership; and

·                  The Partnership satisfied its obligation to reimburse OSG forapproximately $129,256,000 of capital expenditures incurred prior to theinitial public offering with the proceeds from the offering.

 

In addition, at orprior to the completion of the offering, the Partnership entered into thefollowing agreements:

·                  a management agreement with OSG Ship Management, Inc. (“OSGM”), awholly owned subsidiary of OSG, pursuant to which OSGM agreed to provide thePartnership commercial and technical management services;

·                  an administrative services agreement with OSGM, pursuant to which OSGMagreed to provide the Partnership administrative services;

·                  an omnibus agreementwith OSG, the General Partner and others, setting forth, among other things:

·                  when the Partnershipand OSG may compete with each other;

·                  certain rights offirst offer on Jones Act tank vessels;

·                  the grant to the Partnership of options to purchase the membership interests of oneor more subsidiaries of OSG that have entered into shipbuilding contracts withBender Shipbuilding & Repair Co., Inc. for six newbuildarticulated tug barges (“ATBs”);

·                  the grant to the Partnership of options to acquire the membership interests of oneor more subsidiaries of OSG that have entered into agreements to bareboatcharter, from subsidiaries of Aker American Shipping, Inc., two newbuildproduct carriers and two newbuild shuttle tankers, upon delivery of thosevessels; and

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

 

**Note B — Summary of Significant Accounting Policies:**

** **

*Basis of Presentation and Description of Business.** *OSG America L.P. is engaged in providing marinetransportation services through the ownership and operation of a fleet oftankers and ATBs.  Of the 18 vessels inthe operating fleet, 16 operate in the Jones Act trade and two operate in theinternational market under the U.S. flag while participating in the MaritimeSecurity Program.  These two tankers arenot eligible for Jones Act trading because they were not built in the UnitedStates.  The management of OSG AmericaL.P. has determined that it operates in one segment. In addition, OSG AmericaL.P. owns a 37.5% ownership interest in a joint venture, Alaska Tanker Company,LLC.

 

The accompanyingunaudited condensed consolidated and predecessor combined carve-out financialstatements have been prepared in accordance with U.S. generally acceptedaccounting principles for interim financial information and with the instructionsto 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. Operating results for the three months 

 

8

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ended March 31, 2008 are not necessarily indicative of the resultsthat may be expected for the year ending December 31, 2008.  The condensed consolidated financialstatements include the assets and liabilities of the Partnership and itswholly-owned subsidiaries.  All significant intercompany balances andtransactions have been eliminated in consolidation. Investments in 50% or lessowned affiliated companies, in which the Partnership exercises significantinfluence, but is not the primary beneficiary, are accounted for by the equitymethod.

 

For the three monthsended March 31, 2008, the condensed consolidated financial statements ofthe Company and its wholly owned subsidiaries reflect operations in which theCompany operated as an independent company. For the three months ended March 31,2007, the predecessor combined carve-out financial statements presented hereinhave been carved out of the financial statements of OSG using specificidentification.  In the preparation ofthe predecessor carve-out financial statements, general and administrativeexpenses were not identifiable as relating to the vessels. General andadministrative expenses, consisting primarily of salaries and other employeerelated costs, office rent, legal and professional fees, and travel andentertainment were allocated based on the Company’s proportionate share of OSG’stotal ship-operating days for the period. Management believes these allocationsreasonably present the results of operations and cash flows of OSG AmericaPredecessor. However, the predecessor combined carve-out statements ofoperations and cash flows may not be indicative of those that would have beenrealized had OSG America Predecessor operated as an independent stand-aloneentity for the period presented. Had OSG America Predecessor operated as anindependent stand-alone entity, its results could have differed significantlyfrom those presented herein.

 

The consolidated balancesheet as of December 31, 2007 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 31,2007.

 

*Vessels, deferred drydocking expenditures and other property –*Vessels are recorded at cost and are depreciatedto their estimated salvage value on the straight-line basis over the lives ofthe vessels, which range from 20 to 25 years. Each vessel’s salvage valueis equal to the product of its lightweight tonnage and an estimated scraprate.  EffectiveJanuary 1, 2008, the Partnership effected a change in estimate related tothe estimated scrap rate for substantially all of its barges and tankers from$150 per lightweight ton to $300 per lightweight ton. The resulting increase insalvage value will be applied prospectively and will reduce depreciation byapproximately $2,400,000 for the year ending December 31, 2008.  The change in accounting estimate decreaseddepreciation expenses by $582,000 for the quarter ended March 31, 2008 andincreased basic and diluted net income per unit by $0.02.

 

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

 

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

 

9

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** **

**Note C —Alaska Tanker Company, LLC:**

** **

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

 

A condensed summary ofthe results of operations of ATC follows:

 
| ** **                                       | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------|------------|
| **In  thousands**                                | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Time charter  equivalent revenues                |       | $                                                    | 33,644     |   | $ | 32,247 |   |
| Ship operating  and other expenses               |       | (32,062                                              | )          | (29,954 | ) |
| Income from  vessel operations – net income |       | $                                                    | 1,582      |   | $ | 2,293 |   |

 

**Note D—Accounts Payable and Accrued Expenses:**

** **

Accounts payable andaccrued expenses consist of the following:

 
| **In thousands**                 | ** ** | **As of March 31, 2008** | ** ** | **As of December 31, 2007** | ** ** |
|---------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------|------------|
| Trade payables                        |       | $                                            | 4,228      |                                            | $          | 4,533 |   |
| Fuel accruals                         |       | 1,554                                        |       | 3,544                                           |       |
| Charter revenues  received in advance |       | 1,062                                        |       | 3,074                                           |       |
| Drydock accrual                       |       | 5,426                                        |       | 2,523                                           |       |
| Insurance  premiums                   |       | 281                                          |       | 2,253                                           |       |
| Payroll and  benefits                 |       | 1,023                                        |       | 1,003                                           |       |
| Interest expense                      |       | 359                                          |       | 311                                             |       |
| Brokers  commissions                  |       | 399                                          |       | 444                                             |       |
| Other                                 |       | 688                                          |       | 1,837                                           |       |
|                                  |       | $                                            | 15,020     |                                            | $          | 19,522 |   |

 

**Note E—Advances from Affiliated Companies:**

** **

Advances from affiliatedcompanies represent the funding of operating expenses pursuant to thePartnership’s management and administrative agreements with OSGM and are noninterest bearing.

 

**Note F—Long-term Debt:**

** **

In November 2007,OSG America Operating Company LLC, a wholly owned subsidiary of thePartnership, entered into a $200 million, five-year senior secured revolvingcredit agreement, which is nonrecourse to the Partnership.  Borrowings under this facility bear interestat a rate based on LIBOR. The facility may be extended by 24 months subject toapproval by lenders. As of March 31, 2008, $15,000,000 was outstandingunder the facility.

 

Borrowings under the senior secured revolving credit facility aresecured by, among other things, first preferred mortgages on certain ownedvessels, and are guaranteed by the Partnership and certain of its subsidiaries.

 

The senior securedrevolving credit facility prevents the Partnership from declaring dividends ormaking distributions if any event of default, as defined in the senior securedrevolving credit agreement, exists or would result from such payments. In 

 

10

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addition, the senior secured revolving credit facilitycontains covenants requiring the Partnership to adhere to certain financialcovenants.

 

As of March 31,2008, the Partnership had unused long-term secured credit availability of$185,000,000 under the senior secured revolver facility.

 

Interest paid, excludingloans to affiliates and capitalized interest, for the three months ended March 31,2008 and 2007 amounted to $1,156,000 and $1,162,000 respectively.

 

**Note G—Taxes:**

 

Thecomponents of the Predecessor’s provision for federal income taxes follow:

 
| **In thousands** | ** ** | **Three Months Ended  March 31, 2007** | ** ** |
|-----------------------|------------|------------------------------------------------------------|------------|
| Current               |       | $                                                          | 3,230      |   |
| Deferred              |       | (1,848                                                     | )          |
|                  |       | $                                                          | 1,382      |   |

 

ThePartnership is not a taxable entity and does not incur a federal income taxliability.  Instead, each partner of apartnership is required to take into account his share of items of income,gain, loss and deduction of the partnership in computing his federal income taxliability, 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 his partnershipinterest.

 

**Note H — Leases:**

** **

*Charters-in:*

 

As of March 31, 2008, the Partnership had commitments tocharter-in ten vessels.  Eight of suchcharter-ins are, or will be, accounted for as operating leases.  The future minimum commitments and relatednumber of operating days under these operating leases are as follows:

 
| ** **                         | ** ** | **As of March  31, 2008** | ** ** |
|------------------------------------|------------|----------------------------------------------------|------------|
| **Dollars in thousands** | ** ** | **Amount**                                         | ** ** | **Operating Days** | ** ** |
| 2008                               |       | $                                                  | 24,434     |   | 1,166 |   |
| 2009                               |       | 51,791                                             |       | 2,378 |   |
| 2010                               |       | 61,538                                             |       | 2,787 |   |
| 2011                               |       | 64,331                                             |       | 2,920 |   |
| 2012                               |       | 64,306                                             |       | 2,928 |   |
| Thereafter                         |       | 150,944                                            |       | 5,256 |   |
| Total                              |       | $                                                  | 417,344    |   | 17,435 |   |

 

The future minimum commitments under two charters-in that areclassified as capital leases are as follows:

 
| **Dollars in thousands** | ** ** | **As of March 31, 2008** | ** ** |
|------------------------------------|------------|----------------------------------------------|------------|
| 2008                               |       | $                                            | 6,461      |   |
| 2009                               |       | 9,692                                        |       |
| 2010                               |       | 9,691                                        |       |
| 2011                               |       | 8,103                                        |       |
| Net minimum  lease payments        |       | 33,947                                       |       |
| Less amount  representing interest |       | (5,408                                       | )          |
| Total                              |       | $                                            | 28,539     |   |

 

11

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In June 2005, OSGsigned agreements to charter ten Jones Act Product Tankers to be constructed byAker Philadelphia Shipyard, Inc. (“APSI”), which order was increased to 12ships in October 2007. Agreements for eight of such vessels are includedin the Partnership. Following construction, APSI will sell the vessels toleasing subsidiaries of American Shipping Corporation (“ASC”), an affiliate ofAPSI, which will charter the eight vessels to the Partnership for initial termsof five or seven years. The Partnership has extension options for the lives ofthe vessels. The charters provide for profit sharing with the owners of thevessels when revenues earned by such vessels exceed amounts defined in thecharters. Three of these vessels, the *OverseasHouston,**Overseas Long Beach*and *OverseasLos Angeles*, have already been delivered from the shipyard,in February, June and November 2007, respectively. The remaining fivevessels are scheduled to be delivered from the shipyard between the secondquarter of 2008 and early 2010. The bareboat charters will commence upondelivery of the vessels.

 

*Charters-out:*

 

The future minimumrevenues, before reduction for brokerage commissions, expected to be receivedon noncancelable time charters and the related revenue days (revenue daysrepresent calendar days, less days that vessels are not available foremployment due to repairs, drydock or lay-up) are as follows:

 
| ** **                         | ** ** | **As of March  31, 2008** | ** ** |
|------------------------------------|------------|----------------------------------------------------|------------|
| **Dollars in thousands** | ** ** | **Amount**                                         | ** ** | **Revenue Days** | ** ** |
| 2008                               |       | $                                                  | 75,226     |   | 1,951 |   |
| 2009                               |       | 119,833                                            |       | 2,712 |   |
| 2010                               |       | 125,440                                            |       | 2,595 |   |
| 2011                               |       | 106,752                                            |       | 2,173 |   |
| 2012                               |       | 60,838                                             |       | 1,249 |   |
| Thereafter                         |       | 56,213                                             |       | 1,199 |   |
| Total                              |       | $                                                  | 544,302    |   | 11,879 |   |

 

Revenues from a timecharter are not generally received when a vessel is off-hire, including timerequired for normal periodic maintenance of the vessel. In arriving at theminimum future charter revenues, an estimated time off-hire to perform periodicmaintenance on each vessel has been deducted, although there is no assurancethat such estimate will be reflective of the actual off-hire in the future.

 

The scheduled futureminimum revenues should not be construed to reflect total shipping revenues forany of the periods.

 

**Note I—PensionPlans:**

 

The Partnership makescontributions to jointly managed (company and union) multi-employer pensionplans covering seagoing personnel. Certain other seagoing personnel are coveredunder a defined contribution plan, the cost of which is funded as incurred. Thecosts of these plans were not material for the three months ended March 31,2008 and 2007.

 

**Note J — Commitments:**

 

As of March 31, 2008, the Partnership had remaining commitments of$21,048,000 on non-cancelable contracts for the construction of two tugs (to bedelivered in 2008 and 2009) and the double hulling of one existing barge(completed in April 2008). We expect these commitments to be funded fromexisting cash on hand, borrowings under our revolving credit facility oradditional long-term debt as required.

 

12

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**Note K — Subsequent Events:**

 

Effective April 1, 2008, the Partnership enteredinto a time charter agreement with OSG for the charter-in of the *OSG Liberty/OSG 300* and the *OSGConstitution/OSG400*, which are two ATBs currently working in theDelaware Bay lightering business, at fixed daily rates.  The agreement assigns the charter contracts onthese two ATBs to the Partnership.  Theterms of each of the charters end simultaneously with the completion of eachunit’s lightering service, which is expected to occur in 2009.  In addition, also effective April 1,2008, the Partnership entered into time charter agreements with OSG tocharter-out five vessels, three of which are currently employed by thePartnership in the spot market (two ATBs, the *OSG242/Columbia* and the *OSG 243/Independence*,and one product carrier, the *Overseas New Orleans)*andtwo product carriers (the *Overseas Philadelphia*and *Overseas Puget Sound*) upon thecompletion of their current time charters in 2009.  All five of these charter-out agreements areat fixed daily rates for terms commencing either on April 1, 2008 or upon the expiryof such vessel’s current time charter and ending on or about December 31,2009.  Management believes that the fixeddaily rates in the charter-out agreements are at rates that approximateexisting market rates.

 

On April 24, 2008, the Board of Directors of OSGAmerica LLC, declared a quarterly distribution to all unit holders in theamount of $0.375 per unit for the three months ended March 31, 2008.  The distribution of approximately $11.5million, will be paid on May 14, 2008 to unit holders of record on May 6,2008.

 

13

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**ITEM 2****.****        ****MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**FORWARD-LOOKING STATEMENTS**

 

Statements included inthis report which are not historical facts (including statements concerningplans and objectives of management for future operations or economicperformance, or assumptions related thereto) are forward-looking statements. Inaddition, we may from time to time make other oral or written statements whichare also forward-looking statements.

 

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

 

· our ability to make cash distributionson the units;

 

· planned capital expenditures andavailability of capital resources to fund capital expenditures;

 

· delays or cost overruns in the buildingof new vessels, the double-hulling of our remaining single-hull vessels andscheduled shipyard maintenance;

 

· future supply of, and demand for, oiland refined petroleum products either globally or in particular regions;

 

· risks inherent in marine transportationand vessel operation, including accidents and discharge of pollutants;

 

· the cost and availability of insurancecoverage;

 

· reliance on a limited number ofcustomers for revenue;

 

· future spot market charter rates;

 

· competition that could affect our marketshare and revenues;

 

· potential reductions in the supply oftank vessels due to restrictions set forth by the Oil Pollution Act of 1990 (“OPA90”);

 

· continuation of federal laws restrictingU.S. point to point maritime shipping to U.S. vessels;

 

· changes in domestic refined petroleumproduct consumption;

 

· changes in U.S. refining capacity;

 

· the likelihood of a repeal of, or adelay in the phase-out requirements for, single-hull vessels mandated by OPA90;

 

· our ability to maintain long-termrelationships with our customers;

 

· expected financial flexibility to pursueacquisitions and other expansion opportunities;

 

· our expected cost of complying with OPA90;

 

· estimated future maintenance capitalexpenditures;

 

· our ability to attract and retainexperienced, qualified and skilled crewmembers;

 

· expected demand in the domestic tankvessel market in general and the demand for our tank vessels in particular;

 

· changes in the demand for lighteringservices;

 

· customers’ increasing emphasis onenvironmental and safety concerns;

 

· our future financial condition orresults of operations and our future revenues and expenses; and

 

· our business strategy and other plansand objectives for future acquisitions/operations

 

*Theseforward-looking statements are made based upon management’s current plans,expectations, estimates, assumptions and beliefs concerning future eventsimpacting us and therefore involve a number of risks and uncertainties. Wecaution that forward-looking statements are not guarantees and that actualresults could differ materially from those expressed or implied in theforward-looking statements. Please read “Risk Factors” in Item 1A. of theCompany’s Annual Report on Form 10-K for the year ended December 31,2007,  for a list of important factorsthat could cause our actual results of operations or financial condition todiffer from the expectations reflected in these forward-looking statements.*

 

14

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**Overview**

 

We are the largest operator, based on barrel-carrying capacity, of U.S.flag vessels transporting refined petroleum products. We were recently formedby Overseas Shipholding Group, Inc., a market leader in providing globalenergy transportation services. We plan to use the expertise, customer base andreputation of OSG to expand our marine transportation service.

 

On November 15, 2007, upon completion of our initial publicoffering, OSG contributed to us entities owning or operating a fleet of tenproduct carriers, seven articulated tug barges (“ATBs”) and one conventional tug/bargeunit, with an aggregate carrying capacity of approximately 4.9 millionbarrels. OSG also contributed to us a 37.5% ownership interest in Alaska TankerCompany, LLC, (“ATC”) a joint venture that transports crude oil from Alaska tothe continental United States and which employs a fleet of five crude-oiltankers. OSG owns a 75.5% interest in us, including a 2% interest through ourgeneral partner, which OSG 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.Sixteen of the eighteen vessels in our operating fleet at March 31,2008 are operated in the U.S. coastwise trade in accordance with the Jones Actand all of our future scheduled newbuild deliveries will qualify to operateunder the Jones Act.

 

**Overview—OSGAmerica Predecessor**

 

For the three monthsended March 31, 2007, the combined financial statements presented hereinhave been carved out of the consolidated financial statements of OSG. Ourfinancial position, results of operations and cash flows reflected in ourcombined financial statements are not indicative of those that would have beenachieved had we operated as an independent stand-alone entity for all periodspresented or of future results.

 

To the extent thatassets, liabilities, revenues and expenses relate to the OSG AmericaPredecessor (“Predecessor”), they have been identified and carved out of OSGfor inclusion in our combined financial statements. OSG’s other assets,liabilities, revenues and expenses that do not relate to the vessel interestsare not included in our combined financial statements. In addition, thepreparation of our combined carve-out financial statements required theallocation of certain expenses where these items were not identifiable asrelated to OSG America Predecessor.

 

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

 

All of the companiesincluded in the Predecessor combined carve-out financial statements have beenincluded in the OSG consolidated group for U.S. income tax purposes for periodsthrough November 14, 2007. The Predecessor financial statements have beenprepared on the basis that OSG was responsible for all taxes related to periodsprior to January 1, 2002. The provision for income taxes in the Predecessor’scombined financial statements have been determined on a separate-return basisfor all periods presented.

 

***Future Business***

* *

We have entered into agreements with OSG Ship Management, Inc. (“OSGM”)for the provision of technical and commercial management of our vessels and foradministrative and accounting services. These agreements were effective November 15,2007.

 

In June 2005, OSG signed agreements to bareboat charter ten JonesAct product carriers from a subsidiary of Aker American Shipping, Inc. (“Aker”).In February 2007, OSG agreed in principle to charter up to six additionalJones Act product carriers, which eventually resulted in OSG concludingagreements to charter two vessels. The charters on eight of these twelvevessels have been assigned to us. We have committed to charter five of theeight vessels for initial terms of seven years and the other three vessels forinitial terms of five years. We have extension options for the remaining livesof these vessels. Four of these vessels, the *OverseasHouston,**Overseas Long Beach,**Overseas**Los Angeles*andthe *Overseas New York*, have already beendelivered from the shipyard, in February 2007, June 2007 and November 2007and April 2008, 

 

15

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respectively. Theremaining four vessels that we have committed to bareboat charter are scheduledto be delivered from the shipyard between 2008 and early 2010.

 

We have options to purchase from OSG up to six ATBs, to be constructedby Bender Shipbuilding & Repair Co., Inc. (“Bender”) andscheduled for delivery between late 2008 and late 2010. We also have options toacquire from OSG the right to bareboat charter up to four of the remainingnewbuild vessels to be constructed by Aker Philadelphia Shipyard Inc., scheduledfor delivery between late 2009 and early 2011.

 

**Updateon Critical Accounting Policies**

 

Our financial statementsare prepared in accordance with accounting principles generally accepted in theUnited 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, 2007.

 

***Vessel Lives and Impairment***

 

The carrying value ofeach of our vessels represents its original cost at the time it was deliveredor purchased, less depreciation calculated using an estimated useful life of25 years from the date that such vessel was originally delivered from theshipyard, or 20 years from the date the Partnership’s ATBs were rebuilt.Effective January 1, 2008, we effected a change in estimate related to theestimated scrap rate for substantially all of our barges and tankers from $150per lightweight ton to $300 per lightweight ton.  The resulting increase in salvage value willreduce depreciation by approximately $2.4 million for the year ending December 31,2008 and by approximately $0.6 million for each quarter in 2008.  The assumptions used in the determination ofestimated salvage value took into account current scrap prices, which are inexcess of $700 per lightweight ton, the historic pattern of scrap rates overthe four years ended December 31, 2007, which ranged from $250 to over$500 per lightweight ton, estimated changes in future market demand for scrapsteel and estimated future demand for vessels. Although management believes that the assumptions used to determine thescrap rate are reasonable and appropriate, such assumptions are highlysubjective, in part, because of the cyclicality of the nature of future demandfor scrap steel.

 

***Newly Issued Accounting Standards***

 

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

 

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

 

***Industry Overview***

* *

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

 

16

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** **

**U.S. FlagJones Act Product Carriers**

 
| ** **          | ** ** | **Average Spot Market TCE Rates Jones Act  Product Carriers and Product Articulated  Barges (ATBs)** | ** ** |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **          | ** ** | **Three Months Ended March 31,**                                                                                                        | ** ** |
| ** **          | ** ** | **2008**                                                                                                                                                    | ** ** | **2007** | ** ** |
| 40,000 dwt  Tankers |       | $                                                                                                                                                           | 51,000     |   | $ | 64,800 |   |
| 30,000 dwt ATBs     |       | 31,500                                                                                                                                                      |       | 41,900 |   |
|                     |            |                                                                                                                                                             |            |  |  |  |  |

 

Duringthe first quarter of 2008, rates for Jones Act Product Carriers and handysizeATBs averaged $51,000 per day and $31,500 per day, respectively. Rates for thetankers and ATBs were 2% and 6%, respectively, lower than fourth quarter 2007and approximately 25% below the first quarter of 2007 rates for both tankersand ATBs.

 

Thelower first quarter 2008 rates reflected an increase in waiting time forcargoes as U.S. Gulf Coast refining utilization rates declined from 87% in thefirst quarter of 2007 to 83% in the first quarter of 2008.  Lower refining utilization reduced productshipments from the Gulf Coast areas in 2008.

 

The Delaware Bay lightering business transported anaverage of 249,000 barrels per day during the quarter, which was 3% lower thanthe first quarter of 2007 and 7% lower than the fourth quarter 2007 volumes.Lower lightering volumes resulted from reduced crude moves at East Coastrefineries as some refineries, such as Valero’s Paulsboro refinery, experiencedturnarounds during the quarter.

 

During the first quarter of 2008, one rebuilt vessel entered the marketwhile one of our vessels remained in the shipyard undergoing her conversion toa double hull configuration.  As of March 31,2008, the total Jones Act Product Carrier fleet of tankers, ATBs andITBs (Integrated Tug Barges) consisted of 62 vessels or 2.4 million dwt.

 

The Jones Act Product Carrier orderbook at March 31,2008 consisted of 31 tankers and barges in the 160,000 to 420,000 barrel sizerange, which are scheduled for delivery through 2011, and two additionalvessels scheduled for delivery beyond 2011 resulting in a total orderbook of 33vessels.  The addition of these vesselswill be partially offset by 22 vessels that will be phased out during the nextnine years in accordance with OPA 90 regulations.  An additional seven double-hull tankers willlikely be retired during the same period given their age profile (over 35 yearsold) resulting in a total of 30 vessels to be phased out of the Jones Actmarket.

 

Freight rates remain highly sensitive to an oversupply in spot tonnage, severe weather, geopolitical and economic events.  Spot market tonnage has increased due toredeliveries of the older, non double hull vessels in response to the on timedeliveries of the first four product carriers from Aker. Additionally,hurricanes in the Gulf of Mexico could have a pronounced effect on freightrates for both crude oil and product movements depending on the extent to whichupstream and downstream facilities are affected.

 

***Three Months Ended March 31, 2008 Compared with ThreeMonths Ended March 31, 2007***

*** ***

*TimeCharter Equivalent Revenues*

* *

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

 
| ** **            | ** ** | **Three months ended March 31,** | ** ** |
|-----------------------|------------|------------------------------------------------------|------------|
| **In thousands** | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| TCE revenues          |       | $                                                    | 52,393     |   | $ | 42,309 |   |
| Voyage expenses       |       | 10,639                                               |       | 7,425 |   |
| Shipping  revenues    |       | $                                                    | 63,032     |   | $ | 49,734 |   |

 

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 

 

17

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shipping revenues, themost directly comparable U.S. GAAP measure, because it assists management inmaking decisions regarding the deployment and use of our vessels and inevaluating their financial performance.

 

The following table provides information with respect to average dailyTCE rates earned and revenue days for the three months ended March 31,2008 and 2007:

 
| ** **                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------|------------|------------------------------------------------------------|------------|
| ** **                      | ** ** | **2008**                                                   | ** ** | **2007** | ** ** |
| Revenue Days:                   |       |                                                       |       |   |   |
| Jones Act ATBs                  |       | 595                                                        |       | 588 |   |
| Jones Act  Product Carriers     |       | 808                                                        |       | 569 |   |
| Non-Jones Act  Product Carriers |       | 145                                                        |       | 176 |   |
|                            |       | 1,548                                                      |       | 1,333 |   |
|                            |       |                                                       |       |   |   |
| Average Daily  TCE Rates:       |       |                                                       |       |   |   |
| Jones Act ATBs                  |       | $                                                          | 32,235     |   | $ | 28,485 |   |
| Jones Act  Product Carriers     |       | $                                                          | 34,411     |   | $ | 34,125 |   |
| Non-Jones Act  Product Carriers |       | $                                                          | 37,303     |   | $ | 34,903 |   |

 

TCE revenues increased $10.1 million, or 24%, from $42.3 million forthe three months ended March 31, 2007 to $52.4 million for the threemonths ended March 31, 2008. The increase in TCE revenues resultedprimarily from an increase in revenue days of 215 in the three months ended March 31,2008, compared with the same 2007 period partially offset by an extended idleperiod for the *Overseas Diligence*. Theseadditional days were attributable primarily to the delivery of the *Overseas Houston, Overseas Long Beach* andthe *Overseas Los Angeles* in February, June andNovember 2007, respectively which added 40, 90 and 91, respectively,additional revenues day in 2008 compared to 2007. On February 20, 2007, theATB *M211*, was taken out of service andentered the shipyard to be rebuilt to a double hull configuration.  She re-entered service on April 24, 2008renamed the *OSG 243*. In the comparable quarter of2007, the OSG 242 was in the shipyard being rebuilt to a double hullconfiguration.

 

*VesselExpenses*

* *

The following table provides information with respect to average dailyvessel expenses and operating days for the three months ended March 31,2008 and 2007:

 
| ** **                      | ** ** | **Three Months  Ended March 31,** | ** ** |
|---------------------------------|------------|------------------------------------------------------------|------------|
| ** **                      | ** ** | **2008**                                                   | ** ** | **2007** | ** ** |
| Operating Days:                 |       |                                                       |       |   |   |
| Jones Act ATBs                  |       | 728                                                        |       | 720 |   |
| Jones Act  Product Carriers     |       | 819                                                        |       | 591 |   |
| Non-Jones Act  Product Carriers |       | 182                                                        |       | 180 |   |
|                            |       | 1,729                                                      |       | 1,491 |   |
|                            |       |                                                       |       |   |   |
| Average Daily  Vessel Expenses: |       |                                                       |       |   |   |
| Jones Act ATBs                  |       | $                                                          | 7,610      |   | $ | 7,238 |   |
| Jones Act Product  Carriers     |       | $                                                          | 17,270     |   | $ | 16,223 |   |
| Non-Jones Act  Product Carriers |       | $                                                          | 15,110     |   | $ | 13,856 |   |

 

Vessel expenses increased $5.1 million, or 30%, from $17.3 million forthe three months ended March 31, 2007 to $22.4 million for the threemonths ended March 31, 2008.  Theincrease in expenses and operating days was primarily the result of thedelivery of the *Overseas Houston*, *Overseas Long Beach* and the *Overseas LosAngeles*, all in 2007.

 

18

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* *

*CharterHire Expenses*

* *

Charter hire expenses increased $5.5 million from $1.2 million for thethree months ended March 31, 2007 to $6.7 million for the three monthsended March 31, 2008. The *OverseasHouston,**Overseas Long Beach*and *Overseas Los Angeles* were delivered fromthe shipyard in February, June and November 2007, respectivelyand each operated for 91 days in the three months ended March 31, 2008.The *Overseas Houston* operated for 51 days inthe three months ended March 31, 2007.

 

*Depreciationand Amortization*

* *

Depreciation and amortization increased $2.0 million, or 18%, from$11.0 million for the three months ended March 31, 2007 to $13.0 millionfor the three months ended March 31, 2008. This increase was primarily dueto the amortization of costs incurred on vessels in the former Maritrans fleetthat drydocked for the first time since the November 2006 acquisition,partially offset by a decrease of approximately $0.6 million as a result of thechange in salvage value of the vessels. Depreciation and amortization for the threemonths ended March 31, 2008 and 2007 includes $1.1 million and $1.2million, respectively, related to the amortization of intangibles resultingfrom the acquisition of Maritrans.

 

*Generaland Administrative Expenses*

* *

General andadministrative expenses increased $1.0 million, or 21%, from $4.9 million forthe three months ended March 31, 2007 to $5.9 million for the three monthsended March 31, 2008. Prior to November 14, 2007, general andadministrative expenses were allocated based on our fleet’s proportionate shareof OSG’s total ship-operating (calendar) days. For the three months ended March 31,2007, ship-operating days were 1,491 days. Management believes thatallocation reasonably presents the results of operations and cash flows of OSG America Predecessor for theperiod ended March 31, 2007. General and administrative expenses for thethree months ended March 31, 2008 reflect actual expenses incurred.

 

*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 deemedto be earned on an annual basis is not recognized until the fourth quarter.Equity in income of affiliated companies decreased by $0.3 million, or 31%,from $0.9 million for the three months ended March 31, 2007 to $0.6million for the 2008. This decrease was attributable to a decrease in theincentive hire rate earned by ATC in 2008 compared with 2007.

 

*Interest Expense, other*

* *

Interest expense on third party obligations increased $0.1 million, or10%, from $1.2 million for the three months ended March 31, 2007 to $1.3million for the three months ended March 31, 2008. A decrease in interestexpense incurred with respect to secured term loans due to normal amortizationwas offset by amounts associated with borrowings under the secured revolver inthe first quarter of 2008 totaling $0.2 million. Interest expense for threemonths ended March 31, 2008 and 2007 is net of $0.4 million and $0.6million, respectively, capitalized in connection with vessel construction.

 

*Provision for Federal Income Taxes*

* *

As a result of our initial public offering, as a partnership, we arenot a taxable entity and will incur no federal income tax liability.  Instead, each unitholder will be required totake into account his or her share of items of income, gain, loss, anddeduction of the partnership in completing his federal income tax liabilitywithout regard to whether corresponding cash distributions are received fromthe partnership by him. The income tax provision for the three months ended March 31,2007 was based on the pre-tax results determined on a separate-return basis.

 

**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 ourmanagement and investors by increasing the comparability of our fundamentalperformance from period to period and against the fundamental performance ofother companies 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 oramortization, which items may significantly affect net income between periodsand are affected by various and possibly changing financing methods, capitalstructure and historical cost basis. We 

 

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believe that including EBITDA as a financial and operating measurebenefits investors in (a) selecting between investing in us and otherinvestment alternatives and (b) monitoring our ongoing financial andoperational strength and health in assessing whether to continue to hold commonunits.

 

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 of profitabilityor liquidity.  While EBITDA is frequentlyused as a measure of operating results and performance, it is not necessarilycomparable to other similarly titled captions of other companies due todifferences 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**               | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Net income                          |       | $                                                    | 3,765      |   | $ | 4,203 |   |
| Provision for  federal income taxes |       | —                                               |       | 1,382 |   |
| Interest expense                    |       | 1,264                                                |       | 3,253 |   |
| Depreciation and  amortization      |       | 13,021                                               |       | 10,997 |   |
| EBITDA                              |       | $                                                    | 18,050     |   | $ | 19,835 |   |

 

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

 
| ** **                                                      | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **In thousands**                                           | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Net cash  provided by operating activities                      |       | $                                                    | 17,150     |   | $ | 13,145 |   |
| Payments for  drydocking                                        |       | 9,139                                                |       | 14 |   |
| Interest expense                                                |       | 1,264                                                |       | 3,253 |   |
| Undistributed  earnings from affiliated companies               |       | (5,151                                               | )          | (5,951 | ) |
| Changes in  operating assets and liabilities (except for taxes) |       | (4,027                                               | )          | 6,080 |   |
| Federal income  taxes                                           |       | —                                               |       | 3,325 |   |
| Other                                                           |       | (325                                                 | )          | (31 | ) |
| EBITDA                                                          |       | $                                                    | 18,050     |   | $ | 19,835 |   |

 

***Liquidity and Sources of Capital***

*** ***

Working capital at December 31, 2007 was $13.1 million comparedwith $15.0 million at December 31, 2007. 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 secured creditfacility and lease obligations. Our long-term liquidity needs primarily relateto capital expenditures for the purchase or construction of vessels.

 

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 credit agreement.

 

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 creditagreement referred to below will be sufficient to meet our existing short-termliquidity needs for the next 12 months.

 

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In November, we entered into a $200 million five-year senior securedrevolving credit agreement.  Borrowingsunder this facility bear interest at a rate based on LIBOR. The facility may beextended by 24 months subject to approval by lenders. As of March 31,2008, $15,000,000 was outstanding under the facility.

 

We were in compliance with all ofthe financial covenants contained in our debt agreements as of March 31,2008.  The senior secured revolvingcredit facility will prevent us from declaring dividends or makingdistributions 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 imposes certainoperating restrictions and requires us to adhere to certain minimum financialcovenants. Our failure to comply with any of the covenants in the agreementscould result in a default, which would permit lenders to accelerate thematurity of the debt and to foreclose upon collateral securing the debt. Underthose circumstances, we might not have sufficient funds or other resources tosatisfy our remaining obligations.

 

*Cash Flows*

* *

*Operating  cash flows.*  Net cash flow from operating activities was$17.1 million, and $13.1 million for the three months ended March 31, 2008and 2007, respectively. The increase of $4.0 million was primarily attributableto a decrease in  receivables on increasedrevenues and increased depreciation. These increases were partially offset bypayments for drydocking of $9.1 million in the first quarter of 2008.

 

Net cash flow from operating activities depends upon the timing andamount of drydocking expenditures, repairs and maintenance activity, vesseladditions and dispositions, changes in interest rates, fluctuations in workingcapital balances and spot market freight rates. The number of vesseldrydockings varies from year to year.

 

*Investingcash flows.*  Net cashused in investing activities was $13.0 million and $13.8 million for the threemonths  ended  March 31, 2008 and 2007,respectively. Investing activities for the three months ended March 31,2008 related primarily to the double hulling of one barge and progress paymentsfor the two new tugs under construction. Investing activities in 2007 related primarily to costs that wereincurred double-hulling two barges.

 

*Financingcash flows.* Net cash provided by financing activities was$8.3 million and $0.6 million for the three months ended March 31, 2008and 2007, respectively.  During the threemonths ended March 31, 2008, we borrowed $15 million under the seniorsecured revolving credit facility. Repayments of debt represent regularlyscheduled installments under existing capital lease obligations and securedterm loans.

 

*OngoingCapital 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 $18 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 or double hull vessels in order to comply withstatutory regulations. We are not aware of any regulatory changes orenvironmental liabilities that will have a material impact on our current orfuture operations.

 

We 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 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 

 

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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 31,2008 follows:

 
| **In thousands**                                   | ** ** | **Balance of  2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Beyond  2012** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|---------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|------------------|------------|-----------|------------|
| Long-term debt  (1)                                     |       | $                         | 4,690      |     | $          | 6,232    |       | $        | 6,232      |     | $          | 6,232            |       | $         | 21,218     |   | $ | 35,038 |   | $ | 79,642 |   |
| Obligations  under capital leases (1)                   |       | 6,461                     |       | 9,692    |       | 9,691    |       | 8,103    |       | —   |       | —           |       | 33,947    |       |
| Operating lease  obligations (chartered-in vessels) (2) |       | 24,434                    |       | 51,791   |       | 61,538   |       | 64,331   |       | 64,306   |       | 150,944          |       | 417,344   |       |
| Construction  installments (3)                          |       | 17,908                    |       | 3,140    |       | —   |       | —   |       | —   |       | —           |       | 21,048    |       |
| Total                                                   |       | $                         | 53,493     |     | $          | 70,855   |       | $        | 77,461     |     | $          | 78,666           |       | $         | 85,524     |   | $ | 185,982 |   | $ | 551,981 |   |

 

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(1)          Amountsshown include contractual interest obligations.

 

(2)          Asof March 31, 2008 we had charter-in commitments for eight vessels onleases that are, or will be, accounted for as operating leases. These leasesprovide us with various renewal options.

 

(3)          Representsremaining shipyard commitments and excludes capitalized interest and otherconstruction costs.

 

*SeniorSecured Revolving Credit Facility*

* *

On November 15, 2007, our wholly owned subsidiary OSG AmericaOperating Company LLC, entered into a $200,000,000 senior secured revolvingcredit facility with ING Bank N.V. and DnB NOR Bank ASA.  As of March 31, 2008, $15 million wasoutstanding under the facility, at an interest rate of 3.79%.

 

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 the Partnership on or after the second anniversary of the closingdate (up to 90 days prior to the fifth anniversary of the closing date)and which may be approved by the lenders. Drawings under the facility areavailable on a revolving basis until the earlier of one month prior to theapplicable maturity date or the date on which the facility is permanentlyreduced to zero and the lenders are no longer required to make advances. Themaximum number of advances permitted to be outstanding under the senior securedrevolving credit facility at any one time are ten.

 

Borrowings under the senior secured revolving credit facility aresecured by, among other things, first preferred mortgages on certain ownedvessels, and are guaranteed by us and certain of our subsidiaries.

 

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 LIBOR breakage costs). The outstanding loans under the senior secured revolving credit facilitybear interest at a rate equal to LIBOR plus the applicable margin (70 basispoints per year until the fifth anniversary of the closing date and, if theextension option is exercised, 75 basis points per year thereafter).

 

The senior secured revolving credit facilityprevents us from declaring dividends or making distributions if any event ofdefault, as defined in the senior secured revolving credit agreement, exists orwould result from such payments. In addition, the senior secured revolvingcredit facility contains covenants requiring us to adhere to certain financialcovenants.

 

*Off Balance Sheet Arrangements*

* *

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

 

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** **

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

** **

***InterestRate Risk***

*** ***

We are exposed to the impact of interest rate changes primarily throughour unhedged floating-rate borrowings. Significant increases in interest ratescould adversely affect our operating margins, results of operations and ourability to service our debt. From time to time, we may use interest rate swapsto reduce our exposure to market risk from changes in interest rates. Theprincipal objective of these contracts would be to minimize the risks and costsassociated with our floating-rate debt. As of March 31, 2008,long-term debt except for the $15 million drawn on the senior secured creditfacility, consisted of fixed-rate secured term loans.

 

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

 

We may use interest rate swaps to manage the impact of interest ratechanges on earnings and cash flows. Changes in the fair value of interest rateswaps are either offset against the fair value of assets or liabilities throughincome, or recognized in other comprehensive income until the hedged item isrecognized in income. The ineffective portion of an interest rate swap changein fair value is immediately recognized in income. Premiums and receipts, ifany, are recognized as adjustments to interest expense over the lives of theindividual contracts.

 

***ForeignCurrency 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 condensedconsolidated financial statements as of March 31, 2008 and for the threemonths ended March 30, 2008 and the condensed combined financialstatements for the three months ended March 31, 2007 are unaudited;however, such financial statements have been reviewed by our independentregistered public accounting firm.

 

**Available Information**

** **

We are subject to theinformation requirements of the Securities Exchange Act of 1934 and, inaccordance therewith, we are required to file with the SEC periodic reports andother information. These reports and other information may be inspected andcopied at the Public Reference Room maintained by the SEC at 100 F Street,N.E., Washington, D.C. 20549 or obtained from the SEC’s website(http://www.sec.gov). Our website on the internet is located athttp://www.osgamerica.com. Our periodic reports and other information filedwith or furnished to the SEC are available, free of charge, through ourwebsite, as soon as reasonably practicable after those reports and otherinformation are electronically filed with or furnished to the SEC.

 

**ITEM 4(T).    CONTROLS AND 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 Company’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 Company’smanagement, including the CEO and CFO, concluded that the Company’s currentdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed by the Company in the reports the Company files orsubmits under the Exchange Act is (i) recorded, processed, summarized andreported, within the time periods specified in the Securities and ExchangeCommission’s rules and forms and (ii) accumulated and communicated tothe Company’s management, including the CEO and CFO, as appropriate to allowtimely decisions regarding required disclosure. There have been no material changes in the Company’s internal controlsor in other factors that could materially affect these controls during theperiod covered by this Quarterly Report.

 

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** **

**PART II – OTHER INFORMATION**

** **

**ITEM 1.          LEGAL PROCEEDINGS**

** **

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****.       RISK FACTORS**

** **

Therehave been no material changes in the Partnership’s risk factors from thosedisclosed in our Annual  Report on Form 10-Kfor the year ended December 31, 2007.

 

**ITEM 2****.  UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 6.          EXHIBITS**

 

See Exhibit Index on page 27.

 

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REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

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

 

We havereviewed the condensed consolidated balance sheet of OSG America L.P. as of March 31,2008 and the related condensed consolidated statements of operations, changesin partners’ capital, and cash flows for the three-month period ended March 31,2008, and the condensed predecessor combined carve-out statements ofoperations, and cash flows for the three-month period ended March 31,2007.  These financial statements are the responsibility of thePartnership’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 makinginquires 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 condensed consolidated financial statements or the predecessorcondensed combined carve-out financial statements referred to above for them tobe in conformity with U.S. generally accepted accounting principles.

 

We havepreviously audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheet ofOSG America L.P as of December 31, 2007, and the related consolidatedstatements of operations, cash flows and changes in partner’s capital for theyear then ended not presented herein, and in our report dated March 6,2008, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth inthe accompanying condensed consolidated balance sheet as of December 31,2007, is fairly stated, in all material respect, in relation to theconsolidated balance sheet from which it has been derived.

 

 
| /s/ Ernst & Young LLP |
|--------------------------------|

 

CertifiedPublic Accountants

 

Tampa,Florida

 

May 2,2008

 

25

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SIGNATURES

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

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

 

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** **

**EXHIBITINDEX**

** **
| 15     | Letter from Ernst &  Yong 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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