UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~March~~June 3130, 2009

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

For the transition period from ______ to _____

Commission file number 001-32326

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


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

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

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

Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o Accelerated filer o Non-accelerated filer (Do not check if smaller reporting company) o
Smaller reporting company x

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

The number of the registrant’s common units outstanding as of ~~July~~August 31, 2009 was 11,353,808. At that date, 6,899,968 subordinated units were outstanding.

U.S. SHIPPING PARTNERS L.P. DEBTOR-IN-POSSESSION as of April 30, 2009 FORM 10-Q FOR THE QUARTER ENDED ~~MARCH~~JUNE 3130, 2009 TABLE OF CONTENTS

		Page No.
	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008	3
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008	3
	Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income for the three month periods ended March 31, 2009 and 2008	4
	Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income for the three and six-month periods ended June 30, 2009 and 2008	4
	Unaudited Condensed Consolidated Statement of Changes in Partners’ Capital for the three-month period ended March 31, 2009	5
	Unaudited Condensed Consolidated Statement of Changes in Partners’ Capital for the six-month period ended June 30, 2009	5
	Unaudited Condensed Consolidated Statement of Cash Flows for the three-month periods ended March 31, 2009 and 2008	6
	Unaudited Condensed Consolidated Statement of Cash Flows for the six-month periods ended June 30, 2009 and 2008	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2836
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3850
Item 4.	Controls and Procedures	3951
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	4051
Item 1A.	Risk Factors	4052
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4052
Item 3.	Defaults Upon Senior Securities	4152
Item 4.	Submission of Matters to a Vote of Security Holders	4153
Item 5.	Other Information	4153
Item 6.	Exhibits	4355
SIGNATURES		4456

In this report, unless the context otherwise requires, the terms “we,” “us,” “our,” and “the Partnership” refer to U.S. Shipping Partners L.P., a Delaware limited partnership, and its subsidiaries.

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

U.S. Shipping Partners L.P. Debtor-in-Possession as of April 30, 2009 Unaudited Condensed Consolidated Balance Sheet (in thousands)

	March 31, 2009			December 31, 2008
	June 30, 2009			December 31, 2008
Assets
Current assets
Cash and equivalents	$	2319,~~369~~159		$	20,599
Restricted cash and equivalents		~~710~~—			7,566
Accounts receivable, net		64,~~483~~571			4,905
Prepaid expenses and other current assets		1112,~~648~~080			19,077
Total current assets		4235,~~210~~810			52,147
Vessels and equipment, net		~~762~~823,~~848~~370			704,195
Deferred financing costs, net		—			2,253
Other assets		23,~~029~~340			1,840
Total assets	$	~~807~~862,~~087~~520		$	760,435
Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt	$	681,529		$	610,295
Current portion of long-term debt (Joint Venture)	$	—		$	176,721
Accounts payable		1,727			7,424
Current portion of long-term debt (Partnership)		—			433,574
Due to affiliates		3,664			4,123
Accounts payable		2,213			7,424
Due to affiliates		1,305			4,123
Deferred revenue		—			6,165
Accrued expenses and other liabilities		303,~~938~~034			30,193
Total current liabilities		~~717~~6,~~858~~552			658,200
Long-term debt (Joint Venture)		307,282			—
Liabilities subject to compromise		495,252			—
Deferred income taxes		2,720			2,720
Other liabilities		~~17,062~~807			17,969
Total liabilities	$	~~737~~812,~~640~~613		$	678,889
Partners’ Capital
Partners’ capital	$	(1739,~~695~~006	)	$	(4,014	)
Accumulated other comprehensive loss		(76,~~155~~532	)		(8,294	)
Total partners’ equity		(2445,~~850~~538	)		(12,308	)
Non controlling interest in Joint Venture		94,297			93,854
Noncontrolling interest in Joint Venture		95,445			93,854
Total partners’ capital	$	6949,~~447~~907		$	81,546
Total liabilities and partners capital	$	~~807~~862,~~087~~520		$	760,435

The accompanying notes are an integral part of these condensed consolidated financial statements.

U.S. Shipping Partners L.P. Debtor-in-Possession as of April 30, 2009 Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (in thousands; except per unit data)

	For the Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Revenues	$	4731,~~929~~666		$	5149,~~504~~819		$	79,595		$	101,323
Operating expenses
Vessel operating expenses		1614,172			1716,~~021~~384			30,344			33,405
Voyage expenses		159,~~845~~013			1317,~~679~~331			24,858			31,010
General and administrative expenses		5,~~984~~044			34,~~994~~011			8,434			8,005
Depreciation and amortization expenses		7,~~991~~729			10,~~504~~445			15,720			20,949
Impairment charges		—			~~5,720~~(8	)		—			5,712
Other expense (income)		—			67
Other (income) expense		(50	)		53			(50	)		120
Total operating expenses, net		4535,~~992~~908			5048,~~985~~216			79,306			99,201
Operating income		1,937			519
Operating (loss) income		(4,242	)		1,603			289			2,122
Interest expense		16,303			7,891
Interest expense (contractual interest of $14,524 and $30,827 for the three and six months ended June 30, 2009, respectively)		5,295			6,879			21,598			14,770
Interest income		(3211	)		(~~1,040~~655	)		(43	)		(1,695	)
Net gain on derivative financial instruments		(1,~~150~~234	)		(~~442~~586	)		(2,384	)		(1,028	)
Loss before income taxes and noncontrolling interest		(13,184	)		(5,890	)
Loss before reorganization charges, income taxes and noncontrolling interest		(8,292	)		(4,035	)		(18,882	)		(9,925	)
Provision for income taxes		54			292
Reorganization charges		11,832			—			14,426			—
Net loss		(13,238	)		(6,182	)
Provision (benefit) for income taxes		39			(1,514	)		93			(1,222	)
Net gain (loss) attributable to noncontrolling interest		443			(404	)
Net loss		(20,163	)		(2,521	)		(33,401	)		(8,703	)
Net loss attributable to USSLP unit holders		(13,681	)		(5,778	)
Net gain (loss) attributable to noncontrolling interest		1,148			162			1,591			(242	)
Other comprehensive loss
Net loss attributable to USSLP unit holders		(21,311	)		(2,683	)		(34,992	)		(8,461	)
Amortization of deferred loss from derivatives in AOCI		~~1,139~~623			—9,008			1,762			305
Fair market value adjustment for derivatives		—			(8,703	)
Comprehensive (loss) income	$	(20,688	)	$	6,325		$	(33,230	)	$	(8,156	)
Comprehensive loss	$	(12,542	)	$	(14,481	)
General partner’s interest in net loss	$	(426	)	$	(54	)	$	(700	)	$	(169	)
General partner’s interest in net loss	$	(274	)	$	(116	)
Limited partners’ interest in net loss
Limited partners’ interest in net loss
Net loss	$	(20,885	)	$	(2,629	)	$	(34,292	)	$	(8,292	)
Net loss	$	(13,407	)	$	(5,662	)
Net loss per unit - basic and diluted	$	(1.14	)	$	(0.14	)	$	(1.88	)	$	(0.45	)
Net loss per unit - basic and diluted	$	(0.73	)	$	(0.31	)
Weighted average units outstanding - basic		18,254			18,254			18,254			18,244
Weighted average units outstanding - basic		18,254			18,234
Weighted average units outstanding - diluted		18,254			18,254			18,254			18,244
Weighted average units outstanding - diluted		18,254			18,234

The accompanying notes are an integral part of these condensed consolidated financial statements.

U.S. Shipping Partners L.P. Debtor-in-Possession as of April 30, 2009 Unaudited Condensed Consolidated Statement of Changes in Partners’ Capital (in thousands)

																			Accumulated
	Partners’ Capital													Non Controlling Interest in Joint Venture			Accumulated Other Comprehensive Income (Loss)
	Partners’ Capital															Non			Other
	Limited Partners
	Limited Partners															Controlling			Comprehensive
	Common					Subordinated					General Partner
	Common						Subordinated						General			Interest in			Income
	Units		$			Units		$												Total
	Units			$			Units			$			Partner			Joint Venture			(Loss)			Total
Balance at January 1, 2009	11,353		$	66,427		6,900		$	(68,292	)	$	(2,149	)	$	93,854		$	(8,294	)	$	81,546
Balance at January 1, 2009		11,353		$	66,427			6,900		$	(68,292	)	$	(2,149	)	$	93,854		$	(8,294	)	$	81,546
Net loss	—			(21,331	)	—			(12,961	)		(700	)		—			—			(34,992	)
Net loss		—			(8,340	)		—			(5,067	)		(274	)		—			—			(13,681	)
Amortization of deferred loss from derivatives in AOCI	—			—		—			—			—			—			1,762			1,762
Amortization of deferred loss from derivatives in AOCI		—			—			—			—			—			—			1,139			1,139
Net gain attributable to noncontrolling interest	—			—		—			—			—			1,591			—			1,591
Adjustments to Non Controlling Interest in Joint Venture		—			—			—			—			—			443			—			443
Balance at June 30, 2009	11,353		$	45,096		6,900		$	(81,253	)	$	(2,849	)	$	95,445		$	(6,532	)	$	49,907
Balance at March 31, 2009		11,353		$	58,087			6,900		$	(73,359	)	$	(2,423	)	$	94,297		$	(7,155	)	$	69,447

The accompanying notes are an integral part of these condensed consolidated financial statements.

U.S. Shipping Partners L.P. Debtor-in-Possession as of April 30, 2009 Unaudited Condensed Consolidated Statement of Cash Flows (in thousands)

	For the Three Months Ended March 31,
	Six Months Ended June 30,
	2009			2008
Cash flows from operating activities
Net loss	$	(1333,~~681~~401	)	$	(58,~~778~~461	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing costs		1017,~~244~~973			1021,~~968~~871
Impairment charge		—			5,720
Impairment charges		—			5,712
Loss on sale of surplus equipment		—			67
Reorganization charges		8,665			—
Amortization of deferred loss from derivatives in AOCI		12,~~380~~003			—
Benefit for accounts receivable		(51	)		(90	)
Loss on sale of surplus equipment		—			120
Equity compensation		—			37
Net gain on derivative financial instruments		(2,384	)		(1,028	)
Net gain on derivative financial instruments		(1,150	)		(442	)
Provision for accounts receivable		234			50
Noncontrolling interest in Joint Venture		443			(404	)
Equity compensation		—			183
Deferred income taxes		—			192
Noncontrolling interest in Joint Venture		—			(242	)
Deferred income taxes		—			(1,290	)
Changes in assets and liabilities:
Accounts receivable		~~(1,527~~100	)		13,~~162~~263
Prepaid expenses and other current assets		7,~~601~~045			1(2,~~178~~851	)
Capitalized drydock costs		(23,~~811~~119	)		(12,~~966~~551	)
Accounts payable		(~~1,901~~209	)		~~(1,182~~255	)
Interest added to debt outstanding		24,~~851~~096			—
Deferred revenue		(6,165	)		(~~1,193~~108	)
Accrued expenses and other liabilities		67,~~063~~733			(41,~~762~~569	)
Net cash provided by operating activities		12,~~296~~571			313,~~507~~354
Cash flows from investing activities
Change in restricted cash and equivalents, net		67,~~856~~566			3975,~~000~~767
Sale of surplus equipment		—			138
Cash received upon settlement of derivative financial instruments		—			657
Construction of vessels and equipment		(73,765	)		(82,183	)
Sale of surplus equipment		—			280
Net cash used in investing activities		(66,909	)		(43,045	)
Construction of vessels and equipment		(142,138	)		(154,150	)
Net cash used in investing activities		(134,572	)		(77,446	)
Cash flows from financing activities
Proceeds from Joint Venture revolver borrowings		—			29,895
Proceeds from borrowings		—			7,000
Contribution by noncontrolling interest equity investors in Joint Venture		—			17,936
Proceeds from Joint Venture revolver borrowings		130,561			53,331
Proceeds from revolver borrowings		68,383			—
Contribution by noncontrolling interest equity investors in Joint Venture		—			31,999
Repayment of debt		—			(~~775~~1,550	)
Distributions to partners		—			(510,~~100~~209	)
Net cash provided by financing activities		68130,~~383~~561			4180,~~956~~571
Net increase in cash and cash equivalents		2,770			2,418
Net (decrease) increase in cash and cash equivalents		(1,440	)		16,479
Cash and cash equivalents at beginning of period		20,599			21,604
Cash and cash equivalents at end of period	$	2319,~~369~~159		$	2438,~~022~~083
Supplemental disclosure of cash flow information
Cash paid for reorganization charges	$	5,761		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

U.S. Shipping Partners L.P. Debtor-In-Possession as of April 30, 2009 Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)


1.	Nature of Operations

~~Entering 2008~~During the three and six months ended June 30, 2009, U.S. Shipping Partners L.P. (the “Partnership”) owned and operated ~~six~~ four integrated tug barge units (“ITBs”), three chemical product, or parcel, tankers (“Parcel Tankers”), one product tanker (“Houston”) and ~~one~~three articulated tug ~~barge~~ barges (“~~ATB~~ATBs”). During the ~~fourth~~three ~~quarter~~and ofsix ~~2008,~~months ~~the~~ended ~~Partnership~~June ~~sold~~30, ~~two ITBs~~2008, ~~the ITB~~we ~~Groton~~ owned and ~~the~~operated ~~ITB~~six ~~Jacksonville~~ITBs, ~~due~~three toParcel ~~decreased~~Tankers, ~~demand for~~the ~~these~~Houston ~~vessels.~~and ~~The~~one ~~Partnership’s~~ATBs. ~~second~~During ~~ATB,~~ the ~~ATB~~second ~~Galveston,~~half ~~was~~of ~~delivered and~~2008 ~~entered~~we ~~service~~sold intwo ~~August~~ITBs ~~2008~~ and ~~the~~completed ~~third~~construction ~~ATB,~~of ~~the ATB Brownsville, was delivered~~ and ~~entered~~began ~~service~~operating intwo ~~November 2008~~ATBs.

As of March 31, 2009, our fleet consists of eleven owned and operated tank vessels: four ITBs, one product tanker, three chemical parcel tankers, and three ATBs. The ATB Corpus Christi was delivered to us on July 31, 2009 and entered service in August 2009. We also currently manage two product tankers on behalf of a joint venture we formed to construct and operate five product tankers (the “Joint Venture”), the Golden State, which entered service in January 2009, and the Pelican State, which entered service in June 2009 and commenced its first commercial voyage in July 2009. We are currently transitioning these management services to another manager appointed by the Joint Venture and expect this transition to be complete by the end of September 2009. See Note 16, “Subsequent Events”.

Our primary customers are major oil and chemical companies. ~~For~~ ~~the~~We ~~three~~do ~~months~~not ~~ended~~assume ~~March~~ownership ~~31,~~of ~~2009,~~any ~~three~~of ~~customers~~the ~~accounted~~products ~~for~~that ~~10%~~we ortransport ~~more~~on ofour ~~voyage revenue~~vessels. For the three months ended ~~March~~June 3130, 2009 and 2008, we had four and one customer(s), respectively, that accounted for 10% or more of voyage revenue. WeFor dothe ~~not~~six ~~assume ownership~~months ofended ~~any~~June of30, ~~the~~2009 ~~products~~and ~~that~~2008, we ~~transport~~had onfour ~~our~~and ~~vessels~~three customers, respectively, that accounted for 10% or more of voyage revenue. The Partnership is engaged in transportation services between ports in the United States, principally for refined petroleum products, petrochemical and commodity chemical products. The vessels operate under the regulatory provisions of the Jones Act. To improve utilization of the ITB fleet, the Partnership employed its ITB fleet to transport grain overseas for humanitarian organizations. Recognition principles of revenue and certain expenses for these voyages ~~under~~ under GAAP differ from the recognition principles applicable to our transportation of petroleum, petrochemical and commodity chemical products. With respect to the transportation of refined petroleum, petrochemical and commodity chemical products, under GAAP we generally recognize revenue based upon the relative transit time in each period to the total estimated transit time for each voyage. With respect to our grain voyages, we only recognize revenue and certain voyage expenses when the grain is delivered to its final destination.

In the opinion of management, these unaudited financial statements reflect all adjustments, consisting of normal and recurring entries, necessary for a fair presentation of the financial results of such interim periods in accordance with accounting principles generally accepted in the United States and have been prepared pursuant to the rules of the Securities and Exchange Commission. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for a full year, particularly in light of the fact that the Partnership and certain of its subsidiaries and affiliated entities filed voluntary petitions for reorganization relief under the bankruptcy code. These financial statements should be read together with the consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008 (the “Form 10-K”).

~~In the~~As ~~third~~further ~~quarter~~discussed ofin ~~2008~~Note 2, the Partnership ~~determined~~together ~~that~~with itall ~~should~~of ~~have~~its ~~been allocating~~wholly-owned ~~gains~~subsidiaries, US Shipping General Partner LLC, its general partner (“USSGP”), and ~~losses~~USS inVessel ~~respect~~Management LLC, a wholly-owned subsidiary of ~~its~~USSGP ~~joint~~(collectively, ~~venture~~the to“Debtors”), ~~construct~~are ~~five product~~reorganizing ~~tankers~~under Chapter 11 of the United States Bankruptcy Code (the “~~Joint~~Bankruptcy ~~Venture~~Code”) inand, ~~accordance~~as ~~with~~a result, adopted the ~~expected~~American ~~economic returns~~Institute of ~~the~~Certified ~~Joint~~Public ~~Venture~~Accountants Statement of Position 90-7, ~~rather~~“Financial ~~than~~Reporting ~~proportionally~~by ~~based~~Entities onunder ~~ownership interest.~~the AsBankruptcy aCode” ~~result~~(SOP 90-7), during the ~~Partnership~~quarter ~~determined~~ended ~~that~~June it30, ~~had~~2009. ~~been~~SOP ~~erroneously allocating~~90-7 ~~60%~~does ofnot ~~gains~~generally ~~and~~change ~~losses~~the tomanner ~~its~~in ~~Joint~~which ~~Venture~~financial ~~partners~~statements ~~via~~are prepared; however, it does require that the ~~Noncontrolling~~ ~~Interest~~financial ~~line~~statements ~~since~~for periods subsequent to the ~~inception~~filing of the ~~Joint~~Chapter ~~Venture~~11 inpetitions ~~2006. The~~distinguish ~~Partnership~~transactions ~~does~~and ~~not~~events ~~consider~~that ~~this~~are ~~error~~directly ~~material~~associated with tothe reorganization from the ~~historical financial~~ongoing ~~statements~~operations ~~and~~of ~~has~~the business. Revenues, ~~therefore~~expenses, ~~revised~~realized ~~this~~gains ~~allocation~~and bylosses ~~correcting~~ and provisions for losses that can be directly associated with the ~~error~~reorganization ~~during~~and restructuring of the business must be reported separately as reorganization items in our statement of operations for the quarter ended ~~September~~June 30, ~~2008~~2009. ~~Accordingly,~~Our ~~all~~balance ~~losses from~~sheet ~~the~~must ~~Joint~~distinguish ~~Venture~~pre-petition ~~are~~liabilities ~~allocated~~subject to ~~the~~compromise ~~Partnership~~both ~~and~~from ~~all~~those ~~gains~~pre-petition ~~from~~liabilities ~~the Joint~~that ~~Venture~~ are ~~allocated~~not subject to ~~the~~compromise ~~noncontrolling~~and ~~interest~~from ~~holder~~post-petition liabilities. ~~The~~Liabilities ~~first quarter~~that ~~2008~~may ~~impact~~be ofaffected ~~this~~by ~~out~~a plan of ~~period~~reorganization ~~adjustment~~must ~~would~~be ~~have~~reported ~~been~~at ~~an additional~~the ~~allocation~~amounts ofexpected ~~$404~~to inbe ~~losses~~allowed, toeven ~~the~~if ~~Partnership~~they may be settled for lesser amounts. We adopted SOP 90-7 effective April 30, ~~recorded~~2009, ~~through~~ and will prepare our financial statements in accordance with its requirements for the ~~Noncontrolling~~duration ~~Interest~~of ~~line~~the reorganization proceedings.

The liquidity pressures facing the Partnership described in its Form 10-K for the year ended December 31, 2008 continued in the first quarter of 2009 and led to the Partnership, together with all of its wholly-owned subsidiaries, US Shipping General Partner LLC, its general partner (“USSGP”), and USS Vessel Management LLC, a wholly-owned subsidiary of USSGP (collectively, the “Company”) filing for bankruptcy on April 29, 2009 as further described below in Note 2, “Proceedings Under Chapter 11 of the Bankruptcy Code. The Joint Venture was not part of the bankruptcy filing. The ability of the Partnership to continue as a going concern is dependent upon, among other things, (i) the Partnership’s ability to comply with the terms and conditions of the cash collateral order entered by the Bankruptcy Court in connection with the Bankruptcy Cases (defined below); (ii) the ability of the Partnership to generate cash from operations; (iii) the ability of the Partnership to obtain confirmation of and to consummate the Plan or another plan of reorganization under the Bankruptcy Code; and (iv) the cost, duration and outcome of the reorganization process. Uncertainty as to the outcome of these factors raises substantial doubt about the Partnership’s ability to continue as a going concern. We are currently evaluating various courses of action to address the operational and liquidity issues the Partnership is facing, and formulating plans for improving operations. There can be no assurance that any of these efforts will be successful. Consistent with generally accepted accounting principles preparing these unaudited consolidated financial statements on a going concern basis contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. These unaudited consolidated financial statements do not include any adjustments that might result should the Partnership be unable to continue as a going concern.

U.S. Shipping Partners L.P. Debtor-In-Possession as of April 30, 2009 Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

The liquidity pressures facing the Partnership described in its Form 10-K for the year ended December 31, 2008 continued in the first half of 2009 and led to the Debtors filing for bankruptcy on April 29, 2009 as further described below in Note 2, “Proceedings Under Chapter 11 of the Bankruptcy Code”. The Joint Venture was not part of the bankruptcy filing. The ability of the Partnership to continue as a going concern is dependent upon, among other restrictions, (i) the Partnership’s ability to comply with the terms and conditions of the cash collateral order entered by the Bankruptcy Court; (ii) the ability of the Partnership to generate cash from operations; (iii) the ability of the Partnership to obtain confirmation of and to consummate a plan of reorganization under the Bankruptcy Code; and (iv) the cost, duration and outcome of the reorganization process. Uncertainty as to the outcome of these factors raises substantial doubt about the Partnership’s ability to continue as a going concern. We are currently evaluating various courses of action to address the operational and liquidity issues the Partnership is facing, and formulating plans for improving operations. There can be no assurance that any of these efforts will be successful. Consistent with generally accepted accounting principles, preparing these unaudited consolidated financial statements on a going concern basis contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. These unaudited consolidated financial statements do not include any adjustments that might result should the Partnership be unable to continue as a going concern.

In the third quarter of 2008, the Partnership determined that it should have been allocating gains and losses in respect of the Joint Venture to construct five product tankers in accordance with the expected economic returns of the Joint Venture, rather than proportionally based on ownership interest. As a result, the Partnership determined that it had been erroneously allocating gains and losses to its Joint Venture partners via the Noncontrolling interest line since the inception of the Joint Venture in 2006. The Partnership does not consider this error material to the historical financial statements and has, therefore, revised this allocation by correcting the error during the quarter ended September 30, 2008. Accordingly, all losses from the Joint Venture are allocated to the Partnership and all gains from the Joint Venture are allocated to the other Joint Venture partners. The three and six month June 30, 2008 impact of this out of period adjustment would have resulted in an additional allocation of $162 in gains to the other Joint Venture partners and an additional allocation of $242 in losses to the Partnership, respectively, recorded through the Noncontrolling interest line.


2.	Proceedings Under Chapter 11 of the Bankruptcy Code

Effective April 29, 2009, (the ~~Partnership,~~“Filing ~~together with all of its wholly-owned subsidiaries~~Date”), ~~USSGP,~~the ~~and~~Debtors ~~USS Vessel Management LLC,~~ filed voluntary petitions for reorganization relief under Chapter 11 of Title 11 of the ~~United States~~ Bankruptcy Code ~~(the “Bankruptcy Code”)~~ in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) (the “Bankruptcy ~~Filing”).~~ ~~Immediately prior to the Bankruptcy~~ Filing~~, the Company entered into a Plan Support Agreement (the “April PSA~~”) with the holders of (i) in excess of two-thirds of the amounts (including without limitation in respect of the termination obligations under the interest rate swaps) due under the Partnership’s Third Amended and Restated Credit Agreement, dated as of August 7, 2006, as amended, by and among the Partnership, certain subsidiaries of the Partnership, Canadian Imperial Bank of Commerce, as administrative agent, and the lenders and other agents party thereto (the lenders thereunder the “Senior Secured Lenders”) and (ii) approximately 70% of the amounts due in respect of the Partnership’s 13% Senior Secured Notes due 2014 (the “Second Lien Notes”). OnThe ~~July~~Joint ~~10,~~Venture ~~2009,~~was ~~the~~not ~~Partnership~~part ~~and a majority in interest~~ of ~~each of~~ the ~~Senior~~Bankruptcy Secured Lenders and holders of Second Lien Notes who were party to the April PSA entered into a First Amendment to Plan Support Agreement (the April PSA as amended by the First Amendment, the “Amended Plan Support Agreement”) pursuant to which the Partnership and the lenders party to the April PSA adjusted certain milestones related to the Company’s bankruptcy proceedings and amended the terms and conditions of the proposed plan of reorganization as set forth in the Plan Term Sheet attached as Exhibit A to the April PSAFiling.

~~The parties~~Immediately prior to the ~~Amended~~Bankruptcy Filing, the Debtors entered into a Plan Support Agreement ~~have~~(the ~~agreed~~“April toPSA”) ~~support~~with athe ~~plan~~holders of ~~reorganization~~ ~~for~~(i) ~~the~~in ~~Company~~excess onof ~~the~~two-thirds ~~terms~~of ~~and~~the ~~conditions~~amounts ~~set~~(including ~~forth~~without limitation in respect of the ~~Plan~~ ~~Term~~termination ~~Sheet~~obligations ~~attached~~under asthe ~~Exhibit~~interest Arate toswaps) due under the Partnership’s Third Amended ~~Plan~~and ~~Support~~Restated Credit Agreement., dated as of August 7, 2006, as amended, by ~~They~~ and ~~have~~among ~~also~~the ~~agreed~~Partnership, ~~not~~certain tosubsidiaries ~~support~~of the Partnership, ~~directly~~Canadian orImperial ~~indirectly~~Bank of Commerce, ~~any~~as ~~other~~administrative ~~plan~~agent, and the lenders and other agents party thereto (the lenders thereunder the “Senior Secured Lenders”) and (ii) approximately 70% of the amounts due in ~~exchange~~respect ~~for~~of the ~~Company~~Partnership’s ~~agreement~~13% toSenior ~~implement~~Secured ~~all~~Notes ~~steps~~due ~~necessary~~2014 ~~to solicit~~(the “Second Lien Notes”). On July 10, 2009, the ~~requisite~~Partnership ~~acceptances~~and a majority in interest of each of the Senior Secured Lenders and holders of Second Lien Notes who were party to the April PSA entered into a First Amendment to Plan Support Agreement (the April PSA as ~~defined~~amended ~~below~~by the First Amendment, the “July PSA”) pursuant to which the Partnership and ~~obtain from~~the lenders party to the ~~Bankruptcy~~April ~~Court~~PSA anadjusted ~~order~~certain ~~confirming~~milestones related to the ~~Plan~~Debtors’ ~~substantially~~bankruptcy ~~in accordance~~proceedings ~~with~~and amended the terms and conditions of the ~~Amended~~proposed plan of reorganization as set forth in the Plan ~~Support~~Term ~~Agreement.~~Sheet ~~The~~attached ~~Amended~~as ~~Plan~~ Exhibit ~~Support~~A ~~Agreement~~to ~~may~~the beApril ~~terminated~~PSA. ~~under~~On ~~certain~~September ~~circumstances~~18, ~~including in~~2009, the ~~event~~Partnership ~~that~~and the ~~Plan~~steering ~~and~~committee ~~related~~representing ~~disclosure~~the ~~statement~~Senior ~~are~~Secured ~~not~~Lenders ~~approved~~and ~~by certain~~the ~~deadlines,~~holders of the ~~Plan~~Second isLien ~~not~~Notes ~~consummated~~party ~~within~~to athe ~~certain~~July ~~period~~PSA ofentered ~~time after~~into ~~its~~a ~~filing~~Second ~~with~~Amendment to Plan Support Agreement (the ~~Bankruptcy~~July ~~Court,~~PSA aas ~~party~~amended ~~materially~~by ~~breaches~~the Second Amendment, the “Amended Plan Support Agreement,”) ~~the~~pursuant ~~Chapter~~to 11which ~~cases~~the ~~are~~Partnership ~~converted~~and tothe ~~cases under~~steering ~~Chapter~~committee, 7on behalf of the ~~Bankruptcy~~lenders ~~Code~~party orto the ~~Bankruptcy~~July ~~Court~~PSA, ~~grants~~amended ~~relief that~~certain isterms ~~inconsistent~~and conditions ~~with~~of the ~~Amended~~proposed ~~Plan~~plan ~~Support~~of ~~Agreement~~reorganization oras set forth in the Plan Term Sheet attached as Exhibit A to the July PSA.

On August 6, 2009, the Company filed its First Amended Joint Plan of Reorganization with the Bankruptcy Court (the “Plan”). Under the Plan:

· The Senior Secured Lenders will receive:

(i)	new senior secured term notes issued by reorganized USSP (“Reorganized USSP”) in an aggregate principal amount equal to $240,000 and guaranteed by the other reorganized debtors. The senior secured term notes will:
	(A)	be secured by a first priority lien on substantially all of the assets of the reorganized debtors;
	(B)	require quarterly mandatory prepayment from excess cash flow (as defined in the Plan) once the reorganized debtors have achieved a $25,000 cash balance in the first year following the Company’s emergence from bankruptcy and a $20,000 (subject to adjustment under certain circumstances) cash balance thereafter;
	(C)	amortize at the annual rate of 1% of the aggregate amount of the new senior secured term notes beginning in the first full year following the Company’s emergence from bankruptcy;

U.S. Shipping Partners L.P. Debtor-In-Possession as of April 30, 2009 Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

	(D)	have a final maturity date of August 7, 2013;
	(E)	bear interest at a rate of LIBOR plus 7.20%, subject to a 2% LIBOR floor; and
	(F)	be subject to certain customary covenants, including without limitation an interest coverage test (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage ratio to be determined (but consistent with the interest coverage test and the projections provided by the Partnership to the Senior Secured Lenders).
(ii)	new junior secured term notes issued by Reorganized USSP in an aggregate principal amount equal to $60,000 and guaranteed by the other reorganized debtors. The junior secured term notes will:
	(A)	be secured by a second priority lien on substantially all of the assets of the reorganized debtors;
	(B)	require, after the senior secured term notes are repaid in full, quarterly mandatory prepayment from excess cash flow (as defined in the Plan once the reorganized debtors have achieved a $25,000 cash balance in the first year following the Company’s emergence from bankruptcy and a $20,000 (subject to adjustment under certain circumstances) cash balance thereafter;
	(C)	amortize, after the senior secured term notes are repaid in full, at the annual rate of 1% of the aggregate amount of the new junior secured term notes;
	(D)	have a final maturity date of August 7, 2013;
	(E)	bear interest at a rate of LIBOR plus 0.50%, subject to a 2% LIBOR floor; and
	(F)	be subject to certain customary covenants, including without limitation an interest coverage test (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage ratio to be determined (but consistent with the interest coverage test and the projections provided by the Partnership to the Senior Secured Lenders).
(iii)	all of Reorganized USSP’s Class A Common Stock, representing fifty percent (50%) of Reorganized USSP’s common stock on a fully diluted basis before giving effect to the Class B Common Stock to be issued pursuant to a management equity plan described below, provided that Senior Secured Lenders that are not U.S. Citizens for U.S. Coastwise Trade Law purposes will receive a combination of Class A Common Stock and warrants to purchase Class A Common Stock (“Class A Warrants”).

The parties to the Amended Plan Support Agreement have agreed to support a plan of reorganization for the Debtors on the terms and conditions set forth in the Plan Term Sheet attached as Exhibit A to the July PSA as amended by the Second Amendment. They have also agreed not to support, directly or indirectly, any other plan, in exchange for the Debtors’ agreement to implement all steps necessary to solicit the requisite acceptances of the Plan (as defined below) and obtain from the Bankruptcy Court an order confirming the Plan substantially in accordance with the terms of the Amended Plan Support Agreement. The Amended Plan Support Agreement may be terminated under certain circumstances, including in the event that the Plan and related disclosure statement are not approved by certain deadlines, the Plan is not consummated within a certain period of time after its filing with the Bankruptcy Court, a party materially breaches the Amended Plan Support Agreement, the Chapter 11 cases are converted to cases under Chapter 7 of the Bankruptcy Code or the Bankruptcy Court grants relief that is inconsistent with the Amended Plan Support Agreement or the Plan Term Sheet.

	·	The holders of the Second Lien Notes will receive shares of Class B Common Stock representing, on a fully diluted basis, fifty percent (50%) of the common stock of Reorganized USSP, before giving effect to the Class B Common Stock to be issued pursuant to a management equity plan described below, provided that holders of the Second Lien Notes that are not U.S. Citizens for U.S. Coastwise Trade Law purposes will receive a combination of Class B Common Stock and warrants to purchase Class B Common Stock. The Second Lien Notes will be cancelled.
	·	The Class A Common Stock and the Class B Common Stock will have the same ownership and voting rights, provided that dividends and other distributions declared in respect of Reorganized USSP’s common stock will first be distributed in respect of the Class A Common Stock in an amount equal to, in aggregate, approximately $54,000 (dependent on the termination value of our interest rate swaps), the unpaid portion of which will increase by four percent (4%) per year (non-compounded) (the “Priority Distribution Amount”). The Class A Warrants will provide that in the event Reorganized USSP makes a distribution to holders of Class A Common Stock in respect of the Priority Distribution Amount, each holder of such Class A Warrant will receive a cash payment equal to the amount it would have received had it exercised its Class A Warrant immediately prior to such distribution being made and owned Class A Common Stock as the time such distribution was being made.

On August 6, 2009, the Debtors filed their First Amended Joint Plan of Reorganization with the Bankruptcy Court. On August 26, 2009, the Debtors filed their Second Amended Joint Plan of Reorganization with the Bankruptcy Court, together with the Disclosure Statement related thereto as approved by the Bankruptcy Court. On September 18, 2009, the Debtors filed their Third Amended Joint Plan of Reorganization with the Bankruptcy Court (the “Plan”), Under the Plan:


•	The Senior Secured Lenders will receive:

	(i)	new senior secured term notes issued by reorganized USSP (“Reorganized USSP”) in an aggregate principal amount equal to $240,000 and guaranteed by the other reorganized debtors. The senior secured term notes will:

		(A)	be secured by a first priority lien on substantially all of the assets of the reorganized debtors;

		(B)	require quarterly mandatory prepayment from excess cash flow (as defined in the Plan) once the reorganized debtors have achieved a $25,000 cash balance in the first year following the Debtors emergence from bankruptcy and a $20,000 (subject to adjustment under certain circumstances) cash balance thereafter;

		(C)	amortize at the annual rate of 1% of the aggregate amount of the new senior secured term notes beginning one year following the Debtors emergence from bankruptcy;

		(D)	have a final maturity date of August 7, 2013;

		(E)	bear interest at a rate of LIBOR plus 7.20%, subject to a 2% LIBOR floor; and

		(F)	be subject to certain customary covenants, including without limitation an interest coverage test (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage ratio of not more than 7.5x to 1.

	(ii)	new junior secured term notes issued by Reorganized USSP in an aggregate principal amount equal to $60,000 and guaranteed by the other reorganized debtors. The junior secured term notes will:

		(A)	be secured by a second priority lien on substantially all of the assets of the reorganized debtors;

		(B)	require, after the senior secured term notes are repaid in full, quarterly mandatory prepayment from excess cash flow (as defined in the Plan) once the reorganized debtors have achieved a $25,000 cash balance in the first year following the Debtors emergence from bankruptcy and a $20,000 (subject to adjustment under certain circumstances) cash balance thereafter;

		(C)	amortize, after the senior secured term notes are repaid in full, at the annual rate of 1% of the aggregate amount of the new junior secured term notes;

		(D)	have a final maturity date of August 7, 2013;

U.S. Shipping Partners L.P. Debtor-In-Possession as of April 30, 2009 Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

· In no event will persons who are not U.S. Citizens for U.S. Coastwise Trade Law be issued common stock of Reorganized USSP representing in aggregate more than 23% of the common stock to be outstanding on the date the Company emerges from bankruptcy. · Reorganized USSP will adopt a management equity plan providing for the issuance to management of 18.18% of the Class B Common Stock, representing on a fully-diluted basis 10% of the outstanding common stock of Reorganized USSP. Fifty percent (50%) of such equity to be available under the plan will be issued to management at the time the Company emerges from bankruptcy, with 25% vesting immediately and an additional 25% vesting on the first, second and third anniversaries of the Company’s emergence from bankruptcy. The remaining fifty percent (50%) available under the management equity plan will be issuable from time to time as determined by the board of directors of Reorganized USSP. · The warrants to be issued to the persons who are not U.S. Citizens for U.S. Coastwise Trade Law purposes will have an exercise price of $0.001 per share, will expire December 31, 2029 and may only be exercised by persons who are U.S. Citizens for U.S. Coastwise Trade Law purposes. · The existing and outstanding common units, subordinated units and general partnership interests of USSP will be cancelled without the payment of any amount to the holders thereof. · Customary releases will be provided to the Company, its current and former officers and directors, the Senior Secured Lenders, the holders of the Second Lien Notes, the various agents and trustees under the debt agreements and the respective officers, directors, employees, agents, advisors and professionals of each of the foregoing, subject to specified exceptions.


		(E)	bear interest at a rate of LIBOR plus 0.50%, subject to a 2% LIBOR floor; and

		(F)	be subject to certain customary covenants, including without limitation an interest coverage test (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage ratio of not more than 7.5x to 1.

	(iii)	fifty percent (50%) of Reorganized USSP’s common stock (“Common Stock”) on a fully diluted basis before giving effect to the Common Stock to be issued pursuant to a management equity plan described below, provided that Senior Secured Lenders that are not U.S. Citizens for U.S. Coastwise Trade Law purposes will receive a combination of Common Stock and warrants to purchase Common Stock (“Warrants”); and

	(iv)	contingent payment rights entitling the holders thereof to payments aggregating approximately $55,500 (plus a fee of four percent (4%) per year (non-compounded) on the undistributed portion thereof) following payment in full of the new senior secured term notes and new junior secured term notes, which payments must be made before any dividends or distributions (including distributions upon liquidation or sale of the Reorganized USSP) can be made on the Common Stock.

•	The holders of the Second Lien Notes will receive fifty percent (50%) of the Common Stock of Reorganized USSP, before giving effect to the Common Stock to be issued pursuant to a management equity plan described below, provided that holders of the Second Lien Notes that are not U.S. Citizens for U.S. Coastwise Trade Law purposes will receive a combination of Common Stock and Warrants. The Second Lien Notes will be cancelled.

•	In no event will persons who are not U.S. Citizens for U.S. Coastwise Trade Law be issued Common Stock of Reorganized USSP representing in aggregate more than 23% of the Common Stock to be outstanding on the date the Debtors emerge from bankruptcy.

•	Reorganized USSP will adopt a management equity plan providing for the issuance to management of 10% (on a fully-diluted basis) of the Common Stock of Reorganized USSP. Fifty percent (50%) of such equity to be available under the plan will be issued to management at the time the Debtors emerge from bankruptcy, with 25% vesting immediately and an additional 25% vesting on the first, second and third anniversaries of the Debtors emergence from bankruptcy. The remaining fifty percent (50%) available under the management equity plan will be issuable from time to time as determined by the board of directors of Reorganized USSP.

•	The warrants to be issued to the persons who are not U.S. Citizens for U.S. Coastwise Trade Law purposes will have an exercise price of $0.001 per share, will expire December 31, 2029 and may only be exercised by persons who are U.S. Citizens for U.S. Coastwise Trade Law purposes.

•	The existing and outstanding common units, subordinated units and general partnership interests of USSP will be cancelled without the payment of any amount to the holders thereof.

•	Customary releases will be provided to the Debtors, their current and former officers and directors, the Senior Secured Lenders, the holders of the Second Lien Notes, the various agents and trustees under the debt agreements and the respective officers, directors, employees, agents, advisors and professionals of each of the foregoing, subject to specified exceptions.

The implementation of the Plan is dependent upon a number of factors, including final documentation, ~~the approval of a disclosure statement~~ and confirmation and consummation of the Plan in accordance with the provisions of the Bankruptcy Code.

Refer to Note 3—, “Proceedings Under Chapter 11 of the Bankruptcy Code” in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008 and our various Bankruptcy Court filings for additional information on our Proceedings Under Chapter 11 of the Bankruptcy Code.

3. New Accounting Pronouncements

On March 31, 2009, the Partnership adopted FASB Staff Position (FSP) No. FAS 157-4, ―Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, (FSP FAS 157-4). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased and includes guidance for identifying circumstances that indicate a transaction is not orderly. This guidance is necessary to maintain the overall objective of fair value measurements, which is that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The adoption of FSP FAS 157-4 had no impact on the Financial Statements.

On January 1, 2009, the Partnership adopted SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” (SFAS 160). SFAS 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This pronouncement, among other requirements, requires entities with noncontrolling interests to classify noncontrolling interests as components of equity. This pronouncement requires entities to be viewed for reporting purposes from an economic unit perspective rather than a controlling interest perspective. The Partnership adopted FAS Statement No. 160 effective January 1, 2009 and reclassified the 60% noncontrolling interest of the Partnership’s Joint Venture in its consolidated balance sheet to the equity section.

On January 1, 2009, the Partnership adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133,” (SFAS 161). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities, including (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (SFAS 133), and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Other than the required disclosures (see Note 11, “ Hedging”), the adoption of SFAS 161 had no impact on the Financial Statements.

U.S. Shipping Partners L.P. Debtor-In-Possession as of April 30, 2009 Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

~~In May 2009, the~~ Financial ~~Accounting Standards Board (“FASB”) issued~~ Statement ofPresentation ~~Financial Accounting Standards (SFAS) No. 165, ―Subsequent Events, (SFAS 165). SFAS 165 establishes general standards of accounting for~~ and ~~disclosure~~Reporting of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for interim periods ending after June 15, 2009. The adoption of SFAS 165 is not expected to have an impact on the Financial Statements as management already followed a similar approach prior to the adoption of this standard (see Note 16, “Subsequent Events”).

~~In June~~As ~~2009,~~required ~~the~~by ~~FASB~~SOP ~~issued SFAS No. 167~~90-7, ~~―Amendments~~we tohave ~~FASB Interpretation~~begun ~~No.~~presenting 46(R), (SFAS 167). SFAS 167 amends FASB Interpretation No. 46 (Revised December 2003), ―Consolidation of Variable Interest Entities—an interpretation of ARB No. 51, (FIN 46(R)) to require an enterprise to perform an analysis to determine whether the ~~enterprise~~Debtors’s ~~variable~~pre-petition ~~interest or~~debt ~~interests~~instruments ~~give~~at ~~it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is~~ the ~~primary~~ ~~beneficiary~~allowed ofclaim a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at riskamount, as adefined ~~group,~~by ~~lose~~SOP the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity90-7. ~~SFAS 167 becomes effective for the Partnership on January 1, 2010. Management is currently evaluating the potential impact of SFAS 167 on the Financial Statements.~~

An official committee of unsecured creditors has been appointed in the Bankruptcy Cases and, in accordance with the provisions of the Bankruptcy Code, will have the right to be heard on all matters that come before the Bankruptcy Court. The Debtors are required to bear certain of the committee’s costs and expenses, including those of their counsel and financial advisors.

Under the Bankruptcy Code, we have the right to assume or reject executory contracts (i.e., contracts that are to be performed by the contract parties after the Filing Date) and unexpired leases, subject to Bankruptcy Court approval and other limitations. In this context, “assuming” an executory contract or unexpired lease means that we will agree to perform our obligations and cure certain existing defaults under the contract or lease and “rejecting” them means that we will be relieved of our obligations to perform further under the contract or lease, which will give rise to a pre-petition claim for damages for the breach thereof.

Pursuant to the Bankruptcy Code, schedules have been filed by the Debtors setting forth the assets and liabilities of the Debtors as of the Filing Date. Differences between amounts recorded by the Debtors and claims filed by the creditors will be investigated and resolved as part of the proceedings in the Bankruptcy Cases. The bar date for the filing of proofs of claim against the Debtors was August 13, 2009. Approximately 300 claims were filed by the bar date. However, a number of these claims are currently in dispute and, accordingly, the ultimate number and allowed amounts of such claims is not presently known.

The Debtors have received approval from the Bankruptcy Court to pay or otherwise honor certain of their pre-petition obligations, subject to certain restrictions, including employee and crew salaries and wages, certain benefits and other employee and crew obligations; pre-petition claims of certain suppliers that are critical to our continued operation; insurance premiums related to pre-petition policies; claims related to obligations under the Joint Venture; certain claims related to pre-petition construction; vendor claims with possessory liens and broker commissions related to pre-petition revenues.

We anticipate that substantially all of the Debtors’ liabilities as of the Filing Date will be resolved under and treated in accordance with the Plan and voted on by our creditors. All of the Debtors’ liabilities as of the Filing Date will be resolved in accordance with the provisions of the Bankruptcy Code. The creditors’ voting deadline was September 25, 2009 and the Bankruptcy Court has scheduled a confirmation hearing for the Plan on October 1, 2009. The Senior Secured Lenders and the holders of Senior Notes have voted in favor of the Plan while the holders of unsecured claims have voted to reject the Plan. There can be no assurance that the Plan will be confirmed by the Bankruptcy Court and consummated, nor can there be any assurance that we will be successful in achieving our restructuring goals or that any measures that are achievable will result in sufficient improvement to our financial position. Accordingly, until the time that the Debtors emerge from bankruptcy, there will be no certainty about our ability to continue as a going concern. If a restructuring is not completed, we could be forced to sell a significant portion of our assets to retire debt outstanding or, under certain circumstances, to cease operations.

All of the Debtors’ pre-petition debt is in default and, as described below, the accompanying condensed consolidated and debtor-in-possession balance sheets present the Debtors’ pre-petition debt of $460,424 under the caption “Liabilities subject to compromise” in accordance with SOP 90-7. Debtors’ pre-petition debt includes the estimated settlement amount of the early terminated hedges by the respective hedge’s counter-party of $22,754 and payment-in-kind interest added to debt of $5,041. In accordance with SOP 90-7, interest is accrued up to the Filing Date on the Debtors’ debt and together with payments due under its derivative financial instruments, representing an accrued interest payable amount of $24,888, is presented under the caption “Liabilities subject to compromise”. Interest on the debt associated with the Senior Secured Lenders and the holders of Senior Notes from the Filing Date through June 30, 2009 would have increased this interest accrual by $9,229. Following the Filing Date, we recorded and began to make the adequate protection payments to the Senior Secured Lenders under the Plan of Reorganization under the “Stipulation and Interim Order Regarding Use of Cash Collateral and Adequate Protection” which are included in reorganization charges. As required by SOP 90-7, the amounts of liabilities subject to compromise represent our estimate of known or potential pre-petition claims to be addressed in connection with the Bankruptcy Filing. Such claims are subject to future adjustments. Adjustments may result from, among other things, negotiations with creditors, rejection of executory contracts and unexpired leases, and orders of the Bankruptcy Court. Payment terms for these amounts will be established in connection with the bankruptcy proceedings.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

The “Liabilities subject to compromise” in the condensed consolidated and debtor-in-possession balance sheets consisted of the following items at June 30, 2009:


Debt	$	432,629
Terminated derivative financial instruments		22,754
PIK interest added to debt outstanding		5,041

Debt (including PIK and terminated derivatives)		460,424
Accrued pre-petition interest payable		24,888
Accrued liabilities		1,807
All other (1)		5,441

Debtor’s liabilities subject to compromise		492,560
Payables to non-debtor affiliates		2,692

Consolidated liabilities subject to compromise	$	495,252


	(1)	All other includes accrued liabilities for taxes payable and accounts payable.

The reorganization charges in the condensed consolidated and debtor-in-possession statements of operations for the period subsequent to our bankruptcy filing and up to June 30, 2009 consisted of the following items:


For the period April 30, 2009 through June 30, 2009:
Loss on termination of derivative financial instruments	$	8,074
Professional fees		2,436
Adequate protection payments		532

	$	11,042

Debtor-in-Possession Financial Information

In accordance with SOP 90-7, aggregate financial information of the Debtors is presented below as of June 30, 2009 and for the period April 30, 2009 through June 30, 2009. The investment in the Joint Venture, a non-debtor subsidiary, is recorded on an equity basis and inter-company balances between Debtors and the Joint Venture, as well as other non-debtor affiliates, are not eliminated.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Debtor-In-Possession Balance Sheet
(Unaudited; in thousands)


	June 30, 2009

Assets
Current assets
Cash and cash equivalents	$	15,635
Accounts receivable, net		4,559
Prepaid expenses and other current assets		11,787

Total current assets		31,981
Vessels and equipment, net		374,590
Investment in Joint Venture		51,294
Other assets		1,065

Total assets	$	458,930


Liabilities and Partners’ Capital
Current liabilities
Accounts payable	$	2,212
Due to affiliates		1,189
Accrued expenses and other liabilities		3,064

Total current liabilities		6,465
Liabilities subject to compromise		495,252
Deferred income taxes		2,720
Other liabilities		31

Total liabilities		504,468


Partners’ Capital
Partners’ capital		(39,006	)
Accumulated other comprehensive loss		(6,532	)

Total partners’ capital		(45,538	)

Total liabilities and partners’ capital	$	458,930

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Debtor-In-Possession Statement of Operations
June 30, 2009
(Unaudited; in thousands)


	April 30, 2009 to June 30, 2009


Revenues	$	20,173


Operating expenses
Vessel operating expenses		7,281
Voyage expenses		7,015
General and administrative expenses		3,414
Depreciation and amortization expenses		4,240
Other income		(122	)

Total operating expenses, net		21,828

Operating loss		(1,655	)
Interest expense, net		556

Loss before reorganization charges and income taxes		(2,211	)
Reorganization charges		11,042
Provision for income taxes		27

Net loss	$	(13,280	)

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Debtor-In-Possession Statement of Cash Flows
June 30, 2009
(Unaudited; in thousands)


	For the Period April 30, 2009 - June 30, 2009

Cash flows from operating activities
Net loss	$	(13,280	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation of vessels and equipment, and amortization of drydock costs		4,240
Reorganization charges		10,537
Amortization of deferred loss from derivatives in AOCI		624
Provision for accounts receivable		286
Working capital changes		(379	)

Net cash provided by operating activities		2,028

Cash flows from investing activities
Construction of vessels		(3,758	)

Net cash used in investing activities		(3,758	)

Cash flows from financing activities

Net cash provided by financing activities		—


Net increase in cash and cash equivalents		(1,730	)
Cash and cash equivalents at beginning of period		17,365

Cash and cash equivalents at end of period	$	15,635


Supplemental disclosure of cash flow information
Cash paid for reorganization charges	$	505


3.	New Accounting Pronouncements

On March 31, 2009, the Partnership adopted Financial Accounting Standards Board (FASB) Staff Position (FSP) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, (FSP FAS 157-4). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased and includes guidance for identifying circumstances that indicate a transaction is not orderly. This guidance is necessary to maintain the overall objective of fair value measurements, which is that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The adoption of FSP FAS 157-4 had no impact on the Financial Statements.

On January 1, 2009, the Partnership adopted Statement of Financial Accounting Standards (SFAS) No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” (SFAS 160). SFAS 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This pronouncement, among other requirements, requires entities with noncontrolling interests to classify noncontrolling interests as components of equity. This pronouncement requires entities to be viewed for reporting purposes from an economic unit perspective rather than a controlling interest perspective. The Partnership adopted FAS Statement No. 160 effective January 1, 2009 and reclassified the 60% noncontrolling interest of the Partnership’s Joint Venture in its consolidated balance sheet to the equity section.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

On January 1, 2009, the Partnership adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133,” (SFAS 161). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities, including (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (SFAS 133), and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Other than the required disclosures (see Note 11, “Hedging”), the adoption of SFAS 161 had no impact on the Financial Statements.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”. SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations. See Note 16, “Subsequent Events”.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”, SFAS 167 amends FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities—an interpretation of ARB No. 51”, (FIN 46(R)) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 becomes effective for the Partnership on January 1, 2010. Management is currently evaluating the potential impact of SFAS 167 on the Financial Statements.


4.	Net Income per Unit

The units used for basic net loss per unit and diluted net loss per unit are reconciled below (in thousands):

	For the Three Months Ended March 31,
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2009		2008		2009		2008
Weighted average units outstanding for basic net (loss) income per unit		18,254		18,~~234~~254		18,254		18,244
Dilutive effect of restricted units		—		—		—		—
Weighted average units outstanding for dilutive net (loss) income per unit		18,254		18,~~234~~254		18,254		18,244
The computation of diluted net loss per unit does not assume conversion, exercise or issuance of units that would have an anti-dilutive impact on net loss per unit.

~~Excluded from~~The ~~the~~computation ~~calculation~~ of ~~dilutive~~diluted net loss per unit ~~for~~does ~~the~~not ~~three~~assume ~~months ended March 31~~conversion, ~~2008~~exercise ~~were~~or 6issuance ~~restricted~~of units. ~~Since~~that we had a net loss for the three months ended March 31, 2008, any outstanding restricted stock units, unit options and phantom units were excluded from the calculation of diluted net loss per unit because their inclusion would have had an anti-dilutive ~~effect.~~net ~~There were~~loss noper ~~dilutive securities outstanding for the three months ended March 31, 2009~~share.

11 Excluded from the calculation of dilutive net loss per unit for the three and six months ended June 30, 2008 were 6 restricted units. Since we had a net loss for the three and six months ended June 30, 2008, any outstanding restricted stock units, unit options and phantom units were excluded from the calculation of diluted net loss per unit because their inclusion would have had an anti-dilutive effect. There were no dilutive securities outstanding for the three and six months ended June 30, 2009.

~~U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)~~16

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)


5.	Restricted Cash and Equivalents

On August 7, 2006, an escrow account was established as part of the Partnership’s debt and equity financings to fund the construction of three new ATBs (the “ATB Escrow”). Amounts ~~are~~were released from escrow as needed to fund construction. As ~~of March 31, 2009 and December 31, 2008, the ATB Escrow balance was $710 and $7,566, respectively.~~

~~Amounts~~ All amounts drawn on the ATB Escrow account ~~for~~during ~~items~~2009 ~~expected~~were toutilized beprior ~~paid~~to inJune ~~the~~30, ~~second quarter of~~ 2009. ~~were~~Amounts ~~$2,887, and are~~ included in cash and equivalents on the Consolidated Balance Sheet atfor ~~March~~items ~~31,~~paid ~~2009~~in asthe ~~these~~first ~~amounts~~quarter ~~were~~of ~~no longer legally restricted as to use at March 31,~~ 2009. ~~Similar amounts included in cash and equivalents~~ totaled $439 at December 31, 2008. As the Partnership projects all of the funds in the ATB Escrow will be used to satisfy obligations due during the next twelve months, all such funds are classified as current restricted cash and equivalents at March 31, 2009 and December 31, 2008.


6.	Vessels and Equipment

Vessels and equipment consisted of the following:

		March 31, 2009			December 31, 2008
			June 30, 2009			December 31, 2008
~~Vessels - Partnership~~	Vessels - Partnership	$	~~395,299~~$	395,264	$	~~395,299~~$	395,299
~~Vessels - Joint Venture~~	Vessels - Joint Venture		~~146,485~~	292,969		—	—
~~Office furniture, equipment and other~~	Office furniture, equipment and other		~~448~~	448		~~448~~	448
			542,232			395,747
				688,681			395,747
~~Less: Accumulated depreciation - Partnership~~	Less: Accumulated depreciation - Partnership		~~100,912~~	105,832		~~95,782~~	95,782
~~Less: Accumulated depreciation - Joint Venture~~	Less: Accumulated depreciation - Joint Venture		~~1,211~~	2,422		—	—
~~Subtotal~~	Subtotal		~~440,109~~	580,427		~~299,965~~	299,965
~~Construction-in-progress - Drydock~~	Construction-in-progress - Drydock		—	—		~~3,392~~	3,392
~~Construction-in-progress - ATB’s~~	Construction-in-progress - ATB’s		~~66,048~~	72,898		~~62,111~~	62,111
Construction-in-progress - Tankers			243,083			327,869
	Construction-in-progress - Joint Venture Tankers			158,233			327,869
Capitalized drydock expenditures, net of amortization of $9,902 and $8,252			13,608			10,858
	Capitalized drydock expenditures, net of amortization of $11,499 and $8,252			11,812			10,858
~~Total vessels and equipment, net~~	Total vessels and equipment, net	$	~~762,848~~$	823,370	$	~~704,195~~$	704,195

~~Vessels are~~At ~~recorded~~June ~~at cost~~30, ~~including capitalized interest and transaction fees where appropriate~~2009, ~~and~~vessels ~~depreciated~~– toJoint ~~salvage~~Venture ~~value~~consist ~~using~~of the ~~straight-line~~Golden ~~method~~State ~~as follows:~~and ~~10 years for~~ the ~~Chemical~~Pelican ~~Pioneer~~State, ~~the~~which ~~Charleston~~entered ~~and~~into ~~the~~service ~~Houston; and 30 years~~ for the ~~ATB~~Joint ~~Freeport,~~Venture ~~the~~in ~~ATB~~January ~~Galveston~~2009 and ~~the~~June ~~ATB Brownsville~~2009, ~~based on their respective estimated useful lives~~respectively. The ~~ITB’s~~ ~~are~~Golden ~~being~~State ~~depreciated to recoverable value over their remaining estimated depreciable lives through September 2010. Office furniture, equipment~~ and ~~other are depreciated over~~ the ~~estimated useful~~Pelican ~~life~~State ofwere ~~three~~each tocompleted ~~ten~~at ~~years.~~a ~~Major~~total ~~renewals~~cost ~~and betterments~~ of ~~assets are capitalized and depreciated over the remaining useful lives of the assets~~$146,484. ~~Maintenance~~ and repairs that do not improve or extend the useful lives of the assets are expensed as incurred. Leasehold improvements are capitalized and depreciated over the shorter of their useful life or the remaining term of the lease.

~~The Partnership~~Vessels ~~reviews~~are ~~the~~recorded ~~net~~at ~~book~~cost, including capitalized interest and transaction fees where appropriate, and depreciated to salvage value ofusing ~~vessels~~the straight-line method as follows: 10 years for ~~potential~~the ~~impairment whenever~~Chemical ~~events~~Pioneer, orthe ~~changes~~Charleston inand ~~circumstances~~the ~~indicate~~Houston; ~~that~~and 30 years for the ~~carrying~~Partnership’s ~~amount of~~ATBs aand ~~vessel~~the ~~may~~Joint ~~not~~Venture’s bevessels ~~fully~~based on their respective estimated useful lives. The ITBs are being depreciated to recoverable value over their estimated depreciable lives. InOffice furniture, equipment and other are depreciated over the ~~current~~estimated ~~period,~~useful life of three to ten years. Major renewals and betterments of assets are capitalized and depreciated over the ~~Partnership~~ ~~has~~remaining useful lives of the assets. Maintenance and repairs that do not ~~recorded~~improve ~~any~~or ~~charges~~extend asthe auseful ~~result~~lives of ~~changes~~the inassets are expensed as incurred. Leasehold improvements are capitalized and depreciated over the ~~carrying~~shorter ~~value~~ of ~~any~~their ofuseful life or the ~~Partnership’s~~remaining ~~vessels~~term of the lease.

~~We currently~~The ~~anticipate~~Partnership ~~scrapping~~reviews the ~~Sea~~net ~~Venture~~book ~~and~~value ~~selling~~of ~~the~~vessels ~~ITB~~for ~~New~~potential ~~York~~ impairment whenever events or changes in circumstances indicate that the ~~second~~carrying ~~half~~amount of ~~2009~~a ~~unless~~vessel ~~market~~may ~~conditions~~not ~~improve~~be fully recoverable. In the current period, the Partnership has not recorded any charges as a result of impairment of any of the Partnership’s or the Joint Venture’s vessels.

At March 31, 2009, vessels include the Golden State, which entered into service for the Joint Venture on January 9, 2009. It was completed at a total cost of $139,029 (excluding capitalized interest of $7,455). 17

12U.S. Shipping Partners L.P. Debtor-In-Possession as of April 30, 2009 Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

~~U.S.~~ We ~~Shipping~~currently ~~Partners~~anticipate ~~L.P.~~selling ~~Notes~~the toSea ~~Unaudited~~Venture ~~Condensed~~and ~~Consolidated~~the ~~Financial~~ITB ~~Statements (dollars~~New York in ~~thousands;~~the ~~except~~fourth ~~per~~quarter ~~unit~~of ~~data)~~2009 unless market conditions improve. We do not anticipate any material gain or loss on the sale of these vessels.

Vessels are required by both domestic (United States Coast Guard) and international (International Maritime Organization) regulatory bodies to be inspected twice every five years. To date, our ITBs have participated in the Underwater Inspection In Lieu of Drydock (“UWILD”) Program which allows vessels to be drydocked once every five years with a mid-period UWILD. In April 2007, we were advised by the U.S. Coast Guard that it will allow continued participation in the UWILD Program of non-or double hulled tank barges that are over 15 years of age if they only trade domestically. The Partnership expects to continue to participate in the UWILD Program. If the Partnership is required to conduct a second drydock in each five year period rather than rely on an underwater survey, the ITBs will be out of service longer and drydock expenditures will be higher than the time required for and the cost of conducting an underwater survey. Because of the age of the ITBs, their continued participation in the UWILD Program is now conditioned on their undergoing an enhanced survey during the UWILD, resulting in the vessel being off-hire, and not earning revenue, for an additional 12 days each time a survey is conducted; however, under international maritime organization regulations, in order for it to continue to trade internationally (including grain voyages), it will have to undergo two drydockings in each five year period, rather than a drydocking and a UWILD. Additionally, vessels may have to be drydocked in the event of accidents or other unforeseen damage. The Partnership’s recently constructed ~~ATB~~ATBs ~~Freeport, ATB Galveston and ATB Brownsville and the remaining newbuild ATB~~ qualify for the UWILD Program. The Senior Credit Facility prohibits the Partnership from drydocking any of the ITBs without the prior consent of the senior lenders. If the Partnership is not permitted to drydock the ITBs, it will be required to take them out of service.

There were no drydocks in progress at ~~March~~June 3130, 2009 and one at December 31, 2008. Capitalized drydock expenditures of $~~4,400~~100 and $2,410 were accrued at ~~March~~June 3130, 2009 and December 31, 2008, respectively. During the six months ended June 30, 2009, the Partnership reduced previously recorded estimates of drydock costs by $56.

Depreciation of vessels and equipment for the ~~quarters~~three months ended ~~March~~June 3130, 2009 and 2008 ~~were~~ was $6,~~341~~132 and $6,~~020~~021, respectively. Amortization of drydocking expenditures was $1,~~650~~597 and $4,~~484~~426 for the ~~quarters~~three months ended ~~March~~June 3130, 2009 and 2008, respectively.

~~At March~~Depreciation ~~31,~~of ~~2009~~vessels and ~~December~~equipment ~~31,~~for ~~2008,~~the ~~“Construction~~six ~~–in-progress-ATBs”,~~months ~~all~~ended ~~of which~~June ~~relates to the ATB Corpus Christi~~30, ~~which was completed in July~~ 2009 and ~~entered~~2008 ~~service~~was ~~in August 2009, includes capitalized interest of~~ $612,~~783~~473 and $512,~~054~~041, respectively,. ~~and~~Amortization ~~accrued~~of ~~liabilities~~drydocking ofexpenditures ~~$598~~was ~~and~~ $23,~~631,~~247 ~~respectively. At March 31, 2009~~ and ~~December 31~~$8,910 ~~2008, “Construction-in-progress-tankers”~~for ~~includes~~the ~~capitalized~~six ~~interest~~months ofended ~~$18,803~~June ~~and $23~~30,~~574,~~ ~~respectively,~~2009 and ~~accrued liabilities of $69 and $6~~2008,~~086,~~ respectively.

~~During the~~At ~~quarter~~June ~~ended~~30, ~~March~~2009 and December 31, 2008, ~~the~~“Construction-in-progress-ATBs”, ~~Partnership~~all ~~determined~~of ~~that~~which relates to the ~~value~~ATB ~~of construction~~Corpus inChristi, ~~progress~~which ofentered ~~the~~service ~~fourth~~in ~~ATB~~August ~~unit~~2009, ~~referenced~~includes ~~above~~capitalized ~~was~~interest ~~impaired~~of $7, as533 ~~the~~and ~~Partnership~~$5,054, ~~did~~respectively, ~~not~~and ~~obtain~~accrued ~~financing~~liabilities ~~for~~of ~~its~~$744 ~~construction~~and $2,631, respectively. ~~Management~~At ~~assessed~~June ~~the~~30, ~~fair~~2009 ~~value~~and ofDecember ~~the construction~~31, in2008, “Construction-in-progress-tankers” ofincludes ~~this~~capitalized interest ~~ATB~~of ~~unit~~$14,433 atand ~~zero~~$23,574, ~~which~~respectively, ~~resulted~~and inaccrued aliabilities ~~non-cash impairment~~of ~~charge~~$67 ofand $56,~~720~~086, respectively.

During the six months ended June 30, 2008, the Partnership determined that the value of construction in progress of the an ATB unit it was planning to have constructed was impaired, as the Partnership did not obtain financing for its construction. Management assessed the fair value of the construction in progress of this ATB unit at zero which resulted in a non-cash impairment charge of $5,712.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)


7.	Deferred Financing Costs

As a result of the Partnership not being in compliance with certain financial covenants at September 30, 2008 and December 31, 2008 and as a result of the senior lender waiver for non-compliance initially expiring at January 31, 2009, the Partnership accelerated the amortization period for deferred financing costs to January 31, 2009. For the ~~quarters~~three and six months ended ~~March~~June 3130, 2009 ~~and 2008~~, deferred financing costs of the Partnership (excluding those of the Joint Venture) of $~~2,253~~0 and $~~464~~2,253, respectively, were amortized and included in interest expense in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income, compared to $462 and a$927 for the three and six months ended June 30, 2008, respectively. A portion is included in Construction-in-progress-ATBs and Vessels as part of the capitalized interest portion of the Partnership’s ongoing project to construct ATBs.

As a result of the Partnership receiving a notice from the agent for the lenders to the Joint Venture asserting that events of default under that certain revolving notes facility agreement with the Joint Venture have occurred, which the Partnership disputes, the Partnership wrote off the Joint Venture’s remaining net deferred financing costs at December 31, 2008. For the ~~quarters~~three and six months ended ~~March~~June 31 30, 2009 ~~and~~there ~~2008,~~were no deferred financing costs ofamortized, compared to $0627 and $~~627~~1,254 ~~respectively,~~that ~~were~~ was amortized and included in ~~construction~~Construction-in-progress-~~tankers~~Tankers as part of the capitalized interest portion of the Joint Venture’s ongoing project to construct tankers for the three and six months ended June 30, 2008.

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)


8.	Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities at December 31, 2008 consisted of the following:

		March 31, 2009			December 31, 2008
			December 31, 2008
~~Interest~~	Interest	$	~~21,735~~$	12,757	$	~~12,757~~
~~Insurance claims~~	Insurance claims		~~3,007~~	3,061		~~3,061~~
~~Taxes payable~~	Taxes payable		~~1,527~~	1,597		~~1,597~~
Construction of vessels			629			6,795
	Accrued fuel charges			511
Accrued fuel charges			241			511
	Construction of vessels			6,795
~~Other~~	Other		~~3,799~~	5,472		~~5,472~~
~~Total~~	Total	$	~~30,938~~$	30,193	$	~~30,193~~

Pre-petition accrued expenses and other liabilities at June 30, 2009 are included in “Liabilities subject to compromise” as a result of the Partnership’s adoption of SOP 90-7. See Note 2, “Proceedings Under Chapter 11 of the Bankruptcy Code”.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)


9.	Debt

The Partnership’s outstanding debt consisted of the following:

		March 31, 2009			December 31, 2008
			June 30, 2009			December 31, 2008
Third Amended and Restated Credit Facility - Term, bearing interest at base rate (4.25%) plus LIBOR floor (3.25%); 7.5% at March 31, 2009 and December 31, 2008 including $3,410 PIK accrued interest of 1.5% from October 24, 2008 to January 30, 2009 and 4.5% from January 31, 2009 to March 31, 2009		$	301,191		$	298,639
	Third Amended and Restated Credit Facility - Term, bearing interest at base rate (4.25%) plus LIBOR (3.25%); 7.5% at April 29, 2009 and 7.5% at December 31, 2008 including $4,525 PIK accrued interest of 1.5% from October 24, 2008 to January 30, 2009 and 4.5% from January 31, 2009 to April 29, 2009		$	302,305		$	298,639
Third Amended and Restated Credit Facility - Revolving Notes bearing interest at base rate (4.25%) plus LIBOR floor (3.25%); 7.5% at March 31, 2009 and December 31, 2008 including $386 PIK accrued interest of 1.5% from October 24, 2008 to January 30, 2009 and 4.5% from January 31, 2009 to March 31, 2009			35,234			34,935
	Third Amended and Restated Credit Facility - Revolving Notes bearing interest at base rate (4.25%) plus LIBOR (3.25%); 7.5% at April 29, 2009 and 7.5% at December 31, 2008 including $516 PIK accrued interest of 1.5% from October 24, 2008 to January 30, 2009 and 4.5% from January 31, 2009 to April 29, 2009			35,365			34,935
13% Senior Secured Notes due 2014			100,000			100,000
	13% Second Lien Notes due 2014			100,000			100,000
Revolving Notes Facility - Joint Venture, bearing interest at LIBOR plus 4.5%; 5.06% at March 31, 2009 and 5.46% at December 31, 2008			245,104			176,721
	Terminated Interest Rate Swap Agreements			22,754			—
Total			681,529			610,295
	Revolving Notes Facility - Joint Venture, bearing interest at LIBOR (0.3%) plus 4.5%; 4.8% at June 30, 2009 and 5.5% at December 31, 2008			307,282			176,721
Less: Current portion of long-term debt			681,529			610,295
	Total			767,706			610,295
Long-term debt		$	—		$	—
	Less: Partnership portion of debt classifed as “Liabilities subject to compromise” at June 30, 2010			460,424			—
	Long-term debt at June 30, 2009 and current debt at December 31, 2008		$	307,282		$	610,295

~~Capitalized interest~~Interest ~~expense~~accrued ~~for~~up to the ~~quarters~~Filing ~~ended~~Date ~~March~~on ~~31,~~the ~~2009~~Debtors’ ~~and~~debt ~~2008~~together ~~was~~with $5payments due under its derivative financial instruments,~~843~~ ~~and~~ representing an accrued interest payable amount of $524,~~249~~888, ~~respectively~~is presented under the caption “Liabilities subject to compromise”. See Note 2, “Proceedings Under Chapter 11 of the Bankruptcy Code”.

Capitalized interest for the three months ended June 30, 2009 and 2008 was $4,023 and $5,639, respectively. Capitalized interest for the six months ended June 30, 2009 and June 30, 2008 was $9,866 and $10,838, respectively.

Senior Credit Facility

On December 30, 2008, the Partnership entered into a Forbearance Agreement with the lenders under the Third Amended and Restated Credit Facility (the “Senior Credit Facility”), which was extended several times and amended and restated on March 13, 2009, and which was scheduled to terminate on April 30, 2009. Pursuant to the forbearance agreements, our lenders agreed not to take any action as a result of the Partnership’s failure to make both the December 31, 2008 and March 31, 2009 principal and interest payments under the Senior Credit Facility, our failure to be in compliance with certain of our financial covenants at September 30, 2008 and December 31, 2008, and our failure to make the scheduled interest payment due in respect of our Second Lien Notes on March 17, 2009. During the term of the forbearance agreements, the Partnership agreed to engage in good faith negotiations with the administrative agent and the lenders regarding restructuring and strategic alternatives, including a possible sale of the Partnership. The Partnership filed for protection under the U.S. bankruptcy laws prior to the expiration of the most recent forbearance period. See Note 2—, “Proceedings Under Chapter 11 of the Bankruptcy Code”.

~~As the~~The ~~Partnership’s~~ Senior Credit Facility is ~~callable, the Partnership has~~ classified it as current debt at ~~March 31, 2009 and~~ December 31, 2008.

14 On June 30, 2009, the debt associated with our Senior Credit Facility was quoted at an average price of approximately $0.524 to the dollar, which results in an implied market value of $176,287.

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

On March 31, 2009, the debt associated with our Senior Credit Facility was quoted at an average price of approximately $0.407 to the dollar, which results in an implied market value of $136,925. In addition, our Second Lien Notes had an implied market value of $0.10 to the dollar, yielding an implied market value of $10,000.

Second Lien Notes

At ~~March~~ 31June 30, 2009 and December 31, 2008 the Partnership had accrued $78,~~559~~587 and $4,875 of interest on the Second Lien Notes, respectively. In February 2009, holders of $91,290 of the Second Lien Notes, representing 91.29% of the Second Lien Notes, delivered letters to the Partnership waiving their February 15, 2009 interest payment on the Second Lien Notes, and all future interest payments on the Second Lien Notes, until the earlier of six months following repayment in full of all amounts outstanding under the Senior Credit Facility and the Partnership seeking bankruptcy protection. On March 17, 2009, the Partnership provided $566 to the trustee to pay the interest due on the $8,710 principal amount of the Second Lien Notes for which the February 15, 2009 interest payment had not been waived.

Because the indenture governing the Second Lien Notes contains cross-default provisions that accelerate payment of the Second Lien Notes if there is a payment default or acceleration of the Senior Secured Facility, the Second Lien Notes have also been classified as current at March 31, 2009 and December 31, 2008. 20

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

On June 30, 2009, our Second Lien Notes were quoted at an average price of approximately $0.05 to the dollar, yielding an implied market value of $5,000.

Joint Venture Credit Facility

On August 7, 2006, the Joint Venture entered into a Revolving Notes Facility Agreement (the “Revolver”) pursuant to which affiliates of The Blackstone Group and other parties (the “Joint Venture Lenders”) made available $325,000 of revolving credit loans, of which $~~245~~307,~~104~~282 and $176,721 were drawn as of ~~March 31~~June 30, 2009 and December 31, 2008, respectively.

The Partnership received notice from the agent for the Joint Venture Lenders asserting that events of default under the Revolver have occurred and that the lenders were intending to foreclose on the Golden State vessel owned by the Joint Venture that the Partnership is managing pursuant to the management agreement. Because of the purported defaults, which could result in all amounts due under the Revolver becoming immediately due and payable if such defaults were actually determined to have occurred, which the Partnership disputes~~, these amounts have been classified as current at March 31, 2009 and December 31, 2008~~. ~~For further information, refer to Note 16—Subsequent Events—Settlement of Litigation with Joint Venture Investors.~~

AtFor ~~March 31,~~further ~~2009~~information, ~~the~~refer ~~estimated~~to ~~fair~~Note ~~value~~16, “Subsequent Events—Settlement of ~~the~~Litigation with Joint Venture’s ~~current debt equaled its carrying value of $245,104~~Investors”.

On September 8, 2009, the Joint Venture obtained a waiver from the agent for the Joint Venture Lenders stating that, upon the satisfaction of certain conditions, all events of default under the Revolver have been waived. The Partnership has been advised by counsel for the Joint Venture Lenders that the conditions to the effectiveness of the waiver have been satisfied and the waiver is effective. Therefore, the Joint Venture’s debt has been reclassified as long term at June 30, 2009.”

At June 30, 2009, the estimated fair value of the Joint Venture’s long-term debt equaled its carrying value of $307,282.


10.	Income Taxes

Prior to January 1, 2009, for federal income tax purposes, the Partnership took the position that it was a partnership that is not subject to federal income tax (excluding certain subsidiaries which are subject to corporate level taxation) based on the fact that at least 90% of its gross income in each year consisted of certain identified types of “qualifying income” (which includes dividends from subsidiary corporations and income from the transportation of minerals and natural resources, including gas, oil or products thereof).

On December 19, 2008, because of its increase in nonqualifying income and the likelihood that less than 90% of its gross income will be “qualifying income”, the Partnership elected to be classified as a corporation beginning January 1, 2009. Prior to this election, certain subsidiaries were already treated as corporations for tax purposes. At the time of this election, the tax basis of the assets and liabilities in the Partnership differed from the book basis, however, no net deferred tax asset was recorded as a full valuation allowance was established against this deferred tax asset.

The Partnership provides deferred income taxes for the tax effects of differences between the financial reporting and tax bases of its assets and liabilities which are recorded at enacted tax rates in effect for the years in which the differences are projected to reverse. The Partnership evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Partnership determined that it is more likely than not that certain deferred tax assets that existed as of December 31, 2008 will not be realized and, accordingly, provided a valuation allowance of $60,552 against these deferred tax assets. At ~~March~~June 3130, 2009 and December 31, 2008, the Partnership had current deferred tax assets net of valuation allowances of $2,720 and $2,720, respectively. At ~~March~~June 3130, 2009 and December 31, 2008, the Partnership had non-current deferred tax liabilities of $2,720 and $2,720, respectively.

1521

U.S. Shipping Partners L.P. Debtor-In-Possession as of April 30, 2009 Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

At ~~March~~ 31June 30, 2009 and December 31, 2008, the Partnership had $19,~~246~~266 and $19,201 of unrecognized tax benefits, respectively. At ~~March~~June 3130, 2009 and December 31, 2008, the Partnership had approximately $~~201~~220 and $193, respectively, of accrued interest and penalties related to uncertain tax positions. In the three month period ended ~~March~~June 3130, 2009 and 2008, the Partnership’s Unaudited Condensed ~~Consolidated~~ Consolidated Statement of Operations included $5439 and $9892 of unrecognized tax benefits, respectively. There were no other increases or decreases in unrecognized tax benefits during the period related to the lapse of any statute of limitations, settlements with taxing authorities, or changes in the Partnership’s assessment of whether it was more likely than not to prevail based on the technical merits of any tax position taken in prior periods. The tax years 2002-~~2008~~2007 remain open to examination by the major taxing jurisdictions in which the Partnership is subject to tax.


11.	Hedging

Partnership Hedging

In connection with entering into the Senior Credit Facility in 2006, the Partnership entered into an interest rate swap with a notional amount of $125,000 that effectively converted a portion of the floating LIBOR-based payments of its Senior Credit Facility to a fixed rate of 8.9%. ~~The fair value of this hedge was a liability of $8,575, net of a credit risk adjustment of 39% at March 31, 2009 and a liability of $9,167 at December 31, 2008.~~ This contract was originally designated as a cash flow hedge. As a result of the October 20, 2008 amendment to the Senior Credit Facility, the Partnership determined that as of October 1, 2008, this contract no longer met the hedge effectiveness requirements and accordingly, discontinued the hedge accounting treatment. Any subsequent gains or losses due to change in fair value of the contract beginning October 1, 2008 were recorded to earnings. The fair value of this contract at September 30, 2008 is reflected in other comprehensive income in the accompanying financial statements. ~~The~~This ~~change~~hedge inwas early terminated ~~fair~~ by ~~value~~the ~~for~~counterparty as a result of the ~~period~~Partnership’s ~~January~~bankruptcy 1,filing ~~2009~~resulting ~~through~~in ~~March~~its 31settlement value of approximately $13,397 ~~2009~~being ~~has~~reclassified ~~been~~ to debt and a loss on termination recorded into earnings (as apart ~~gain~~of reorganization charges) of $~~593~~4,754. ~~This~~Prior to its termination, the fair value of this hedge was ~~early~~a ~~terminated~~liability byof ~~the counterparty~~$8,643, asnet of a ~~result~~credit risk adjustment of ~~the~~39% ~~Partnership’s~~and ~~bankruptcy~~a ~~filing~~liability of $9,167 at December 31, 2008. The change in fair value in 2009, prior to its termination, has been recorded in earnings as a gain of $524.

In December 2006, the Partnership entered into an interest rate swap with a notional amount of $99,750 that effectively converted a portion of the floating LIBOR-based payments of its Senior Credit Facility to a fixed rate of 8.4%. ~~The fair value of this hedge was a liability of $6,028, net of a credit risk adjustment of 39% at March 31, 2009 and a liability of $6,396 at December 31, 2008.~~ This contract was originally designated as a cash flow hedge. As a result of the October 20, 2008 amendment to the Senior Credit Facility, the Partnership determined that as of October 1, 2008, this contract no longer met the hedge effectiveness requirements and accordingly, discontinued the hedge accounting treatment. Any subsequent gains or losses due to change in fair value of the contract beginning October 1, 2008 were recorded to earnings. The fair value of this contract at September 30, 2008 is reflected in other comprehensive income in the accompanying financial statements. ~~The~~This ~~change~~hedge inwas ~~fair~~early ~~value~~terminated ~~for~~by the ~~period~~counterparty as a result of the ~~January~~ Partnership’s 1,bankruptcy ~~2009~~filing ~~through~~resulting ~~March~~in 31its settlement value of approximately $9,357 ~~2009~~being ~~has~~reclassified ~~been~~to debt and a loss on termination recorded into earnings (as apart ~~gain~~ of reorganization charges) of $~~368~~3,320. ~~This~~Prior to its termination, the fair value of this hedge was ~~early~~a ~~terminated~~liability byof ~~the~~$6,037, ~~counterparty~~net asof a ~~result~~credit risk adjustment of ~~the Partnership’s~~39% ~~bankruptcy~~and ~~filing~~a liability of $6,396 at December 31, 2008. The change in fair value in 2009, prior to its termination has been recorded in earnings as a gain of $359.

In February 2006, the Partnership entered into contracts, denominated in Euros, for the purchase of owner-furnished items costing approximately $14,439 relative to the Partnership’s newbuild ATB series. To hedge the exposure to foreign currency, the Partnership entered into a series of foreign currency forward contracts effective through June 5, 2009, with an average exchange rate of $1.25/Euro. These contracts were originally designated as cash flow hedges, and through February 2008, the fair value of these contracts was included in other comprehensive income. ~~Subsequent to~~In ~~February~~March 2008, the Partnership ~~received~~paid amounts for the purchase of a portion of the owner-furnished equipment six months ahead of the original forecasted expenditure date. Accordingly, changes in fair value of the contract related to this expenditure subsequent to the date of the March payment, totaling $~~827~~25, is included in earnings, since the forecasted hedging relationship no longer exists. In addition, two of the forecasted payments were contractually extended and ~~recorded~~subsequently ~~this~~terminated, rendering the contracts designated as cash flow hedges for these forecasted payments ineffective. The Partnership sold these contracts during June 2008 and received net proceeds totaling $657, which is included in earnings. Of the total fair value of foreign exchange gains of $838 at June 30, 2008, $813 was recorded in ~~related~~ other tocomprehensive income at June 30, 2008, and $25 was recorded in earnings for the ~~Partnership’s~~each of the three and six-month periods ended June 30, 2008. The gain or loss on the foreign currency ~~hedges~~forward ~~that~~contracts ~~were~~currently ~~terminated~~included ~~given that~~in comprehensive income will be recognized in earnings at the ~~related~~time that the underlying ~~contract~~hedged ~~payments~~items ~~for~~(i.e., ~~owner~~the owner-furnished ~~equipment~~items) ~~for one~~are recognized in earnings as a component of depreciation expense. The fair market value of the ~~ATBs~~foreign currency forward contracts at June 30, 2008 was ~~cancelled~~a gain of $838. As of December 31, 2008, all contracts for this hedge have been satisfied.

1622

U.S. Shipping Partners L.P. Debtor-In-Possession as of April 30, 2009 Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

Joint Venture Hedging

On February 27, 2007, the Joint Venture purchased a nine year interest rate cap with a notional amount of $100,000 effective April 1, 2007 for $1,924, including transaction fees. This interest rate cap of the three month U.S. Dollar LIBOR of 6% is part of a hedging strategy in place at the Joint Venture to protect the value of its vessels and the chartering contracts thereon. Upon the completion of the construction of each vessel, the Joint Venture expects to sell the vessel together with any chartering contract that may be in place on such vessel. Since the long-term chartering contracts entered into by the Joint Venture will result in a fixed stream of cash flows over a multi-year period, the value that the Joint Venture may be able to obtain upon the sale of the combined vessel and chartering contract is subject to volatility based upon how interest rates fluctuate. The interest rate cap is intended to reduce the potential negative impacts to the Joint Venture’s cash flows that could result in movements in interest rates between the date a chartering contract was entered into for the first product tanker in December 2006 and the anticipated sale date of such combined vessel and chartering contract. The Joint Venture does not plan to hold or issue derivative financial instruments for trading purposes, but has not performed the activities necessary to qualify the contract for hedge accounting treatment under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. The fair market value of the interest rate cap at ~~March~~June 3130, 2009 and December 31, 2008 was a receivable of $~~965~~2,276 and $775, respectively and is recorded in “Other Assets” on the Consolidated Balance Sheets. The change in the fair value of the instrument was a gain of $~~189~~1,312 and ~~a loss of~~ $~~264~~1,501 for the three and six months ended June ~~March 31~~30, 2009 ~~and 2008~~, respectively, and is recorded as a gain ~~and loss, respectively,~~ on derivative financial instruments in the accompanying Consolidated Statements of Operations and Comprehensive Income, compared to a gain of $609 and 346, respectively, for the three and six months ended June 30, 2008, respectively.


12.	Partners’ Capital

The Partnership’s general partner has a 2% general partner interest and certain incentive distribution rights in the Partnership. Incentive distribution rights represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution, any cumulative arrearages on common units, and certain target distribution levels, have been achieved. The Partnership is required to distribute all of its available cash from basic surplus, as defined in the Partnership agreement. Under the terms of our Senior Credit Facility the Partnership is no longer permitted to make distributions to any of its unitholders until all outstanding borrowings under the Senior Credit Facility are repaid.


13.	Related Party Transactions

General Partner

General and administrative expenses, including shore side employee expenses, certain facility and lease costs, and wages and benefits for crew members are incurred directly by the Partnership’s general partner. These amounts are reimbursable by the Partnership pursuant to the partnership agreement. Reimbursable amounts expensed by the Partnership were $1415,~~882~~810 and $14,~~523~~267 for the three months ended June 30, 2009 and 2008, respectively, and $30,692 and $28,790 for the ~~quarters~~ six months ended ~~March~~June 3130, 2009 and 2008, respectively.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

New York Premise

On December 22, 2008, the Partnership entered into a one year lease beginning February 1, 2009 for the tenancy/residency of the Partnership’s chief executive officer. A security deposit of $17 was paid upon entering the lease. ~~For~~The Partnership paid $17 and $0 for the ~~quarters~~ three months ended ~~March~~June 3130, 2009 and 2008, ~~the~~respectively, ~~Partnership~~and ~~paid~~ $2542 and $0 for the six months ended June 30, 2009 and 2008, respectively, in connection with this lease.

Third Party Joint Venture Investors

As a result of the formation the Joint Venture, the Partnership considers the third party investors in the Joint Venture led by affiliates of The Blackstone Group (the “Joint Venture Investors”) to be related parties. In connection with the formation of the Joint Venture, the Joint Venture paid fees of $10,788 to the Joint Venture Investors. ~~For~~The Joint Venture has paid interest of $3,453 and $2,084 for the three months ended ~~March~~June 3130, 2009 and 2008, ~~the~~respectively, ~~Joint~~and ~~Venture~~$6,283 ~~has~~and ~~paid~~$3,822 ~~interest~~for ofthe $2six months ended June 30,~~830~~ 2009 and $12008,~~738,~~ respectively, to the Joint Venture Investors.

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)


14.	Commitments and Contingencies

Severance Obligations

In October 2008, Mr. Gridley, the Partnership’s former chairman and chief executive officer, resigned as an employee of the general partner of the Partnership. The Partnership had accrued severance of $1,251 of which $~~977~~ 925 remains as of ~~March~~June 3130, 2009. As a result of our bankruptcy filing, we are no longer making severance payments to Mr. Gridley. This amount is included in “Liabilities subject to compromise” at June 30, 2009 as a result of the Partnership’s adoption of SOP 90-7. See Note 2, “Proceedings Under Chapter 11 of the Bankruptcy Code”.

In December 2008, Mr. Al Bergeron, the Partnership’s vice president-chief financial officer, left the Partnership and the general partner. The Partnership had accrued severance of $930 of which $~~853~~814 remains as of ~~March~~June 3130, 2009. As a result of our bankruptcy filing, we are no longer making severance payments to Mr. Bergeron. This amount is included in “Liabilities subject to compromise” at June 30, 2009 as a result of the Partnership’s adoption of SOP 90-7. See Note 2, “Proceedings Under Chapter 11 of the Bankruptcy Code”.

Claims and Litigation

At ~~March~~ 31June 30, 2009 and December 31, 2008, the Partnership has a liability for total claims exposure, both insured and uninsured, of $32,~~007~~790 and $3,061, respectively, and a corresponding receivable from the insurance carrier of $32,~~718~~053 and $3,905, respectively. $220 of the amount not covered by insurance at June 30, 2009 is included in “Liabilities subject to compromise” at June 30, 2009 as a result of the Partnership’s adoption of SOP 90-7.

The Partnership is the subject of various claims and lawsuits in the ordinary course of business arising principally from personal injuries, collisions, and other casualties. Although the outcome of any individual claim or action cannot be predicted with certainty, the Partnership believes that any adverse outcome, individually or in the aggregate, would be substantially mitigated by applicable insurance and would not have a material adverse effect on the general partner’s financial position, results of operations or cash flows. The Partnership is subject to deductibles with respect to its insurance coverage up to $150 per incident and provides on a current basis for estimated payments thereunder. Legal costs associated with such claims are expensed as incurred.

See Note 16—, “Subsequent Events—Settlement of Litigation with Joint Venture Investors ” for information with respect to our litigation with the Joint Venture Investors and Joint Venture Lenders.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

ATB Commitments

The Partnership has contracted with Manitowoc Marine Group (“MMG”) for the construction of a barge and has also contracted with Eastern Shipbuilding Group, Inc. (“Eastern”) for the construction of a tug, which was joined with the barge to complete its newest and final ATB unit in the third quarter of 2009. The Partnership took delivery of the ATB in August 2009 at a cost of approximately $71,~~335~~221 (excluding capitalized interest which totaled $67,~~783~~533 at ~~March~~June 3130, 2009). AtThe ~~March~~cost ~~31, 2009,~~increase over the ~~Partnership~~originally ~~had~~budgeted ~~restricted~~amount ~~cash~~ of $~~710~~66,000 ~~and~~is ~~funds~~principally indue ~~operating~~to ~~cash of~~contractually ~~$2,887~~provided ~~which~~cost ~~was~~increases ~~used~~related to ~~pay~~increases ~~costs~~in ~~incurred~~major incomponents, ~~2009~~customer torequested ~~complete~~modifications ~~this~~and ~~final ATB~~change orders. The Partnership funded ~~the approximately~~ $863,~~285~~050 of the construction costs ~~needed~~with tofunds ~~complete~~escrowed at the time of the August 2006 financing for the purpose of financing the construction of three ATBs; ~~final~~ the ~~ATB~~remaining ~~and~~approximately ~~not~~$8,171 inof ~~escrow~~construction costs was funded from its operating cash flows. At June 30, 2009, the remaining ATB funding commitment was $5,856.


15.	Supplemental Guarantor Information

Set forth below is additional information regarding the financial position, results of operations and cash flows of U.S. Shipping Partners L.P. and U.S. Shipping Finance Corp. (together, the “Issuers” of the Partnership’s $100,000 13% Senior Secured Notes due 2014 (the “Second Lien Notes”)), the Partnership’s subsidiary guarantors of such Second Lien Notes and the Partnership’s subsidiary non-guarantors of such Second Lien Notes.

18 The subsidiary co-issuer entity (U.S. Shipping Finance Corp.), which is a 100% owned finance subsidiary of U.S. Shipping Partners L.P., commenced operations on August 7, 2006, two of the non-guarantor subsidiaries (USS Products Investor LLC and USS Product Carriers LLC) both commenced operations on August 7, 2006, one non-guarantor subsidiary, USS ATB 3 LLC, did not commence operations until it took delivery of the tug for the last ATB in May 2009 and the remaining non-guarantor subsidiary, USS ATB 4 LLC, never commenced operations. In addition, all of the Partnership’s wholly-owned subsidiaries other than the non-guarantor subsidiaries identified above guarantee the Second Lien Notes on a full and unconditional, joint and several basis. There are no restrictions on the ability of U.S. Shipping Partners L.P. to obtain funds from its wholly owned subsidiaries.

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

The subsidiary co-issuer entity (U.S. Shipping Finance Corp.), which is a 100% owned finance subsidiary of U.S. Shipping Partners L.P., commenced operations on August 7, 2006, two of the non-guarantor subsidiaries (USS Products Investor LLC and USS Product Carriers LLC) both commenced operations on August 7, 2006, one non-guarantor subsidiary, USS ATB 3 LLC, did not commence operations until May 2009 and the remaining non-guarantor subsidiary, USS ATB 4 LLC, never commenced operations. In addition, all of the Partnership’s wholly-owned subsidiaries other than the non-guarantor subsidiaries identified above guarantee the Second Lien Notes on a full and unconditional, joint and several basis. There are no restrictions on the ability of U.S. Shipping Partners L.P. to obtain funds from its wholly owned subsidiaries.

The Joint Venture is contractually restricted from distributing assets to the Parent entities, either by equity distribution or loan, without the consent of the Joint Venture Investors, or alternately, upon the achievement of operational and financial goals as established in the joint venture agreement.

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.Unaudited Consolidating Balance SheetAs of March 31, 2009 (in thousands)

	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries		Non- Guarantor Subsidiaries**		Adjustments			Total
Assets
Current assets
Cash and equivalents	$	—		$	—		$	21,176		2,193	$	—		$	23,369
Restricted cash and equivalents		—			—			710		—		—			710
Accounts receivable, net		—			—			6,470		13		—			6,483
Prepaid expenses and other current assets		—			—			11,438		210		—			11,648
Total current assets		—			—			39,794		2,416		—			42,210
Investment in subsidiaries, net		188,148			—			—		—		(188,148	)		—
Intercompany receivable		238,031			60,465			—		—		(298,496	)		—
Vessels and equipment, net		—			—			374,492		388,356		—			762,848
Other assets		—			—			1,064		965		—			2,029
Total assets	$	426,179		$	60,465		$	415,351		391,737	$	(486,644	)	$	807,087
Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt	$	436,425		$	100,000		$	—		245,104	$	(100,000	)	$	681,529
Accounts payable		—			—			1,727		—		—			1,727
Due to affiliates		—			—			3,546		118		—			3,664
Accrued expenses and other liabilities		—			—			29,760		1,178		—			30,938
Total current liabilities		436,425			100,000			35,033		246,400		(100,000	)		717,858
Intercompany payable		—			—			238,031		—		(238,031	)		—
Deferred income taxes		—			—			2,720		—		—			2,720
Other liabilities		14,603			—			2,459		—		—			17,062
Total liabilities		451,028			100,000			278,243		246,400		(338,031	)		737,640
Partners’ Capital
Partners’ capital		(17,695	)		(39,535	)		137,108		51,040		(148,613	)		(17,695	)
Accumulated other comprehensive loss		(7,155	)		—			—		—		—			(7,155	)
Non controlling interest in Joint Venture		—			—			—		94,297		—			94,297
Total partners’ capital		(24,850	)		(39,535	)		137,108		145,337		(148,613	)		69,447
Total liabilities and partners’ capital	$	426,178		$	60,465		$	415,351		391,737	$	(486,644	)	$	807,087

*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet. In addition, the related deferred financing costs are presented as an asset of both entities.
**	Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

U.S. Shipping Partners L.P. Unaudited Consolidating Balance Sheet As of December 31, 2008 (in thousands)

	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries		Non- Guarantor Subsidiaries**		Adjustments			Total
Assets
Current assets
Cash and equivalents	$	—		$	—		$	20,583		16	$	—		$	20,599
Current portion of restricted cash and equivalents		—			—			7,566		—		—			7,566
Accounts receivable, net		—			—			4,905		—		—			4,905
Prepaid expenses and other current assets		—			—			18,883		194		—			19,077
Total current assets		—			—			51,937		210		—			52,147
Investment in subsidiaries, net		186,797			—			—		—		(186,797	)		—
Intercompany receivable		247,780			63,715			—		—		(311,495	)		—
Vessels and equipment, net		—			—			376,326		327,869		—			704,195
Deferred financing costs, net		2,253			909			—		—		(909	)		2,253
Other assets		—			—			1,065		775		—			1,840
Total assets	$	436,830		$	64,624		$	429,329		328,854	$	(499,201	)	$	760,435
Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt	$	433,574		$	100,000		$	—		176,721	$	(100,000	)	$	610,295
Accounts payable		—			—			7,424		—		—			7,424
Due to affiliates		—			—			3,659		464		—			4,123
Deferred revenue		—			—			6,165		—		—			6,165
Accrued expenses and other liabilities		—			—			23,419		6,774		—			30,193
Total current liabilities		433,574			100,000			40,667		183,959		(100,000	)		658,200
Intercompany payable		—			—			247,780		—		(247,780	)		—
Deferred income taxes		—			—			2,720		—		—			2,720
Other liabilities		15,563			—			2,406		—		—			17,969
Total liabilities		449,137			100,000			293,573		183,959		(347,780	)		678,889
Partners’ Capital
Partners’ capital		(4,014	)		(35,376	)		135,757		51,040		(151,421	)		(4,014	)
Accumulated other comprehensive loss		(8,294	)		—			—		—		—			(8,294	)
Noncontrolling interest in Joint Venture		—			—			—		93,854		—			93,854
Total partners’ capital		(12,307	)		(35,376	)		135,757		144,894		(151,421	)		81,546
Total liabilities and partners’ capital	$	436,830		$	64,624		$	429,329		328,854	$	(499,201	)	$	760,435

*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet. In addition, the related deferred financing costs are presented as an asset of both entities.
**	Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

U.S. Shipping Partners L.P. Unaudited Consolidating Statement of Operations Three Months Ended March 31, 2009 (in thousands)

	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total
Revenues	$	—		$	—		$	44,107		$	3,822		$	—		$	47,929
Operating expenses
Vessel operating expenses		—			—			14,384			1,788			—			16,172
Voyage expenses		—			—			15,825			20			—			15,845
General and administrative expenses		—			—			5,738			246			—			5,984
Depreciation and amortization		—			—			6,780			1,211			—			7,991
Total operating expenses, net		—			—			42,727			3,265			—			45,992
Operating income		—			—			1,380			557			—			1,937
Interest expense		15,993			4,159			—			310			(4,159	)		16,303
Interest income		—			—			(25	)		(7	)		—			(32	)
Net gain on derivative financial instruments		(961	)		—			—			(189	)		—			(1,150	)
(Loss) income before income taxes and noncontrolling interest		(15,032	)		(4,159	)		1,405			443			4,159			(13,184	)
Provision for income taxes		—			—			54			—			—			54
(Loss) income before noncontrolling interest		(15,032	)		(4,159	)		1,351			443			4,159			(13,238	)
Equity in earnings of unconsolidated subsidiaries		1,351			—			—			—			(1,351	)		—
Noncontrolling interest in Joint Venture		—			—			—			443			—			443
Net (loss) income	$	(13,681	)	$	(4,159	)	$	1,351		$	—		$	2,808		$	(13,681	)

*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet. In addition, the related deferred financing costs are presented as an asset of both entities.
**	Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

U.S. Shipping Partners L.P. Unaudited Consolidating Statement of Operations Three Months Ended March 31, 2008 (in thousands)

	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total
Revenues	$	—		$	—		$	51,504		$	—		$	—		$	51,504
Operating expenses
Vessel operating expenses		—			—			17,021			—			—			17,021
Voyage expenses		—			—			13,679			—			—			13,679
General and administrative expenses		37			—			3,519			438			—			3,994
Depreciation and amortization		—			—			10,504			—			—			10,504
Other expense		—			—			5,787			—			—			5,787
Total operating expenses, net		37			—			50,510			438			—			50,985
Operating (loss) income		(37	)		—			994			(438	)		—			519
Interest expense		7,891			3,407			—			—			(3,407	)		7,891
Interest income		—			—			(1,040	)		—			—			(1,040	)
Net (gains) losses on derivative financial instruments		(706	)		—			—			264			—			(442	)
(Loss) income before income taxes and noncontrolling interest		(7,222	)		(3,407	)		2,034			(702	)		3,407			(5,890	)
Provision for income taxes		—			—			292			—			—			292
(Loss) income before noncontrolling interest		(7,222	)		(3,407	)		1,742			(702	)		3,407			(6,182	)
Equity in earnings of unconsolidated subsidiaries		1,444			—			—			—			(1,444	)		—
Noncontrolling interest in Joint Venture losses		—			—			—			404			—			404
Net (loss) income	$	(5,778	)	$	(3,407	)	$	1,742		$	(298	)	$	1,963		$	(5,778	)

*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Notes. Accordingly, the interest expense in respect of the Notes has been presented as an expense of both entities in the above consolidating statement of operations.
**	Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

U.S. Shipping Partners L.P. Unaudited Consolidating Statement of Cash Flows For the Three Months Ended March 31, 2009 (in thousands)

	Year Ended 31-Mar-09			Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total
Cash flows from operating activities
Net (loss) income	$	(13,681	)	$	(13,681	)	$	(4,159	)	$	1,351		$	—		$	2,808		$	(13,681	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing costs		10,244			2,253			909			7,991			—			(909	)		10,244
Interest added to debt outstanding		2,851						—			2,851			—			—			2,851
Amortization of deferred loss from derivatives in AOCI		1,380			—						1,380									1,380
Benefit for accounts receivable		(51	)					—			(51	)		—			—			(51	)
Noncontrolling interest in Joint Venture		443			—			—			—			443			—			443
Net gain on derivative financial instruments		(1,150	)		(961	)		—			—			(189	)		—			(1,150	)
Capitalized drydock costs		(2,811	)		—			—			(2,811	)		—			—			(2,811	)
Equity in earnings of unconsolidated subsidiaries		—			(1,351	)		—			—			—			1,351			—
Changes in assets and liabilities:
Accounts receivable		(1,527	)		—			—			(1,527	)		—			—			(1,527	)
Prepaid expenses and other current assets		7,601			—			—			7,601			—			—			7,601
Other assets		—			—			—			74			(74	)		—			—
Accounts payable		(1,901	)		—			—			(1,901	)		—			—			(1,901	)
Deferred revenue		(6,165	)		—			—			(6,165	)		—			—			(6,165	)
Accrued expenses and other liabilities		6,063			—			—			4,888			1,175			—			6,063
Net cash (used in) provided by operating activities		1,296			(13,740	)		(3,250	)		13,681			1,355			3,250			1,296
Cash flows from investing activities
Change in restricted cash and equivalents, net		6,856			—			—			6,856			—			—			6,856
Construction of vessels and equipment		(73,765	)		—			—			(6,212	)		(67,553	)		—			(73,765	)
Net cash provided by (used in) investing activities		(66,909	)		—			—			644			(67,553	)		—			(66,909	)
Cash flows from financing activities
Proceeds from Joint Venture revolver borrowings		68,383			—			—			—			68,383			—			68,383
Intercompany receivable (payable)		—			13,740			3,250			(13,732	)		(8	)		(3,250	)		—
Net cash provided by (used in) financing activities	$	68,383		$	13,740		$	3,250		$	(13,732	)	$	68,375		$	(3,250	)	$	68,383
Net increase in cash and cash equivalents		2,770			—			—			593			2,177			—			2,770
Cash and cash equivalents at beginning of period		20,599			—			—			20,583			16			—			20,599
Cash and cash equivalents at end of period	$	23,369		$	—		$	—		$	21,176		$	2,193		$	—		$	23,369

*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet. In addition, the remaining net related deferred financing costs are presented as an asset of both entities.
**	Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.

U.S. Shipping Partners L.P. Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

U.S. Shipping Partners L.P. Unaudited Consolidating Statement of Cash Flows For the Three Months Ended March 31, 2008 (in thousands)

	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non-Guarantor Subsidiaries**			Adjustments			Total
Cash flows from operating activities
Net (loss) income	$	(5,778	)	$	(3,407	)	$	1,742		$	(298	)	$	1,963		$	(5,778	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing costs		464			157			10,504			—			(157	)		10,968
Impairment of construction-in-progress		—			—			5,720			—			—			5,720
Loss on sale of surplus equipment		—			—			67			—			—			67
Equity compensation		37			—			—			—			—			37
(Benefit) for accounts receivable		—			—			(90	)		—			—			(90	)
Noncontrolling interest in Joint Venture loss		—			—			—			(404	)		—			(404	)
Gain (loss) on derivative financial instruments		(706	)		—			—			264			—			(442	)
Deferred income taxes		—			—			192			—			—			192
Capitalized drydock costs		—			—			(1,965	)		—			—			(1,965	)
Equity in earnings of unconsolidated subsidiaries		(1,444	)		—			—			—			1,444			—
Changes in assets and liabilities:
Accounts receivable		—			—			1,162			—			—			1,162
Prepaid expenses and other current assets		—			—			1,178			—			—			1,178
Other assets		—			—			(1	)		—			—			(1	)
Accounts payable		—			—			(1,182	)		—			—			(1,182	)
Deferred revenue		—			—			(1,193	)		—			—			(1,193	)
Accrued expenses and other liabilities		—			—			(4,897	)		135			—			(4,762	)
Net cash (used in) provided by operating activities		(7,427	)		(3,250	)		11,237			(303	)		3,250			3,507
Cash flows from investing activities
Change in restricted cash and equivalents, net		—			—			39,000			—			—			39,000
Sale of surplus equipment		—			—			138			—			—			138
Construction of vessels and equipment		—			—			(22,693	)		(59,490	)		—			(82,183	)
Net cash provided by (used in) investing activities		—			—			16,445			(59,490	)		—			(43,045	)
Cash flows from financing activities
Proceeds from Joint Venture revolver borrowings		—			—			—			29,895			—			29,895
Contribution by noncontrolling interest equity investors in Joint Venture		—			—			—			29,895			(11,959	)		17,936
Repayment of debt		(775	)		—			—			—			—			(775	)
Intercompany receivable / payable		13,302			3,250			(25,261	)		—			8,709			—
Distributions to partners		(5,100	)		—			—			—			—			(5,100	)
Net cash provided by (used in) financing activities	$	7,427		$	3,250		$	(25,261	)	$	59,790		$	(3,250	)	$	41,956
Net increase (decrease) in cash and cash equivalents		—			—			2,421			(3	)		—			2,418
Cash and cash equivalents at beginning of period		—			—			21,596			8			—			21,604
Cash and cash equivalents at end of period	$	—		$	—		$	24,017		$	5		$	—		$	24,022

* Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Notes. Accordingly, the cash flows related to the Notes have been presented as cash flows of both entities in the above consolidating statement of cash flows. ** Consists of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.

U.S. Shipping Partners L.P. Debtor-In-Possession as of April 30, 2009 Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Balance Sheet
As of June 30, 2009
(in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries		Non- Guarantor Subsidiaries**		Adjustments			Total

Assets
Current assets
Cash and equivalents	$	—		$	—		$	15,635	$	3,524	$	—		$	19,159
Accounts receivable, net		—			—			4,558		13		—			4,571
Prepaid expenses and other current assets		—			—			11,318		762		—			12,080

Total current assets		—			—			31,511		4,300		—			35,810
Investment in subsidiaries, net		171,731			—			—		—		(171,731	)		—
Intercompany receivable		277,984			59,437			—		—		(337,421	)		—
Vessels and equipment, net		—			—			348,632		474,738		—			823,370
Other assets		—			—			1,064		2,276		—			3,340

Total assets	$	449,715		$	59,437		$	381,207	$	481,314	$	(509,152	)	$	862,520


Liabilities and Partners’ Capital
Current liabilities
Accounts payable	$	—		$	—		$	2,213	$	—	$	—		$	2,213
Due to affiliates		—			—			934		371		—			1,305
Accrued expenses and other liabilities		—			—			1,817		1,217		—			3,034

Total current liabilities		—			—			4,964		1,588		—			6,552
Intercompany payable		—			—			252,025		25,959		(277,984	)		—
Long-term debt		—			—			—		307,282		—			307,282
Liabilities subject to compromise		495,252			100,000			—		—		(100,000	)		495,252
Deferred income taxes		—			—			2,720		—		—			2,720
Other liabilities		—			—			807		—		—			807

Total liabilities		495,252			100,000			260,516		334,829		(377,984	)		812,613


Partners’ Capital
Partners’ capital		(39,006	)		(40,563	)		120,691		51,040		(131,168	)		(39,006	)
Accumulated other comprehensive loss		(6,532	)		—			—		—		—			(6,532	)
Non controlling interest in Joint Venture		—			—			—		95,445		—			95,445

Total partners’ capital		(45,538	)		(40,563	)		120,691		146,485		(131,168	)		49,907

Total liabilities and partners’ capital	$	449,715		$	59,437		$	381,207	$	481,314	$	(509,152	)	$	862,520


*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet.

**	Consists of the Joint Venture, the Partnership’s wholly-owned subsidiary that owns the Partnership’s investment in the Joint Venture and the Partnership’s wholly-owned subsidiary that owns the tug portion of the ATB Corpus Christi.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Balance Sheet
As of December 31, 2008
(in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries		Non- Guarantor Subsidiaries**		Adjustments			Total

Assets
Current assets
Cash and equivalents	$	—		$	—		$	20,583		16	$	—		$	20,599
Current portion of restricted cash and equivalents		—			—			7,566		—		—			7,566
Accounts receivable, net		—			—			4,905		—		—			4,905
Prepaid expenses and other current assets		—			—			18,883		194		—			19,077

Total current assets		—			—			51,937		210		—			52,147
Investment in subsidiaries, net		186,797			—			—		—		(186,797	)		—
Intercompany receivable		247,780			63,715			—		—		(311,495	)		—
Vessels and equipment, net		—			—			376,326		327,869		—			704,195
Deferred financing costs, net		2,253			909			—		—		(909	)		2,253
Other assets		—			—			1,065		775		—			1,840

Total assets	$	436,830		$	64,624		$	429,329		328,854	$	(499,201	)	$	760,435


Liabilities and Partners’ Capital
Current liabilities
Current portion of long-term debt	$	433,574		$	100,000		$	—		176,721	$	(100,000	)	$	610,295
Accounts payable		—			—			7,424		—		—			7,424
Due to affiliates		—			—			3,659		464		—			4,123
Deferred revenue		—			—			6,165		—		—			6,165
Accrued expenses and other liabilities		—			—			23,419		6,774		—			30,193

Total current liabilities		433,574			100,000			40,667		183,959		(100,000	)		658,200
Intercompany payable		—			—			247,780		—		(247,780	)		—
Deferred income taxes		—			—			2,720		—		—			2,720
Other liabilities		15,563			—			2,406		—		—			17,969

Total liabilities		449,137			100,000			293,573		183,959		(347,780	)		678,889


Partners’ Capital
Partners’ capital		(4,014	)		(35,376	)		135,757		51,040		(151,421	)		(4,014	)
Accumulated other comprehensive loss		(8,294	)		—			—		—		—			(8,294	)
Noncontrolling interest in Joint Venture		—			—			—		93,854		—			93,854


Total partners’ capital		(12,307	)		(35,376	)		135,757		144,894		(151,421	)		81,546

Total liabilities and partners’ capital	$	436,830		$	64,624		$	429,329	$	328,854	$	(499,201	)	$	760,435


*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been presented as an obligation of both entities in the above consolidating balance sheet. In addition, the related deferred financing costs are presented as an asset of both entities.

**	Consists of the Joint Venture, the Partnership’s wholly-owned subsidiary that owns the Partnership’s investment in the Joint Venture and the Partnership’s wholly-owned subsidiary that owns the tug portion of the ATB Corpus Christi.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Statement of Operations
Three Months Ended June 30, 2009
(in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total


Revenues	$	—		$	—		$	27,178		$	4,488		$	—		$	31,666


Operating expenses
Vessel operating expenses		—			—			11,626			2,546			—			14,172
Voyage expenses		—			—			8,628			385			—			9,013
General and administrative expenses		—			—			5,008			36			—			5,044
Depreciation and amortization		—			—			6,517			1,212			—			7,729
Other (gain) expense		—			—			(50	)		—			—			(50	)

Total operating expenses, net		—			—			31,729			4,179			—			35,908

Operating (loss) income		—			—			(4,551	)		309			—			(4,242	)
Interest expense		4,816			1,028			—			479			(1,028	)		5,295
Interest income		—			—			(5	)		(6	)		—			(11	)
Net gain on derivative financial instruments		78			—			—			(1,312	)		—			(1,234	)

(Loss) income before reorganization charges, income taxes and noncontrolling interest		(4,894	)		(1,028	)		(4,546	)		1,148			1,028			(8,292	)
Reorganization charges		—			—			11,832			—			—			11,832
Provision for income taxes		—			—			39			—			—			39

(Loss) income before noncontrolling interest		(4,894	)		(1,028	)		(16,417	)		1,148			1,028			(20,163	)
Equity in earnings of unconsoldiated subsidiaries		(16,417	)		—			—			—			16,417			—
Noncontrolling interest in Joint Venture		—			—			—			1,148			—			1,148

Net (loss) income	$	(21,311	)	$	(1,028	)	$	(16,417	)	$	—		$	17,445		$	(21,311	)


*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, the interest expense in respect of the Second Lien Notes has been presented as an expense of both entities in the above consolidating statement of operations.

**	Consists of the Joint Venture, the Partnership’s wholly-owned subsidiary that owns the Partnership’s investment in the Joint Venture and the Partnership’s wholly-owned subsidiary that owns the tug portion of the ATB Corpus Christi.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Statement of Operations
Six Months Ended June 30, 2009
(in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total


Revenues	$	—		$	—		$	71,285		$	8,310		$	—		$	79,595


Operating expenses
Vessel operating expenses		—			—			26,010			4,334			—			30,344
Voyage expenses		—			—			24,453			405			—			24,858
General and administrative expenses		—			—			8,152			282			—			8,434
Depreciation and amortization		—			—			13,297			2,423			—			15,720
Other (gain) expense		—			—			(50	)		—			—			(50	)

Total operating expenses, net		—			—			71,862			7,444			—			79,306

Operating income		—			—			(577	)		866			—			289
Interest expense		20,809			5,187			—			789			(5,187	)		21,598
Interest income		—			—			(30	)		(13	)		—			(43	)
Net gain on derivative financial instruments		(883	)		—			—			(1,501	)		—			(2,384	)

(Loss) income before reorganization charges, income taxes and noncontrolling interest		(19,926	)		(5,187	)		(547	)		1,591			5,187			(18,882	)
Reorganization charges		—			—			14,426			—			—			14,426
Provision for income taxes		—			—			93			—			—			93

(Loss) income before noncontrolling interest		(19,926	)		(5,187	)		(15,066	)		1,591			5,187			(33,401	)
Equity in earnings of unconsoldiated subsidiaries		(15,066	)		—			—			—			15,066			—
Noncontrolling interest in Joint Venture		—			—			—			1,591			—			1,591

Net (loss) income	$	(34,992	)	$	(5,187	)	$	(15,066	)	$	—		$	20,253		$	(34,992	)


*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, the interest expense in respect of the Second Lien Notes has been presented as an expense of both entities in the above consolidating statement of operations.

**	Consists of the Joint Venture, the Partnership’s wholly-owned subsidiary that owns the Partnership’s investment in the Joint Venture and the Partnership’s wholly-owned subsidiary that owns the tug portion of the ATB Corpus Christi.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Statement of Operations
Three Months Ended June 30, 2008
(in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total

Revenues	$	—		$	—		$	49,819		$	—		$	—		$	49,819

Operating expenses
Vessel operating expenses		—			—			16,384			—			—			16,384
Voyage expenses		—			—			17,331			—			—			17,331
General and administrative expenses		146			—			3,505			360			—			4,011
Depreciation and amortization		—			—			10,445			—			—			10,445
Other expense		—			—			45			—			—			45
Total operating expenses, net		146			—			47,710			360			—			48,216
Operating (loss) income		(146	)		—			2,109			(360	)		—			1,603
Interest expense		6,879			3,406			—			—			(3,406	)		6,879
Interest income		—			—			(655	)		—			—			(655	)
Net losses (gains) on derivative financial instruments		25			—			(1	)		(610	)		—			(586	)
(Loss) income before income taxes and noncontrolling interest		(7,050	)		(3,406	)		2,765			250			3,406			(4,035	)
Benefit for income taxes		—			—			(1,514	)		—			—			(1,514	)
(Loss) income before noncontrolling interest		(7,050	)		(3,406	)		4,279			250			3,406			(2,521	)
Equity in earnings of unconsolidated subsidiaries		4,367			—			—			—			(4,367	)		—
Noncontrolling interest in Joint Venture losses		—			—			—			(162	)		—			(162	)
Net (loss) income	$	(2,683	)	$	(3,406	)	$	4,279		$	88		$	(961	)	$	(2,683	)


*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in the Second Lien Notes. Accordingly, the interest expense in respect of the Second Lien Notes has been presented as an expense of both entities in the above consolidating statement of operations.

**	Consists of the Joint Venture, the Partnership’s wholly-owned subsidiary that owns the Partnership’s investment in the Joint Venture and the Partnership’s wholly-owned subsidiary that owns the tug portion of the ATB Corpus Christi.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Statement of Operations
Six Months Ended June 30, 2008
(in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total

Revenues	$	—		$	—		$	101,323		$	—		$	—		$	101,323

Operating expenses
Vessel operating expenses		—			—			33,405			—			—			33,405
Voyage expenses		—			—			31,010			—			—			31,010
General and administrative expenses		183			—			7,024			798			—			8,005
Depreciation and amortization		—			—			20,949			—			—			20,949
Other expense		—			—			5,832			—			—			5,832
Total operating expenses, net		183			—			98,220			798			—			99,201
Operating (loss) income		(183	)		—			3,103			(798	)		—			2,122
Interest expense		14,770			6,814			—			—			(6,814	)		14,770
Interest income		—			—			(1,695	)		—			—			(1,695	)
Net (gains) losses on derivative financial instruments		(682	)		—			—			(346	)		—			(1,028	)
(Loss) income before income taxes and noncontrolling interest		(14,271	)		(6,814	)		4,798			(452	)		6,814			(9,925	)
Benefit for income taxes		—			—			(1,222	)		—			—			(1,222	)
(Loss) income before noncontrolling interest		(14,271	)		(6,814	)		6,020			(452	)		6,814			(8,703	)
Equity in earnings of unconsolidated subsidiaries		5,810			—			—			—			(5,810	)		—
Noncontrolling interest in Joint Venture losses		—			—			—			242			—			242
Net (loss) income	$	(8,461	)	$	(6,814	)	$	6,020		$	(210	)	$	1,004		$	(8,461	)


*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, the interest expense in respect of the Second Lien Notes has been presented as an expense of both entities in the above consolidating statement of operations.

**	Consists of the Joint Venture, the Partnership’s wholly-owned subsidiary that owns the Partnership’s investment in the Joint Venture and the Partnership’s wholly-owned subsidiary that owns the tug portion of the ATB Corpus Christi.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2009
(in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total

Cash flows from operating activities
Net (loss) income	$	(33,401	)	$	(5,187	)	$	(15,066	)	$	—		$	20,253		$	(33,401	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing costs		2,253			909			13,297			2,423			(909	)		17,973
Reorganization charges					—			8,665			—			—			8,665
Amortization of deferred loss from derivatives in AOCI					—			2,003			—			—			2,003
Provision for accounts receivable					—			234			—			—			234
Net gain on derivative financial instruments		(883	)		—			—			(1,501	)		—			(2,384	)
Equity in earnings of unconsolidated subsidiaries		15,066			—			—			—			(15,066	)		—
Changes in assets and liabilities:
Accounts receivable		—			—			100			—			—			100
Prepaid expenses and other current assets		—			—			7,045			—			—			7,045
Capitalized drydock costs		—			—			(3,119	)		—			—			(3,119	)
Other assets		—			—			74			(74	)		—			—
Accounts payable		—			—			(209	)		—			—			(209	)
Interest added to debt outstanding					—			4,096			—			—			4,096
Deferred revenue		—			—			(6,165	)		—			—			(6,165	)
Accrued expenses and other liabilities		—			—			6,410			1,323			—			7,733
Net cash (used in) provided by operating activities		(16,965	)		(4,278	)		17,365			2,171			4,278			2,571

Cash flows from investing activities
Change in restricted cash and equivalents, net		—			—			7,566			—			—			7,566
Construction of vessels and equipment		—			—			(12,914	)		(129,224	)		—			(142,138	)
Net cash provided by (used in) investing activities		—			—			(5,348	)		(129,224	)		—			(134,572	)

Cash flows from financing activities
Proceeds from Joint Venture revolver borrowings		—			—			—			130,561			—			130,561
Intercompany receivable (payable)		16,965			4,278			(16,965	)		—			(4,278	)		—
Net cash provided by (used in) financing activities	$	16,965		$	4,278		$	(16,965	)	$	130,561		$	(4,278	)	$	130,561

Net increase in cash and cash equivalents		—			—			(4,948	)		3,508			—			(1,440	)
Cash and cash equivalents at beginning of period		—			—			20,583			16			—			20,599
Cash and cash equivalents at end of period	$	—		$	—		$	15,635		$	3,524		$	—		$	19,159


*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, the cash flows related to the Second Lien Notes have been presented as cash flows of both entities in the above consolidating statement of cash flows.

**	Consists of the Joint Venture, the Partnership’s wholly-owned subsidiary that owns the Partnership’s investment in the Joint Venture and the Partnership’s wholly-owned subsidiary that owns the tug portion of the ATB Corpus Christi.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2008
(in thousands)


	Parent *			Subsidiary Issuer *			Guarantor Subsidiaries			Non- Guarantor Subsidiaries**			Adjustments			Total


Cash flows from operating activities
Net (loss) income	$	(8,461	)	$	(6,814	)	$	6,020		$	(210	)	$	1,004		$	(8,461	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing costs		926			314			20,945			—			(314	)		21,871
Impairment of construction-in-progress		—			—			5,712			—			—			5,712
Loss on sale of surplus equipment		—			—			120			—			—			120
Equity compensation		183			—			—			—			—			183
Provision for accounts receivable		—			—			50			—			—			50
Noncontrolling interest in Joint Venture loss		—			—			—			(242	)		—			(242	)
(Loss) gain on derivative financial instruments		(682	)		—			—			(346	)		—			(1,028	)
Deferred income taxes		—			—			(1,290	)		—			—			(1,290	)
Capitalized drydock costs		—			—			(2,551	)		—			—			(2,551	)
Equity in earnings of unconsolidated subsidiaries		(5,810	)		—			—			—			5,810			—
Changes in assets and liabilities:
Accounts receivable		—			—			3,263			—			—			3,263
Prepaid expenses and other current assets		—			—			(2,851	)		—			—			(2,851	)
Accounts payable		—			—			255			—			—			255
Deferred revenue		—			—			(108	)		—			—			(108	)
Accrued expenses and other liabilities		—			—			(1,074	)		(495	)		—			(1,569	)

Net cash (used in) provided by operating activities		(13,844	)		(6,500	)		28,491			(1,293	)		6,500			13,354


Cash flows from investing activities
Change in restricted cash and equivalents, net		—			—			75,767			—			—			75,767
Sale of surplus equipment		—			—			280			—			—			280
Construction of vessels and equipment		—			—			(48,779	)		(105,371	)		—			(154,150	)
Gain on derivative financial instruments		—			—			657			—			—			657

Net cash provided by (used in) investing activities		—			—			27,925			(105,371	)		—			(77,446	)


Cash flows from financing activities
Proceeds from borrowings		7,000			—			—			—			—			7,000
Proceeds from Joint Venture revolver borrowings		—			—			—			53,331			—			53,331
Contribution by noncontrolling interest equity investors in Joint Venture		—			—			—			53,331			(21,332	)		31,999
Repayment of debt		(1,550	)		—			—			—			—			(1,550	)
Intercompany receivable / payable		18,603			6,500			(39,935	)		—			14,832			—
Distributions to partners		(10,209	)		—			—			—			—			(10,209	)

Net cash provided by (used in) financing activities	$	13,844		$	6,500		$	(39,935	)	$	106,662		$	(6,500	)	$	80,571


Net increase (decrease) in cash and cash equivalents		—			—			16,481			(2	)		—			16,479
Cash and cash equivalents at beginning of period		—			—			21,596			8			—			21,604

Cash and cash equivalents at end of period	$	—		$	—		$	38,077		$	6		$	—		$	38,083


*	Both the Parent and the Subsidiary Issuer are co-issuers of $100,000 in the Second Lien Notes. Accordingly, the cash flows related to the Second Lien Notes have been presented as cash flows of both entities in the above consolidating statement of cash flows.

**	Consists of the Joint Venture, the Partnership’s wholly-owned subsidiary that owns the Partnership’s investment in the Joint Venture and the Partnership’s wholly-owned subsidiary that owns the tug portion of the ATB Corpus Christi.

U.S. Shipping Partners L.P.
Debtor-In-Possession as of April 30, 2009
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)


16.	Subsequent Events

Subsequent events have been evaluated through September 30, 2009, which is the date on which the financial statements were issued.

Settlement of Litigation with Joint Venture Investors

On July 10, 2009, the Partnership and its wholly-owned subsidiaries USS Product Carriers LLC (“Product Carriers”), Product Manager and USS PC Holding Corp. (collectively the “USS Entities”) entered into a settlement agreement with the Joint Venture Investors and the Joint Venture Lenders (such investors and lenders collectively the “Blackstone/Cerberus Entities”), to settle litigation relating to control of the operations of the Joint Venture. Under the terms of the settlement, which was approved by the Bankruptcy Court on July 17, 2009 and effective on July 28, 2009 (the “Effective Date”):

(i)	on the Effective Date Product Carriers transferred its Class B member interest to the Joint Venture Investors for one dollar and no longer has an interest in, or the right to act as managing member of, the Joint Venture resulting in a loss on this investment of $58,069;
(ii)	in consideration of the termination of Product Manager’s right to manage the operations of the Joint Venture:
	(a)	the Blackstone/Cerberus Entities will pay Product Manager an aggregate of $14,000, of which $9,000 was paid on the Effective Date, $2,300 will be paid 40 days after the orderly transition of management of the vessels from Product Manager to a replacement manager appointed by the Blackstone/Cerberus Entities, and $2,700 will be paid in equal monthly installments through December 2010;
	(b)	the Joint Venture will pay to Product Manager 50% of the first $1,000 of any cost savings received by the Joint Venture in respect of the three vessels still under construction if those vessels are delivered under the contracted cost; and
	(c)	the Joint Venture will pay to Product Manager 50% of the first $500 of any cost savings received by the Joint Venture in respect of the last vessel still under construction if that vessel is delivered under the contracted cost, provided that this amount will only be paid to the extent the cost savings were not used to pay the amount due under clause (ii)(b) above;
(iii)	the USS Entities have a right of first offer to purchase the Joint Venture’s vessels to the extent the Joint Venture determines to offer all or any portion of them for sale in the future, although the Joint Venture has no obligation to accept any offer;
(iv)	the contracts between the USS Entities or their affiliates and the Joint Venture are being terminated;
(v)	the USS Entities and the Blackstone/Cerberus Entities have exchanged broad, global releases; and
(vi)	on the Effective Date, all the litigation between the USS Entities and the Blackstone/Cerberus Entities was dismissed with prejudice.

Refer to Note 15 – Supplemental Guarantor Information for information regarding the financial position, results of operations and cash flows of the Partnership’s subsidiaries that are not guarantors of its Second Lien Notes which, as of March 31, 2009 and for the three months then ended, consisted of the Joint Venture and the Partnership’s wholly-owned subsidiary that owns its investment in the Joint Venture.

Edison, New Jersey Office Lease

On July 23, 2009, the Partnership entered into a lease agreement with Thornall Associates, L.P. to extend the rental of the Edison, New Jersey office space from May 31, 2009 until October 31, 2014. The new lease stipulates an annual fixed rent of $350 payable monthly in advance. The lease also allows for an abatement of $146 which is to be applied against the monthly fixed rent payments due for the months of June 2009 through October 2009.

Rand Logistics Offer to Acquire Substantially all Assets of the Partnership

On July 30, 2009, Rand Logistics, Inc. (“Rand”) submitted a non-binding proposal via letter to the board of directors of USSGP pursuant to which Rand proposed, as an alternative to the Partnership’s proposed plan of reorganization dated July 10, 2009, a transaction in which Rand would acquire the majority of the assets, and assume certain liabilities, of the Partnership and its subsidiaries for a combination of cash, notes and warrants (the “Rand Proposal”).

2634

U.S. Shipping Partners L.P. Debtor-In-Possession as of April 30, 2009 Notes to Unaudited Condensed Consolidated Financial Statements (dollars in thousands; except per unit data)

On August 4, 2009, after consultation with its financial and legal advisors and the Steering Committee of the secured lenders, the Partnership advised Rand that the board of directors had determined that the Partnership’s proposed plan of reorganization dated July 10, 2009 will deliver a higher value to all the Partnership’s stakeholders than the non-binding alternative plan of reorganization proposed by Rand. The Partnership also advised Rand that as a result, the board of directors did not believe it is appropriate to negotiate an amendment to the Disclosure Statement to permit the Partnership’s creditors the option to consider the Rand Proposal as an alternative to the Partnership’s July 10, 2009 proposed plan of reorganization.

On August 6, 2009, Rand responded to the Partnership’s August 4, 2009 letter, disagreeing with the Board’s conclusion and making slight changes to the Rand Proposal.

On August 11, 2009, after consideration of Rand’s August 6, 2009 letter and consultation with its financial and legal advisors, the Partnership advised Rand that the board of directors had determined that the Partnership’s proposed plan of reorganization dated August 6, 2009 ~~(the “Plan”)~~ will deliver a higher value to all the Partnership’s stakeholders than the non-binding, highly speculative ~~alternative~~ alternative plan of reorganization proposed by Rand. The Partnership also advised Rand that as a result the board of directors did not believe it is in the best interests of all the Partnership’s stakeholders to negotiate an amendment to the Disclosure Statement to permit the Partnership’s creditors the option to consider Rand’s proposal as an alternative to the ~~Plan~~August plan. The Partnership also advised Rand that “absent an offer at a value that the Board of Directors determines is at least reasonably equivalent to the value provided by the ~~Plan~~[August plan] and that has been approved by the Rand Board of Directors, is fully financed with no conditions to the financing and contains no conditions to closing other than approval of the transaction by the Bankruptcy Court, the Board does not believe it to be in the best interests of all the Partnership’s stakeholders to disrupt its current process and introduce uncertainty by negotiating with Rand regarding a non-binding, highly speculative transaction”.

27 Proposal from SEACOR Holdings

By letter, on August 13, 2009, SEACOR Holdings Inc. (“SEACOR”), an operator of a fleet of Jones Act product and chemical tankers and a Second Lien Noteholder, submitted a proposal (the “SEACOR Proposal”) to the chairman of the steering committee for those secured lenders party to the Amended Plan Support Agreement (and counsel), offering (i) to manage the operations of the reorganized Debtors following emergence from bankruptcy under the Plan (the “Management Proposal”) or, in the alternative, (ii) to acquire substantially all of the Debtors’ assets for $270 million of 10 year notes of the entity newly formed to acquire the assets. The steering committee advised SEACOR that it was not interested in the SEACOR Proposal, and noted that the steering committee believed it to be more appropriate for SEACOR to submit any such proposal to the board of directors of USSGP.

On August 24, 2009, SEACOR sent a letter to the steering committee and the board of directors of USSGP reiterating the Management Proposal and requesting the steering committee and the board consider the Management Proposal. On September 3, 2009, after consultation with its financial and legal advisors and the steering committee, the Partnership advised SEACOR that the board of directors had determined that the Management Proposal is not in the best interests of the Debtors and its stakeholders.

ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Overview

The following is a discussion of the historical consolidated financial condition and results of operations of U.S. Shipping Partners L.P, and should be read in conjunction with our historical consolidated financial statements and notes thereto included elsewhere in this report. Refer to Item 7— Management’s Discussion And Analysis Of Financial Condition And Results Of Operations in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008 for additional information that may not be contained in this discussion.

Proceedings Under Chapter 11 of the Bankruptcy Code

On April 29, 2009 (the “Commencement Date”), we, together with all of our wholly-owned subsidiaries, US Shipping General Partner LLC, our general partner (“USSGP”), and USS Vessel Management LLC, a wholly-owned subsidiary of USSGP, filed voluntary petitions for reorganization relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Chapter 11 cases are being jointly administered under the caption In re U.S. Shipping Partners L.P. et al., Case No. 09-12711 (RDD) (the “Bankruptcy Cases”). We are continuing to manage our properties and operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. See “Part II—Item 5. Other Information ” for additional information regarding our bankruptcy and our proposed plan of reorganization.

We have incurred and will continue to incur significant costs associated with the reorganization. The amount of these costs, which are being expensed as incurred, are expected to significantly affect our results of operations.

As of the Commencement Date, we had approximately $15.5 million in unrestricted cash and cash equivalents. Our ability to continue as a going concern is dependent upon, among other things, (i) our ability to comply with the terms and conditions of the cash collateral order entered by the Bankruptcy Court in connection with the Bankruptcy Cases; (ii) our ability to generate cash from operations; (iii) our ability to obtain confirmation of and to consummate a plan of reorganization under the Bankruptcy Code; and (iv) the cost, duration and outcome of the reorganization process. Uncertainty as to the outcome of these factors raises substantial doubt about our ability to continue as a going concern. We are currently evaluating various courses of action to address the operational and liquidity issues the Partnership is facing, and formulating plans for improving operations. There can be no assurance that any of these efforts will be successful. The accompanying unaudited consolidated financial statements do not include any adjustments that might result should the Partnership be unable to continue as a going concern. Consistent with generally accepted accounting principles preparing the accompanying unaudited consolidated financial statements on a going concern basis contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

As a result of the Bankruptcy Filing, realization of assets and liquidation of liabilities are subject to uncertainty. While operating as a debtor-in-possession under the protection of Chapter 11, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, we may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements. Further, a plan of reorganization could materially change the amounts and classifications reported in our consolidated financial statements. Our historical consolidated financial statements do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.

The potential adverse publicity associated with the Bankruptcy Filing and the resulting uncertainty regarding our future prospects may hinder our ongoing business activities and our ability to operate, fund and execute our business plan by impairing relations with existing and potential customers; negatively impacting our ability to attract, retain and compensate key executives and employees and to retain employees generally; limiting our ability to obtain trade credit; and impairing present and future relationships with vendors and service providers.

American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (SOP 90-7), which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the consolidated statements of operations beginning in the quarter ending June 30, 2009. The consolidated balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by the plan must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by reorganization items must be disclosed separately in the condensed consolidated statement of cash flows. The Partnership adopted SOP 90-7 effective in May 2009 and will segregate those items as outlined above for all reporting periods subsequent to such date.36

28 Financial Statement Presentation and Recording

American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (SOP 90-7), which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the consolidated statements of operations beginning in the quarter ending June 30, 2009. The consolidated balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by the plan must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by reorganization items must be disclosed separately in the condensed consolidated statement of cash flows. The Partnership adopted SOP 90-7 as of April 30, 2009 and will segregate those items as outlined above for all reporting periods subsequent to such date. In accordance with the guidance of SOP 90-7, accrued interest up to the Filing Date on the Debtors’ debt together with payments due under its derivative financial instruments, representing an accrued interest payable amount of $24,888, is presented under the caption “Liabilities subject to compromise”. Interest on the debt associated with the Senior Secured Lenders and the holders of Senior Notes from the Filing Date through June 30, 2009 would have increased this interest accrual by $9,229.

Description of Business

We are a leading provider of long-haul marine transportation services, principally for refined petroleum, petrochemical and commodity chemical products, in the U.S. domestic “coastwise” trade. Marine transportation is a vital link in the distribution of refined petroleum, petrochemical and commodity chemical products in the United States. During 2008 and ~~continuing into the first quarter of~~ 2009, we at various times employed some of our ITBs to transport grain overseas for humanitarian organizations to improve utilization of the ITB fleet.

Our existing fleet as of ~~March~~June 3130, 2009 consists of eleven vessels: four integrated tug barge units (“ITBs”), one product tanker (“Houston”); three chemical parcel tankers (“Parcel Tankers”) and three articulated tug barge units (“ATBs”), one of which entered service in July 2007, the second in August 2008 and the third in November 2008. We sold two ITBs in the fourth quarter of 2008. Our last ATB, which was under construction at ~~March~~June 3130, 2009, was delivered ~~in July 2009~~ and placed in service in August 2009. At ~~March~~June 3130, 2009, we were also managing ~~one~~two ~~tanker~~tankers on behalf of our Joint Venture, although we are currently transitioning these management services to another manager appointed by the Joint Venture and expect this transition to be complete by the end of September 2009. See “Part II—Item 1. Legal Proceedings” for additional information.

Our primary customers are major oil and chemical companies. We do not assume ownership of any of the products that we transport on our vessels. Our market is largely insulated from direct foreign competition because the Merchant Marine Act of 1920, commonly referred to as the Jones Act, restricts U.S. point-to-point maritime shipping to vessels operating under the U.S. flag, built in the United States, at least 75% owned and operated by U.S. citizens and manned by U.S. crews. All of our vessels are qualified to transport cargo between U.S. ports under the Jones Act.

Definitions

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

·	Voyage revenue. Voyage revenue includes revenue from time charters, contracts of affreightment, consecutive voyage charters and spot charters. Voyage revenue is impacted by changes in charter and utilization rates and by the mix of business among the types of contracts: time charters, which are contracts to charter a vessel for a fixed period of time, generally one year or more, at a set daily rate; contracts of affreightment, which are contracts to provide transportation services for products over a specific trade route, generally for one or more years, at a negotiated rate per ton; consecutive voyage charters, which are charters for a specified period of time at a negotiated rate per ton; and spot charters, which are charters for shorter intervals, usually a single round-trip, that are made on either a current market rate or lump sum contractual basis.
·	Voyage expenses. Voyage expenses include items such as fuel, port charges, pilot fees, tank cleaning costs, canal tolls, brokerage commissions, discharge fees, inland distribution fees and other costs which are unique to a particular voyage. These costs can vary significantly depending on the voyage trade route. Depending on the form of contract, either we or our customer is responsible for these expenses. If we pay voyage expenses, they are included in our results of operations when they are incurred. Typically, our freight rates are higher when we pay voyage expenses. A substantial portion of certain cost increases can be passed on to our customers.
·	Vessel operating expenses. We pay the vessel operating expenses regardless of whether we are operating under a time charter, contract of affreightment, consecutive voyage charter or spot charter. The most significant direct vessel operating expenses are crewing costs, vessel maintenance and repairs, and marine insurance.
·	Depreciation and amortization. We incur expenses related to the depreciation of the historical cost of our fleet and the amortization of expenditures for drydockings. The aggregate number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures. Depreciation and amortization is determined as follows:
	o	Vessels are recorded at cost, including capitalized interest and transaction fees where appropriate, and depreciated to salvage value using the straight-line method as follows: 10 years for the Chemical Pioneer, the Charleston and the Houston; and 30 years for the ATB Freeport, the ATB Galveston and the ATB Brownsville based on their respective estimated useful lives. Our ITBs are being depreciated to recoverable value based on their estimated useful lives. The Sea Venture is recorded at its estimated scrapping value after recording an impairment charge at December 31, 2008.


	•	Voyage revenue. Voyage revenue includes revenue from time charters, contracts of affreightment, consecutive voyage charters and spot charters. Voyage revenue is impacted by changes in charter and utilization rates and by the mix of business among the types of contracts: time charters, which are contracts to charter a vessel for a fixed period of time, generally one year or more, at a set daily rate; contracts of affreightment, which are contracts to provide transportation services for products over a specific trade route, generally for one or more years, at a negotiated rate per ton; consecutive voyage charters, which are charters for a specified period of time at a negotiated rate per ton; and spot charters, which are charters for shorter intervals, usually a single round-trip, that are made on either a current market rate or lump sum contractual basis.

	•	Voyage expenses. Voyage expenses include items such as fuel, port charges, pilot fees, vessel lay-up costs, tank cleaning costs, canal tolls, brokerage commissions, discharge fees, inland distribution fees and other costs which are unique to a particular voyage. These costs can vary significantly depending on the voyage trade route. Depending on the form of contract, either we or our customer is responsible for these expenses. If we pay voyage expenses, they are included in our results of operations when they are incurred. Typically, our freight rates are higher when we pay voyage expenses. A substantial portion of certain cost increases can be passed on to our customers.

	•	Vessel operating expenses. We pay the vessel operating expenses regardless of whether we are operating under a time charter, contract of affreightment, consecutive voyage charter or spot charter. The most significant direct vessel operating expenses are crewing costs, vessel maintenance and repairs, and marine insurance.

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•	Depreciation and amortization. We incur expenses related to the depreciation of the historical cost of our fleet and the amortization of expenditures for drydockings. The aggregate number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures. Depreciation and amortization is determined as follows:
	o	Vessels are recorded at cost, including capitalized interest and transaction fees where appropriate, and depreciated to salvage value using the straight-line method as follows: 10 years for the Chemical Pioneer, the Charleston and the Houston; and 30 years for the ATBs and the Joint Venture’s vessels based on their respective estimated useful lives. Our ITBs are being depreciated to recoverable value based on their estimated useful lives. The Sea Venture is recorded at its estimated sales value after recording an impairment charge at December 31, 2008.
	o	Office furniture, equipment and other are depreciated over the estimated useful life of three to ten years. Major renewals and betterments of assets are capitalized and depreciated over the remaining useful lives of the assets. Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed as incurred. Leasehold improvements are capitalized and depreciated over the shorter of their useful life or the remaining term of the lease.
	o	To date, our ITBs have been able to participate in the United States Coast Guard Underwater Inspection In Lieu of Drydock (“UWILD”) Program, which allows the ITBs to be drydocked once every five years, with a mid-period underwater survey in lieu of a second drydock. Our chemical vessels must be drydocked twice every five years. In addition, vessels may have to be drydocked in the event of accidents or other unforeseen damage. We capitalize expenditures incurred for drydocking and amortize these expenditures over the remaining depreciable lives for the ITBs and 30 months for the parcel tankers and the Houston. If our ITBs can no longer participate in the UWILD Program and we have to drydock such vessels twice every five years, we will amortize these expenditures over the remaining depreciable lives. We expect that our ITBs will be able to continue participation in the UWILD program.
	o	The ATBs are subject to the same drydock requirements as the ITBs and currently qualify for participation in the UWILD program. We will capitalize expenditures incurred for drydocking the ATBs and amortize these expenditures over 60 months.
·	General and administrative expenses. General and administrative expenses consist of employment costs for shore side staff and cost of facilities, as well as legal, audit and other administrative costs and costs related to our review of strategic alternatives, negotiations with our lenders and bankruptcy planning.
•	General and administrative expenses. General and administrative expenses consist of employment costs for shore side staff and cost of facilities, as well as legal, audit and other administrative costs and costs related to our review of strategic alternatives, negotiations with our lenders and bankruptcy planning.
·	Total vessel days. Total vessel days are equal to the number of calendar days in the period multiplied by the total number of vessels operating or in drydock during that period.
•	Reorganization charges. Reorganization charges are expenses and losses directly attributable to our Bankruptcy Filing in April 2009 and the related reorganization process, including professional fees and the losses associated with hedges terminated by the respective counter-parties as a result of our Bankruptcy Filing.
·	Days worked. Days worked are equal to total vessel days less drydocking days and days off-hire.
•	Total vessel days. Total vessel days are equal to the number of calendar days in the period multiplied by the total number of vessels operating or in drydock during that period.
·	Drydocking days. Drydocking days are days designated for the inspection and survey of vessels, and resulting maintenance work, as required by the U.S. Coast Guard and the American Bureau of Shipping to maintain the vessels’ qualification to work in the U.S. coastwise trade. Both domestic (U.S. Coast Guard) and international (International Maritime Organization) regulatory bodies require that our ITBs and ATBs be drydocked for major repair and maintenance at least twice every five years. To date, our ITBs have been able to participate in the UWILD Program, which allows the ITBs to be drydocked once every five years, with a mid-period underwater survey in lieu of a drydock while in domestic trade; however, under international maritime organization regulations, in order for it to continue to trade internationally (including grain voyages), our ITBs will have to undergo two drydockings in each five year period, rather than a drydocking and a UWILD. The ATBs also qualify for the UWILD program. Our parcel tankers and the Houston must be drydocked twice every five years. Drydocking days also include unscheduled instances where vessels may have to be drydocked in the event of accidents or other unforeseen damage.
•	Days worked. Days worked are equal to total vessel days less drydocking days and days off-hire.
·	Net utilization. Net utilization is a primary measure of operating performance in our business. Net utilization is a percentage equal to the total number of days worked by a vessel or group of vessels during a defined period, divided by total vessel days for that vessel or group of vessels. Net utilization is adversely impacted by drydocking, scheduled and unscheduled maintenance and idle time not paid for by the customer.
•	Drydocking days. Drydocking days are days designated for the inspection and survey of vessels, and resulting maintenance work, as required by the U.S. Coast Guard and the American Bureau of Shipping to maintain the vessels’ qualification to work in the U.S. coastwise trade. Both domestic (U.S. Coast Guard) and international (International Maritime Organization) regulatory bodies require that our ITBs and ATBs be drydocked for major repair and maintenance at least twice every five years. To date, our ITBs have been able to participate in the UWILD Program, which allows the ITBs to be drydocked once every five years, with a mid-period underwater survey in lieu of a drydock while in domestic trade; however, under international maritime organization regulations, in order for it to continue to trade internationally (including grain voyages), our ITBs will have to undergo two drydockings in each five year period, rather than a drydocking and a UWILD. The ATBs also qualify for the UWILD program. Our parcel tankers and the Houston must be drydocked twice every five years. Drydocking days also include unscheduled instances where vessels may have to be drydocked in the event of accidents or other unforeseen damage.
·	Time charter equivalent. Time charter equivalent, another key measure of our operating performance, is equal to the net voyage revenue (voyage revenue less voyage expenses) earned by a vessel during a defined period, divided by the total number of actual days worked by that vessel during that period. Fluctuations in time charter equivalent result not only from changes in types of contracts and charter rates charged to our customers, but also from voyage expenses incurred as well as from external factors such as weather or other delays.

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

	•	Time charter equivalent. Time charter equivalent, another key measure of our operating performance, is equal to the net voyage revenue (voyage revenue less voyage expenses) earned by a vessel during a defined period, divided by the total number of actual days worked by that vessel during that period. Fluctuations in time charter equivalent result not only from changes in types of contracts and charter rates charged to our customers, but also from voyage expenses incurred as well as from external factors such as weather or other delays.

Results of Operations

The following table summarizes our results of operations (dollars in thousands, except for operating data):

	For the Three Months Ended March 31,
	2009			2008
Voyage revenue	$	47,929		$	51,504
Vessel operating expenses		16,172			17,021
% of voyage revenue		33.7	%		33.0	%
Voyage expenses		15,845			13,679
% of voyage revenue		33.1	%		26.6	%
General and administrative expenses		5,984			3,994
% of voyage revenue		12.5	%		7.8	%
Depreciation and amortization		7,991			10,504
Impairment charges		—			5,720
Other expense (income)		—			67
Total operating expenses, net		45,992			50,985
Operating income		1,937			519
% of voyage revenue		4.0	%		1.0	%
Interest expense		16,303			7,891
Interest income		(32	)		(1,040	)
Net loss / (gain) on derivative financial instruments		(1,150	)		(442	)
Loss before income taxes and noncontrolling interest		(13,184	)		(5,890	)
Provision for income taxes		54			292
Net loss		(13,238	)		(6,182	)
Net (loss) gain attributable to noncontrolling interest		443			(404	)
Net loss	$	(13,681	)	$	(5,778	)
Distributions declared per common unit in respect of the period	$	—		$	0.45
Operating Data (1)
Partnership
Number of vessels - owned		11			11
Total vessel days		990			1,001
Days worked		773			966
Drydocking days		14			—
Net utilization		78	%		97	%
Average daily time charter equivalent rate	$	29,607		$	38,436
Joint Venture
Number of vessels - managed		1			—
Total vessel days		76			—
Days worked		73			—
Drydocking days		—			—
Net utilization		96	%		—
Average daily time charter equivalent rate	$	52,140		$	—

U.S. Shipping Partners L.P.

(1) In 2008, we added two ATBs to our fleet and sold two ITBs subsequent to the three months ended March 31, 2008. In January 2009, the Golden State, the Joint Venture’s product tanker managed by us was placed into service.


	Three Months Ended June 30,						Six Months Ended June 30,

	2009			2008			2009			2008

Voyage revenue	$	31,666		$	49,819		$	79,595		$	101,323

Vessel operating expenses		14,172			16,384			30,344			33,405
% of voyage revenue		44.8	%		32.9	%		38.1	%		33.0	%
Voyage expenses		9,013			17,331			24,858			31,010
% of voyage revenue		28.5	%		34.8	%		31.2	%		30.6	%
General and administrative expenses		5,044			4,011			8,434			8,005
% of voyage revenue		15.9	%		8.1	%		10.6	%		7.9	%
Depreciation and amortization		7,729			10,445			15,720			20,949
Impairment charges		—			(8	)		—			5,712
Other expense (income)		(50	)		53			(50	)		120

Total operating expenses, net		35,908			48,216			79,306			99,201

Operating (loss) income		(4,242	)		1,603			289			2,122
Interest expense (contractual interest of $12,315 and $28,618 for the three and six months ended June 30, 2009, respectively)		5,295			6,879			21,598			14,770
Interest income		(11	)		(655	)		(43	)		(1,695	)
Net gain on derivative financial instruments		(1,234	)		(586	)		(2,384	)		(1,028	)

Loss before reorganization charges, income taxes and noncontrolling interest		(8,292	)		(4,035	)		(18,882	)		(9,925	)
Reorganization charges		11,832			—			14,426			—
Provision (benefit) for income taxes		39			(1,514	)		93			(1,222	)

Net loss		(20,163	)		(2,521	)		(33,401	)		(8,703	)
Net (loss) gain attributable to noncontrolling interest		1,148			162			1,591			(242	)

Net loss attributable to USSLP unit holders	$	(21,311	)	$	(2,683	)	$	(34,992	)	$	(8,461	)


Distributions declared per common unit in respect of the period	$	—		$	0.45		$	—		$	0.45

Operating Data (1)
Partnership
Number of vessels - owned		11			11			11			11
Total vessel days		1,001			1,001			1,991			2,002
Days worked		639			937			1,503			1,922
Drydocking days		—			—			14			—
Net utilization		64	%		94	%		75	%		96	%
Average daily time charter equivalent rate	$	29,974		$	36,310		$	31,156		$	37,424

Joint Venture
Number of vessels - managed		2			—			2			—
Total vessel days		91			—			167			—
Days worked		86			—			159			—
Drydocking days		—			—			—			—
Net utilization		94	%		—			95	%		—
Average daily time charter equivalent rate	$	51,733			—		$	51,825			—

(1) In ~~order~~ ~~to address reduced demand for our ITBs in the spot market for transportation of petroleum products~~2008, we ~~have~~added ~~sought to employ the ITBs in the foreign transportation of grain for humanitarian organizations. In 2009,~~ two ~~of our~~ATBs ~~ITBs delivered grain~~ to ~~their final destinations in the first quarter of 2009 and one of~~ our ~~ITBs~~fleet ~~commenced a grain voyage in the first quarter of 2009~~ and ~~completed~~sold ~~its~~two ~~grain delivery in the second quarter of 2009. During 2008, we employed all but one of our~~ ITBs insubsequent ~~the foreign transportation of grain for humanitarian organizations. Unlike our petroleum voyages, where we generally recognize revenue and expenses based upon the relative transit time in each period~~ to the ~~total~~six ~~estimated~~months ~~transit~~ended ~~time~~June ~~for each voyage~~30, ~~for~~2008. ~~our~~In ~~grain voyages~~January ~~we recognize revenue~~ and ~~certain~~June ~~voyage~~of ~~expenses when the grain has been delivered to its final destination~~2009, ~~which may fall into~~ the ~~next~~Golden ~~reporting period.~~State ~~However, certain grain voyage expenses are deferred~~ and ~~accrued as a liability on our balance sheet during~~ the ~~voyage.~~Pelican ~~These~~State ~~different characteristics~~, ~~together~~two ~~with the additions~~ of the ~~ATB~~Joint ~~Galveston~~Venture’s ~~and~~tankers ~~the~~managed ~~ATB Brownsville~~by inus ~~August~~were ~~2008~~placed ~~and~~into ~~November 2008~~service, respectively,. asThe ~~well as~~Pelican ~~the~~State ~~sale~~did ofnot ~~the~~generate ~~ITB~~any ~~Jacksonville~~revenues ~~and~~until ~~the~~July ~~ITB~~2009 ~~Groton late~~when inits ~~the~~first ~~fourth~~commercial ~~quarter~~voyage ~~of 2008, make a comparison of our results with prior quarters and comparable periods in the prior year less meaningful~~commenced.

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~~Three Months~~ In ~~Ended~~order ~~March~~to 31address reduced demand for our ITBs in the spot market for transportation of petroleum products, we have sought to employ the ITBs in the foreign transportation of grain for humanitarian organizations. In 2009, ~~Compared~~two of our ITBs delivered grain to ~~Three~~their ~~Months~~final ~~Ended~~destinations ~~March~~in 31the first quarter of 2009 and one of our ITBs commenced a grain voyage in the first quarter of 2009 and completed its grain delivery in the second quarter of 2009. During 2008, we employed all but one of our ITBs in the foreign transportation of grain for humanitarian organizations. Unlike our petroleum voyages, where we generally recognize revenue and expenses based upon the relative transit time in each period to the total estimated transit time for each voyage, for our grain voyages we recognize revenue and certain voyage expenses when the grain has been delivered to its final destination, which may fall into the next reporting period. However, certain grain voyage expenses are deferred and accrued as a liability on our balance sheet during the voyage. These different characteristics, together with the additions of the Partnership’s ATB Galveston and the ATB Brownsville in August 2008 and November 2008 and the additions of the Joint Venture product tankers managed by the Partnership, the Golden State and the Pelican State, in January 2009 and June 2009, as well as the sale of the ITB Jacksonville and the ITB Groton late in the fourth quarter of 2008, make a comparison of our results with prior quarters and comparable periods in the prior year less meaningful.

~~The~~Three ~~three month~~Months ~~period~~Ended ~~ended~~June ~~March 31~~30, 2009 isCompared ~~one~~to ~~day~~Three ~~less~~Months ~~than~~Ended ~~the~~June ~~three month period ended March 31~~30, 2008.

Voyage Revenue. Voyage revenue was $4731.97 million for the three months ended ~~March~~June 3130, 2009, a decrease of $318.61 million, or 636.94%, as compared to $5149.58 million for the three months ended ~~March~~June 3130, 2008.

Revenues are affected by several factors, such as the mix of charter types, the charter rates attainable in the market, fleet utilization, other items such as fuel surcharges and the impact related to the difference in revenue recognition policies for grain voyages compared to our other voyages.

There was a $20.9 million decrease in revenues for the ITB fleet from the same period in 2008, primarily due to our sale of the ITB Jacksonville and the ITB Groton late in the fourth quarter of 2008, which vessels accounted for $10.6 million of voyage revenues in the 2008 period. Revenues from the remaining four ITBs decreased $10.3 million from the prior period due to these ITBs being offhire awaiting charter for 276 days for the three months ended June 30, 2009 as compared to 36 offhire days for the same period in 2008.

There was a $7.1 million revenue decrease from the Partnership’s chemical fleet from the prior period, largely due to the Sea Venture being laid up all of the second quarter of 2009 as well as overall unfavorable rates experienced on the remaining chemical fleet largely due to continued poor economic conditions for the three months ended June 30, 2009, which resulted in our customers shipping smaller quantities of product than in the second quarter of 2008.

The additions of the ATB Galveston and ATB Brownsville, placed in service in August 2008 and late November 2008, respectively, increased revenues by $3.0 million and $2.4 million, respectively, during the second quarter of 2009. Furthermore, the addition of the Joint Venture’s product tanker, the Golden State, managed by the Partnership and placed in service in mid January 2009, increased revenues by $4.5 million during the three months ended June 30, 2009. The Joint Venture’s product tanker, the Pelican State, also managed by the Partnership, did not start earning revenues until its first commercial voyage, which commenced in July 2009.

Vessel Operating Expenses. Vessel operating expenses were $14.2 million for the three months ended June 30, 2009, a decrease of $2.2 million, or 13.5%, as compared to $16.4 million for the three months ended June 30, 2008. As a percentage of revenue, vessel operating expenses were 44.8% for the quarter ended June 30, 2009 as compared to 32.9% for the quarter ended June 30, 2008.

We are responsible for vessel operating expenses regardless of the type of charter under which we are operating. The decrease in dollar terms is largely attributable to a reduction of $2.8 million in operating expenses related to the ITB Jacksonville and the ITB Groton, both sold in the fourth quarter of 2008, as well as a $2.7 million decrease in crew wages and benefits largely due to five vessels being laid up for varying time periods during the second quarter of 2009, a decrease of $0.5 million in repairs and maintenance, a decrease of $0.5 million in supplies and a decrease of $0.7 million in other vessel operating expenses.

Offsetting these reductions was an increase in vessel operating expenses due to the additions of the ATB Galveston, the ATB Brownsville and the ATB Corpus Christi, placed in service in August 2008, late November 2008 and August 2009, which increased vessel operating expenses by $1.0 million, $1.0 million and $0.5 million, respectively, or $2.5 million in total for the three months ended June 30, 2009. The ATB Corpus Christi costs were largely related to wages, benefits and training for the crew. Furthermore, the addition of the Joint Venture’s product tankers, the Golden State and the Pelican State, managed by the Partnership and placed in service in mid January 2009 and June 2009, respectively, increased vessel operating expenses by $1.5 million and $1.0 million, respectively.

Vessel operating expenses increased as a percentage of revenues as the percentage decrease in vessel operating expenses was less than the percentage decrease in revenues.

Voyage Expenses. Voyage expenses were $9.0 million for the three months ended June 30, 2009, a decrease of $8.3 million, or 48.0%, as compared to $17.3 million for the three months ended June 30, 2008.

The decrease of $8.3 million in voyage expenses is primarily due to a decrease in fuel prices of $4.3 million, a reduction of $3.3 million in voyage expenses related to two ITBs sold in the fourth quarter of 2008, $1.0 million less in port charges, $1.4 million less in grain related voyage expenses and $0.2 million less in commissions. Offsetting these decreases was the addition of the ATB Brownsville, placed in service in late November 2008, which contributed $0.9 million in additional voyage expenses, $0.7 million in vessel lay-up attributed to five vessels that were laid up at various periods in the three months ended June 30, 2009 and $0.3 million in voyage expenses related to the Joint Venture’s Pelican State related to its initial positioning voyage. The addition of the ATB Galveston and the Golden State did not affect voyage expenses as the voyage expenses for those vessels are borne by the customer.

Reorganization charges. Reorganization charges were $11.8 million for the three months ended June 30, 2009 which included $8.1 million of losses from the early termination of derivative agreements as a result of our Bankruptcy Filing, $3.2 million in legal, financial advisory and other professional fees associated with the negotiations with our lenders and bankruptcy proceedings, and $0.5 million in adequate protection payments during the bankruptcy proceedings on the Partnership’s Senior Credit Facility debt. There were no reorganization charges for the three months ended June 30, 2008.

General and Administrative Expenses. General and administrative expenses were $5.0 million for the three months ended June 30, 2009, an increase of $1.0 million or 25.8%, compared to $4.0 million for the three months ended June 30, 2008.

The increase of $1.0 million is largely due to an increase in professional fees of $1.4 million for the three months ended June 30, 2009 associated with the litigation with the Joint Venture Investors and an increase of $0.2 million in other expenses, partially offset by a decrease of $0.3 million in wages and benefits and a decrease of $0.3 million in directors’ fees.

For information on the litigation with the Joint Venture Investors, see “Part II. Item 1. Legal Proceedings.”

Depreciation and Amortization. Depreciation and amortization was $7.7 million for the three months ended June 30, 2009, a decrease of $2.7 million, or 26.0%, compared to $10.4 million for the three months ended June 30, 2008.

The decrease in depreciation and amortization is primarily due to a decrease in depreciation expense of $2.5 million due to vessel impairments on the four remaining ITBs and the Sea Venture recorded in 2008, a decrease of $1.8 million due to the sale of both the ITB Jacksonville and the ITB Groton in the fourth quarter of 2008 and a $0.8 million decrease in dyrdock amortization due to the timing of drydocks, partially offset by a $1.2 million increase in depreciation related to the Golden State, placed in service in January 2009, as well as depreciation of $1.2 million related to the ATB Galveston and the ATB Brownsville, placed into service in August 2008 and November 2008, respectively.

Other expense (income). Other income for the three months ended June 30, 2009 of $0.1 million represents storage fees earned related to the lease of the ITB New York to a third party for use as a storage facility in the second quarter of 2009. Other expense for the three months ended June 30, 2008 of $0.1 million reflects a loss related to the sale of surplus equipment.

Interest Expense. Interest expense was $5.3 million for the three months ended June 30, 2009, a decrease of $1.6 million or 23.0%, compared to $6.9 million for the three months ended June 30, 2008.

The decrease is primarily attributable to the Partnership not accruing any interest on its debt subsequent to its Bankruptcy Filing on April 29, 2009. The Partnership’s average effective interest rate for the three months ended June 30, 2009 was 6.1% compared to 9.2% for the three months ended June 30, 2008. In accordance with SOP 90-7, we have not recorded interest expense on our debt since April 29, 2009, the date we filed for bankruptcy and, therefore, interest expense represents the period April 1, 2009 through April 29, 2009.

The Joint Venture’s average effective interest rate for the three months ended June 30, 2009 was 4.9% compared to 7.2% for the three months ended June 30, 2008 which was primarily attributable to a lower LIBOR rate throughout the quarter ended June 30, 2009. All interest on the Joint Venture’s borrowings was capitalized during the 2008 period.

Interest Income. Interest income, consisting of interest earned on our invested balances, was $11 thousand for the three months ended June 30, 2009, compared to $0.7 million for the three months ended June 30, 2008.

The decrease is primarily attributable to a decrease in invested balances in the funds held in escrow accounts to fund the construction of our ATBs and to fund our remaining commitment to the Joint Venture. At June 30, 2009, we no longer had any amounts in escrow.

Net Loss (Gain) on Derivative Financial Instruments. During the three months ended June 30, 2009, we recorded a gain of $1.2 million related to derivative financial instruments as compared to a gain of $0.6 million for the three months ended June 30, 2008. The gain in both periods is largely attributable to the Joint Venture’s interest rate cap entered into in April 2007; the Joint Venture recorded a gain of $1.3 million during the three months ended June 30, 2009 compared to gain of $0.6 million in the same period in 2008. In 2006, the Partnership entered into two interest rate swap agreements that effectively converted a portion of the LIBOR-based payments of our credit facility to a fixed rate. As a result of the October 20, 2008 amendment to the senior credit facility, we determined that these contracts were no longer effective as a hedge and we recorded a loss of $0.1 million related to these contracts for the period in the second quarter of 2009 prior to the termination of these hedges as a result of the Partnership’s Bankruptcy Filing in April 2009. For the impact of the hedge terminations, see “Reorganization charges”.

For information on the Joint Venture’s interest rate cap, see “Item 3. Quantitative and Qualitative Disclosures about Market Risk.”

Provision for Income Taxes. The provision for income taxes was $39 thousand for the three months ended June 30, 2009 compared to a benefit for income taxes of $1.5 million for the three months ended June 30, 2008.

A tax provision of $39 thousand related to unrecognized tax benefits was recorded for the three months ended June 30, 2009. For the comparable period in 2008, a benefit of $5.7 million was recorded upon the transfer of the ownership interests in the limited liability companies that own the ITB Groton, ITB New York, ITB Jacksonville, and ITB Baltimore to the corporate entity USCS Chemical Pioneer Inc., which benefit was partially offset by a provision of $2.8 million recorded to provide a valuation allowance against deferred tax assets created during the period as a result of the transfer of these subsidiaries. Further, a $0.1 million tax provision related to unrecognized tax benefits was recorded during the second quarter of 2008. Partially offsetting the benefit for income taxes in the 2008 period was a tax provision of $0.8 million related to the current period operating results at the various corporate subsidiaries, and a deferred tax provision of $0.5 million related to the revision of the deferred tax assets for USCS Sea Venture LLC.

Noncontrolling Interest in Joint Venture. This represents the Noncontrolling interest holders’ share of the gain/loss in the Joint Venture’s net income or loss. All losses from the Joint Venture are allocated to the Partnership and all gains from the Joint Venture are allocated to the Noncontrolling interest holders. The net gain of $1.1 million for the three months ended June 30, 2009 is largely attributable to the net operating performances of the Golden State and the Pelican State, placed into service in January 2009 and June 2009, respectively. The gain of $0.2 million for the three months ended June 30, 2008 was due to the gain recognized by the Joint Venture on its interest rate cap for that period. In the three months ended June 30, 2008, we allocated 60% of the losses or gains to our Joint Venture partners based on their ownership of 60% of the equity in the Joint Venture. Subsequent to June 30, 2008, we determined that all losses from the Joint Venture are allocated to the Partnership and all gains from the Joint Venture are allocated to the Noncontrolling interest holders. If we had followed this policy in the second quarter of 2008, we would not have allocated the $0.2 million gain to the other Joint Venture partners since we had a net loss for the six months ended June 30, 2008.

Net Loss attributable to USSLP unit holders. The net loss for the three months ended June 30, 2009 was $21.3 million, an increase in net loss of $18.6 million compared to a net loss of $2.7 million for the three months ended June 30, 2008. The increase of $18.6 million in net losses was due to reorganization charges of $11.8 million, a decrease in operating income of $5.8 million, an increase in the provision for income taxes of $1.6 million and an increase in income on the noncontrolling interest in Joint Venture allocated to the other Joint Venture partners of $1.0 million, partially offset by an increase in gains on derivative financial instruments of $0.7 million and a decrease in net interest expense of $0.9 million.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

The six month period ended June 30, 2009 is one day less than the six month period ended June 30, 2008.

Voyage Revenue. Voyage revenue was $79.6 million for the six months ended June 30, 2009, a decrease of $21.7 million, or 21.4%, from $101.3 million for the six months ended June 30, 2008.

Revenues are affected by several factors, such as the mix of charter types, the charter rates attainable in the market, fleet utilization, other items such as fuel surcharges, and the impact related to the difference in revenue recognition policies for grain voyages compared to our other voyages.

There was a $728.98 million decrease in revenues for the ITB fleet ~~for~~from the same period in 2008, primarily due to our sale of the ITB Jacksonville and ITB Groton late in the fourth quarter of 2008., ~~Revenues~~which ~~from~~vessels ~~the~~accounted ~~remaining~~for ~~four ITBs were flat at~~ $2018.85 million inof ~~both~~voyage ~~periods.~~revenues Inin the ~~three~~2008 ~~months~~period. ~~ended~~Revenues ~~March~~from ~~31, 2009,~~the weremaining ~~recognized~~four ITBs decreased $1510.83 million ~~of revenues~~ from ~~grain~~the ~~voyages~~prior onperiod ~~the~~largely ~~ITB~~due ~~Mobile and~~to the ~~ITB~~poor ~~Philadelphia,~~ economic ~~that~~conditions ~~both~~experienced ~~commenced~~ in the ~~fourth quarter of 2008 and discharged in the~~ first ~~quarter~~half of 2009~~. In the same period in 2008~~, ~~we recognized~~which ~~$7.3~~resulted ~~million~~ in ~~grain related revenues from a voyage that commenced in the fourth quarter of 2008 on the ITB Philadelphia. In the first quarter of 2009~~ our ITBs ~~were~~being offhire for ~~135~~412 days ~~due~~ ~~to poor economic conditions,~~ compared with 2045 offhire days for the same period in 2008.

~~The additions~~There ofwas a $13.0 million revenue decrease from the ~~ATB~~Partnership’s ~~Galveston~~chemical ~~and~~fleet from the ~~ATB~~prior ~~Brownsville~~period, ~~placed~~largely indue ~~service~~to in14 ~~August 2008~~drydocking ~~and~~days ~~late~~in ~~November~~2009 ~~2008,~~for ~~respectively~~the Charleston, ~~increased~~148 ~~revenues~~offhire bydays ~~$2.9~~on ~~million and~~the ~~$3.4~~Sea ~~million,~~Venture ~~respectively,~~awaiting ~~over~~charter ~~the~~and ~~prior~~overall ~~period~~unfavorable ofrates ~~2008.~~experienced ~~Furthermore,~~on the ~~addition~~ ofchemical ~~the~~fleet ~~Joint~~largely ~~Venture’s~~due ~~product~~to ~~tanker,~~poor economic conditions experienced in the ~~Golden~~first ~~State~~half of 2009, ~~managed~~which byresulted ~~the~~in our customers ~~Partnership~~ shipping ~~and~~smaller ~~placed~~quantities inof ~~service~~product than in ~~mid~~the ~~January~~first ~~2009,~~half ~~increased~~of ~~revenues by $3~~2008.~~8 million.~~

Offsetting these revenue ~~increases~~decreases was athe ~~$5.8~~impact ~~million~~of ~~revenue~~the ~~decrease~~additions ~~from~~of the ~~Partnership’s~~ ~~chemical~~ATB ~~fleet~~Galveston ~~from~~and the ~~prior~~ATB ~~period~~Brownsville, ~~largely~~placed ~~due~~in toservice ~~14 drydocking~~in ~~days~~August in2008 ~~2009~~and ~~for~~late ~~the~~November ~~Charleston~~2008, 56respectively, ~~offhire~~each ~~days~~of onwhich ~~the~~contributed ~~Sea~~an ~~Venture~~additional ~~awaiting charter~~$5.9 ~~and overall~~million ~~unfavorable~~of ~~rates~~revenues, ~~experienced~~or on$11.8 ~~the~~million ~~chemical~~in ~~fleet~~total, ~~largely~~over ~~due~~the toprior ~~poor economic~~period ~~conditions~~of ~~experienced~~2008. inFurthermore, the ~~first~~addition ~~quarter~~ of ~~2009,~~the ~~which~~Joint ~~resulted~~Venture’s inproduct tanker, the Golden ~~our~~ State, ~~customers~~managed ~~shipping~~by ~~smaller~~the ~~quantities~~Partnership ofand ~~product~~placed ~~than~~in service in ~~the~~mid ~~first~~January ~~quarter of~~2009 ~~2008~~increased revenues by $8.3 million.

Vessel Operating Expenses. Vessel operating expenses were $1630.2 3 million for the ~~three~~six months ended ~~March~~June 3130, 2009, a decrease of $03.81 million, or 59.02%, as compared to $1733.04 million for the ~~three~~six months ended ~~March~~June 3130, 2008. As a percentage of revenue, vessel operating expenses were 3338.71% for the ~~quarter~~ six months ended ~~March~~June 3130, 2009 as compared to 33.0% for the ~~quarter~~six months ended ~~March 31~~June 30, 2008.

We are responsible for vessel operating expenses regardless of the type of charter under which we are operating. The decrease in dollar terms is largely attributable to a reduction of $35.08 million in operating expenses related to the ITB Jacksonville and the ITB Groton, both sold in the fourth quarter of 2008, as well as a $03.74 million decrease in crew wages and benefits largely due to ~~three~~ five vessels being off hire and laid up infor varying time periods during the first ~~quarter~~half of 2009, a decrease of $0.49 million in repairs and maintenance, a decrease of $0.37 million in supplies and a decrease of $01.20 million in other vessel operating expenses.

Offsetting these reductions was an increase in operating expenses due to the additions of the ATB Galveston, the ATB Brownsville and the ATB ~~Brownsville~~Corpus Christi, placed in service in August 2008, ~~and~~ late November 2008 and August 2009, respectively, ~~each of~~ which incurred ~~$1.0 million in vessel~~ operating expenses, orof $2.0 million, in$1.9 ~~total~~million and $0.5 million, respectively, for the ~~three~~ six months ended ~~March~~June 3130, 2009. The ATB Corpus Christi costs were largely related to wages, asbenefits ~~well~~and astraining for the crew. Furthermore, the addition of the Joint Venture’s product ~~tanker~~tankers, the Golden State and the Pelican State, both managed by the Partnership and placed in service in mid January 2009 and mid June 2009, ~~which~~respectively, increased vessel operating expenses by $13.82 million. ~~Vessel~~and ~~operating~~$1.1 ~~expenses~~million, ~~increased as a percentage of revenues as the percentage decrease in vessel operating expenses was less than the percentage decrease in revenues~~respectively.

32 Vessel operating expenses increased as a percentage of revenues as the percentage decrease in vessel operating expenses was less than the percentage decrease in revenues.

Voyage Expenses. Voyage expenses were $1524.89 million for the ~~three~~six months ended ~~March~~June 3130, 2009, ana ~~increase~~decrease of $26.1 million, or 1519.8%, as compared to $1331.70 million for the ~~three~~six months ended ~~March~~June 3130, 2008.

The ~~addition~~ decrease of ~~the~~$6.1 ~~ATB~~million ~~Brownsville, placed~~ in ~~service~~voyage inexpenses ~~late~~is ~~November~~primarily ~~2008, contributed~~due ~~$0.9~~to ~~million~~a decrease in ~~additional~~fuel ~~voyage~~prices ~~expenses. The remainder~~ of ~~the increase,~~ $16.24 million, ~~consisted of~~ a ~~net~~reduction ~~increase~~ of $3.34 million in ~~grain related~~ voyage expenses related to ~~the~~ two ~~grain~~ITBs ~~voyages~~sold ~~that commenced~~ in the fourth quarter of 2008 and ~~discharged~~$0.8 inmillion ~~the~~less ~~first~~in ~~quarter~~port ofcharges. ~~2009,~~Offsetting ~~partially offset~~these bydecreases ~~decreased~~was ~~fuel~~an ~~costs~~increase of ~~approximately~~ $2.1.9 million. ~~Grain~~in grain related voyage expenses ~~recorded~~largely due to expenses associated with the inland distribution of grain in the first ~~quarters~~half of 2009, ~~and~~the ~~2008~~addition ~~for~~of ~~grain~~the ~~voyages that~~ATB ~~commenced~~Brownsville, placed in ~~the~~service ~~respective~~in ~~previous~~late ~~year’s~~November ~~fourth~~2008, ~~quarter~~which ~~were~~contributed $5.1 .8 million in additional voyage expenses and $10.8 million in vessel lay-up attributed to five vessels that were laid up at various times in the first half of 2009. The addition of the ATB Galveston, the Golden State and the ~~Golden~~Pelican State did not affect voyage expenses, as the voyage expenses for those vessels are borne by the customer.

General and Administrative Expenses. General and administrative expenses were $6.0 million for the three months ended March 31, 2009 compared to $4.0 million for the three months ended March 31, 2008, an increase of $2.0 million or 50%. 44

~~The increase~~Reorganization ofcharges. Reorganization charges were $214.04 million infor ~~general~~the ~~and~~six ~~administrative~~months ~~expenses~~ended isJune ~~due~~30, to2009 ~~an increase~~and inconsist ~~professional fees~~ of $28.21 million, ~~consisting~~of losses from the early termination of ~~legal~~derivative ~~and consulting~~agreements ~~fees~~as ~~related~~a toresult of our ~~review~~Bankruptcy ofFiling ~~strategic~~and ~~alternatives~~$5.8 million in legal, financial advisory and other professional fees associated with the negotiations with our lenders and ~~bankruptcy~~creditors ~~planning.~~as Awell ~~decrease~~as inthe ~~wages~~bankruptcy proceeding, and ~~benefits of~~ $0.35 million ~~was~~in ~~partially~~adequate ~~offset~~protection bypayments ~~other~~during ~~expense~~the ~~increase~~bankruptcy ofproceedings $0on the Partnership’s Senior Credit Facility debt.1 ~~million~~There were no reorganization charges for the six months ended June 30, 2008.

~~Depreciation~~ General and ~~Amortization~~Administrative Expenses. ~~Depreciation~~General and ~~amortization~~administrative ~~was~~expenses were $8.0 4 million for the ~~three~~six months ended ~~March~~June 3130, 2009, aan ~~decrease~~increase of $20.54 million, or 245.4%, compared to $108.50 million for the ~~three~~six months ended ~~March~~June 3130, 2008.

The ~~decrease~~ increase of $0.4 million in ~~depreciation~~general and ~~amortization~~administrative expenses is ~~primarily~~ due to aan ~~decrease~~increase in ~~depreciation~~ ~~expense~~professional fees of $2.32 million ~~due~~for tothe ~~vessel~~six ~~impairments~~months onended ~~the~~June ~~four~~30, ~~ITBs remaining~~2009 inassociated ~~our~~with ~~fleet and~~ the ~~Sea~~litigation ~~Venture~~with ~~recorded in~~ the ~~third~~Joint ~~and fourth~~Venture ~~quarters~~Investors, ofpartially ~~2008,~~offset ~~respectively,~~by a decrease of $1.82 million ~~due~~in toprofessional ~~sale of~~fees ~~both~~(as ~~the~~substantially ~~ITB Jacksonville~~all ~~and~~remaining ~~the~~professional ~~ITB~~fees ~~Groton~~incurred in ~~the~~2009 ~~fourth~~are ~~quarter~~now ofincluded ~~2008~~under ~~and~~reorganization charges a because ~~$0.8~~these ~~million~~fees ~~decrease~~are inrelated ~~dyrdock amortization due~~ to the ~~timing~~Bankruptcy ofFiling) ~~drydocks, partially~~and ~~offset~~a bydecrease aof $10.26 million ~~increase~~ in ~~depreciation~~wages ~~related~~and tobenefits. ~~the~~Approximately ~~Golden State,~~$2.6 ~~placed~~million inaccounted ~~service~~for inas ~~January~~general ~~2009,~~and asadministrative ~~well~~expenses asin ~~depreciation~~the ~~of $1.2~~three ~~million~~months ~~related~~ended toMarch ~~the~~31, ~~ATB~~2009 ~~Galveston~~has ~~and~~been ~~the~~reclassified ~~ATB~~as ~~Brownsville,~~reorganization ~~placed~~charges ~~into service~~ in ~~August~~the ~~2008~~six ~~and~~months ~~November~~ended ~~2008~~June 30, ~~respectively~~2009.

~~Impairment charges.~~For ~~There~~information ~~were~~on nothe ~~impairment~~litigation ~~charges~~with ~~for~~ the ~~three~~Joint ~~months~~Venture ~~ended March 31~~Investors, ~~2009~~see ~~compared to~~“Item $51.7 ~~million~~Legal ~~for the three months ended March 31, 2008~~Proceedings.” ~~The 2008 impairment charges reflect the cancellation of the in process construction of an ATB and the write-down of its value to zero.~~

~~Interest Expense~~Depreciation and Amortization. ~~Interest~~ ~~expense~~Depreciation and amortization was $1615.37 million for the ~~three~~six months ended ~~March~~June 3130, 2009, an ~~increase~~a decrease of $85.42 million, or ~~107~~25.0%, compared to $720.9 million for the ~~three~~ six months ended ~~March~~June 3130, 2008.

The ~~increase~~ isdecrease ~~primarily attributable to an increase~~ in ~~interest~~depreciation ~~rate~~and ~~margin effected~~amortization byis ~~our~~primarily ~~October~~due ~~2008~~to ~~bank~~a ~~amendment,~~decrease ~~higher~~in ~~amortization~~depreciation ofexpense ~~deferred financing fees~~ of ~~approximately~~ $14.8 million due to ~~the~~vessel ~~acceleration~~impairments ofon the ~~amortization~~ ~~period~~four ~~for~~remaining ~~deferred~~ITBs ~~financing costs under our senior credit facility to January 31, 2009~~ and the ~~fact~~ ~~that~~Sea weVenture ~~are~~recorded noin ~~longer~~2008, ~~capitalizing~~a ~~interest~~decrease onof ~~the~~$3.7 ~~loans~~million ~~related~~due to the ~~construction~~ sale of both the ~~ATB~~ITB ~~Galveston~~Jacksonville and the ~~ATB~~ITB ~~Brownsville,~~Groton ~~placed~~ in ~~service~~ inthe ~~August~~fourth ~~2008~~quarter ~~and~~of ~~November~~ 2008, ~~respectively,~~and bya ~~the~~$1.5 ~~Partnership~~million ~~as well~~decrease ~~as the Golden State, placed into service~~ in ~~January~~dyrdock ~~2009~~amortization bydue to the ~~Joint~~timing ~~Venture.~~of ~~The increase~~drydocks, ~~in interest expense was~~ partially offset by ~~lower~~a ~~LIBOR and base rates~~$2.4 ~~The~~million ~~Partnership’s~~increase ~~average~~in ~~effective~~depreciation ~~interest~~related ~~rate~~to ~~for~~ the ~~three~~Golden ~~months ended March 31~~State, ~~2009~~placed ~~was~~in ~~13.1%~~service ~~compared~~in toJanuary ~~9.7% for the three months ended March 31~~2009, ~~2008~~as ~~and~~well ~~the~~as ~~Joint~~depreciation ~~Venture’s~~of ~~average~~$2.4 ~~effective~~million ~~interest~~related ~~rate~~to ~~for~~ the ~~three~~ ~~months~~ATB ~~ended~~Galveston ~~March~~and ~~31, 2009 was 5.1% compared to 0.0% for~~ the ~~three months~~ATB ~~ended March 31~~Brownsville, ~~2008~~placed ~~given~~into ~~all~~service ~~interest~~in ~~had~~August ~~been~~2008 ~~capitalized~~and ~~during~~November ~~this period~~2008, ~~on the Joint Venture~~respectively.

~~Interest Income~~Impairment charges. ~~Interest~~ ~~income,~~There ~~consisting~~were ofno ~~interest~~impairment ~~earned~~charges ~~on our invested balances, was $0.1 million~~ for the ~~three~~six months ended ~~March~~June 3130, 2009, compared to $15.0 7 million for the ~~three~~six months ended ~~March~~June 3130, 2008. The 2008 impairment charges reflect the cancellation of the in process construction of an ATB and the write-down of its value to zero.

~~The decrease~~ Other isexpense ~~primarily~~(income). ~~attributable~~Other income for the six months ended June 30, 2009 of $0.1 million represents storage fees earned related to the lease of the ITB New York to a ~~decrease~~third inparty ~~invested~~for ~~balances~~use as a storage facility in the ~~funds~~ ~~held~~second inquarter ~~escrow~~of ~~accounts~~2009. toOther ~~fund~~expense for the ~~construction~~six ofmonths ~~our~~ended ~~ATBs~~June ~~and~~30, to2008 ~~fund our~~of ~~remaining~~$0.1 ~~commitment~~million reflects a loss related to the ~~Joint~~sales ~~Venture~~of surplus equipment.

~~Net Loss~~Interest ~~(Gain)~~Expense. onInterest ~~Derivative~~expense ~~Financial~~was ~~Instruments~~$21.6 ~~During~~million for the ~~three~~six months ended ~~March~~ 31June 30, 2009, wean ~~recorded~~increase ~~a gain~~ of $16.18 million ~~related~~or to46.2%, ~~derivative financial instruments as~~ compared to ~~a gain of~~ $014.48 million for the ~~three~~ six months ended ~~March~~June 3130, 2008. In 2006, the Partnership entered into two interest rate swap agreements that effectively converted a portion of the LIBOR-based payments of our credit facility to a fixed rate. As a result of the October 20, 2008 amendment to the senior credit facility, we determined that these contracts were no longer effective as a hedge and we recorded a gain of $0.9 million related to these contracts in the first quarter of 2009.

33 The increase is primarily attributable to the higher interest rate margins affected by our October 2008 bank amendment, the higher amortization of deferred financing fees of approximately $1.3 million due to the acceleration of the amortization period for deferred financing costs under our senior credit facility to January 31, 2009 and our expensing the interest on the debt related to the construction of the ATB Galveston and the ATB Brownsville, placed in service in August 2008 and November 2008, respectively, by the Partnership as well as the Golden State, placed into service in January 2009 by the Joint Venture. Prior to delivery of these vessels, interest on these borrowings was capitalized rather than expensed. The increase was partially offset by the Partnership not accruing any interest on its debt subsequent to its Bankruptcy Filing and a lower LIBOR rate up to the Partnership’s Bankruptcy filing. The Partnership’s average effective interest rate for the six months ended June 30, 2009 was 9.6% compared to 9.5% for the six months ended June 30, 2008. In accordance with SOP 90-7, we have not recorded interest expense on our debt since April 29, 2009, the date we filed for bankruptcy and, therefore, interest expense represents the period January 1, 2009 through April 29, 2009.

~~Additionally, the~~The Joint Venture’s ~~recorded~~average aeffective ~~gain~~interest ofrate $for the six months ended June 30, 2009 was 5.0% compared to 7.27% ~~million~~for ~~during~~the six months ended June 30, 2008 which was primarily attributable to a lower LIBOR rate throughout the ~~three~~six months ended ~~March~~ 31June 30, 2009. inAll ~~connection~~interest ~~with~~on the ~~interest~~Joint ~~rate~~Venture’s ~~cap~~borrowings it

Filing Compare · U.S. Shipping Partners L.P.