S-1 1 a2181653zs-1.htm S-1
QuickLinks -- Click here to rapidly navigate through this document

As filed with the Securities and Exchange Commission on March 5, 2008

Registration No. 333-          



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


FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


K-Sea GP Holdings LP
(Exact name of registrant as specified in its charter)


Delaware
(State or other jurisdiction of
incorporation or organization)
  4400
(Primary Standard Industrial
Classification Code Number)
  26-2026706
(I.R.S. Employer Identification Number)


One Tower Center Boulevard, 17th Floor
East Brunswick, New Jersey 08816
(732) 565-3818
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)


Timothy J. Casey
K-Sea GP LLC
One Tower Center Boulevard, 17th Floor
East Brunswick, New Jersey 08816
(732) 565-3818
(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies to:

Sean T. Wheeler
Baker Botts L.L.P.
910 Louisiana Street
Houston, Texas 77002
(713) 229-1234
  David C. Buck
Andrews Kurth LLP
600 Travis Street, Suite 4200
Houston, Texas 77002
(713) 220-4200

Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.


         If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. o

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE


Title of Each Class of Securities to be Registered
  Proposed Maximum
Aggregate Offering Price(1)(2)

  Amount of
Registration
Fee


Common Units representing limited partner interests   $100,000,000   $3,930

(1)
Includes common units issuable upon exercise of the underwriters' option to purchase additional common units.

(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o).

         The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.




The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated March 5, 2008

PROSPECTUS

         GRAPHIC


K-Sea GP Holdings LP

                           Common Units

Representing Limited Partner Interests


We are offering            common units representing limited partner interests, and the selling unitholders identified in this prospectus, including KSP Investors A L.P. and KSP Investors B L.P., are offering            common units. This is an initial public offering of our common units. We expect that the initial public offering price of our common units will be between $                  and $                  per common unit. Upon completion of this offering, we will own 100% of the incentive distribution rights, an approximate 29.9% limited partner interest and all of the 1.5% general partner interest in K-Sea Transportation Partners L.P., or KSP, a publicly traded Delaware limited partnership that provides marine transportation, distribution and logistics services for refined petroleum products in the United States.

Before this offering, there has been no public market for our common units. We intend to apply to list our common units on the New York Stock Exchange under the symbol "    ."

Investing in our common units involves risks. Please read "Risk Factors"
beginning on page 20.

These risks include the following:

    Our cash flow will be entirely dependent upon the ability of KSP to make cash distributions to us. If KSP does not make cash distributions or reduces the levels of cash distributions to us, we may not have sufficient cash to pay distributions at our initial quarterly distribution level or at all.

    Our unitholders do not elect our general partner or vote in the election of the directors of our general partner. Upon completion of this offering, the owners of our general partner will own a sufficient number of common units to allow it to prevent the removal of our general partner.

    You will experience immediate and substantial dilution of $                  per common unit in the net tangible book value of your common units.

    KSP's general partner owes fiduciary duties to KSP's unitholders that may conflict with our interests.

    If we or KSP were to become subject to entity-level taxation for federal or state tax purposes, then our cash available for distribution to you would be substantially reduced.

 
  Per
Common Unit

  Total
Initial public offering price   $     $  
Underwriting discount   $     $  
Proceeds to K-Sea GP Holdings LP (before expenses)   $     $  
Proceeds to the selling unitholders(1)   $     $  

(1)
Expenses associated with this offering, other than underwriting discounts associated by the common units being sold by the selling unitholders, will be paid by us.

The selling unitholders have granted the underwriters a 30-day option to purchase up to an additional      common units on the same terms and conditions as set forth above if the underwriters sell more than      common units in this offering.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the common units on or about                    , 2008.


LEHMAN BROTHERS   CITI

                        , 2008



[ARTWORK]



TABLE OF CONTENTS

Prospectus Summary   1
  K-Sea GP Holdings LP   1
  K-Sea Transportation Partners L.P.   5
  Growth of KSP   5
  KSP's Industry   6
  Business Strategies   6
  Competitive Strengths   6
  KSP's Principal Executive Offices and Internet Address   7
  Formation Transactions and Our Structure and Ownership After This Offering   8
  Our Management and Principal Executive Offices   10
  The Offering   11
  Summary of Conflicts of Interest and Fiduciary Duties   13
  Summary of Risk Factors   13
  Summary Historical and Pro Forma Financial Data   16
  Non-GAAP Financial Measures   18
Risk Factors   20
  Risks Inherent in an Investment in Us   20
  Risks Related to Conflicts of Interest   27
  Risks Related to KSP's Business   31
  Tax Risks to Our Common Unitholders   40
Forward-Looking Statements   44
Use of Proceeds   45
Capitalization   46
Dilution   47
Our Cash Distribution Policy and Restrictions on Distributions   48
  General   48
  Our Initial Distribution Rate   51
  Cash Available for Distribution   53
  Unaudited Pro Forma Consolidated Available Cash   53
  Estimated Cash Available for Distribution   56
  Assumptions and Considerations   58
How We Make Cash Distributions   60
  General   60
  Definition of Available Cash   60
  Units Eligible for Distribution   60
  General Partner Interest   60
  Adjustments to Capital Accounts   60
  Distributions of Cash Upon Liquidation   60
  Our Sources of Distributable Cash   61
Selected Historical And Pro Forma Financial and Operating Data   63
Management's Discussion and Analysis of Financial Condition and Results of Operations   66
  Overview of Our Business   66
  Factors That Significantly Affect Our Results and KSP's Results   68
  Overview of Operations   68
  Definitions   70
  Results of Operations   72
  Six Months Ended December 31, 2007 Compared to Six Months Ended December 31, 2006   73
  Fiscal Year Ended June 30, 2007 Compared to the Fiscal Year Ended June 30, 2006   75

i


  Fiscal Year Ended June 30, 2006 Compared to the Fiscal Year Ended June 30, 2005   77
  Liquidity and Capital Resources   80
  Inflation   89
  Related Party Transactions   89
  Seasonality   89
  Critical Accounting Policies   89
  New Accounting Pronouncements   91
  Quantitative and Qualitative Disclosures About Market Risk   92
Our Business   93
  General   93
  Our Strategy   93
  Our Interest in KSP   93
  How Our Partnership Agreement Terms Differ from Those of Other Publicly Traded Partnerships   96
  Legal Proceedings   96
Business of K-Sea Transportation Partners L.P.   97
  Growth of KSP   97
  Competitive Strengths   99
  Business Strategies   100
  KSP's Industry   101
  KSP's Customers   105
  KSP's Vessels   106
  Bunkering   110
  Preventative Maintenance   110
  Safety   110
  Ship Management, Crewing and Employees   112
  Classification, Inspection and Certification   112
  Insurance Program   113
  Competition   114
  Regulation   114
  Properties   120
  Legal Proceedings   120
Management   121
  K-Sea GP Holdings LP and K-Sea Transportation Partners L.P.   121
K-Sea Transportation Partners L.P.'s Compensation Discussion and Analysis   128
  Background   128
  Executive Compensation Philosophy   128
  Purpose of KSP's Executive Compensation Program   128
  Role of KSP GP's Compensation Committee   129
  Elements of Compensation   130
  Employment Agreements   130
  Comparator Group   131
  Other Compensation Related Matters   134
  Impact of Tax and Accounting Treatment   134
  KSP Executive Compensation Tables   135
  Director Compensation   138
Security Ownership of Certain Beneficial Owners and Management and Related Securityholder Matters   139
  K-Sea GP Holdings LP   139
  K-Sea Transportation Partners L.P.   140
Selling Unitholders   142

ii


Certain Relationships and Related Transactions   143
  Our Relationship with KSP and its General Partner, KSP GP   143
  Our Relationship with KSP   143
  Indemnification of Our Directors and Officers   143
  Related Party Transactions Involving KSP   143
  Contribution Agreement   144
  Administrative Agreement   144
  Our General Partner's Limited Liability Agreement   144
  Omnibus Agreement and Non-Compete Agreement   145
Conflicts of Interest and Fiduciary Duties   146
  Conflicts of Interest   146
  Fiduciary Duties   148
Description of Our Common Units   152
  Common Units   152
  Transfer Agent and Registrar   152
  Transfer of Common Units   152
  Limited Call Right   153
Comparison of Rights of Holders of KSP's Common Units and Our Common Units   154
Description of Our Partnership Agreement   156
  Organization and Duration   156
  Purpose   156
  Restrictions on Foreign Ownership   157
  Power of Attorney   157
  Capital Contributions   157
  Limited Liability   158
  Limited Voting Rights   158
  Transfer of Ownership Interests in Our General Partner   159
  Issuance of Additional Securities   160
  Amendments to Our Partnership Agreement   160
  Merger, Sale or Other Disposition of Assets   162
  Termination or Dissolution   163
  Liquidation and Distribution of Proceeds   163
  Withdrawal or Removal of the General Partner   163
  Transfer of General Partner Interest   164
  Change of Management Provisions   164
  Limited Call Right   165
  Meetings; Voting   165
  Status as Limited Partner   166
  Non-Citizen Assignees; Redemption   166
  Indemnification   166
  Reimbursement of Expenses   167
  Books and Reports   167
  Right to Inspect Our Books and Records   167
  Registration Rights   167
K-Sea Transportation Partners L.P.'s Cash Distribution Policy   168
  Distributions of Available Cash   168
  Operating Surplus and Capital Surplus   168
  Subordination Period   170
  Distributions of Available Cash From Operating Surplus During the Subordination Period   172
  Distributions of Available Cash From Operating Surplus After the Subordination Period   172
  Incentive Distribution Rights   172

iii


  Percentage Allocations of Available Cash From Operating Surplus   173
  Distributions of Available Cash From Capital Surplus   173
  Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels   174
  Distributions of Cash Upon Liquidation   175
Material Provisions of the Partnership Agreement of K-Sea Transportation Partners L.P.   177
  Purpose   177
  Restrictions on Foreign Ownership   177
  Issuance of Additional Securities   178
  Limited Liability   179
  Voting Rights   180
  Amendment of KSP's Partnership Agreement   182
  Liquidation and Distribution of Proceeds   184
  Withdrawal or Removal of KSP's General Partner   184
  Change of Management Provisions   185
  Limited Call Right   186
  Meetings; Voting   186
  Indemnification   187
  Registration Rights   187
Units Eligible for Future Sale   188
Material Tax Consequences   189
  Partnership Status   189
  Limited Partner Status   191
  Tax Consequences of Unit Ownership   191
  Tax Treatment of Operations   197
  Disposition of Common Units   198
  Tax-Exempt Organizations and Non-United States Investors   201
  Administrative Matters   202
  State, Local, Foreign and Other Tax Considerations   204
Investment in Us by Employee Benefit Plans   205
Underwriting   206
Legal Matters   211
Experts   211
Where You Can Find More Information   211
Index to Financial Statements   F-1
Appendix A    Form of Amended and Restated Agreement of Limited Partnership of K-Sea
                         GP Holdings LP
   
Appendix B    Glossary of Selected Terms    

        Until                        , 2008 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade our common units, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

        You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. Unless otherwise indicated, you should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.


iv



PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the historical consolidated financial statements, pro forma consolidated financial statements, the notes to those financial statements, and the other documents to which we refer, for a more complete understanding of this offering. Furthermore, you should carefully read "Summary of Risk Factors" and "Risk Factors" for more information about important risks that you should consider before making a decision to purchase common units in this offering.

        Except as otherwise indicated the information presented in this prospectus assumes (1) an initial public offering price of $            per common unit and (2) that the underwriters do not exercise their option to purchase additional common units. All references in this prospectus to "our," "we," "us," and the "Company" refer to K-Sea GP Holdings LP and its wholly owned subsidiaries. All references in this prospectus to "KSP" refer to K-Sea Transportation Partners L.P. and its operating subsidiaries collectively, or to K-Sea Transportation Partners L.P., individually, as the context may require. All references in this prospectus to "KSP GP" refer to K-Sea General Partner GP LLC, the general partner of K-Sea Transportation Partners L.P. All references to our "partnership agreement" refer to the Amended and Restated Agreement of Limited Partnership of K-Sea GP Holdings LP to be adopted contemporaneously with the closing of this offering. We include a glossary of some of the terms used in this prospectus as Appendix B.


K-Sea GP Holdings LP

        We are a Delaware limited partnership formed in December 2007, and our cash generating assets consist solely of partnership interests in K-Sea Transportation Partners L.P. (NYSE: KSP). KSP is a publicly traded Delaware limited partnership that provides marine transportation, distribution and logistics services for refined petroleum products in the United States. KSP currently operates a fleet of 73 tank barges, one tanker and 59 tugboats that serves a wide range of customers, including major oil companies, oil traders and refiners. With approximately 4.3 million barrels of capacity, KSP believes it owns and operates the largest coastwise tank barge fleet in the United States.

        Upon completion of this offering, we will own:

    100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;

    4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and

    all of the 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

        At KSP's current annualized cash distribution rate of $2.96 per common unit, or $0.74 per common unit per quarter, aggregate annual cash distributions to us on all of our interests in KSP will be approximately $15.5 million, representing approximately 35% of the total cash distributed by KSP. Based on KSP's current cash distribution and our expected ownership of KSP, we expect that our initial quarterly cash distribution to our unitholders will be $    per common unit, or $    per common unit on an annualized basis, to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses. Please read "Our Cash Distribution Policy and Restrictions on Distributions."

        Our primary business objective is to increase our cash distributions to our unitholders through our oversight of KSP. Please read "—K-Sea Transportation Partners L.P.—Business Strategies."

        Our ownership of 100% of the incentive distribution rights in KSP entitles us to receive increasing percentages of its incremental cash distributed in excess of $0.55 per KSP limited partner unit in any

1



quarter. The following table illustrates the percentage allocations of distributions among the owners of KSP, including us, at the target distribution levels contained in KSP's partnership agreement.

 
  Marginal Percentage Interest in Distributions
 
   
  General Partner
KSP Quarterly Distribution Per Unit
  Limited Partner
Units

  General
Partner
Units

  Incentive
Distribution
Rights

up to $0.55   98.5%   1.5%   0%
above $0.55 up to $0.625   85.5%   1.5%   13%
above $0.625 up to $0.75   75.5%   1.5%   23%
above $0.75   50.5%   1.5%   48%

        KSP has increased its quarterly cash distribution for the last 11 consecutive quarters, and 13 times since its initial public offering in January 2004, from $0.50 per common unit ($2.00 on an annualized basis) to $0.74 per common unit ($2.96 on an annualized basis), which is the most recently paid distribution. KSP's distribution of $0.74 per limited partner unit for the quarter ended December 31, 2007 entitled us to receive incentive distributions equal to 23% of KSP's total cash distribution in excess of $0.625 per common unit, which, in addition to the distributions we receive in respect of our common units, subordinated units and general partner units, collectively comprises 35% of the cash distributed by KSP in respect of that quarter.

        As KSP has increased the quarterly cash distribution paid on its units, the first three target cash distribution levels described above have been exceeded, thereby increasing the amounts paid by KSP to its general partner as the owner of KSP's incentive distribution rights. As a consequence, our cash distributions from KSP that are based on our ownership of the incentive distribution rights have increased more rapidly than distributions to us based on our other ownership of interests in KSP. Any increase in the quarterly cash distributions above $0.75 per unit from KSP would entitle us to receive 48% of such excess and would have the effect of disproportionately increasing the amount of all distributions that we receive from KSP based on our ownership interest in the incentive distribution rights in KSP.

        All of our cash flows are generated from the cash distributions we receive with respect to the KSP partnership interests we own. KSP is required by its partnership agreement to distribute, and it has historically distributed within 45 days of the end of each quarter, all of its cash on hand at the end of each quarter, less cash reserves established by its general partner in its sole discretion to provide for the proper conduct of KSP's business or to provide for future distributions. While we, like KSP, are structured as a limited partnership, our capital structure and cash distribution policy differ materially from those of KSP. Most notably, our general partner does not have an economic interest in us and is not entitled to receive any distributions from us and our capital structure does not include incentive distribution rights. Therefore, our distributions are allocated exclusively to our common units, which is our only class of security currently outstanding. Further, unlike KSP, we do not have subordinated units, and as a result, our common units carry no right to arrearages.

2


        The graph below illustrates the historical growth in KSP's quarterly distributions per common unit and the corresponding historical growth in quarterly distributions that would have been made to us, including the general partner interest and the incentive distribution rights:


KSP Distribution Growth

GRAPHIC

        The graph below shows hypothetical cash distributions payable to us with respect to our partnership interests in KSP, including the incentive distribution rights and the general partner interest, across a range of hypothetical annualized distributions made by KSP. This information assumes:

    KSP has a total of 13,713,450 limited partner units outstanding, consisting of 11,630,950 common units and 2,082,500 subordinated units; and

    our ownership of:

    100% of the incentive distribution rights in KSP;

    4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP (for a discussion of the conversion of subordinated units to common units, please read "K-Sea Transportation Partners L.P.'s Cash Distribution Policy—Subordination Period"); and

    all of the 1.5% general partner interest in KSP.

The graph also illustrates the impact to us of KSP raising or lowering its quarterly cash distribution from the most recently paid distribution of $0.74 per common unit ($2.96 on an annualized basis), which was paid on February 14, 2008 with respect to the quarter ended December 31, 2007. This information is presented for illustrative purposes only. This information is not intended to be a prediction of future performance and does not attempt to illustrate the impact of changes in our or KSP's business. The impact to us of changes in KSP's cash distribution levels will vary depending on several factors, including the number of KSP's outstanding limited partner units on the record date for cash distributions and the impact of the incentive distribution rights structure. In addition, the level of

3



cash distributions we receive may be affected by risks associated with the underlying business of KSP. Please read "Risk Factors."


Hypothetical Annualized Distributions

GRAPHIC

        We will pay to our common unitholders, on a quarterly basis, distributions equal to the cash we receive from KSP, less cash reserves established by our general partner to, among other things:

    provide for our general, administrative and other expenses, including those we will incur as the result of becoming a publicly traded company;

    comply with applicable law;

    comply with any agreement binding upon us or our subsidiaries (exclusive of KSP and its subsidiaries);

    provide for future distributions to our unitholders;

    provide for future capital expenditures, debt service and other credit needs as well as any federal, state, provincial or other income tax that may affect us in the future;

    allow us to pay KSP GP, if desired, an amount sufficient to enable KSP GP to make capital contributions to KSP to maintain its 1.5% general partner interest upon the issuance of partnership securities by KSP; or

    otherwise provide for the proper conduct of our business, including with respect to the matters described under "Description of Our Partnership Agreement—Purpose."

        Based on KSP's current quarterly distribution, the number of our units that will be outstanding and our expected level of expenses and reserves that our board of directors believes prudent to maintain, we expect to make an initial quarterly cash distribution of $            per unit, or $            per unit on an annualized basis. In August 2008, we expect to pay you a distribution equal to the initial quarterly distribution prorated for the period from the closing date of this offering to and including June 30, 2008. However, we cannot assure you that any distributions will be declared or paid. Please read "Our Cash Distribution Policy and Restrictions on Distributions."

        If KSP is successful in implementing its business strategies and increasing distributions to its partners, we would expect to increase distributions to our unitholders, although the timing and amount of any such increase in our distributions will not necessarily be comparable to any increase in KSP's distributions. We cannot assure you that any distributions will be declared or paid by KSP. Please read "Our Cash Distribution Policy and Restrictions on Distributions" and "Risk Factors."

4



K-Sea Transportation Partners L.P.

        KSP is a leading provider of marine transportation, distribution and logistics services for refined petroleum products in the U.S. KSP currently operates a fleet of 73 tank barges, one tanker and 59 tugboats that serves a wide range of customers, including major oil companies, oil traders and refiners. With approximately 4.3 million barrels of capacity, KSP believes it owns and operates the largest coastwise tank barge fleet in the United States.

        For the fiscal year ended June 30, 2007, KSP's fleet transported approximately 140 million barrels of refined petroleum products for KSP's customers, including BP, Chevron, ConocoPhillips, ExxonMobil and Rio Energy. KSP's five largest customers in fiscal 2007 have been doing business with KSP for approximately 17 years on average. KSP does not assume ownership of any of the products it transports. During fiscal 2007, KSP derived approximately 79% of its revenue from longer-term contracts that are generally for periods of one year or more.

Growth of KSP

        In January 2004, KSP went public on the New York Stock Exchange. Under the same management, KSP has continued to grow its business—both in terms of the size and scale of operations and in terms of the geographical and commercial scope of its business. KSP's growth has been prudently managed and accretive to cash flow. Quarterly distributions have increased from $0.50 per common unit for the quarter ended March 31, 2004 (prorated for the number of days between the date of its initial public offering to March 31, 2004) to $0.74 for the quarter ended December 31, 2007, reflecting 13 quarterly distribution increases.

        Significant acquisitions since KSP's initial public offering include:

    In January 2004, KSP purchased a 140,000-barrel barge and a tugboat from a subsidiary of ExxonMobil.

    In December 2004, KSP acquired 10 tank barges and seven tugboats from Bay Gulf Trading of Norfolk, Virginia, representing a combined total barrel-carrying capacity of 255,000 barrels.

    In October 2005, KSP acquired 15 tank barges and 15 tugboats through its acquisition of Sea Coast Towing, Inc., thereby increasing its barrel-carrying capacity by 705,000 barrels and providing it with an attractive entry point into the complementary markets of the Pacific Northwest and Alaska.

    In August 2007, KSP acquired 11 tank barges and 14 tugboats with a combined capacity of 777,000 barrels through its acquisition of Smith Maritime, Ltd. of Honolulu, Hawaii and Go Big Chartering, LLC and Sirius Maritime, LLC of Seattle, Washington, which we refer to as the Smith Maritime Group.

        Since January 2004, KSP has also purchased four existing tank barges with a combined capacity of 328,000 barrels in separate transactions, and nine existing tugboats. In October 2007, KSP entered into an agreement with a shipyard to construct a 185,000-barrel articulated tug-barge unit, which is expected to be delivered in the fourth quarter of calendar 2009. KSP has an agreement for a long-term charter for this 185,000-barrel articulated tug-barge unit with a major customer that is expected to commence upon delivery. KSP has a vessel newbuilding program for nine additional tank barges totaling 568,000 barrels of capacity. These tank barges are expected to be delivered periodically between the third quarter of fiscal 2008 and the second quarter of fiscal 2011. KSP has firm commitments with its customers for 368,000 barrels of this capacity and expects to be able to employ the remaining capacity upon its delivery. As a result of its expansion program, KSP's total barrel-carrying capacity, net of vessel sales and retirements, is expected to increase to between 4.6 million and 4.8 million by 2010, roughly double the size of its fleet at its initial public offering and four times its size in 1999.

5


KSP's Industry

        Tank vessels, which include tank barges and tankers, are a critical link in the refined petroleum product distribution chain. Tank vessels transport gasoline, diesel fuel, heating oil, asphalt and other products from refineries and storage facilities to a variety of destinations, including other refineries, distribution terminals, power plants and ships. According to a June 2006 study by the Association of Oil Pipe Lines, 29.9% of all domestic refined petroleum product transportation was by water in 2004, making waterborne transportation the most used mode of transportation for refined petroleum products after pipelines. Many areas along the East Coast and West Coast and in the Hawaiian islands have access to refined petroleum products only by using marine transportation as a link in their distribution chain.

        KSP believes the following industry trends create a positive outlook for it:

    refined petroleum product consumption is rising;

    OPA 90 requires the phase-out of all single-hulled tank vessels by January 1, 2015;

    the domestic tank vessel industry is consolidating; and

    customers are placing greater emphasis on environmental and safety concerns.

Business Strategies

        KSP's primary business objective is to increase distributable cash flow per unit by executing the following strategies:

    expanding its fleet through newbuildings and accretive and strategic acquisitions;

    maximizing fleet utilization and improving productivity;

    maintaining safe, low-cost and efficient operations;

    balancing its fleet deployment between longer-term contracts and shorter-term business in an effort to provide stable cash flows through business cycles, while preserving flexibility to respond to changing market conditions; and

    attracting and maintaining customers by adhering to high standards of performance, reliability and safety.

Competitive Strengths

        KSP's competitive strengths include:

    a large, versatile fleet that enables KSP to maximize utilization and provide comprehensive customer service;

    a significant percentage of double-hulled tank vessels in relation to the industry average, which should benefit KSP given the projected decrease in tank vessel capacity due to OPA 90;

    a reputation for high standards of performance, reliability and safety, which fosters long-term customer relationships with major oil companies, oil traders and refiners;

    a proven track record of successfully acquiring and integrating vessels and businesses;

    the financial flexibility to pursue acquisitions and other expansion opportunities through the issuance of additional common units and borrowings under KSP's revolving credit agreement; and

    a management team with extensive industry experience.

6


KSP's Principal Executive Offices and Internet Address

        KSP's principal executive offices are located at One Tower Center Boulevard, 17th Floor, East Brunswick, New Jersey 08816, and its phone number is (732) 565-3818. KSP's internet address is www.k-sea.com, on which it makes available, free of charge, certain corporate information and reports. Information contained on that website, however, is not incorporated into and is not otherwise a part of this prospectus. KSP also files annual, quarterly and current reports and other information with the Securities and Exchange Commission, which we refer to as the Commission. KSP's Commission filings are available to the public at the Commission's website at www.sec.gov. You may also read and copy any document KSP files at the Commission's public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Commission's public reference room by calling the Commission at 1-800-SEC-0330.

7



Formation Transactions and Our Structure and Ownership After This Offering

        We were formed in December 2007 as a Delaware limited partnership. Our general partner is K-Sea GP LLC. Members of KSP's management and funds controlled by Jefferies Capital Partners, which we refer to as the contributing parties, appointed Brian P. Friedman, James J. Dowling and Timothy J. Casey as the owners of our general partner. Messrs. Friedman, Dowling and Casey, who are also directors of KSP GP, have agreed not to receive any personal economic benefit from their ownership of the general partner, other than reimbursement of out-of-pocket expenses incurred in maintaining such ownership and managing our general partner. In addition, Messrs. Friedman, Dowling and Casey have agreed to transfer to us any value received by such persons, less out-of-pocket expenses, upon the sale of any membership interests or assets of K-Sea GP LLC to a third party, and we will agree to indemnify Messrs. Friedman, Dowling and Casey from taxes, if any, associated with such transfer.

        At or prior to the closing of this offering, the following transactions, which we refer to as the formation transactions, will occur:

    the contributing parties will contribute to us all of the membership interests in KSP GP, which owns all of the 1.5% general partner interest and 100% of the incentive distribution rights in KSP;

    subsidiaries of EW Transportation LLC, which we refer to as EW LLC, will merge into EW LLC in a taxable liquidation for federal income tax purposes;

    the contributing parties will contribute to us all of the membership interests in EW LLC, which owns 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units representing an aggregate 29.9% limited partner interest in KSP; and

    EW LLC will become our wholly owned subsidiary.

        As consideration for these contributions and in accordance with the terms of a contribution agreement, we will issue                        of our common units to the contributing parties and will assume certain liabilities, including tax and environmental liabilities, of EW LLC. The terms of the contribution agreement will be determined by the contributing parties and will not be the result of arm's-length negotiations.

        The following chart depicts our and our affiliates' simplified organizational and ownership structure after giving effect to this offering and the formation transactions. Upon completion of this offering (assuming the underwriters do not exercise their option to purchase additional common units):

    Our general partner, K-Sea GP LLC, will own a non-economic interest in us.

    We will own a 100% membership interest in KSP GP, which owns all of the 1.5% general partner interest and 100% of the incentive distribution rights in KSP.

    We will indirectly own 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units representing an aggregate 29.9% limited partner interest in KSP.

    The contributing parties will own                        common units, representing a    % limited partner interest in us.

    Our public unitholders will own                        common units, representing a    % limited partner interest in us.

8



Simplified Organizational Structure of K-Sea GP Holdings LP After This Offering

         GRAPHIC

9


Our Management and Principal Executive Offices

        K-Sea GP LLC, our general partner, will manage our operations and activities, including, among other things, establishing the quarterly cash distribution for our common units and cash reserves it believes are prudent to provide for the proper conduct of our business. We control and manage KSP through our ownership of KSP GP.

        We anticipate that our president and chief executive officer and our chief financial officer and up to four of the directors of our general partner also will be officers or directors of KSP GP and will serve in a similar capacity at each entity. One or more of the independent directors of our general partner may also serve as an independent director of KSP GP. For additional information regarding the officers and directors of our general partner and KSP GP, please read "Management."

        We and our general partner have no employees. All of our officers and other personnel necessary for our business to function (to the extent not outsourced) will be employed by K-Sea Transportation Inc., a subsidiary of KSP which we refer to as KTI, and we will pay KTI an annual fee for general and administrative services pursuant to an administrative services agreement. This fee will initially be $350,000 per year. The fee will be subject to upward adjustment if a material event occurs that impacts the general and administrative services provided to us, such as acquisitions, entering into new lines of business or changes in laws, regulations or accounting rules. In addition to this fee for general and administrative services provided to us by KTI, we expect to incur direct annual expenses of approximately $1,000,000 per year for recurring costs associated with becoming a separate publicly traded entity, including legal, tax and accounting expenses.

        We will reimburse KTI and KSP GP for expenses incurred (1) on our behalf; (2) on behalf of our general partner; or (3) to maintain KSP GP's legal existence and good standing. We will also reimburse our general partner for any additional expenses incurred on our behalf or to maintain its legal existence and good standing.

        Our principal executive offices are located at One Tower Center Boulevard, 17th Floor, East Brunswick, New Jersey 08816, and our phone number is (732) 565-3818. Our Internet address will be                    . We expect to make our periodic reports and other information filed or furnished to the Commission available, free of charge, on our web site. Information on our web site or any other web site is not incorporated by reference into this prospectus and does not constitute part of this prospectus.

10



The Offering

Common units offered by us         common units.

Common units offered by the selling unitholders

 

      common units;       common units if the underwriters exercise their option to purchase additional common units in full.

Common units outstanding after this offering

 

      common units.

Use of proceeds

 

We expect to receive net proceeds of approximately $       million from the sale of the common units offered by us, after deducting underwriting discounts. We will use the net proceeds from this offering to:

 

 


 

repay approximately $15.5 million of indebtedness, together with accrued interest, of EW LLC;

 

 


 

pay approximately $5.3 million of federal and state income tax liabilities of EW LLC; and

 

 


 

pay approximately $           million of expenses associated with the offering and related formation transactions.

 

 

We will not receive any proceeds from the sale of the common units being sold by the selling unitholders.

 

 

Please read "Use of Proceeds."

Cash distributions

 

We will pay quarterly distributions at an initial rate of $      per common unit ($      per common unit on an annual basis) to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner. In general, we will distribute all of our available cash each quarter to the holders of our common units. Please read "Our Cash Distribution Policy and Restrictions on Distributions." We do not have subordinated units and our general partner is not entitled to any incentive distributions. Please read "Description of Our Common Units."

 

 

We will pay you a prorated cash distribution for the first quarter that we are a publicly traded partnership. This cash distribution will be paid for the period beginning on the closing date of this offering and ending on the last day of that fiscal quarter. Therefore, we will pay you a cash distribution for the period from the closing date of this offering to and including June 30, 2008. We expect to pay this cash distribution in August 2008. However, we cannot assure you that any distributions will be declared or paid by us.

11



Limited voting rights

 

Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, you will have only limited voting rights on matters affecting our business. You will have no right to elect our general partner or its directors on an annual or other continuing basis. Our general partner may not be removed except by a vote of the holders of at least 662/3% of the outstanding common units, including any units owned by our affiliates, voting together as a single class. Immediately following the completion of this offering, the contributing parties will own a sufficient number of our common units to allow them to block any attempt to remove our general partner. Initially, this will give our current partners the ability to prevent our general partner's involuntary removal. Please read "Description of Our Partnership Agreement—Withdrawal or Removal of the General Partner."

Limited call right

 

If at any time our affiliates own more than 80% of our outstanding common units, our general partner has the right, but not the obligation, to purchase all of the remaining common units at a price not less than the then-current market price of the common units. At the completion of this offering, the contributing parties will own approximately      % of our common units.

Estimated ratio of taxable income to distributions

 

We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending December 31, 2010, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be less than      % of the cash distributed to you with respect to that cumulative period. For example, if you receive an annual distribution of $      per common unit, we estimate that your average allocated federal taxable income per year will be no more than $      per unit. For the basis of this estimate, please read "Material Tax Consequences—Tax Consequences of Unit Ownership—Ratio of Taxable Income to Distributions."

Material tax consequences

 

For a discussion of other material federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, please read "Material Tax Consequences."

Agreement to be bound by the partnership agreement

 

By purchasing a common unit, you will be deemed to have agreed to be bound by all of the terms of our partnership agreement.

Exchange listing

 

We intend to apply to list our common units on the New York Stock Exchange under the symbol "      ."

12


Summary of Conflicts of Interest and Fiduciary Duties

        Conflicts of interest exist and may arise in the future as a result of the relationships among us, KSP and our and its respective general partners and affiliates on the one hand, and us and our limited partners, on the other hand. Like KSP, our general partner is controlled by the contributing parties. Accordingly, the contributing parties have the ability to elect, remove and replace the directors and officers of our general partner and the directors and officers of the general partner of KSP. The directors and officers of our general partner have fiduciary duties to manage our general partner in a manner beneficial to its owners. At the same time, our general partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders.

        Certain of the executive officers and directors of our general partner also serve as executive officers and directors of the general partner of KSP. Consequently, these directors and officers may encounter situations in which their fiduciary obligations to KSP, on the one hand, and us, on the other hand, are in conflict. For a more detailed description of the conflicts of interest involving us and the resolution of these conflicts, please read "Conflicts of Interest and Fiduciary Duties."

        Our partnership agreement limits the liability and reduces the fiduciary duties of our general partner to our unitholders. Our partnership agreement also restricts the remedies available to unitholders for actions that might otherwise constitute a breach of our general partner's fiduciary duties owed to unitholders. By purchasing our units, you are treated as having consented to various actions contemplated in the partnership agreement and conflicts of interest that might otherwise constitute a breach of fiduciary or other duties under applicable state law. Please read "Conflicts of Interest and Fiduciary Duties—Fiduciary Duties" for a description of the fiduciary duties imposed on our general partner by Delaware law, the material modifications of these duties contained in our partnership agreement, and certain legal rights and remedies available to unitholders.

Summary of Risk Factors

        An investment in our common units involves risks. These risks include, but are not limited to, those described below. For more information about these and other risks, please read "Risk Factors." You should consider carefully these risk factors together with all of the other information included in this prospectus before you invest in our common units.

Risks Inherent in an Investment in Us

    Our cash flow will be entirely dependent upon the ability of KSP to make cash distributions to us. If KSP does not make cash distributions or reduces the level of cash distributions to us, we may not have sufficient cash to pay distributions at our initial quarterly distribution level or at all.

    In the future, we may not have sufficient cash to pay our estimated initial quarterly distribution or to increase distributions.

    A portion of our partnership interests in KSP are subordinated to KSP's common units, which would result in decreased distributions to us if KSP is unable to meet its minimum quarterly distribution.

    A portion of our partnership interests in KSP are incentive distribution rights, and reduction in KSP's distributions will disproportionately affect the amount of cash distributions to which we are currently entitled.

    Our unitholders do not elect our general partner or vote in the election of directors of our general partner. Upon completion of this offering, the owner of our general partner will own a sufficient number of common units to allow it to prevent the removal of our general partner.

13


    You will experience immediate and substantial dilution of $      per common unit in the net tangible book value of your common units.

    The control of our general partner may be transferred to a third party who could replace our or KSP's current management team, in either case, without unitholder consent.

    KSP may issue additional limited partner interests or other equity securities, which may increase the risk that KSP will not have sufficient available cash to maintain or increase its cash distributions to us.

Risks Related to Conflicts of Interest

    KSP's general partner owes fiduciary duties to KSP's unitholders that may conflict with our interests.

    Potential conflicts of interest may arise among our general partner, its affiliates and us. Our general partner has limited fiduciary duties to us and our unitholders, which may permit it to favor its own interests to the detriment of us and our unitholders.

    Our partnership agreement limits our general partner's fiduciary duties to us and contains provisions that reduce the remedies available to unitholders for actions that might otherwise constitute a breach of fiduciary duty by our general partner.

    Our general partner may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without prior approval of our unitholders.

Risks Related to KSP's Business

    Marine transportation is an inherently risky business.

    A decline in demand for, and level of consumption of, refined petroleum products could cause demand for tank vessel capacity and charter rates to decline, which would decrease KSP's revenues and profitability.

    KSP's business would be adversely affected if KSP failed to comply with the Jones Act provisions on coastwise trade, or if those provisions were modified, repealed or waived.

    Increased competition in the domestic tank vessel industry could result in reduced profitability and loss of market share for KSP.

    KSP relies on a limited number of customers for a significant portion of its revenues. The loss of any of these customers could adversely affect KSP's business and operating results.

    Voyage charters may not be available at rates that will allow KSP to operate its vessels profitably.

    KSP may not be able to renew time charters, consecutive voyage charters, contracts of affreightment and bareboat charters when they expire.

    KSP must make substantial expenditures to maintain the operating capacity of its fleet, which will reduce its cash available for distribution.

Tax Risks to Our Common Unitholders

    Our tax treatment depends on both our and KSP's status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation or if we or KSP or both were to

14


      become subject to a material amount of entity-level taxation for federal or state income tax purposes, our cash available for distribution to unitholders would be substantially reduced.

    If the IRS contests the federal income tax positions taken by us or KSP, the market for our or KSP's common units may be adversely affected, and the costs of any contest will reduce our cash available for distribution to unitholders.

    You may be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

    If EW LLC's corporate subsidiaries are audited, we may owe additional federal and state taxes, which could decrease our cash available for distribution.

15


Summary Historical and Pro Forma Financial Data

        We were formed in December 2007. The ownership interests of KSP GP and EW LLC will be transferred to us in connection with this offering, and there will be no substantive change in the control of these entities as a result of the transaction. Therefore, our historical consolidated financial information as of and for the years ended June 30, 2005, 2006 and 2007, and as of December 31, 2007 and for the six months ended December 31, 2006 and 2007, represents the combined financial information of KSP GP and EW LLC based on their carrying amounts. We refer to these combined entities as K-Sea GP Holdings LP Predecessor.

        We have no separate operating activities apart from those conducted by KSP, and our cash flows consist solely of distributions from KSP on the partnership interests, including the incentive distribution rights, that we own. Accordingly, the summary historical financial data set forth in the following table primarily reflect the operating activities and results of operations of KSP. The limited partner interests in KSP not owned by our affiliates are reflected as non-controlling interests on our balance sheet and the non-affiliated partners' share of income from KSP is reflected as non-controlling interests in our results of operations.

        The summary historical statements of income and cash flow data for the fiscal years ended June 30, 2005, 2006 and 2007, and the balance sheet data as of June 30, 2006 and 2007, are derived from the audited financial statements of K-Sea GP Holdings LP Predecessor included elsewhere in this prospectus. The summary historical statements of income and cash flow data for the six months ended December 31, 2006 and 2007, and the balance sheet data as of December 31, 2007, are derived from the unaudited financial statements of K-Sea GP Holdings LP Predecessor. The summary historical balance sheet data as of June 30, 2005 and December 31, 2006 have been derived from the historical books and records of K-Sea GP Holdings LP Predecessor.

        The summary pro forma financial data presented for the fiscal year ended June 30, 2007 and as of and for the six months ended December 31, 2007 reflect our historical operating results as adjusted to give pro forma effect to the following transactions, as if such transactions had occurred on July 1, 2006 for income statement data and December 31, 2007 for the balance sheet data:

    the August 2007 acquisition by KSP of the Smith Maritime Group;

    the sale by KSP of 3,500,000 KSP common units in September 2007;

    the transactions contemplated by the contribution agreement described in this prospectus under the caption "Certain Relationships and Related Transactions—Contribution Agreement"; and

    the sale of            common units in this offering and application of the net proceeds from this offering, as described in "Use of Proceeds."

        We derived the data in the following table from, and it should be read together with and is qualified in its entirety by reference to, the historical financial statements referenced above and our unaudited pro forma financial statements and the accompanying notes included elsewhere in this prospectus. The table should also be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        For a description of all of the assumptions used in preparing the unaudited pro forma financial statements, you should read the notes to the unaudited pro forma financial statements. The pro forma financial data should not be considered as indicative of the historical results we would have had or the results that we will have after this offering.

        The following table presents two financial measures, net voyage revenue and Adjusted EBITDA, which we use in our business. These financial measures are not calculated or presented in accordance with generally accepted accounting principles, or GAAP. We explain these measures below and reconcile them to their most directly comparable financial measures calculated and presented in accordance with GAAP in "Non-GAAP Financial Measures" below.

16


 
  K-Sea GP Holdings LP Predecessor
  Pro Forma
K-Sea GP Holdings LP

 
  Year Ended June 30,
  Six Months Ended
December 31,

  Year Ended
June 30,

  Six Months Ended
December 31,

 
  2005
  2006
  2007
  2006
  2007
  2007
  2007
 
  (in thousands, except per unit and operating data)

Income Statement Data:                                      
Voyage revenue   $ 118,811   $ 176,650   $ 216,924   $ 105,668   $ 149,361        
Bareboat charter and other revenue     2,587     6,118     9,650     5,273     6,076        
   
 
 
 
 
       
Total revenues     121,398     182,768     226,574     110,941     155,437        
   
 
 
 
 
       
Voyage expenses     24,220     37,973     45,875     22,046     35,375        
Vessel operating expenses     49,550     77,367     96,005     47,761     59,891        
General and administrative expenses     11,365     17,473     20,731     10,118     13,902        
Depreciation and amortization     21,420     26,810     33,415     15,812     20,765        
Net (gain) loss on sale of vessels     (281 )   (313 )   102     (16 )   (300 )      
   
 
 
 
 
       
Total operating expenses     106,274     159,310     196,128     95,721     129,633        
   
 
 
 
 
       
Operating income     15,124     23,458     30,446     15,220     25,804        
Interest expense, net     7,178     11,739     15,598     7,585     11,665        
Net loss on reduction of debt(1)     1,359     7,224     359     0     0        
Other (income) expense, net     (239 )   (338 )   (301 )   (145 )   (2,301 )      
   
 
 
 
 
       
Income before provision for income taxes     6,826     4,833     14,790     7,780     16,440        
Provision for income taxes     430     801     1,105     662     765        
   
 
 
 
 
       
Income before non-controlling interest     6,396     4,032     13,685     7,118     15,675        
Non-controlling interest     4,006     3,276     9,235     4,573     10,308        
   
 
 
 
 
       
Net income   $ 2,390   $ 756   $ 4,450   $ 2,545   $ 5,367        
Net income per unit—basic                                      
                                    —diluted                                      

Balance Sheet Data (at period end):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Vessels and equipment, net   $ 235,490   $ 316,237   $ 358,580   $ 326,910   $ 542,604        
Total assets     274,378     383,607     430,498     399,989     692,647        
Total debt     125,630     210,008     259,787     229,404     365,467        
Partners' capital/members' equity     26,666     14,787     9,889     12,963     7,358        

Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net cash provided by (used in):                                      
  Operating activities   $ 13,597   $ 6,525   $ 24,561   $ 14,612   $ 15,534        
  Investing activities     (54,946 )   (105,225 )   (63,579 )   (29,338 )   (212,172 )      
  Financing activities     40,780     99,381     39,116     14,522     197,462        

Other Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net voyage revenue   $ 94,591   $ 138,677   $ 171,049   $ 83,622   $ 113,986        
Adjusted EBITDA(2)   $ 35,424   $ 43,382   $ 63,803   $ 31,177   $ 48,870        
Capital expenditures(3):                                      
  Maintenance   $ 8,024   $ 13,753   $ 20,337   $ 14,546   $ 10,171        
  Expansion (including vessel and company acquisitions)     39,337     98,073     25,960     8,966     188,998        
   
 
 
 
 
       
    Total   $ 47,361   $ 111,826   $ 46,297   $ 23,512   $ 199,169        
   
 
 
 
 
       
Construction of tank vessels   $ 16,816   $ 20,702   $ 33,315   $ 14,688   $ 22,057        
   
 
 
 
 
       

Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Number of tank barges (at period end)     44     61     60     61     73        
Number of tankers (at period end)     2     2     1     2     1        
Number of tugboats (at period end)     25     41     44     44     58        
Total barrel-carrying capacity (in thousands at period end)     2,561     3,357     3,464     3,382     4,334        
Net utilization(4)     85 %   83 %   85 %   86 %   86 %      
Average daily rate(5)   $ 8,734   $ 9,245   $ 10,097   $ 9,780   $ 11,072        

(1)
Fiscal 2006 and fiscal 2005 include losses of $7.2 million and $1.4 million, respectively, in connection with the restructuring of KSP's revolving credit facility and repayment of certain term loans, including KSP's Title XI debt in fiscal 2006.

17


(2)
Adjusted EBITDA has been reduced by net losses on reduction of debt of $1.4 million, $7.2 million and $0.4 million for the years ended June 30, 2005, 2006 and 2007, respectively, and by $0.4 million on a pro forma basis for year end June 30, 2007.

(3)
KSP defines maintenance capital expenditures as capital expenditures required to maintain, over the long term, the operating capacity of its fleet, and expansion capital expenditures as those capital expenditures that increase, over the long term, the operating capacity of its fleet. Examples of maintenance capital expenditures include costs related to drydocking a vessel, retrofitting an existing vessel or acquiring a new vessel to the extent such expenditures maintain the operating capacity of KSP's fleet. Expenditures made in connection with KSP's tank vessel newbuilding program were considered maintenance capital expenditures as they were made to replace capacity scheduled to phase out under OPA 90; however, because they were non-routine in nature they are included separately in the above table under "Construction of tank vessels." Generally, expenditures for construction of tank vessels in progress are not included as capital expenditures until such vessels are completed. Capital expenditures associated with retrofitting an existing vessel, or acquiring a new vessel, which increase the operating capacity of KSP's fleet over the long term whether through increasing KSP's aggregate barrel-carrying capacity, improving the operational performance of a vessel or otherwise, are classified as expansion capital expenditures. Drydocking expenditures are more extensive in nature than normal routine maintenance and, therefore, are capitalized and amortized over three years. For more information regarding the accounting treatment of drydocking expenditures, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Amortization of Drydocking Expenditures" and the audited consolidated financial information appearing elsewhere in this prospectus.

(4)
"Net utilization" is a percentage equal to the total number of days actually worked by a tank vessel or group of tank vessels during a defined period, divided by the number of calendar days in the period multiplied by the total number of tank vessels operating or in drydock during that period.

(5)
"Average daily rate" equals the net voyage revenue earned by a tank vessel or group of tank vessels during a defined period, divided by the total number of days actually worked by that tank vessel or group of tank vessels during that period.

Non-GAAP Financial Measures

        KSP derives its voyage revenue from time charters, contracts of affreightment and voyage charters, which are described in more detail under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview of Operations." One of the principal distinctions among these types of contracts is whether the vessel operator or the customer pays for voyage expenses, which include fuel, port charges, pilot fees, tank cleaning costs and canal tolls. Some voyage expenses are fixed, and the remainder can be estimated. If KSP, as the vessel operator, pays the voyage expenses, it typically passes these expenses on to its customers by charging higher rates under the contract or rebilling such expenses to them. As a result, although voyage revenue from different types of contracts may vary, the net revenue that remains after subtracting voyage expenses, which KSP calls net voyage revenue, is comparable across the different types of contracts. Therefore, KSP principally uses net voyage revenue, rather than voyage revenue, when comparing performance in different periods.

        We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization and non-controlling interests. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess:

    the financial performance of our assets without regard to financing methods, capital structures or historical cost basis;

    the ability of our assets to generate cash sufficient to pay interest on its indebtedness and to make distributions to its unitholders;

    our operating performance and return on invested capital as compared to those of other companies in the marine transportation business, without regard to financing methods and capital structure; and

    our compliance with certain financial covenants included in its debt agreements.

        Adjusted EBITDA should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in

18



accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and operating income, and these measures may vary among other companies. Therefore, Adjusted EBITDA as presented in this section may not be comparable to similarly titled measures of other companies.

        The following table presents a reconciliation of the non-GAAP financial measures of net voyage revenue and Adjusted EBITDA to the most directly comparable GAAP financial measures for each of the periods indicated.

 
   
   
   
   
   
   
   
  Pro Forma
 
  Year Ended June 30,
  Six Months
Ended
December 31,

  Year Ended
June 30,

  Six Months
Ended
December 31,

 
  2003
  2004
  2005
  2006
  2007
  2006
  2007
  2007
  2007
 
  (in thousands)

Reconciliation of "Net voyage revenue" to "Voyage revenue"                                                  
  Voyage revenue   $ 83,942   $ 93,899   $ 118,811   $ 176,650   $ 216,924   $ 105,668   $ 149,361        
  Voyage expenses     14,151     16,339     24,220     37,973     45,875     22,046     35,375        
   
 
 
 
 
 
 
       
Net voyage revenue   $ 69,791   $ 77,560   $ 94,591   $ 138,677   $ 171,049   $ 83,622   $ 113,986        
   
 
 
 
 
 
 
       

Reconciliation of "Adjusted EBITDA" to "Net Income"

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net income   $ 4,972   $ 672   $ 2,390   $ 756   $ 4,450   $ 2,545   $ 5,367        
  Interest expense, net     16,293     18,758     7,178     11,739     15,598     7,585     11,665        
  Depreciation and amortization     8,808     6,917     21,420     26,810     33,415     15,812     20,765        
  Provision for income taxes     340     1,768     430     801     1,105     662     765        
  Non-controlling interest         900     4,006     3,276     9,235     4,573     10,308        
   
 
 
 
 
 
 
       
Adjusted EBITDA(1)   $ 30,413   $ 29,015   $ 35,424   $ 43,382   $ 63,803   $ 31,177   $ 48,870        
   
 
 
 
 
 
 
       

Reconciliation of "Adjusted EBITDA" to "Net Cash provided by operating activities"

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net cash provided by operating activities   $ 13,235   $ 7,644   $ 13,597   $ 6,525   $ 24,561   $ 14,612   $ 15,534        
  Payment of drydocking expenditures     7,491     7,011     7,654     12,506     15,357     8,523     9,928        
  Interest paid     8,247     5,958     6,584     11,366     15,814     9,555     12,112        
  Income taxes paid     2     7     81     416     48     82     26        
  (Increase) decrease in operating working capital     1,716     3,177     (433 )   3,154     (5,451 )   (6,390 )   (1,093 )      
  Other, net     (278 )   5,218     7,941     9,415     13,474     4,795     12,363        
   
 
 
 
 
 
 
       
Adjusted EBITDA(1)   $ 30,413   $ 29,015   $ 35,424   $ 43,382   $ 63,803   $ 31,177   $ 48,870        
   
 
 
 
 
 
 
       

(1)
Adjusted EBITDA has been reduced by net losses on reduction of debt of $3.2 million, $1.4 million, $7.2 million and $0.4 million for the years ended June 30, 2004, 2005, 2006 and 2007, respectively, and by $0.4 million on a pro forma basis for the year ended June 30, 2007.

19



RISK FACTORS

        You should consider carefully the following risk factors, which we believe include all material risks to our business, together with all of the other information included in this prospectus, in your evaluation of an investment in our common units. Realization of any of the following risks could have a material adverse effect on our business, financial condition, cash flows and results of operations. In that case, we might not be able to pay the initial quarterly distribution on our common units, the trading price of our common units could decline and you could lose all or part of your investment.

Risks Inherent in an Investment in Us

    Our cash flow will be entirely dependent upon the ability of KSP to make cash distributions to us. If KSP does not make cash distributions or reduces the level of cash distributions to us, we may not have sufficient cash to pay distributions at our initial quarterly distribution level or at all.

        The source of our earnings and cash flow will consist exclusively of cash distributions from KSP for the foreseeable future. The amount of cash that KSP will be able to distribute to its partners, including us, each quarter principally depends upon the amount of cash it generates from its refined petroleum product marine transportation, distribution and logistics services business. For a description of certain factors that can cause fluctuations in the amount of cash that KSP generates from its refined petroleum product marine transportation, distribution and logistics services business, please read "—Risks Related to KSP's Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That Significantly Affect Our Results and KSP's Results." KSP may not have sufficient available cash each quarter to continue paying distributions at their current level or at all. If KSP reduces its per unit distribution, we will have less cash available for distribution to you and would probably be required to reduce our per unit distribution to you. You should also be aware that the amount of cash KSP has available for distribution depends primarily upon KSP's cash flow, including cash flow from financial reserves and working capital borrowings, and is not solely a function of profitability, which will be affected by non-cash items. As a result, KSP may make cash distributions during periods when it records losses and may not make cash distributions during periods when it records profits.

        In addition, the timing and amount, if any, of an increase or decrease in distributions by KSP to its unitholders will not necessarily be comparable to the timing and amount of any changes in distributions made by us. Our ability to distribute cash received from KSP to our unitholders is limited by a number of factors, including:

    interest expense and principal payments on any indebtedness we may incur;

    restrictions on distributions contained in any future debt agreements;

    our estimated general and administrative expenses, including expenses we will incur as a result of being a public company, as well as other operating expenses;

    expenses of KSP GP and KSP;

    reserves necessary for us to make the necessary capital contributions to maintain our 1.5% general partner interest in KSP, if desired, upon the issuance of additional partnership securities by KSP; and

    reserves our general partner believes prudent for us to maintain the proper conduct of our business or to provide for future distributions by us.

        In addition, prior to making any distributions to our unitholders, we will reimburse our general partner and its affiliates for all direct and indirect expenses incurred by them on our behalf. Our general partner will determine the amount of these reimbursed expenses. In addition, our general

20


partner and its affiliates may perform other services for us for which we will be charged fees as determined by our general partner. The reimbursement of these expenses, in addition to the other factors listed above, could adversely affect the amount of distributions we make to our unitholders. In the future, we may not be able to pay distributions at or above our estimated initial quarterly distribution of $    per unit, or $    on an annualized basis. The actual amount of cash that is available for distribution to our unitholders will depend on numerous factors, many of which are beyond our control or the control of our general partner.

    In the future, we may not have sufficient cash to pay our estimated initial quarterly distribution or to increase distributions.

        In order to make our initial quarterly distribution of $     per unit, or $    on an annualized basis, through March 31, 2009, we estimate that we will require available cash of approximately $     million per quarter, or $    million per year, based on the number of our common units outstanding immediately after completion of this offering. Our estimated cash available to pay distributions for the twelve months ending March 31, 2009 is based on our expected ownership of KSP following the completion of this offering. A reduction in the number of KSP units we own or in the amount of cash distributed by KSP per unit or on the incentive distribution rights, or an increase in our expenses, may result in our not being able to pay the expected distribution of $    per unit annually.

    Our ability to meet our financial needs may be adversely affected by our cash distribution policy and our lack of operational assets.

        Our cash distribution policy, which is consistent with our partnership agreement, requires us to distribute all of our available cash quarterly. Our only cash generating assets are partnership interests in KSP, and we currently do not have, and do not anticipate having, any operations separate from those of KSP. Moreover, as discussed below, a reduction in KSP's distributions will disproportionately affect the amount of cash distributions we receive from KSP because payment on our incentive distribution rights will be reduced. Given that our cash distribution policy is to distribute available cash and not retain it and that our only cash generating assets are partnership interests in KSP, we may not have enough cash to meet our needs if any of the following events occur:

    an increase in our operating expenses;

    an increase in general and administrative expenses;

    an increase in working capital requirements; or

    an increase in cash needs of KSP or its subsidiaries that reduces KSP's distributions.

    A portion of our partnership interests in KSP are subordinated to KSP's common units, which would result in decreased distributions to us if KSP is unable to meet its minimum quarterly distribution.

        Following this offering, we will own 2,082,500 subordinated units in KSP. The subordinated units are not entitled to any distributions in a quarter until KSP has paid the minimum quarterly distribution of $0.50 per KSP unit, plus any arrearages in the payment of the minimum quarterly distribution from prior quarters, on all of the outstanding KSP common units. Distributions on the subordinated units are, therefore, more uncertain than distributions on KSP's common units. Furthermore, no distributions may be made on the incentive distribution rights until the minimum quarterly distribution has been paid on all outstanding KSP units. Therefore, distributions with respect to the incentive distribution rights are even more uncertain than distributions on KSP's common units. Neither the subordinated units nor the incentive distribution rights are entitled to any arrearages from prior quarters.

21


    A portion of our partnership interests in KSP are incentive distribution rights, and a reduction in KSP's distributions will disproportionately affect the amount of cash distributions to which we are currently entitled.

        Our ownership of the incentive distribution rights in KSP, through our ownership interests in KSP GP, the holder of the incentive distribution rights, entitles us to receive our pro rata share of specified percentages of total cash distributions made by KSP with respect to any particular quarter only in the event that KSP distributes more than $0.55 per unit for such quarter. As a result, the holders of KSP's common units and subordinated units have a priority over the holders of KSP's incentive distribution rights to the extent of cash distributions by KSP up to and including $0.55 per unit for any quarter.

        Our ownership of 100% of the incentive distribution rights in KSP entitles us to receive increasing percentages, up to 48%, of all cash distributed by KSP. Because we are not at the maximum target cash distribution level on the incentive distribution rights, future growth in distributions we receive from KSP will result from an increase in the target cash distribution level associated with the incentive distribution rights. Furthermore, a decrease in the amount of distributions by KSP to less than $0.625 per unit per quarter would reduce KSP GP's percentage of the incremental cash distributions above $0.55 per common unit per quarter from 23% to 13%. As a result, any such reduction in quarterly cash distributions from KSP would have the effect of disproportionately reducing the amount of all distributions that we receive from KSP based on our ownership interest in the incentive distribution rights in KSP as compared to cash distributions we receive from KSP with respect to our 1.5% general partner interest in KSP and our KSP units.

    If distributions on our common units are not paid with respect to any fiscal quarter, including those at the anticipated initial distribution rate, our unitholders will not be entitled to receive such payments in the future.

        Our distributions to our unitholders will not be cumulative. Consequently, if distributions on our common units are not paid with respect to any fiscal quarter, including those at the anticipated initial distribution rate, our unitholders will not be entitled to receive such payments in the future.

    Our cash distribution policy limits our ability to grow.

        Because we distribute all of our available cash, our growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations. In fact, our growth initially will be completely dependent upon KSP's ability to increase its quarterly distribution per unit because our only cash-generating assets are, and in the future our only cash generating assets are expected to be, partnership interests in KSP. The amount of distributions received by KSP GP is based on KSP's per unit distribution paid on each KSP common unit and subordinated unit. Accordingly, the cash distribution received by KSP GP is derived from two factors: (1) KSP's per unit distribution level and (2) the number of KSP common units and subordinated units outstanding. An increase in either factor (assuming the other factor remains constant or increases) will generally result in an increase in the amount received by us. Please read "K-Sea Transportation Partners L.P.'s Cash Distribution Policy." If we issue additional units or incur debt, the payment of distributions on those additional units or interest on that debt could increase the risk that we will be unable to maintain or increase our per unit distribution level.

        Consistent with the terms of its partnership agreement, KSP distributes to its partners its available cash each quarter. In determining the amount of cash available for distribution, KSP creates reserves, which it uses to fund estimated maintenance capital expenditures and growth capital expenditures. Additionally, KSP has relied upon external financing sources, including commercial borrowings and equity issuances, to fund its acquisition capital expenditures. Accordingly, to the extent KSP does not

22



have sufficient cash reserves or is unable to finance growth externally, its cash distribution policy will significantly impair its ability to grow. In addition, to the extent KSP issues additional units, the payment of distributions on those additional units may increase the risk that KSP will be unable to maintain or increase its per unit distribution level, which in turn may impact the available cash that we have to distribute to our unitholders. The incurrence of additional debt to finance its growth strategy would result in increased interest expense to KSP, which in turn may reduce the available cash that we have to distribute to our unitholders.

    While we or KSP may incur debt to pay distributions to our and its unitholders, respectively, a credit facility governing such debt may restrict or limit the distributions we pay to our unitholders.

        While we or KSP are permitted by our partnership agreements to incur debt to pay distributions to our unitholders, respectively, our or KSP's payment of principal and interest on any future indebtedness will reduce our cash available for distribution on our unitholders. We anticipate that any credit facility we enter into will limit our ability to pay distributions to our unitholders during an event of default or if an event of default would result from the distributions. In addition, any future levels of indebtedness may adversely affect our ability to obtain additional financing for future operations or capital needs, limit our ability to pursue acquisitions and other business opportunities, or make our results of operations more susceptible to adverse economic or operating conditions.

        Furthermore, KSP's debt agreements, including its credit facility, contain covenants limiting its ability to incur indebtedness, grant liens, engage in transactions with affiliates and make distributions to us. They also contain covenants requiring KSP to maintain certain financial ratios. KSP is prohibited from making any distribution to unitholders if such distribution would cause an event of default or otherwise violate a covenant under these agreements. Please read "Our Cash Distribution Policy and Restrictions on Distributions—General" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—KSP's Credit Agreement" for more information about KSP's credit facility.

    Our unitholders do not elect our general partner or vote in the election of directors of our general partner. Upon completion of this offering, the owner of our general partner will own a sufficient number of common units to allow it to prevent the removal of our general partner.

        Unlike the holders of common stock in a corporation, our unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management's decisions regarding our business. Our unitholders do not have the ability to elect our general partner or the directors of our general partner and will have no right to elect our general partner or the directors of our general partner on an annual or other continuing basis in the future. The board of directors of our general partner, including our independent directors, is chosen by certain officers and directors of KSP GP. Furthermore, if our public unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. Our general partner may not be removed except upon the vote of the holders of at least 662/3% of the outstanding common units. Because the contributing parties own more than 331/3% of our outstanding units, our general partner currently cannot be removed without their consent. Please read "Description of Our Partnership Agreement—Withdrawal or Removal of the General Partner."

        As a result of these provisions, the price at which our common units will trade may be lower because of the absence or reduction of a takeover premium in the trading price. Please read "Description of Our Partnership Agreement—Meetings; Voting."

23


    KSP's general partner, with our consent, may limit or modify the incentive distributions we are entitled to receive in order to facilitate the growth strategy of KSP. Our general partner's board of directors can give this consent without a vote of our unitholders.

        We own KSP's general partner, which owns the incentive distribution rights in KSP that entitle us to receive increasing percentages, up to a maximum of 49.5%, of any cash distributed by KSP above $0.75 per KSP common unit in any quarter. A substantial portion of the cash flows we receive from KSP is provided by these incentive distributions. Our limited liability company agreement provides that our board of directors may consent to the elimination, reduction or modification of the incentive distribution rights without your approval if it determines that the elimination, reduction or modification will not adversely affect our unitholders in any material respect.

    You will experience immediate and substantial dilution of $            per common unit in the net tangible book value of your common units.

        The assumed initial public offering price of our common units is substantially higher than the pro forma net tangible book value per common unit of the outstanding common units immediately after the offering. If you purchase common units in this offering you will incur immediate and substantial dilution in the pro forma net tangible book value per common unit from the price you pay for the common units. See "Dilution."

    Our general partner may cause us to issue additional common units or other equity securities without your approval which would dilute your ownership interests and may increase the risk that we will not have available cash to maintain or increase our per unit distribution level.

        Our general partner may cause us to issue an unlimited number of additional common units or other equity securities of equal rank with the common units, without unitholder approval. The issuance of additional common units or other equity securities of equal rank will have the following effects:

    our unitholders' proportionate ownership interest in us will decrease;

    the amount of cash available for distribution on each common unit may decrease;

    the relative voting strength of each previously outstanding common unit may be diminished;

    the ratio of taxable income to distributions may increase; and

    the market price of the common units may decline.

        Please read "Description of Our Partnership Agreement—Issuance of Additional Securities."

    The control of our general partner may be transferred to a third party who could replace our or KSP's current management team, in either case, without unitholder consent.

        Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, the owners of our general partner, may transfer their ownership interest in our general partner to a third party. The new owners of our general partner would then be in a position to replace the board of directors and officers of our general partner and to control the decisions taken by the board of directors and officers of KSP GP.

    If KSP's unitholders remove KSP's general partner, we would lose our general partner interest and incentive distribution rights in KSP and the ability to manage KSP.

        We currently manage KSP through KSP GP, KSP's general partner and our wholly owned subsidiary. KSP's partnership agreement, however, gives unitholders of KSP the right to remove the general partner of KSP upon the affirmative vote of holders of 662/3% of KSP's outstanding units. If KSP GP were removed as general partner of KSP, it would receive cash or common units in exchange

24



for its 1.5% general partner interest and the incentive distribution rights and would lose its ability to manage KSP. While the common units or cash we would receive are intended under the terms of KSP's partnership agreement to fully compensate us in the event such an exchange is required, the value of these common units or investments we make with the cash over time may not be equivalent to the value of the general partner interest and the incentive distribution rights had we retained them. Please read "Material Provisions of the Partnership Agreement of K-Sea Transportation Partners L.P.—Withdrawal or Removal of KSP's General Partner."

        In addition, if KSP GP were removed as general partner of KSP, we would face an increased risk of being deemed an investment company. Please read "—If in the future we cease to manage and control KSP, we may be deemed to be an investment company under the Investment Company Act of 1940."

    You may not have limited liability if a court finds that unitholder action constitutes control of our business.

        Under Delaware law, you could be held liable for our obligations to the same extent as a general partner if a court determined that the right or the exercise of the right by our unitholders as a group to remove or replace our general partner, to approve some amendments to the partnership agreement or to take other action under our partnership agreement constituted participation in the "control" of our business. Additionally, the limitations on the liability of holders of limited partner interests for the liabilities of a limited partnership have not been clearly established in many jurisdictions.

        Furthermore, Section 17-607 of the Delaware Revised Uniform Limited Partnership Act provides that, under some circumstances, a unitholder may be liable to us for the amount of a distribution for a period of three years from the date of the distribution. Please read "Description of Our Partnership Agreement—Limited Liability" for a discussion of the implications of the limitations on liability to a unitholder.

    If in the future we cease to manage and control KSP, we may be deemed to be an investment company under the Investment Company Act of 1940.

        If we cease to manage and control KSP and are deemed to be an investment company under the Investment Company Act of 1940, we would either have to register as an investment company under the Investment Company Act of 1940, obtain exemptive relief from the Commission or modify our organizational structure or our contractual rights to fall outside the definition of an investment company. Registering as an investment company could, among other things, materially limit our ability to engage in transactions with affiliates, including the purchase and sale of certain securities or other property to or from our affiliates, restrict our ability to borrow funds or engage in other transactions involving leverage and require us to add additional directors who are independent of us and our affiliates, and adversely affect the price of our common units.

    Our partnership agreement restricts the rights of unitholders owning 20% or more of our units.

        Our unitholders' voting rights are restricted by the provision in our partnership agreement generally providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of the general partner, cannot be voted on any matter. In addition, our partnership agreement contains provisions limiting the ability of our unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting our unitholders' ability to influence the manner or direction of our management. As a result, the price at which our common units will trade may be lower because of the absence or reduction of a takeover premium in the trading price.

25


    KSP may issue additional limited partner interests or other equity securities, which may increase the risk that KSP will not have sufficient available cash to maintain or increase its cash distributions to us.

        KSP has wide latitude to issue additional limited partner interests on the terms and conditions established by its general partner and its partnership agreement. We receive cash distributions from KSP on the general partner interests, limited partner interests and incentive distribution rights that we hold. Because a substantial portion of the cash we receive from KSP is attributable to our ownership of the incentive distribution rights, payment of distributions on additional KSP limited partner interests may increase the risk that KSP will be unable to maintain or increase its quarterly cash distribution per unit, which in turn may reduce the amount of incentive distributions we receive and the available cash that we have to distribute to our unitholders.

    If KSP's general partner is not fully reimbursed or indemnified for obligations and liabilities it incurs in managing the business and affairs of KSP, its value, and therefore, the value of our common units, could decline.

        The general partner of KSP may make expenditures on behalf of KSP for which it will seek reimbursement from KSP. Under Delaware partnership law, the general partner, in its capacity as the general partner of KSP, has unlimited liability for the obligations of KSP, such as its debts and environmental liabilities, except for those contractual obligations of KSP that are expressly made without recourse to the general partner. To the extent KSP GP incurs obligations on behalf of KSP, it is entitled to be reimbursed or indemnified by KSP. If KSP is unable or unwilling to reimburse or indemnify KSP GP, it may not be able to satisfy those liabilities or obligations, which would reduce its cash flows to us.

    The price of our common units may be volatile, and a trading market that will provide you with adequate liquidity may not develop.

        Prior to this offering there has been no public market for our common units. An active market for our common units may not develop or may not be sustained after this offering. The initial public offering price of our common units will be determined by negotiations between us and the underwriters, based on several factors that we discuss in the "Underwriting" section of this prospectus. This price may not be indicative of the market price for our common units after this initial public offering. The market price of our common units could be subject to significant fluctuations after this offering, and may decline below the initial public offering price. You may be unable to resell your common units at or above the initial public offering price. The following factors could affect our common unit price:

    KSP's operating and financial performance and prospects;

    quarterly variations in the rate of growth of our financial indicators, such as distributable cash flow per unit, net income and revenues;

    changes in revenue or earnings estimates or publication of research reports by analysts;

    speculation by the press or investment community;

    sales of our common units by our unitholders;

    announcements by KSP or its competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, securities offerings or capital commitments;

    general market conditions; and

    domestic and international economic, legal and regulatory factors related to KSP's performance.

26


        The equity markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common units. In addition, potential investors may be deterred from investing in our common units for various reasons, including the very limited number of publicly traded entities whose assets consist almost exclusively of partnership interests in a publicly traded partnership. The lack of liquidity may also contribute to significant fluctuations in the market price of our common units and limit the number of investors who are able to buy our common units.

    Our common units and KSP's common units may not trade in relation or proportion to one another.

        Our common units and KSP's common units may not trade in simple relation or proportion to one another. Instead, while the trading prices of our common units and KSP's common units are likely to follow generally similar broad trends, the trading prices may diverge because, among other things:

    KSP's cash distributions to its common unitholders have a priority over distributions on its subordinated units and incentive distribution rights;

    we participate in the distributions on KSP GP's general partner interest and incentive distribution rights in KSP while KSP's common unitholders do not; and

    we may enter into other businesses separate and apart from KSP or any of its affiliates.

    An increase in interest rates may cause the market price of our common units to decline.

        Like all equity investments, an investment in our common units is subject to certain risks. As interest rates rise, the ability of investors to obtain higher risk-adjusted rates of return by purchasing government-backed debt securities may cause a corresponding decline in demand for riskier investments generally, including yield-based equity investments such as publicly traded limited partnership interests. Reduced demand for our common units resulting from investors seeking other more favorable investment opportunities may cause the trading price of our common units to decline. As a result, you may lose a portion of your investment in us.

Risks Related to Conflicts of Interest

        Our existing organizational structure and the relationships among us, KSP and our respective general partners and affiliated entities, including the owners of our general partner, present the potential for conflicts of interest. Moreover, additional conflicts of interest may arise in the future among us and the entities affiliated with any general partner or similar interests we acquire or among KSP and such entities. For a further discussion of conflicts on interest that may arise, please read "Conflicts of Interest and Fiduciary Duties."

    KSP's general partner owes fiduciary duties to KSP's unitholders that may conflict with our interests.

        Conflicts of interest exist and may arise in the future as a result of the relationships between us and our affiliates, including KSP GP, KSP's general partner, on one hand, and KSP and its limited partners, on the other hand. The directors and officers of KSP GP have fiduciary duties to manage KSP in a manner beneficial to us, KSP GP's owner. At the same time, KSP GP has a fiduciary duty to manage KSP in a manner beneficial to KSP and its limited partners. The board of directors of KSP GP or its conflicts committee will resolve any such conflict and they have broad latitude to consider the interests of all parties to the conflict. The resolution of these conflicts may not always be in our best interest or that of our unitholders.

27


        For example, conflicts of interest may arise in the following situations:

    the terms and conditions of any contractual agreements between us and our affiliates, on the one hand, and KSP, on the other hand;

    the interpretation and enforcement of contractual obligations between us and our affiliates, on the one hand, and KSP, on the other hand;

    the determination of the amount of cash to be distributed to KSP's partners and the amount of cash to be reserved for the future conduct of KSP's business;

    the determination of whether KSP should make acquisitions and on what terms;

    the determination of whether KSP should use cash on hand, borrow or issue equity to raise cash to finance acquisitions or expansion capital projects, repay indebtedness, meet working capital needs, pay distributions or otherwise; and

    any decision we make in the future to engage in business activities independent of KSP.

    Potential conflicts of interest may arise among our general partner, its affiliates and us. Our general partner has limited fiduciary duties to us and our unitholders, which may permit it to favor its own interests to the detriment of us and our unitholders.

        Upon completion of this offering, the contributing parties as the owners of our general partner, will own a    % limited partner interest in us. Conflicts of interest may arise among our general partner and its affiliates, on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. These conflicts include, among others, the following situations:

    our general partner is allowed to take into account the interests of parties other than us in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;

    our general partner determines whether or not we incur debt and that decision may affect our or KSP's credit ratings;

    our general partner may limit its liability and will reduce its fiduciary duties under our partnership agreement, while also restricting the remedies available to our unitholders for actions that, without these limitations and reductions, might constitute breaches of fiduciary duty. As a result of purchasing units, our unitholders consent to some actions and conflicts of interest that might otherwise constitute a breach of fiduciary or other duties under applicable state law;

    our general partner controls the enforcement of obligations owed to us by it and its affiliates;

    our general partner decides whether to retain separate counsel, accountants or others to perform services for us;

    our partnership agreement gives our general partner broad discretion in establishing financial reserves for the proper conduct of our business. These reserves also will affect the amount of cash available for distribution;

    our general partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available to be distributed to our unitholders;

    our general partner determines which costs incurred by it and its affiliates are reimbursable by us; and

28


    our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered on terms that are fair and reasonable to us or entering into additional contractual arrangements with any of these entities on our behalf. Please read "Certain Relationships and Related Transactions—Our Relationship with KSP" and "Conflicts of Interest and Fiduciary Duties—Conflicts of Interest."

    The fiduciary duties of our general partner's officers and directors may conflict with those of KSP's general partner.

        Our general partner's officers and directors have fiduciary duties to manage our business in a manner beneficial to us and our unitholders and the owners of our general partner, which includes the officers and directors of our general partner. However, a majority of our general partner's directors and all of its officers are also directors or officers of KSP GP, which has fiduciary duties to manage the business of KSP in a manner beneficial to KSP and KSP's unitholders. Consequently, these directors and officers may encounter situations in which their fiduciary obligations to KSP, on the one hand, and us, on the other hand, are in conflict. The resolution of these conflicts may not always be in our best interest or that of our unitholders.

    By purchasing our common units, each unitholder automatically agrees to be bound by the provisions of our partnership agreement.

        By purchasing our common units, each unitholder automatically agrees to be bound by the provisions in our partnership agreement, including the provisions that substantially reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. This reflects the policy of the Delaware Act, which favors the principle of freedom of contract and the enforceability of partnership agreements. The failure of a limited partner or assignee to sign a partnership agreement does not render the partnership agreement unenforceable against that person. Please read "Conflicts of Interest and Fiduciary Duties" and "Description of Our Partnership Agreement."

    If we are presented with certain business opportunities, KSP will have the first right to pursue such opportunities.

        Upon completion of this offering, we will become party to an existing omnibus agreement, currently among KSP, its general partner and its affiliates, which governs potential competition in the business of providing marine transportation, distribution and logistics services for refined petroleum products in the United States among KSP and the other parties to the agreement. Pursuant to the terms of the amended omnibus agreement, we will agree, and will cause our controlled affiliates to agree, to certain business opportunity and non-competition arrangements to address potential conflicts that may arise between us and our general partner on one hand, and KSP and its subsidiaries on the other.

        Upon completion of this offering, we will enter into a non-compete agreement with KSP. This non-compete agreement will not be effective until we are no longer subject to the existing omnibus agreement described above. Under the non-compete agreement, we will have a right of first refusal with respect to the potential acquisition of certain equity interests. KSP will have a right of first refusal with respect to the potential acquisition of certain assets that relate to the business of providing marine transportation, distribution and logistics services for refined petroleum products in the United States. With respect to any other business opportunities, neither we nor KSP are prohibited from engaging in any business, even if we and KSP would have a conflict of interest with respect to such other business opportunity. For a more detailed description of the terms of the omnibus agreement and the non-compete agreement, please read "Certain Relationships and Related Transactions."

29


    The contributing parties and their affiliates may engage in activities that compete directly with us or KSP.

        Pursuant to the omnibus agreement, the contributing parties and their controlled affiliates will agree not to engage, either directly or indirectly, in the business of providing refined petroleum product marine transportation, distribution and logistics services in the United States to the extent such business generates qualifying income for federal income tax purposes. The omnibus agreement will not prohibit the contributing parties or their affiliates, including Jefferies Capital Partners, its affiliates and the funds it or they manage or may manage, from owning assets or engaging in businesses that compete directly or indirectly with us or KSP. Please read "Certain Relationships and Related Transactions—Omnibus Agreement and Non-Compete Agreement."

    Our partnership agreement limits our general partner's fiduciary duties to us and contains provisions that reduce the remedies available to unitholders for actions that might otherwise constitute a breach of fiduciary duty by our general partner.

        Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement:

    permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner. Examples include the exercise of its limited call right, its voting rights with respect to the units it owns, its registration rights and its determination whether or not to consent to any merger or consolidation of our partnership or amendment to our partnership agreement;

    provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith, meaning it believed the decisions were in the best interests of our partnership;

    generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be "fair and reasonable" to us and that, in determining whether a transaction or resolution is "fair and reasonable," our general partner may consider the totality of the relationships among the parties involved, including other transactions that may be particularly advantageous or beneficial to us;

    provides that in resolving conflicts of interest, it will be presumed that in making its decision the general partner acted in good faith, and in any proceeding brought by or on behalf of any limited partner or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption; and

    provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that such person's conduct was criminal.

        In order to become a limited partner of our partnership, our unitholders are required to agree to be bound by the provisions in the partnership agreement, including the provisions discussed above. Please read "Conflicts of Interest and Fiduciary Duties—Fiduciary Duties."

30


    Our general partner has a limited call right that may require unitholders to sell their common units at an undesirable time or price.

        If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right. If our general partner exercised its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. For additional information about the call right, please read "Description of Our Partnership Agreement—Limited Call Right."

    Our general partner may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without prior approval of our unitholders.

        Our general partner may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of our assets without prior approval of our unitholders. If our general partner at any time decided to incur debt and secures its obligations or indebtedness by all or substantially all of our assets, and if our general partner is unable to satisfy such obligations or repay such indebtedness, the lenders could seek to foreclose on our assets. The lenders may also sell all or substantially all of our assets under such foreclosure or other realization upon those encumbrances without prior approval of our unitholders, which would adversely affect the price of our common units.

Risks Related to KSP's Business

        Because we are entirely dependent on the distributions we receive from KSP, risks to KSP's operations are also risks to us. We have set forth below risks to KSP's business and operations, the occurrence of which could negatively impact KSP's financial performance and decrease the amount of cash it is able to distribute to us.

    Marine transportation is an inherently risky business.

        KSP's vessels and their cargoes are at risk of being damaged or lost because of events such as:

    marine disasters;

    bad weather;

    mechanical failures;

    grounding, fire, explosions and collisions;

    human error; and

    war and terrorism.

        All of these hazards can result in death or injury to persons, loss of property, environmental damages, delays or rerouting. If one of KSP's vessels were involved in an accident, with the potential risk of environmental contamination, the resulting media coverage could have a material adverse effect on KSP's business, financial condition and results of operations.

31


        EW LLC and its predecessors have been named, together with a large number of other companies, as co-defendants in 39 civil actions by various parties alleging unspecified damages from past exposure to asbestos and second-hand smoke aboard some of the vessels that it contributed to KSP in connection with the initial public offering of KSP's common units. EW LLC and its predecessors have been dismissed from 38 of these lawsuits for an aggregate sum of approximately $47,000 and are pursuing settlement of the other case. EW LLC and KSP may be subject to litigation in the future involving these plaintiffs and others alleging exposure to asbestos due to alleged failure to properly encapsulate friable asbestos or remove friable asbestos on its vessels, as well as for exposure to second-hand smoke and other matters.

    A decline in demand for, and level of consumption of, refined petroleum products could cause demand for tank vessel capacity and charter rates to decline, which would decrease KSP's revenues and profitability.

        The demand for tank vessel capacity is influenced by the demand for refined petroleum products and other factors including:

    global and regional economic and political conditions;

    developments in international trade;

    changes in seaborne and other transportation patterns, including changes in the distances that cargoes are transported;

    environmental concerns; and

    competition from alternative sources of energy, such as natural gas, and alternate transportation methods.

Any of these factors could adversely affect the demand for tank vessel capacity and charter rates. Any decrease in demand for tank vessel capacity or decrease in charter rates could adversely affect KSP's business, financial condition and results of operations.

        In addition, KSP operates its tank vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. For example, movements of certain clean oil products, such as motor fuels, generally increase during the summer driving season. In those same regions, movements of black oil products and certain clean oil products, such as heating oil, generally increase during the winter months, while movements of asphalt products generally increase in the spring through fall months. Unseasonably mild winters can result in significantly lower demand for heating oil in the northeastern United States. Meanwhile, KSP's operations along the West Coast and in Alaska historically have been subject to seasonal variations in demand that vary from those exhibited in the East Coast and Gulf Coast regions. In addition, unpredictable weather patterns and variations in oil reserves disrupt vessel scheduling. Seasonality could materially affect KSP's business, financial condition and results of operations in the future.

    KSP's business would be adversely affected if KSP failed to comply with the Jones Act provisions on coastwise trade, or if those provisions were modified, repealed or waived.

        KSP is subject to the Jones Act and other federal laws that restrict maritime transportation between points in the United States to vessels built and registered in the United States and owned and manned by U.S. citizens. KSP is responsible for monitoring the ownership of its common units and other partnership interests. If KSP does not comply with these restrictions, it would be prohibited from operating its vessels in U.S. coastwise trade, and under certain circumstances it would be deemed to have undertaken an unapproved foreign transfer, resulting in severe penalties, including permanent loss of U.S. coastwise trading rights for its vessels, fines or forfeiture of the vessels. For information about

32



the Jones Act and other maritime laws, please read "Business of K-Sea Transportation Partners L.P.—Regulation—Coastwise Laws."

        In the past, interest groups have lobbied Congress to repeal the Jones Act to facilitate foreign flag competition for trades and cargoes currently reserved for U.S.-flag vessels under the Jones Act and cargo preference laws. We believe that interest groups may continue efforts to modify or repeal the Jones Act and cargo preference laws currently benefiting U.S.-flag vessels. If these efforts are successful, it could result in increased competition, which could reduce KSP's revenues and cash available for distribution.

        The Secretary of the Department of Homeland Security is vested with the authority and discretion to waive the coastwise laws to such extent and upon such terms as he may prescribe whenever he deems that such action is necessary in the interest of national defense. In response to the effects of Hurricanes Katrina and Rita, the Secretary of the Department of Homeland Security waived the coastwise laws generally for the transportation of petroleum products from September 1 to September 19, 2005 and from September 26, 2005 to October 24, 2005. In the past, the Secretary of the Department of Homeland Security has waived the coastwise laws generally for the transportation of petroleum released from the Strategic Petroleum Reserve undertaken in response to circumstances arising from major natural disasters. Any waiver of the coastwise laws, whether in response to natural disasters or otherwise, could result in increased competition from foreign tank vessel operators, which could reduce KSP's revenues and cash available for distribution.

    KSP may not be able to grow or effectively manage its growth.

        A principal focus of KSP's strategy is to continue to grow by expanding its business in all coastal markets in the U.S. and also into other geographic markets. KSP's future growth will depend upon a number of factors, some of which it can control and some of which it cannot. These factors include KSP's ability to:

    identify businesses engaged in managing, operating or owning vessels for acquisitions or joint ventures;

    identify vessels for acquisition;

    consummate acquisitions or joint ventures;

    integrate any acquired businesses or vessels successfully with its existing operations;

    hire, train and retain qualified personnel to manage and operate its growing business and fleet;

    identify new geographic markets;

    improve its operating and financial systems and controls; and

    obtain required financing for its existing and new operations.

        A deficiency in any of these factors would adversely affect KSP's ability to achieve anticipated levels of cash flows or realize other anticipated benefits. In addition, competition from other buyers could reduce KSP's acquisition opportunities or cause it to pay a higher price than it might otherwise pay.

33


    KSP may be unable to make or realize expected benefits from acquisitions and implementing its growth strategy through acquisitions may harm KSP's business, financial condition and operating results.

        KSP's growth strategy is based upon the expansion of its fleet through newbuildings and strategic acquisitions. KSP's ability to grow its fleet depends upon a number of factors, many of which it cannot control. These factors include KSP's ability to:

    identify vessels or businesses for acquisition from third parties;

    consummate any such acquisitions;

    obtain required financing for acquisitions; and

    integrate any acquired vessels or businesses successfully with its existing operations.

        Any acquisition of a vessel or business may not be profitable and may not generate returns sufficient to justify KSP's investment. In addition, KSP's acquisition growth strategy exposes KSP to risks that may harm its business, financial condition and operating results, including the risks that it may:

    fail to realize anticipated benefits (such as new customer relationships) or increase cash flow;

    decrease its liquidity by using a significant portion of its available cash or borrowing capacity to finance acquisitions;

    significantly increase its interest expense and indebtedness if KSP incurs additional debt to finance acquisitions;

    incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired;

    incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; or

    distract management from its duties and responsibilities as it devotes substantial time and attention to the integration of the acquired businesses or vessels.

    Increased competition in the domestic tank vessel industry could result in reduced profitability and loss of market share for KSP.

        Contracts for KSP's vessels are generally awarded on a competitive basis, and competition in the markets it serves is intense. The process for obtaining such contracts generally requires a lengthy and time consuming screening and bidding process that may extend for months. The most important factors determining whether a contract will be awarded include:

    quality, availability and capability of the vessels;

    ability to meet the customer's schedule;

    price;

    environmental, health and safety record;

    reputation; and

    experience.

        Some of KSP's competitors may have greater financial resources and larger operating staffs than it does. As a result, they may be able to make vessels available more quickly and efficiently, transition to double-hull barges from single-hull barges more rapidly, and withstand the effects of declines in charter

34


rates for a longer period of time. They may also be better able to weather a downturn in the oil and gas industry. As a result, KSP could lose customers and market share to these competitors.

    Increased competition from pipelines could result in reduced profitability.

        KSP also faces competition from refined petroleum product pipelines. Long-haul transportation of refined petroleum products is generally less costly by pipeline than by tank vessel. The construction of new pipeline segments to carry petroleum products into KSP's markets, including pipeline segments that connect with existing pipeline systems, and the conversion of existing non-refined petroleum product pipelines, could adversely affect KSP's ability to compete in particular locations.

    KSP relies on a limited number of customers for a significant portion of its revenues. The loss of any of these customers could adversely affect KSP's business and operating results.

        KSP's customers consist primarily of major oil companies, oil traders and refineries. The portion of KSP's revenues attributable to any single customer changes over time, depending on the level of relevant activity by the customer, KSP's ability to meet the customer's needs and other factors, many of which are beyond its control. Two customers accounted for 19% and 17%, respectively, of KSP's consolidated revenues for fiscal 2007. If KSP was to lose either of these customers or if either of these customers significantly reduced its use of KSP's services, KSP's business and operating results could be adversely affected.

    Voyage charters may not be available at rates that will allow KSP to operate its vessels profitably.

        During fiscal 2007, KSP derived approximately 21% of its revenue from single voyage charters. Voyage charter rates fluctuate significantly based on tank vessel availability, the demand for refined petroleum products and other factors. Increased dependence on the voyage charter market by KSP could result in a lower utilization of KSP's vessels and decreased profitability. Future voyage charters may not be available at rates that will allow KSP to operate its vessels profitably.

    KSP may not be able to renew time charters, consecutive voyage charters, contracts of affreightment and bareboat charters when they expire.

        KSP received approximately 79% of its revenue from time charters, consecutive voyage charters, contracts of affreightment and bareboat charters during fiscal 2007. These arrangements, which are generally for periods of one year or more, may not be renewed, or if renewed, may not be renewed at similar rates. If KSP is unable to obtain new charters at rates equivalent to those received under the old charters, its profitability may be adversely affected.

    An increase in the price of fuel may adversely affect KSP's business and results of operations.

        The cost of fuel for KSP's vessels is a significant component of voyage expenses under its charters and KSP has recently experienced significant increases in the cost of fuel used in its operations. While KSP has been able to pass a portion of these increases on to its customers pursuant to the terms of its charters, there can be no assurances that KSP will be able to pass on any future increases in fuel prices. If fuel prices continue to increase and KSP is not able to pass such increases on to its customers, its business, results of operations, financial condition and ability to make cash distributions may be adversely affected.

    KSP must make substantial expenditures to maintain the operating capacity of its fleet, which will reduce its cash available for distribution.

        Tank vessels are subject to the requirements of the Oil Pollution Act of 1990, or OPA 90. OPA 90 mandates that all single-hull tank vessels operating in U.S. waters be removed from petroleum and

35



petroleum product transportation services at various times through January 1, 2015, and provides a schedule for the phase-out of the single-hull vessels based on their age and size. As of December 31, 2007, approximately 74% of the barrel-carrying capacity of KSP's tank vessel fleet was double-hulled in compliance with OPA 90. The remaining 26% will be in compliance with OPA 90 until January 2015. The capacity of certain of KSP's single-hull vessels has already been effectively replaced by double-hull vessels placed into service in the past two years. KSP estimates that the current cost to replace its remaining single hull capacity with newbuildings or by retrofitting certain of KSP's existing vessels ranges from $78.0 million to $80.0 million. This capacity can also be replaced by acquiring existing double-hull tank vessels as opportunities arise. At the time KSP makes these expenditures, the actual cost could be higher due to inflation and other factors.

        Marine transportation of refined petroleum products is a capital intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance. KSP estimates that, over the next five years, it will spend an average of approximately $21.5 million per year to drydock and maintain KSP's fleet. In addition, KSP will deduct an additional $2.0 million per year from the cash that KSP would otherwise distribute to its unitholders to contribute to the cost of replacing the operating capacity of KSP's single-hull vessels when they phase-out under OPA 90 in January 2015. Periodically, KSP will also make expenditures to acquire or construct additional tank vessel capacity and to upgrade its overall fleet efficiency.

        In calculating KSP's available cash from operating surplus each quarter, KSP is required to deduct estimated maintenance capital expenditures, which may result in less cash available for distribution to unitholders, including us, than if actual maintenance capital expenditures were deducted.

    Capital expenditures and other costs necessary to operate and maintain a vessel vary depending on the age of the vessel and changes in governmental regulations, safety or other equipment standards.

        Capital expenditures and other costs necessary to operate and maintain a vessel increase with the age of the vessel. In addition, changes in governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations and customer requirements or competition, may require KSP to make additional expenditures. For example, KSP may be required to make significant expenditures for alterations or the addition of new equipment to satisfy requirements of the U.S. Coast Guard and the American Bureau of Shipping. In addition, KSP may be required to take its vessels out of service for extended periods of time, with corresponding losses of revenues, in order to make such alterations or to add such equipment. In the future, market conditions may not justify these expenditures or enable KSP to operate its older vessels profitably during the remainder of their economic lives.

        In order to fund these capital expenditures, KSP will either incur borrowings or raise capital through the sale of debt or equity securities. KSP's ability to access the capital markets for future offerings may be limited by its financial condition at the time as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond its control. KSP's failure to obtain the funds for necessary future capital expenditures would limit its ability to continue to operate some of its vessels and could have a material adverse effect on its business and on its ability to make distributions to unitholders, including us.

    KSP's purchase of existing vessels carries risks associated with the quality of those vessels.

        KSP's fleet renewal and expansion strategy includes the acquisition of existing vessels as well as the ordering of newbuildings. Unlike newbuildings, existing vessels typically do not carry warranties with respect to their condition. While KSP generally inspects any existing vessel prior to purchase, such an inspection would normally not provide it with as much knowledge of its condition as it would possess if the vessel had been built for KSP and operated by KSP during its life. Repairs and maintenance costs

36



for existing vessels are difficult to predict and may be more substantial than for vessels KSP has operated since they were built. These costs could decrease KSP's profits and reduce its liquidity.

    Decreased utilization of KSP's vessels due to bad weather could have a material adverse effect on KSP's operating results and financial condition.

        Unpredictable weather patterns tend to disrupt vessel scheduling and supplies of refined petroleum products and KSP's vessels and its cargoes are at risk of being damaged or lost because of bad weather. In addition, adverse weather conditions can cause delays in the delivery of newbuilds and in transporting cargoes. As a result, bad weather conditions could have a material adverse effect on KSP's operating results and financial condition.

    KSP is subject to complex laws and regulations, including environmental regulations, that can adversely affect the cost, manner or feasibility of doing business.

        Increasingly stringent federal, state and local laws and regulations governing worker health and safety and the manning, construction and operation of vessels significantly affect KSP's operations. Many aspects of the marine industry are subject to extensive governmental regulation by the U.S. Coast Guard, the Department of Transportation, the Department of Homeland Security, the National Transportation Safety Board and the U.S. Customs and Border Protection (CBP), and to regulation by private industry organizations such as the American Bureau of Shipping. The U.S. Coast Guard and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and recommend improved safety standards. The U.S. Coast Guard is authorized to inspect vessels at will.

        KSP's operations are also subject to federal, state, local and international laws and regulations that control the discharge of pollutants into the environment or otherwise relate to environmental protection. Compliance with such laws, regulations and standards may require installation of costly equipment or operational changes. Failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of KSP's operations. Some environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject KSP to liability without regard to whether it was negligent or at fault. Under OPA 90, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the internal and territorial waters, and the 200-mile exclusive economic zone around the United States. Additionally, an oil spill could result in significant liability, including fines, penalties, criminal liability and costs for natural resource damages. The potential for these releases could increase as KSP increases its fleet capacity. Most states bordering on a navigable waterway have enacted legislation providing for potentially unlimited liability for the discharge of pollutants within their waters.

    KSP's insurance may not be adequate to cover its losses.

        KSP may not be adequately insured to cover losses from its operational risks, which could have a material adverse effect on KSP's operations. For example, a catastrophic oil spill or other disaster could exceed KSP's insurance coverage. In addition, KSP's affiliate, EW LLC, and its predecessors may not have insurance coverage prior to March 1986. If KSP was subject to claims related to that period, including claims from current or former employees, EW LLC may not have insurance to pay the liabilities, if any, that could be imposed on KSP. If KSP had to pay claims solely out of its own funds, it could have a material adverse effect on its financial condition. Furthermore, any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims could be brought, the aggregate amount of these deductibles could be material.

37


        KSP may not be able to procure adequate insurance coverage at commercially reasonable rates in the future, and some claims may not be paid. In the past, stricter environmental regulations have led to higher costs for insurance covering environmental damage or pollution, and new regulations could lead to similar increases or even make this type of insurance unavailable. In addition, KSP's insurance may be voidable by the insurers as a result of certain actions by KSP.

        Because KSP obtains some of its insurance through protection and indemnity associations, KSP may be subject to calls, or premiums, in amounts based not only on its own claim records but also the claim records of all other members of the protection and indemnity associations through which it receives insurance coverage for tort liability, including pollution-related liability. KSP's payment of these calls could result in significant expenses to it, which could reduce its profits or cause losses. Moreover, the protection and indemnity clubs and other insurance providers reserve the right to make changes in insurance coverage with little or no advance notice.

    Terrorist attacks have resulted in increased costs and have disrupted KSP's business. Continued hostilities in the Middle East or other sustained military campaigns may adversely impact KSP's results of operations.

        After the terrorist attacks of September 11, 2001, New York Harbor was shut down temporarily, resulting in the suspension of KSP's local operations in the New York City area for four days and the loss of revenue related to these operations. The long-term impact that terrorist attacks and the threat of terrorist attacks may have on the petroleum industry in general, and on KSP in particular, is not known at this time. Uncertainty surrounding continued hostilities in the Middle East or other sustained military campaigns may affect KSP's operations in unpredictable ways, including disruptions of petroleum supplies and markets, and the possibility that infrastructure facilities could be direct targets of, or indirect casualties of, an act of terror.

        Changes in the insurance markets attributable to terrorist attacks may make certain types of insurance more difficult for KSP to obtain. Moreover, the insurance that may be available to KSP may be significantly more expensive than its existing insurance coverage. Instability in the financial markets as a result of terrorism or war could also affect KSP's ability to raise capital.

    KSP depends upon unionized labor for the provision of KSP's services in certain geographic areas. Any work stoppages or labor disturbances could disrupt our business in those areas.

        Certain of KSP's seagoing personnel, comprising 44% of our total workforce, are employed under a contract with a division of the International Longshoreman's Association that expires on June 30, 2008. Any work stoppages or other labor disturbances could have a material adverse effect on KSP's business, financial condition and results of operations.

    KSP's employees are covered by federal laws that may subject KSP to job-related claims in addition to those provided by state laws.

        Some of KSP's employees are covered by provisions of federal statutory and general maritime law. These laws typically operate to make liability limits established by state workers' compensation laws inapplicable to these employees and to permit these employees and their representatives to pursue actions against employers for job-related injuries in federal courts. Because KSP is not generally protected by the limits imposed by state workers' compensation statutes, KSP may have greater exposure for claims made by these employees.

    KSP depends on key personnel for the success of our business.

        KSP depends on the services of its senior management team and other key personnel. In particular, KSP's success depends on the continued efforts of Mr. Timothy J. Casey, the President and Chief Executive Officer of KSP GP, and other key employees. The loss of the services of any key

38



employee could have a material adverse effect on KSP's business, financial condition and results of operations. KSP may not be able to locate or employ on acceptable terms qualified replacements for senior management or key employees if their services were no longer available.

    Due to KSP's lack of asset diversification, adverse developments in KSP's marine transportation business would reduce KSP's ability to make distributions to KSP's unitholders.

        KSP relies exclusively on the revenues generated from its marine transportation business. Due to KSP's lack of asset diversification, an adverse development in this business would have a significantly greater impact on KSP's business, financial condition and results of operations than if KSP maintained more diverse assets.

    Changes in international trade agreements could affect KSP's ability to provide marine transportation services at competitive rates.

        Currently, vessel trade or marine transportation between two points within the same country, generally known as cabotage or coastwise trade, is not included in the General Agreement on Trade in Services or the North American Free Trade Agreement. In addition, the Jones Act restricts maritime cargo transportation between U.S. ports to U.S.-flag vessels qualified to engage in U.S. coastwise trade. If maritime services were deemed to include cabotage and included in the General Agreement on Trade in Services, the North American Free Trade Agreement or other multi-national trade agreements, transportation of maritime cargo between U.S. ports could be opened to foreign-flag vessels. Foreign vessels would have lower construction costs and would generally operate at significantly lower costs than KSP does in U.S. markets, which would likely have a material adverse effect on KSP's ability to compete.

    Delays or cost overruns in the construction of new vessels or the modification of existing vessels could adversely affect KSP's business. Cash flows from new or retrofitted vessels may not be immediate or as high as expected.

        KSP is currently building ten new vessels and completing other smaller projects at an estimated total cost of $175 million. KSP expects to spend approximately $26 million during the remainder of fiscal 2008 on these projects. These projects are subject to the risk of delay or cost overruns caused by the following:

    unforeseen quality or engineering problems;

    work stoppages;

    weather interference;

    unanticipated cost increases;

    delays in receipt of necessary equipment; and

    inability to obtain the requisite permits or approvals.

        Significant delays could also have a material adverse effect on expected contract commitments for these vessels and KSP's future revenues and cash flows. KSP will not receive any material increase in revenue or cash flow from new or modified vessels until they are placed in service and customers enter into binding arrangements for the use of the vessels. Furthermore, customer demand for new or modified vessels may not be as high as KSP currently anticipates, and, as a result, KSP's future cash flows may be adversely affected.

39


Tax Risks to Our Common Unitholders

        In addition to reading the following risk factors, prospective unitholders should read "Material Tax Consequences" for a more complete discussion of the expected material federal income tax consequences of owning and disposing of our common units.

    Our tax treatment depends on both our and KSP's status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation or if we or KSP or both were to become subject to a material amount of entity-level taxation for federal or state income tax purposes, our cash available for distribution to unitholders would be substantially reduced.

        The anticipated after-tax economic benefit of an investment in our common units depends largely on both us and KSP being treated as partnerships for federal income tax purposes. If less than 90% of the gross income of a publicly traded partnership, such as us or KSP, for any taxable year is "qualifying income" from sources such as the transportation or processing of crude oil, natural gas or products thereof, interest, dividends or similar sources, that partnership will be taxable as a corporation under Section 7704 of the Internal Revenue Code for federal income tax purposes for that taxable year and all subsequent years. Either we or KSP or both of us could become taxable as a corporation for federal income tax purposes under Section 7704. The IRS has not provided any ruling to us or KSP on this matter.

        If we or KSP or both of us were treated as a corporation for federal income tax purposes, then each of us treated as a corporation would pay federal income tax on our income at the corporate tax rate, which is currently a maximum of 35%, and would likely pay state income tax at varying rates. Distributions would generally be taxed again to unitholders as corporate distributions and no income, gains, losses, deductions or credits of KSP would flow through to our unitholders. Because a tax would be imposed upon us or KSP or both as an entity, cash available for distribution to our unitholders would be substantially reduced. Treatment of us or KSP or both as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to unitholders and thus would likely result in a substantial reduction in the value of the common units.

        Current law may change so as to cause us or KSP or both to be treated as a corporation for federal income tax purposes or otherwise subject us or KSP to entity-level taxation. For example, because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Our partnership agreement and the partnership agreement of KSP provide that, if a law is enacted or an existing law is modified or interpreted in a manner that subjects us or KSP, respectively, to taxation as a corporation or otherwise subjects us or KSP, respectively, to entity-level taxation for federal, state, or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts will be adjusted to reflect the impact of that law on us or KSP, respectively.

    The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

        The present United States federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at any time. Any modification to the United States federal income tax laws and interpretations thereof may or may not be applied retroactively and could make it more difficult or impossible to meet the exception for us to be treated as a partnership for United States federal income tax purposes that is not taxable as a corporation (referred to as the "Qualifying Income Exception"), affect or cause us to change our business activities, affect the tax considerations of an investment in us,

40



change the character or treatment of portions of our income and adversely affect an investment in our common units. For example, in response to certain recent developments, members of Congress are considering substantive changes to the definition of qualifying income under Internal Revenue Code Section 7704(d) and the treatment of certain types of income earned from profits interests in partnerships. It is possible that these efforts could result in changes to the existing United States tax laws that affect publicly traded partnerships, including us. We are unable to predict whether any of these changes, or other proposals will ultimately be enacted. Any such changes could negatively impact the value of an investment in our common units.

    If the IRS contests any of the federal income tax positions taken by us or KSP, the market for our or KSP's common units may be adversely affected, and the costs of any contest will reduce our cash available for distribution to unitholders.

        The IRS has not provided any ruling with respect to our or KSP's treatment as a partnership for federal income tax purposes or any other matter affecting us. The IRS may adopt positions that differ from our counsel's conclusions expressed in this prospectus or from the positions taken by us or KSP. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel's conclusions or the positions taken by us or KSP. A court may not agree with some or all of our counsel's conclusions or the positions taken by us or KSP. Any contest with the IRS may materially and adversely impact the market for our common units or KSP's common units and the prices at which they trade. In addition, the costs of any contest with the IRS will be borne by us or KSP, directly or indirectly reducing our cash available for distribution.

    Unitholders may be required to pay taxes on their share of our income even if they do not receive any cash distributions from us.

        Because our unitholders will be treated as partners to whom we will allocate taxable income, which could be different in amount from the cash we distribute, our unitholders will be required to pay any federal income taxes and, in some cases, state and local income taxes on their share of our taxable income, even if they receive no cash distributions from us. Unitholders may not receive cash distributions equal to their share of our taxable income or even the tax liability that results from that income.

    Tax gain or loss on the disposition of our common units could be different than expected.

        If a unitholder sells his common units, that unitholder will recognize gain or loss equal to the difference between the amount realized and the unitholder's tax basis in those common units. Prior distributions in excess of the total net taxable income the unitholder was allocated for a common unit, which decreased the unitholder's tax basis in that common unit, will, in effect, become taxable income to the unitholder if the common unit is sold at a price greater than the unitholder's tax basis in that common unit, even if the price the unitholder receives is less than the unitholder's original cost. A substantial portion of the amount realized, whether or not representing gain, may be ordinary income to unitholders. Should the IRS successfully contest some positions we take, unitholders could recognize more gain on the sale of common units than would be the case under those positions, without the benefit of decreased income in prior years. In addition, if unitholders sell their common units, they may incur a tax liability in excess of the amount of cash they receive from the sale.

    Tax-exempt entities and foreign persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

        Investment in common units by tax-exempt entities, such as individual retirement accounts (known as IRAs) and other retirement plans, and non-United States persons, raises issues unique to them. For example, virtually all of our income allocated to organizations exempt from federal income tax,

41



including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-United States persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-United States persons will be required to file United States federal income tax returns and pay tax on their share of our taxable income. If you are a tax-exempt entity or a foreign person, you should consult your tax advisor before investing in our common units.

    KSP registered as a tax shelter under prior law. This may increase the risk of an IRS audit of KSP or us.

        Prior to the enactment of the American Jobs Creation Act of 2004, certain types of entities were required to register with the IRS as "tax shelters," based on a perception that those entities might claim tax benefits that were unwarranted. KSP registered as a tax shelter under such prior law. The American Jobs Creation Act of 2004 repealed the tax shelter registration requirement and replaced it with a regime that requires reporting, and will likely require registration, of certain "reportable transactions." We do not expect that we or KSP will engage in any reportable transactions. Nevertheless, KSP's registration as a tax shelter under prior law, or our or KSP's future participation in a reportable transaction, might increase the likelihood that we will be audited, and any such audit might lead to tax adjustments.

        Should our or KSP's tax returns be audited, any adjustments to our tax returns may lead to adjustments to our unitholders' tax returns and may lead to audits of unitholders' tax returns. Our unitholders would be responsible for the consequences of any audits to their tax returns.

    We treat each purchaser of common units as having the same tax benefits without regard to the units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

        Because we cannot match transferors and transferees of common units and because of other reasons, we will take depreciation and amortization positions that may not conform to all aspects of the Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to unitholders. It also could affect the timing of these tax benefits or the amount of gain from the sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to unitholders' tax returns. Please read "Material Tax Consequences—Disposition of Common Units—Uniformity of Units" for a further discussion of the effect of the depreciation and amortization positions we will adopt.

    Unitholders may be subject to state, local and foreign taxes and return filing requirements as a result of investing in our common units.

        In addition to federal income taxes, unitholders will likely be subject to other taxes, such as state and local income taxes, unincorporated business taxes and estate, inheritance, or intangible taxes, that are imposed by the various jurisdictions in which business is done or property is owned by us or KSP. Unitholders will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of the various jurisdictions in which business is done or property is owned by us or KSP, and may be subject to penalties for failure to comply with those requirements. KSP owns property or conducts business in Alaska, Hawaii, New York, New Jersey, Pennsylvania, Washington and Virginia, all of which impose a state income tax. KSP currently conducts certain operations in Puerto Rico, Canada and Venezuela in a manner that we believe does not subject us or our unitholders to direct liability to pay tax or file returns in those countries, but there can be no assurance that KSP will conduct its foreign operations in this manner in the future. Taxes KSP pays with respect to its foreign operations reduce the cash flow available for distribution to us and our unitholders. KSP may do business or own property in other states or foreign countries in the future. It is the responsibility of

42



unitholders to file all federal, state, local, and foreign tax returns. Our counsel has not rendered an opinion on the state, local or foreign tax consequences of an investment in our common units.

    The sale or exchange of 50% or more of our or KSP's capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

        We will be considered to have terminated for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. Likewise, KSP will be considered to have terminated for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in KSP's capital and profits within a twelve-month period. A termination would, among other things, result in the closing of our or KSP's taxable year for all unitholders and could result in a deferral of depreciation deductions allowable in computing our taxable income.

    KSP has adopted certain valuation methodologies that may result in a shift of income, gain, loss and deduction between us and the public unitholders of KSP. The IRS may challenge this treatment, which could adversely affect the value of our interests in KSP and our outstanding common units.

        When KSP issues additional units or engages in certain other transactions, KSP determines the fair market value of its assets and allocates any unrealized gain or loss attributable to such assets to the capital accounts of KSP's public unitholders and us. KSP's methodology may be viewed as understating or overstating the value of KSP's assets. In that case, there may be a shift of income, gain, loss and deduction between certain KSP public unitholders and us. Moreover, under valuation methods used by KSP prior to 2007, subsequent purchasers of our common units may have had a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to KSP's intangible assets and a lesser portion allocated to KSP's tangible assets. The IRS may challenge KSP's valuation methods, or our or KSP's allocation of the Section 743(b) adjustment attributable to KSP's tangible and intangible assets, and allocations of income, gain, loss and deduction between us and certain of KSP's public unitholders.

        A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain on the sale of common units by our unitholders and could have a negative impact on the value of our common units or those of KSP or result in audit adjustments to the tax returns of our unitholders without the benefit of additional deductions.

    If EW LLC's corporate subsidiaries are audited, we may owe additional federal and state taxes, which could decrease our cash available for distribution.

        In connection with our formation, EW LLC's corporate subsidiaries will merge with and into EW LLC, which will then merge with one of our subsidiaries. In connection with that transaction, the corporate subsidiaries will incur estimated federal and state tax liabilities of approximately $5.3 million, which will be paid out of the proceeds of our initial public offering. If the corporate subsidiaries are audited, then the corporate subsidiaries may owe additional federal and state tax. This additional tax would be the responsibility of EW LLC and therefore, indirectly, a liability of our partnership.

43



FORWARD-LOOKING STATEMENTS

        Statements included in this prospectus and in the documents we incorporate by reference that are not historical facts (including statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward looking statements. In addition, we may from time to time make other oral or written statements that are also forward looking statements. Forward-looking statements may include words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "should" and other words and terms of similar meaning.

        Forward looking statements appear in a number of places in this prospectus and include statements with respect to, among other things:

    KSP's ability to generate sufficient cash from its business to pay the minimum quarterly distribution to its unitholders;

    our ability to pay distributions to our unitholders;

    the benefits to be derived from KSP's acquisition of the Smith Maritime Group, including KSP's ability to apply its current business strategies in new geographic markets, platforms for future growth, possible synergies with the rest of its business, the benefits of geographic and seasonal diversity, and possible accretion in its distributable cash flow;

    KSP's planned capital expenditures and availability of capital resources to fund capital expenditures;

    KSP's expected cost of complying with the Oil Pollution Act of 1990;

    KSP's estimated future expenditures for drydocking and maintenance of its tank vessels' operating capacity;

    KSP's plans for the retirement or retrofitting of tank vessels and the expected delivery, and cost of, newbuild vessels;

    KSP's integration of recent and proposed acquisitions of tank barges and tugboats, including the timing, effects and benefits thereof;

    expected decreases in the supply of domestic tank vessels;

    expected demand in the domestic tank vessel market in general and the demand for KSP's tank vessels in particular;

    expectations regarding litigation affecting KSP;

    the likelihood that pipelines will be built that compete with KSP;

    the effect of new or existing regulations or requirements on KSP's financial position;

    KSP's future financial condition or results of operations and KSP's future revenues and expenses;

    KSP's business strategies and other plans and objectives for future operations;

    KSP's future financial exposure to lawsuits currently pending against, or potential audits of, EW LLC and its predecessors; and

    any other statements that are not historical facts.

        These forward looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events and, therefore, involve a number of risks and uncertainties. We caution that forward looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward looking statements.

        Important factors that could cause our actual results of operations or our actual financial condition to differ from our expectations are described under "Risk Factors."

44



USE OF PROCEEDS

        We expect to receive net proceeds of approximately $             million from the sale of the                        common units offered by us, after deducting underwriting discounts. We will use the net proceeds from this offering to:

    repay approximately $15.5 million of indebtedness, together with accrued interest, of EW LLC;

    pay approximately $5.3 million of federal and state income tax liabilities of EW LLC; and

    pay approximately $             million of expenses associated with the offering and related formation transactions.

        We will not receive any proceeds from the sale of the common units being sold by the selling unitholders. Please read "Selling Unitholders."

45



CAPITALIZATION

        The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2007:

    on a consolidated historical basis for K-Sea GP Holdings LP Predecessor; and

    as adjusted to give effect to the following assumptions:

    the issuance of            of our common units to the contributing parties in exchange for (1) 100% of the incentive distribution rights in KSP, (2) 4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units and (3) all of the 1.5% general partner interest in KSP; and

    the sale of            common units in this offering and the related use of proceeds.

        The historical financial data of K-Sea GP Holdings LP Predecessor presented in the table below is derived from and should be read in conjunction with K-Sea GP Holdings LP Predecessor's historical financial statements, including accompanying notes, included elsewhere in this prospectus.

        The historical data in the table are derived from and should be read in conjunction with our historical financial statements, including accompanying notes, included elsewhere in this prospectus. You should also read this table in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of December 31, 2007
 
  Actual
  As Adjusted
 
  (in thousands)

Cash and cash equivalents   $ 1,751   $  
   
 
Long-term debt, including current portion:            
  KSP revolving facility   $ 180,350   $  
  KSP term loans and capital lease obligations     169,617   $  
  EW LLC demand loan   $ 15,500      
   
 
    Total long-term debt   $ 365,467   $  
   
 
Partners' capital:            
    Total partner's capital     7,358      
   
 
Total capitalization   $ 372,825   $  
   
 

46



DILUTION

        Dilution is the amount by which the offering price paid by purchasers of common units sold in this offering will exceed the net tangible book value per unit after the offering. On a pro forma basis as of December 31, 2007, after giving effect to the offering of our common units at the assumed initial offering price of $    per common unit and the related transactions, the net tangible book value of our assets would have been approximately $    , or $    per common unit. Purchasers of our common units in this offering will experience immediate and substantial dilution in net tangible book value per common unit for financial accounting purposes, as illustrated in the following table.

Assumed initial public offering price per common unit         $  
Pro forma net tangible book value per common unit before the offering   $        
Increase in net tangible book value per common unit attributable to purchases in the offering            
   
     
Less: Pro forma net tangible book value per common unit after the offering(1)            
         
  Immediate dilution in pro forma net tangible book value per common unit to new investors(2)         $  
         

(1)
Determined by dividing the total number of common units to be outstanding after the offering into our pro forma net tangible book value, after giving effect to the application of the net proceeds of the offering and the related transactions.

(2)
If the initial public offering price were to increase or decrease by $1.00 per common unit, immediate dilution in net tangible book value per common unit would increase by $1.00 or decrease by $1.00, respectively.

        The following table sets forth the number of common units that we will issue and the total consideration contributed to us by our current owners and their affiliates in respect of their common units and by the purchasers of common units in this offering upon consummation of the transactions contemplated by this prospectus:

 
  Common Units Purchased
  Total Consideration
 
 
  Number
  Percent
  Amount
  Percent
 
Existing Unitholders         % $       %
New Investors                    
   
 
 
 
 
Total       100.0 % $     100.0 %
   
 
 
 
 

47



OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

        You should read the following discussion of our cash distribution policy in conjunction with the more detailed information regarding the factors and assumptions upon which our cash distribution policy is based in "—Assumptions and Considerations" below. In addition, you should read "Forward-Looking Statements" and "Risk Factors" for information regarding statements that do not relate strictly to historical or current facts and material risks inherent in our and KSP's business.

        For additional information regarding our historical and pro forma operating results, you should refer to our audited historical financial statements for the years ended June 30, 2005, 2006 and 2007, our unaudited historical financial statements for the six months ended December 31, 2006 and 2007, and our pro forma financial statements for the six months ended December 31, 2007 and the year ended June 30, 2007, each included elsewhere in this prospectus.

General

        Rationale for Our Cash Distribution Policy.    Our partnership agreement requires us to distribute all of our available cash quarterly. Under our partnership agreement, available cash is defined to mean generally, for each fiscal quarter, cash generated from our business in excess of the amount of cash reserves established by our general partner to, among other things:

    provide for our general, administrative and other expenses, including those we will incur as the result of becoming a publicly traded company;

    comply with applicable law;

    comply with any agreement binding upon us or our subsidiaries (exclusive of KSP and its subsidiaries);

    provide for future distributions to our unitholders;

    provide for future capital expenditures, debt service and other credit needs as well as any federal, state, provincial or other income tax that may affect us in the future;

    allow us to pay KSP GP, if desired, an amount sufficient to enable KSP GP to make capital contributions to KSP to maintain its 1.5% general partner interest upon the issuance of partnership securities by KSP; or

    otherwise provide for the proper conduct of our business, including with respect to the matters described under "Description of Our Partnership Agreement—Purpose."

        Our partnership agreement will not restrict our ability to borrow to pay distributions. It is important that you understand that our cash flow is generated solely by distributions on our partnership interests in KSP and, therefore, is entirely dependent upon the ability of KSP to make cash distributions to its partners. We currently have no independent operations and do not currently intend to conduct operations separate from those of KSP. Accordingly, we believe we will have relatively low cash requirements for operating expenses and capital investments. Therefore, we believe that our investors are best served by our distributing all of our available cash to our unitholders as described below. Because we are currently not subject to an entity-level federal income tax, we will have more cash to distribute to you than if we were a corporation.

        Restrictions and Limitations on Our Ability to Change Our Cash Distribution Policy.    There is no guarantee that unitholders will receive quarterly distributions from us or that we will receive quarterly distributions from KSP. Neither we nor KSP have a legal obligation to pay distributions, except as provided in our partnership agreements. Our cash distributions will not be cumulative. Consequently, if we do not pay distributions on our common units with respect to any fiscal quarter at the anticipated

48



initial quarterly distribution rate, our unitholders will not be entitled to receive that fiscal quarter's payment in the future.

        Our distribution policy and KSP's distribution policy are subject to certain restrictions and may be changed at any time. These restrictions include the following:

    KSP's cash distribution policy is subject to restrictions on distributions under its debt agreements. Specifically, KSP's debt agreements contain certain financial tests and covenants that it must satisfy. These financial tests and covenants are described in this prospectus under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—KSP's Credit Agreement" and "—KSP's Other Terms Loans." If KSP is unable to comply with the restrictions under its debt agreements, KSP would be prohibited from making cash distributions to us, which in turn would prevent us from making cash distributions to you notwithstanding our stated distribution policy.

    Similar to KSP's cash distribution policy, our distribution policy may be subject to certain restrictions on distributions if we later enter into any future debt agreements. We will not initially have any debt outstanding and, therefore, will not be subject to any debt covenants. We anticipate that any future debt agreements could contain certain financial tests and covenants that we would have to satisfy. If we are unable to satisfy these restrictions under any future debt agreements, we would be prohibited from making a distribution to you notwithstanding our stated distribution policy.

    KSP GP has authority under KSP's partnership agreement to establish cash reserves for the prudent conduct of KSP's business and for future cash distributions to KSP's unitholders, and the establishment of those reserves could result in a reduction in cash distributions that we would otherwise anticipate receiving from KSP, which in turn could result in a reduction in cash distributions to you from levels we currently anticipate pursuant to our stated distribution policy. Any determination to establish cash reserves made by KSP GP in its reasonable discretion will be binding on KSP's unitholders as well as the holders of its general partner interest and incentive distribution rights.

    Our general partner's board of directors will have authority under our partnership agreement to establish cash reserves for the prudent conduct of our business and the establishment of those reserves could result in a reduction in cash distributions to you from levels we currently anticipate pursuant to our stated distribution policy.

    While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including our cash distribution policy contained therein, may be amended by a vote of the holders of a majority of our common units.

    Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our cash distribution policy and the decision to make any distribution is at the discretion of our general partner, taking into consideration the terms of our partnership agreement.

    Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, KSP may not make a distribution to us and we may not make a distribution to our unitholders if such distribution would cause KSP's or our liabilities to exceed the fair value of KSP's or our assets, as applicable.

    We may lack sufficient cash to pay distributions to our unitholders due to increases in general and administrative expenses, working capital requirements and anticipated cash needs of us or KSP and its subsidiaries.

49


        Our Cash Distribution Policy Limits Our Ability to Grow.    Because we distribute all of our available cash, our growth may not be as fast as the growth of businesses that reinvest their available cash to expand ongoing operations. In fact, because currently our only cash-generating assets are partnership interests in KSP, our growth initially will be completely dependent upon KSP's ability to increase its quarterly cash distributions per unit. The amount of distributions received by KSP GP is based on KSP's per unit distribution paid on each KSP common unit and subordinated unit. Accordingly, the cash distribution received by KSP GP is derived from two factors: (1) KSP's per unit distribution level and (2) the number of KSP common units and subordinated units outstanding. An increase in either factor (assuming the other factor remains constant or increases) will generally result in an increase in the amount received by us. Please read "K-Sea Transportation Partners L.P.'s Cash Distribution Policy." If we issue additional units or we were to incur debt, the payment of distributions on those additional units or interest on that debt could increase the risk that we will be unable to maintain or increase our cash distribution levels. There are no limitations in our partnership agreement on our ability to incur indebtedness or to issue additional units, including units ranking senior to our common units.

        KSP's Ability to Grow is Dependent on its Ability to Access External Growth Capital.    Consistent with the terms of its partnership agreement, KSP distributes to its partners its available cash each quarter. In determining the amount of cash available for distribution, KSP sets aside cash reserves, which it uses to fund its capital expenditures. Additionally, KSP has relied upon external financing sources, including commercial borrowings and other debt and issuances of limited partner units, to fund its acquisition and growth capital expenditures. Accordingly, to the extent KSP does not have sufficient cash reserves or is unable to finance growth externally, its ability to grow will likely be impaired. In addition, to the extent KSP issues additional limited partner units and maintains or increases its distribution level per unit, the available cash that we have to distribute to our unitholders will increase. If KSP issues additional limited partner units and is unable to maintain its distribution level, the cash that we have to distribute to our unitholders could decrease. The incurrence of additional debt by KSP to finance its growth strategy would result in increased interest expense to KSP, which in turn may reduce its cash distributions to us and reduce the available cash that we have to distribute to our unitholders.

        The Incentive Distribution Rights in KSP that KSP GP Owns May Be Limited or Modified Without Your Consent.    We own 100% of the membership interests in KSP GP, which owns 100% of the incentive distribution rights in KSP, which entitle KSP GP to receive increasing percentages (up to a maximum of 48%) of any cash distributed by KSP in excess of $0.75 per KSP limited partner unit in any quarter. The distribution by KSP for the quarter ended December 31, 2007 was $0.74 per KSP limited partner unit. A portion of the cash flow we receive from KSP is provided by these incentive distribution rights. For the twelve months ended December 31, 2007, approximately 10.6% of the pro forma cash that we would have received from KSP would have been attributable to our ownership of the incentive distribution rights.

        KSP, like other publicly traded partnerships, will generally only undertake an acquisition or expansion capital project if, after giving effect to related costs and expenses, the transaction would be expected to be accretive in future periods, meaning it would increase cash distributions per unit. Because KSP GP currently participates in the incentive distribution rights, it is harder for an acquisition or capital project to show accretion for the common unitholders of KSP than if the incentive distribution rights received less incremental cash flow. In the future, KSP GP may determine, in certain cases, to propose a reduction to the incentive distribution rights to facilitate a particular acquisition or expansion capital project. Such a reduction may relate to all of the cash flow on the incentive distribution rights or only to the expected cash flow from the transaction and may be either temporary or permanent in nature.

        In addition to benefiting the common unitholders of KSP, a reduction in the incentive distribution rights may be in the long-term interests of the holder of the incentive distribution rights because the aggregate amount of cash distributed in respect of the modified incentive distribution rights may

50



increase as a result of the acquisition or growth project, even if cash is distributed at lower overall sharing ratios.

        Our partnership agreement authorizes our general partner to approve any waiver, reduction, limitation or modification to KSP's incentive distribution rights without the consent of our unitholders. Any determination with respect to such modification could include consideration of one or more financial cases based on a number of business, industry, economic, legal, regulatory and other assumptions applicable to the proposed transaction. Although we expect that a reasonable basis will exist for those assumptions, the assumptions will generally involve current estimates of future conditions, which are difficult to predict. Realization of many of the assumptions will be beyond our general partner's control. Moreover, the uncertainty and risk of inaccuracy associated with any financial projection will increase with the length of the forecasted period.

Our Initial Distribution Rate

        Our Cash Distribution Policy.    Upon the closing of this offering, we expect to pay an initial quarterly distribution of $            per unit, or $                        per unit on an annualized basis. This equates to an aggregate cash distribution of approximately $                        million per quarter, or approximately $            million per year.

        Our ability to make cash distributions at the initial distribution rate will be subject to the factors described above under the caption "—Restrictions and Limitations on Our Cash Distribution Policy." We cannot assure you that any distributions will be declared or paid by us. Please read "Risk Factors—Risks Inherent in an Investment in Us—Our cash flow will be entirely dependent upon the ability of KSP to make cash distributions to us."

        We will pay our cash distributions within 55 days after the end of each fiscal quarter to holders of record on or about the first of the month in which the distribution is paid. If the distribution date does not fall on a business day, we will make the distribution on the business day immediately following the indicated distribution date. We will pay you a prorated cash distribution for the first quarter that we are a publicly traded partnership. This prorated cash distribution will be paid for the period beginning on the closing date of this offering and ending on the last day of that fiscal quarter. Any distributions received by us from KSP related to periods prior to the closing of this offering will be distributed to the contributing parties. We expect to pay this cash distribution on or about August 24, 2008.

        The following table sets forth an assumed number of outstanding common units upon the closing of this offering and the aggregate cash distributions payable on our outstanding common units during the first four quarters following the closing of this offering at our initial quarterly distribution of $        per unit, or $        per unit on an annualized basis.

 
   
  Initial Quarterly Distribution
 
  Number of Units
  One Quarter
  Four Quarters
Distributions to public unitholders            
Distributions to contributing parties            
  Total            

        Our partnership agreement provides that any determination made by our general partner in its capacity as our general partner, including a determination with respect to establishing cash reserves, must be made in "good faith" and that any such determination will not be the subject of any other standard imposed by our partnership agreement, the Delaware limited partnership statute or any other law, rule or regulation or at equity. Our partnership agreement also provides that, in order for a determination by our general partner to be made in "good faith," our general partner must subjectively believe that the determination is in, or not opposed to, our best interests.

51


        KSP's Cash Distribution Policy.    Like us, KSP has adopted a cash distribution policy that requires it to distribute its available cash to its partners on a quarterly basis. Under KSP's partnership agreement, available cash is defined to generally mean, for each fiscal quarter, cash generated from KSP's business in excess of the amount its general partner determines is necessary or appropriate to provide for the conduct of its business, to comply with applicable law, to comply with any of its debt instruments or other agreements or to provide for future distributions to its unitholders for any one or more of the upcoming four quarters. KSP GP's determination of available cash takes into account the possibility of establishing cash reserves in some quarterly periods that it may use to pay cash distributions in other quarterly periods, thereby enabling it to maintain relatively consistent cash distribution levels even if its business experiences fluctuations in its cash from operations due to seasonal and cyclical factors. KSP GP's determination of available cash also allows KSP to maintain reserves to provide funding for its growth opportunities. KSP makes its quarterly distributions from cash generated from its operations, and those distributions have grown over time as its business has grown, primarily as a result of numerous acquisitions and organic expansion projects that have been funded through external financing sources and cash from operations.

        In addition, KSP's credit agreement requires that the ratio of KSP's total funded debt to KSP's EBITDA, as defined in the agreement, for the four fiscal quarters most recently ended must not be greater than 4.00 to 1.00 in order for KSP to make distributions to its unitholders in any given quarter. The definition of EBITDA in KSP's credit agreement allows for the addition of estimated EBITDA for vessels either still under construction, or not yet owned for a full year, for which debt has been incurred.

        The following table sets forth, for the periods indicated, the amount of quarterly cash distributions KSP paid for each of its partnership interests, including the incentive distribution rights, with respect to the quarter indicated. The actual cash distributions by KSP to its partners occur within 45 days after the end of each quarter. KSP has an established historical record of paying quarterly cash distributions to its partners.


KSP's Cash Distribution History

 
  KSP's Cash Distribution History(1)
 
  Distributions on Limited Partner Units
   
   
   
  Total
Distributions
to EW LLC
and General
Partner

   
   
 
   
  Distributions on
Incentive
Distribution
Rights

   
   
   
 
  Distributions on General
Partner
Interest

  Distributions
to EW LLC

  Distributions to Other Public
Unitholders

  Total KSP
Cash
Distributions

 
  Per Unit
  Total
 
  (in thousands, except per unit amounts)

2004                                                
Third quarter(2)   $ 0.43   $ 3,582   $ 73       $ 1,791   $ 1,864   $ 1,791   $ 3,655
Fourth quarter   $ 0.525     4,374     89         2,187     2,276     2,187     4,463

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
First quarter   $ 0.54   $ 4,498   $ 92       $ 2,249   $ 2,341   $ 2,249   $ 4,590
Second quarter   $ 0.54     4,498     92         2,249     2,341     2,249     4,590
Third quarter   $ 0.54     4,498     92         2,249     2,341     2,249     4,590
Fourth quarter   $ 0.56     4,496     101   $ 14     2,332     2,447     2,614     5,061

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
First quarter   $ 0.57   $ 5,653   $ 115   $ 31   $ 2,374   $ 2,520   $ 3,279   $ 5,799
Second quarter   $ 0.59     5,852     119     62     2,458     2,639     3,394     6,033
Third quarter   $ 0.60     5,952     122     77     2,499     2,698     3,453     6,151
Fourth quarter   $ 0.62     6,150     126     108     2,582     2,816     3,568     6,384

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
First quarter   $ 0.64   $ 6,362   $ 130   $ 163   $ 2,665   $ 2,958   $ 3,697   $ 6,655
Second quarter   $ 0.66     6,561     134     225     2,749     3,108     3,812     6,920
Third quarter   $ 0.68     6,761     138     287     2,832     3,257     3,929     7,186
Fourth quarter   $ 0.70     6,959     142     350     2,915     3,407     4,044     7,451

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
First quarter   $ 0.72   $ 9,874   $ 146   $ 561   $ 2,999   $ 3,706   $ 6,875   $ 10,581
Second quarter   $ 0.74     10,148     150     646     3,082     3,878     7,066     10,944

52



(1)
Distributions are shown for the quarter with respect to which they were declared. For each of the indicated quarters for which distributions have been made, an identical per unit cash distribution was paid on both the common and subordinated units.

(2)
The distribution for the third quarter of fiscal 2004 represents a prorated distribution of $0.50 per common and subordinated unit for the period from January 14, 2004, the closing date of KSP's initial public offering, through March 31, 2004.

Cash Available for Distribution

        In the sections that follow, we present in detail the basis for our belief that we will be able to fully fund our initial quarterly distribution of $            per unit. In those sections, we present two tables, including:

    "Unaudited Pro Forma Available Cash," in which we present the amount of available cash we would have had for the fiscal year ended June 30, 3007 and for the twelve months ended December 31, 2007, giving pro forma effect to:

    KSP's current quarterly cash distribution of $0.74 per limited partner unit, or $2.96 per unit on an annualized basis;

    the acquisition in August 2007 of the Smith Maritime Group and the related debt financing and common unit issuance by KSP to pay for this acquisition;

    this offering and the application of the net proceeds as described under "Use of Proceeds"; and

    "Estimated Cash Available to Pay Distributions based on KSP's Estimated Minimum EBITDA" in which we present our estimate of the minimum amount of KSP's EBITDA necessary for KSP to pay distributions to its partners, including us, which will enable us to pay the full quarterly distributions at the initial distribution rate on all the outstanding common units for each quarter through March 31, 2009.

        Because we own and control KSP's general partner, we reflect our ownership interest in KSP on a consolidated basis, which means that our financial results are combined with those of KSP and its general partner.

Unaudited Pro Forma Consolidated Available Cash

        Our pro forma available cash for the year ended June 30, 2007 and the twelve months ended December 31, 2007 would have been more than sufficient to pay the initial quarterly distribution of $             per unit on all units to be outstanding following the completion of this offering.

        If we had completed the transactions contemplated in this prospectus on July 1, 2006, pro forma available cash generated during our fiscal year ended June 30, 2007 would have been more than sufficient to pay the full initial distribution amount of $             million on all of our common units.

        If we had completed the transactions contemplated in this prospectus on July 1, 2006, pro forma available cash generated during the twelve months ended December 31, 2007 would have been more than sufficient to pay the full initial distribution amount of $             million on all of our common units for the immediately preceding four fiscal quarters.

        Our pro forma cash available for distribution includes estimated incremental general and administrative expenses we will incur as a result of being a publicly traded limited partnership, such as costs associated with annual and quarterly reports to unitholders, tax return and Schedule K-1 preparation and distribution, investor relations, registrar and transfer agent fees, director compensation and incremental insurance costs, including director and officer liability and insurance. We expect these incremental general and administrative expenses initially to total approximately $1.35 million per year.

53



The pro forma financial statements do not reflect this anticipated incremental general and administrative expense.

        The unaudited pro forma financial statements, upon which pro forma cash available for distribution is based, do not purport to present our results of operations had the transactions contemplated in this prospectus actually been completed as of the dates indicated. In addition, cash available for distribution is a cash accounting concept, while our unaudited pro forma financial statements have been prepared on an accrual basis. We derived the amounts of pro forma cash available for distribution in the manner described in the table below. As a result, the amount of pro forma cash available for distribution should only be viewed as a general indication of the amount of cash available for distribution that we might have generated had we been formed in earlier periods.

        The following table illustrates, on a pro forma basis, for the year ended June 30, 2007, and the twelve months ended December 31, 2007, the amount of available cash that would have been available for distributions to our unitholders, assuming that this offering had been consummated on July 1, 2006. Each of the pro forma adjustments presented below is explained in the footnotes to such adjustments. Because we have no separate operating activities apart from those conducted by KSP, all items in the table used to derive "Pro Forma Available Cash to Pay Distributions to KSP Unitholders" relate to the operations of KSP.


K-Sea GP Holdings LP
Unaudited Pro Forma Available Cash

 
  Year Ended
June 30, 2007

  Twelve Months
Ended
December 31, 2007

 
 
  (in thousands)

 
Pro Forma Operating Income(a)   $ 48,334   $ 52,525  
Plus:              
  Depreciation and amortization     45,027     45,191  
  Loss on reduction of debt     (359 )   (359 )
  Other (expense) income, net     25     2,887  
   
 
 

Pro Forma Adjusted EBITDA(b)

 

$

93,027

 

$

100,244

 
Less:              
  Interest expense, net(c)     (20,145 )   (21,048 )
  Estimated maintenance capital expenditures(d)     (20,600 )   (22,500 )
   
 
 
Pro Forma Available Cash to Pay Distributions to KSP unitholders   $ 52,282   $ 56,696  

Less Pro Forma KSP Distributions(e)

 

 

 

 

 

 

 
  Distributions to KSP's public unitholders other than K-Sea GP Holdings LP   $ 28,202   $ 28,263  
  Distributions to K-Sea GP Holdings LP     15,511     15,511  
   
 
 
    Total pro forma KSP distributions     43,713     43,774  
   
 
 
Excess of KSP pro forma available cash over pro forma KSP distributions   $ 8,569   $ 12,922  
   
 
 

Pro Forma KSP Cash Distributions Received by K-Sea GP Holdings LP

 

$

15,511

 

$

15,511

 
  Less incremental general and administrative expenses(f)     1,350     1,350  
   
 
 

Pro Forma Available Cash of K-Sea GP Holdings LP

 

$

14,161

 

$

14,161

 
   
 
 

54



Expected Cash Distributions by K-Sea GP Holdings LP(g):

 

 

 

 

 

 

 
  Expected annual distribution per unit              
  Distributions to our public common unitholders              
  Distributions to common units held by the contributing parties              

Total distributions paid to our unitholders

 

 

 

 

 

 

 

(a)
Includes $17,888 and $11,495 of pro forma operating income for the Smith Maritime Group for the years ended June 30, 2007 and December 31, 2007, respectively.

(b)
We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization and non-controlling interest. For more information, please read "Prospectus Summary—Non-GAAP Financial Measures."

(c)
Reflects the pro forma adjustment to interest expense as if the repayment of EW LLC's indebtedness with cash proceeds from the sale of our common units in connection with this offering had occurred at the beginning of the period.

(d)
KSP defines maintenance capital expenditures as capital expenditures required to maintain, over the long term, the operating capacity of its fleet, and expansion capital expenditures as those capital expenditures that increase, over the long term, the operating capacity of its fleet. Examples of maintenance capital expenditures include costs related to drydocking a vessel, retrofitting an existing vessel or acquiring a new vessel to the extent such expenditures maintain the operating capacity of KSP's fleet. Capital expenditures associated with retrofitting an existing vessel, or acquiring a new vessel, which increase the operating capacity of KSP's fleet over the long term whether through increasing KSP's aggregate barrel-carrying capacity, improving the operational performance of a vessel or otherwise, are classified as expansion capital expenditures. Drydocking expenditures are more extensive in nature than normal routine maintenance and, therefore, are capitalized and amortized over three years.

(e)
Reflects KSP distributions paid on February 14, 2008 at a rate of $0.74 per unit, or $2.96 per unit on an annualized basis.

(f)
Represents estimated incremental general and administrative expenses associated with being a publicly traded limited partnership, including, among other things, costs associated with annual and quarterly reports to unitholders, tax return and Schedule K-1 preparation and distribution, investor relations, registrar and transfer agent fees, director compensation and incremental insurance costs, including director and officer liability insurance. For information on our administrative services agreement with KTI, a subsidiary of KSP, please read "Certain Relationships and Related Transactions—Administrative Agreement."

(g)
The table below sets forth the assumed number of outstanding common units upon the closing of this offering, and the estimated per unit and aggregate distribution amounts payable on such units during the year following the closing of this offering at our initial distribution rate.

 
   
  Distributions
 
  Number of
Common Units

  Per Unit
  Aggregate
Estimated distributions on publicly held common units            
Estimated distributions on common units held by the contributing parties            
Total            

55


Estimated Minimum Cash Available to Pay Distributions

        In order for us to pay our quarterly cash distribution to our common unitholders at our initial distribution rate of $            per unit per quarter, we estimate that KSP's EBITDA for the twelve months ending March 31, 2009 must be at least $91.6 million. We refer to this amount as "KSP's Estimated Minimum EBITDA." We define KSP's EBITDA as earnings before interest, taxes, depreciation and amortization.

        KSP's EBITDA should not be considered an alternative to net income, income before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP as these items are used to measure operating performance, liquidity or ability to service debt obligations.

        Our estimate of $91.6 million for KSP's Estimated Minimum EBITDA for the twelve months ending March 31, 2009 is intended to be an indicator or benchmark of the amount management considers to be the lowest amount of KSP's EBITDA needed to generate sufficient distributions from KSP and available cash to permit us to make cash distributions to our unitholders at our initial quarterly distribution of $            per unit (or $            per unit on an annualized basis). Our estimate of KSP's Estimated Minimum EBITDA should not be viewed as management's projection of actual operating earnings or cash generation of KSP.

        We believe that our partnership interests in KSP will generate sufficient cash flow to enable us to pay our initial quarterly distribution of $            per unit on all of our outstanding common units for the four quarters ending March 31, 2009. You should read "—Assumptions and Considerations" and the footnotes to the table below for a discussion of the material assumptions underlying this belief, which reflects our judgment of conditions we expect to exist and the course of action we expect to take. While we believe that these assumptions are reasonable in light of our current expectations regarding future events, the assumptions underlying KSP's Estimated Minimum EBITDA are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those we anticipate. If any of our assumptions are not realized, the actual available cash that we generate could be substantially less than that currently expected and, therefore, could be insufficient to permit us to make distributions on our common units at the initial quarterly distribution, or at any level, in which event the market price of the common units may decline materially.

        Consequently, the statement that we believe that we will have sufficient available cash to pay the initial quarterly distribution on our common units for the four consecutive quarters ending March 31, 2009 should not be regarded as a representation by us or the underwriters or any other person that we will declare and make such a distribution.

        We have also determined that if KSP's EBITDA for such period is at or above our estimate, KSP would be permitted under its debt agreements to pay sufficient cash distributions to us to enable us to make distributions to our unitholders at the initial distribution rate of $            per unit per quarter.

        The accompanying prospective information was prepared in accordance with KSP's and our accounting policies; however, it was not prepared with a view toward compliance with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In the view of our management, the prospective financial information has been prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management's knowledge and belief, the assumptions on which we base our belief that KSP can generate the estimated minimum EBITDA necessary for us to have sufficient cash available for distribution to pay the initial quarterly distribution to all of our common unitholders. This information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on the prospective financial information.

56


        The prospective financial information included in this prospectus has been prepared by, and is the responsibility of, our management. PricewaterhouseCoopers LLP has neither examined nor compiled the accompanying prospective financial information and accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP reports included in this prospectus relate to our historical information. Such reports do not extend to the prospective financial information and should not be read to do so.

        When reading this section, you should keep in mind the risk factors and other cautionary statements under the heading "Risk Factors" in this prospectus. Any of these factors or the other risks discussed in this prospectus could cause our financial condition and consolidated results of operations to vary significantly from those set forth below.

        We do not undertake any obligation to release publicly the results of any future revisions we may make to the estimated cash available for distribution or to update our estimate to reflect events or circumstances after the date of this prospectus. Therefore, you are cautioned not to place undue reliance on this information.

57



K-Sea GP Holdings LP
Estimated Minimum Cash Available to Pay Distributions
based on KSP's Estimated Minimum EBITDA

 
  Twelve Months
Ending
March 31, 2009

 
 
  (in thousands)

 
KSP's Estimated Minimum EBITDA   $ 91,597  
Less:        
  Interest expense, net     (22,823 )
  Estimated maintenance capital expenditures(a)     (25,000 )
   
 
Estimated Minimum Cash Available to Pay Distributions to All KSP Unitholders   $ 43,774  
   
 

Estimated KSP Distributions(b)

 

 

 

 
  Distributions to KSP's public unitholders other than K-Sea GP Holdings LP   $ 28,263  
  Distributions to K-Sea GP Holding LP     15,511  
   
 
    $ 43,774  
   
 

Estimated Minimum KSP Cash Distributions Received by K-Sea GP Holdings LP

 

$

15,511

 
  Less incremental general and administration expenses     1,350  
   
 
Estimated Minimum Cash Available to Pay Distributions by K-Sea GP Holdings LP   $ 14,161  
   
 

Expected Cash Distributions by K-Sea GP Holdings LP(c)

 

 

 

 
  Expected annual cash distribution per unit        
  Distributions to our public common unitholders        
  Distributions to common units held by the contributing parties        
 
Total distributions paid to our unitholders

 

$

 

 

(a)
Represents estimated maintenance capital expenditures to maintain the operating capacity of KSP's fleet.

(b)
Reflects KSP cash distributions paid on February 14, 2008 at a rate of $0.74 per unit, or $2.96 per unit on an annualized basis.

(c)
The table below sets forth the assumed number of common units we will have outstanding upon the closing of this offering, and the estimated per unit and aggregate distribution amounts payable on such units during the year following the closing of this offering at our initial distribution rate.

 
   
  Distributions
 
  Number of
Common Units

 
  Per Unit
  Aggregate
Estimated distributions on publicly held common units       $     $  
Estimated distributions on common units held by the contributing parties                
   
 
 
Total       $     $  
   
 
 

Assumptions and Considerations

        We believe that our partnership interests in KSP, including our incentive distribution rights, will generate sufficient cash flow to enable us to pay our initial quarterly distribution of $    per unit on all

58



of our outstanding units for the four quarters ending March 31, 2009. Our belief is based on a number of current assumptions that we believe to be reasonable over the next four quarters. While we believe that these assumptions are generally consistent with the actual performance of KSP and are reasonable in light of our current beliefs concerning future events, the assumptions are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those we anticipate. Consequently, the statement that we believe that we will have sufficient available cash to pay the initial quarterly distribution on our units for each quarter through March 31, 2009 should not be regarded as a representation by us or the underwriters or any other person that we will make such a distribution. When reading this section, you should keep in mind the risk factors and other cautionary statements under the heading "Risk Factors" in this prospectus.

        We base our Estimated Minimum Cash Available to Pay Distributions on the following significant assumptions:

    KSP will pay a quarterly cash distribution of $0.74 per KSP limited partner unit for each of the four quarters in the four-quarter period ending March 31, 2009, which quarterly distribution amount reflects the most recently paid cash distribution of $0.74 per KSP limited partner unit for the quarter ended December 31, 2007. As a result, we estimate that the amount of cash distributions that we will receive from KSP will be equal to $15.5 million in the aggregate during this period, including the distributions we will receive on our 1.5% general partner interest.

    KSP will not issue additional units during the twelve months ending March 31, 2009.

    KSP will generate total revenues of at least $301.3 million for the twelve months ending March 31, 2009 as compared to $305.9 million for the twelve months ended December 31, 2007 on a pro forma basis to reflect the acquisition of the Smith Maritime Group. This amount reflects the minimum amount of KSP revenue that would be necessary to generate KSP's Estimated Minimum EBITDA, and result in payment by us of our initial quarterly distribution of $            for the four quarters ending March 31, 2009.

    KSP's allowance for estimated maintenance capital expenditures will not exceed $25.0 million for the twelve months ending March 31, 2009, as compared to $22.5 million for the twelve months ended December 31, 2007 on a pro forma basis to reflect the acquisition of the Smith Maritime Group.

    Our incremental general and administrative expenses associated with being a publicly traded limited partnership will not exceed $1.35 million for the twelve months ending March 31, 2009.

    KSP will remain in compliance with the financial covenants in its existing and future debt agreements and its ability to pay distributions to us will not be encumbered.

    There will not be any new federal, state or local regulation of portions of the shipping industry in which KSP operates, or an interpretation of existing regulations, that will be materially adverse to our or KSP's business.

    Market, regulatory, insurance and overall economic conditions will not change substantially.

    There will be no material adverse change in KSP's business, operations, properties or prospects.

59



HOW WE MAKE CASH DISTRIBUTIONS

        Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash distributions.

General

        Our partnership agreement requires that, within 55 days after the end of each quarter beginning with the quarter ending June 30, 2008, we distribute all of our available cash to the holders of record of our common units on the applicable record date.

Definition of Available Cash

        Available cash is defined in our partnership agreement and generally means, with respect to any calendar quarter, all cash on hand at the date of determination of available cash for the distribution in respect of such quarter less the amount of cash reserves necessary or appropriate, as determined in good faith by our general partner, to:

    satisfy general, administrative and other expenses and any debt service requirements;

    permit KSP GP to make capital contributions to KSP to maintain its 1.5% general partner interest upon the issuance of partnership securities by KSP;

    comply with applicable law or any debt instrument or other agreement;

    provide funds for distributions to unitholders and our general partner in respect of any one or more of the next four quarters; and

    otherwise provide for the proper conduct of our business.

Units Eligible for Distribution

        As of the closing of this offering, we will have                        common units outstanding. Each common unit will be allocated a portion of our income, gain, loss, deduction and credit on a pro rata basis, and each unit will be entitled to receive distributions (including upon liquidation) in the same manner as each other unit.

General Partner Interest

        Our general partner owns a non-economic, general partner interest in us, which does not entitle it to receive cash distributions. However, our general partner may own common units or other equity securities in us and is entitled to receive cash distributions on any such interests.

Adjustments to Capital Accounts

        We will make adjustments to capital accounts upon the issuance of additional units. In doing so, we will allocate any unrealized and, for tax purposes, unrecognized gain or loss resulting from the adjustments to the unitholders and the general partner in the same manner as we allocate gain or loss upon liquidation. In the event that we make positive adjustments to the capital accounts upon the issuance of additional units, we will allocate any later negative adjustments to the capital accounts resulting from the issuance of additional units or upon our liquidation in a manner which results, to the extent possible, in the general partner's capital account balances equaling the amount which they would have been if no earlier positive adjustments to the capital accounts had been made.

Distributions of Cash Upon Liquidation

        If we dissolve in accordance with the partnership agreement, we will sell or otherwise dispose of our assets in a process called a liquidation. We will first apply the proceeds of liquidation to the

60



payment of our creditors in the order of priority provided in the partnership agreement and by law and, thereafter, we will distribute any remaining proceeds to the unitholders and our general partner in accordance with their respective capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.

Our Sources of Distributable Cash

        Our only cash-generating assets consist of our partnership interests in KSP. Therefore, our cash flow and resulting ability to make cash distributions will be completely dependent upon the ability of KSP to make cash distributions in respect of those partnership interests. The actual amount of cash that KSP will have available for distribution will primarily depend on the amount of cash it generates from its operations. The actual amount of this cash will fluctuate from quarter to quarter based on certain factors, including:

    fluctuations in cash flow generated by KSP's operating activities;

    the level of capital expenditures KSP makes;

    the availability, if any, and cost of acquisitions;

    debt service requirements;

    fluctuations in working capital needs;

    restrictions on distributions contained in KSP's credit facility and any future debt agreements;

    KSP's ability to borrow under its revolving credit agreement to make distributions;

    prevailing economic conditions; and

    the amount, if any, of cash reserves established by KSP GP in its discretion for the proper conduct of KSP's business.

Our Partnership Interests in KSP

        All of our cash flows are generated from the cash distributions we receive with respect to the partnership interests we own in KSP, which upon completion of this offering and the application of the proceeds from this offering to purchase our common units as described in "Use of Proceeds," will initially consist of the following:

    100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;

    4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and

    all of the 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

Distributions by KSP of Available Cash from Operating Surplus

        Our right to receive distributions in respect of the common units of KSP that we own is contained in KSP's partnership agreement. KSP's partnership agreement provides that distributions of available cash from operating surplus for any quarter will be made in the following manner:

    first, 98.5% to all unitholders of KSP, pro rata, and 1.5% to KSP's general partner until KSP distributes for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter;

    second, 98.5% to the unitholders of KSP, pro rata, and 1.5% to the general partner until KSP distributes for each outstanding unit of KSP an amount equal to any arrearages in payment of the minimum quarterly distribution on the units of KSP for any prior quarters after the closing of this offering;

61


    thereafter, in the manner described in "—KSP Incentive Distribution Rights" below.

KSP Incentive Distribution Rights

        Our right to receive incentive distributions is contained in KSP's partnership agreement, which provides that if a quarterly cash distribution to KSP's limited partner units exceeds a target of $0.50 per limited partner unit and KSP has distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution of $0.50 per common unit, then KSP will distribute any additional available cash from operating surplus for that quarter among the unitholders and us, in the following manner:

    (1)
    first, 98.5% to all unitholders, and 1.5% to KSP's general partner, until each unitholder has received a total of $0.55 per unit for that quarter (the "first target distribution");

    (2)
    second 85.5% to all unitholders, and 14.5% to KSP's general partner, until each unitholder has received a total of $0.625 per unit for that quarter (the "second target distribution");

    (3)
    third, 75.5% to all unitholders, and 24.5% to KSP's general partner, until each unitholder has received a total of $0.75 per unit for that quarter (the "third target distribution"); and

    (4)
    thereafter, 50.5% to all unitholders and 49.5% to KSP's general partner.

Allocations of Distributions to Our Unitholders and KSP Unitholders

        The table set forth below illustrates the percentage allocations among (1) the owners of KSP, other than us, and (2) us as a result of certain assumed quarterly distribution payments per unit made by KSP, including the target distribution levels contained in KSP's partnership agreement. This information assumes:

    KSP has a total of 13,713,450 limited partner units outstanding, consisting of 11,630,950 common units and 2,082,500 subordinated units; and

    our ownership of:

    100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;

    4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and

    a 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

        The percentage interests shown for us and the other KSP unitholders for the minimum quarterly distribution amount are also applicable to distribution amounts that are less than the minimum quarterly distribution. The amounts presented below are intended to be illustrative of the way in which we are entitled to an increasing share of distributions from KSP as total distributions from KSP increase, and are not intended to represent a prediction of future performance.

Distribution Level

  KSP
Quarterly
Distribution Per
Unit

  Distributions to Owners of
KSP Other Than Us as a
Percentage of Total
Distributions

  Distribution to K-Sea
General Partner GP LLC
as a Percentage of
Total Distributions(1)

 
Minimum Quarterly Distribution   $ 0.50   68.6 % 31.4 %
First Target Distribution   $ 0.55   68.6 % 31.4 %
Second Target Distribution   $ 0.625   67.4 % 32.6 %
Third Target Distribution   $ 0.75   64.4 % 35.6 %
Other Hypothetical Distributions   $ 0.875   57.6 % 42.4 %

(1)
Includes distributions with respect to our ownership of the 1.5% general partner interest in KSP and our ownership of the incentive distribution rights.

62



SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

        We were formed in December 2007. The ownership interests of KSP GP and EW LLC will be transferred to us in connection with this offering, and there will be no substantive change in the control of these entities as a result of the transaction. Therefore, our historical consolidated financial information as of and for the years ended June 30, 2005, 2006 and 2007, and as of December 31, 2007 and for the six months ended December 31, 2006 and 2007, represents the combined financial information of KSP GP, the General Partner and EW LLC based on their carrying amounts. We refer to these combined entities as K-Sea GP Holdings LP Predecessor.

        We have no separate operating activities apart from those conducted by KSP, and our cash flows consist solely of distributions from KSP on the partnership interests, including the incentive distribution rights, that we own. Accordingly, the selected historical financial data set forth in the following table primarily reflect the operating activities and results of operations of KSP. The limited partner interests in KSP not owned by our affiliates are reflected as non-controlling interest on our balance sheet and the non-affiliated partners' share of income from KSP is reflected as non-controlling interest in our results of operations.

        The selected historical statements of income and cash flow data for the fiscal years ended June 30, 2003 and 2004, and the balance sheet data as of June 30, 2003, 2004 and 2005 and December 31, 2006 are derived from the historical books and records of K-Sea GP Holdings LP Predecessor. The selected historical statements of income and cash flow data for the fiscal years ended June 30, 2005, 2006 and 2007 and the balance sheet data as of June 30, 2006 and 2007 are derived from the audited financial statements of K-Sea GP Holdings LP Predecessor included elsewhere in this prospectus. The selected historical statements of income and cash flow data for the six months ended December 31, 2006 and 2007 and the balance sheet data as of December 31, 2006 and 2007 are derived from the unaudited financial statements of K-Sea GP Holdings LP Predecessor included elsewhere in this prospectus.

        The selected pro forma financial data presented for the fiscal year ended June 30, 2007 and as of and for the six months ended December 31, 2007 reflects our historical operating results as adjusted to give pro forma effect to the following transactions, as if such transactions had occurred on July 1, 2006 for income statement data and December 31, 2007 for the balance sheet data:

    the August 2007 acquisition by KSP of the Smith Maritime Group;

    the sale by KSP of 3,500,000 KSP common units in September 2007;

    the transactions contemplated by the contribution agreement described in this prospectus under the caption "Certain Relationships and Related Transactions—Contribution Agreement"; and

    the sale of            common units in this offering and application of the net proceeds from this offering, as described in "Use of Proceeds."

        We derived the data in the following table from, and it should be read together with and is qualified in its entirety by reference to, the historical financial statements referenced above and our unaudited pro forma financial statements and the accompanying notes included elsewhere in this prospectus. The table should also be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        For a description of all of the assumptions used in preparing the unaudited pro forma financial statements, you should read the notes to the unaudited pro forma financial statements. The pro forma financial data should not be considered as indicative of the historical results we would have had or the results that we will have after this offering.

        The following table presents two financial measures, net voyage revenue and Adjusted EBITDA, which we use in our business. These financial measures are not calculated or presented in accordance

63



with generally accepted accounting principles, or GAAP. We explain these measures below and reconcile them to their most directly comparable financial measures calculated and presented in accordance with GAAP in "Prospectus Summary—Non-GAAP Financial Measures."

 
  K-Sea GP Holdings LP Predecessor
  Pro Forma
K-Sea GP Holdings LP(8)

 
  Years Ended June 30,
  Six Months Ended
December 31,

  Year Ended
June 30,

  Six
Months
Ended
December 31,

 
  2003
  2004
  2005
  2006
  2007
  2006
  2007
  2007
  2007
 
  (in thousands, except per unit and operating data)

Income Statement Data:                                                  
Voyage revenue   $ 83,942   $ 93,899   $ 118,811   $ 176,650   $ 216,924   $ 105,668   $ 149,361        
Bareboat charter and other
revenue
    3,753     1,900     2,587     6,118     9,650     5,273     6,076        
   
 
 
 
 
 
 
       
Total revenues     87,695     95,799     121,398     182,768     226,574     110,941     155,437        
   
 
 
 
 
 
 
       
Voyage expenses     14,151     16,339     24,220     37,973     45,875     22,046     35,375        
Vessel operating expenses     36,326     38,937     49,550     77,367     96,005     47,761     59,891        
General and administrative
expenses
    7,047     8,509     11,365     17,473     20,731     10,118     13,902        
Depreciation and amortization     16,293     18,758     21,420     26,810     33,415     15,812     20,765        
Net (gain) loss on sale of
vessels
    (275 )   255     (281 )   (313 )   102     (16 )   (300 )      
   
 
 
 
 
 
 
       
Total operating expenses     73,542     82,798     106,274     159,310     196,128     95,721     129,633        
   
 
 
 
 
 
 
       
Operating income     14,153     13,001     15,124     23,458     30,446     15,220     25,804        
Interest expense, net     8,808     6,917     7,178     11,739     15,598     7,585     11,665        
Net loss on reduction of debt(1)     4     3,158     1,359     7,224     359     0     0        
Other (income) expense, net     29     (414 )   (239 )   (338 )   (301 )   (145 )   (2,301 )      
   
 
 
 
 
 
 
       
Income before provision for income taxes     5,312     3,340     6,826     4,833     14,790     7,780     16,440        
Provision for income taxes(2)     340     1,768     430     801     1,105     662     765        
   
 
 
 
 
 
 
       
Income before non-controlling interests     4,972     1,572     6,396     4,032     13,685     7,118     15,675        
Non-controlling interests         900     4,006     3,276     9,235     4,573     10,308        
   
 
 
 
 
 
 
       
Net income   $ 4,972   $ 672   $ 2,390   $ 756   $ 4,450   $ 2,545   $ 5,367        
Net income per unit—basic                                                  
                                    —diluted                                                  

Balance Sheet Data (at year end):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Vessels and equipment, net     145,520     194,550     235,490     316,237     358,580     326,910     542,604        
Total assets     178,328     230,327     274,378     383,607     430,498     399,989     692,647        
Total debt     114,003     92,036     125,630     210,008     259,787     229,404     365,467        
Partners' capital/members'
equity
    41,290     31,254     26,666     14,787     9,889     12,963     7,358        

Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net cash provided by (used in):                                                  
Operating activities   $ 13,235   $ 7,644   $ 13,597   $ 6,525   $ 24,561   $ 14,612   $ 15,534        
Investing activities     (240 )   (59,045 )   (54,946 )   (105,225 )   (63,579 )   (29,338 )   (212,172 )      
Financing activities     (12,984 )   52,086     40,780     99,381     39,116     14,522     197,462        

Other Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Net voyage revenue(3)   $ 69,791   $ 77,560   $ 94,591   $ 138,677   $ 171,049   $ 83,622   $ 113,986        
Adjusted EBITDA(3)(4)   $ 30,413   $ 29,015   $ 35,424   $ 43,382   $ 63,803   $ 31,177   $ 48,870        

Capital expenditures(5):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Maintenance   $ 8,389   $ 7,957   $ 8,024   $ 13,753   $ 20,337   $ 14,546   $ 10,171        
  Expansion (including vessel and company acquisitions)     7,814     52,747     39,337     98,073     25,960     8,966     188,998        
   
 
 
 
 
 
 
       
    Total   $ 16,203   $ 60,704   $ 47,361   $ 111,826   $ 46,297   $ 23,512   $ 199,169        
   
 
 
 
 
 
 
       
Construction of tank vessels   $ 18,703   $ 16,512   $ 16,816   $ 20,702   $ 33,315   $ 14,688   $ 22,057        
   
 
 
 
 
 
 
       

64



Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Number of tank barges (at period end)     35     34     44     61     60     61     73        
Number of tankers (at period end)     3     2     2     2     1     2     1        
Number of tugboats (at period
end)
    18     19     25     41     44     44     58        
Total barrel-carrying capacity (in thousands at period end)     2,309     2,410     2,561     3,357     3,464     3,382     4,334        
Net utilization(6)     87 %   86 %   85 %   83 %   85 %   86 %   86 %      
Average daily rate(7)   $ 7,468   $ 8,095   $ 8,734   $ 9,245   $ 10,097   $ 9,780   $ 11,072        

(1)
Fiscal 2005, fiscal 2006 and fiscal 2007 include losses of $1.4 million, $7.2 million and $0.4 million, respectively, in connection with the restructuring of KSP's revolving credit facility and repayment of certain term loans, including KSP's Title XI debt in fiscal 2006. On a pro forma basis, fiscal 2007 includes a $0.4 million loss on the repayment of a term loan of EW LLC. Fiscal 2004 includes a $3.2 million loss on prepayment of certain EW LLC debt using proceeds of KSP's initial public offering.

(2)
Fiscal 2004 includes a non cash tax benefit of $17.6 million solely attributable to a reduction in deferred taxes resulting from the change in income tax status of the assets and liabilities constituting the business of EW LLC that were transferred to KSP at the date of the initial public offering.

(3)
Please read "Prospectus Summary—Non-GAAP Financial Measures."

(4)
Adjusted EBITDA has been reduced by net losses on reduction of debt of $3.2 million, $1.4 million, $7.2 million and $0.4 million, for the years ended June 30, 2004, 2005, 2006 and 2007, respectively, and by $0.4 million on a pro forma basis for the year ended June 30, 2007.

(5)
KSP defines maintenance capital expenditures as capital expenditures required to maintain, over the long term, the operating capacity of its fleet, and expansion capital expenditures as those capital expenditures that increase, over the long term, the operating capacity of its fleet. Examples of maintenance capital expenditures include costs related to drydocking a vessel, retrofitting an existing vessel or acquiring a new vessel to the extent such expenditures maintain the operating capacity of our fleet. Expenditures made in connection with our tank vessel newbuilding program were considered maintenance capital expenditures as they were made to replace capacity scheduled to phase out under OPA 90; however, because they were non-routine in nature they are included separately in the above table under "Construction of tank vessels." Generally, expenditures for construction of tank vessels in progress are not included as capital expenditures until such vessels are completed. Capital expenditures associated with retrofitting an existing vessel, or acquiring a new vessel, which increase the operating capacity of KSP's fleet over the long term whether through increasing KSP's aggregate barrel-carrying capacity, improving the operational performance of a vessel or otherwise, are classified as expansion capital expenditures. Drydocking expenditures are more extensive in nature than normal routine maintenance and, therefore, are capitalized and amortized over three years. For more information regarding the accounting treatment of drydocking expenditures, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Amortization of Drydocking Expenditures" appearing elsewhere in this prospectus.

(6)
"Net utilization" is a percentage equal to the total number of days actually worked by a tank vessel or group of tank vessels during a defined period, divided by the number of calendar days in the period multiplied by the total number of tank vessels operating or in drydock during that period.

(7)
"Average daily rate" equals the net voyage revenue earned by a tank vessel or group of tank vessels during a defined period, divided by the total number of days actually worked by that tank vessel or group of tank vessels during that period.

(8)
Please read our unaudited pro forma combined financial statements and related notes elsewhere in this prospectus.

65



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following is a discussion of our historical consolidated financial condition and results of operations and should be read in conjunction with the historical and pro forma combined financial statements of K-Sea GP Holdings LP Predecessor and the unaudited pro forma consolidated financial statements of K-Sea GP Holdings LP included elsewhere in this prospectus. Among other things, the historical and pro forma financial statements include more detailed information regarding the basis of presentation for the following discussion. We have no independent operating activities apart from those conducted by KSP and, accordingly, the overview of our operations primarily reflects the operating activities of KSP. In addition, you should read "Forward-Looking Statements" and "Risk Factors" for information regarding certain risks inherent in our and KSP's business. In the following discussion, "we," "our" and "us" refers to K-Sea GP Holdings LP or its predecessors, and "KSP" refers to K-Sea Transportation Partners L.P. and its consolidated subsidiaries.

Overview of Our Business

        General.    Our only cash generating assets consist of our partnership interests in KSP, which, upon completion of this offering, will initially consist of the following:

    100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;

    4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and

    a 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

        At KSP's current annualized cash distribution rate of $2.96 per common unit, or $0.74 per common unit per quarter, aggregate annual cash distributions to us on all of our interests in KSP would be approximately $15.5 million, representing approximately 35% of the total cash distributed by KSP for the quarter ended December 31, 2007. Based on KSP's current cash distribution and our expected ownership of KSP, we expect that our initial quarterly cash distribution to our unitholders will be $    per common unit, or $    per common unit on an annualized basis, to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses. Please read "Our Cash Distribution Policy and Restrictions on Distributions."

        Our primary business objective is to increase our cash distributions to our unitholders through our oversight of KSP. KSP's primary business objective is to increase distributable cash flow per unit by:

    expanding its fleet through newbuildings and accretive and strategic acquisitions;

    maximizing fleet utilization and improve productivity;

    maintaining safe, low-cost and efficient operations;

    balancing its fleet deployment between longer-term contracts and shorter-term business in an effort to provide stable cash flows through business cycles, while preserving flexibility to respond to changing market conditions; and

    attracting and maintaining customers by adhering to high standards of performance, reliability and safety.

        All of our cash flows are generated from the cash distributions we receive with respect to the KSP partnership interests we own. KSP is required by its partnership agreement to distribute, and it has historically distributed within 45 days of the end of each quarter, all of its cash on hand at the end of each quarter, less cash reserves established by its general partner in its sole discretion to provide for the proper conduct of KSP's business or to provide for future distributions. While we, like KSP, are

66


structured as a limited partnership, our capital structure and cash distribution policy differ materially from those of KSP. Most notably, our general partner does not have an economic interest in us and is not entitled to receive any distributions from us, and our capital structure does not include incentive distribution rights. Therefore, our distributions are allocated exclusively to our common units, which is our only class of security currently outstanding. Further, unlike KSP, we do not have subordinated units, and, as a result, our common units carry no right to arrearages.

        Our ownership of 100% of the incentive distribution rights in KSP entitles us to receive increasing percentages of its incremental cash distributed in excess of $0.55 per KSP limited partner unit in any quarter. The following table illustrates the percentage allocations of distributions among the owners of KSP, including us, at the target distribution levels contained in KSP's partnership agreement.

 
  Marginal Percentage Interest in Distributions
 
   
  General Partner
KSP Quarterly Distribution Per Unit
  Limited Partner Units
  General Partner Units
  Incentive Distribution Rights
up to $0.55   98.5%   1.5%   0%
above $0.55 up to $0.625   85.5%   1.5%   13%
above $0.625 up to $0.75   75.5%   1.5%   23%
above $0.75   50.5%   1.5%   48%

        KSP has increased its quarterly cash distribution for the last 11 consecutive quarters, and 13 times since its initial public offering in 2004, from $0.50 per common unit ($2.00 on an annualized basis) to $0.74 per common unit ($2.96 on an annualized basis), which is the most recently paid distribution. KSP's distribution of $0.74 per limited partner unit for the quarter ended December 31, 2007 entitled us to receive incentive distributions equal to 23% of KSP's total cash distributions in excess of $0.625 per common unit, which, in addition to the distributions we receive in respect of our common units, subordinated units and general partner units, collectively represented 35% of the cash distributed by KSP in respect of that quarter.

        As KSP has increased the quarterly cash distribution paid on its units, the first three target cash distribution levels described above have been exceeded, thereby increasing the amounts paid by KSP to its general partner as the owner of KSP's incentive distribution rights. As a consequence, our cash distributions from KSP that are based on our ownership of the incentive distribution rights have increased more rapidly than distributions to us based on our other ownership of interests in KSP. Any increase in the quarterly cash distributions above $0.75 per unit from KSP would entitle us to receive 48% of such excess and would have the effect of disproportionately increasing the amount of all distributions that we receive from KSP based on our ownership interest in the incentive distribution rights in KSP.

        Financial Presentation.    We were formed in December 2007. The ownership interests of KSP GP and EW LLC are to be transferred to us in connection with this offering, and there will be no substantive change in the control of these entities as a result of the transaction. Therefore, our historical consolidated financial information as of and for the years ended June 30, 2005, 2006 and 2007, and as of December 31, 2007 and for the six months ended December 31, 2006 and 2007, represents the combined financial information of KSP GP and EW LLC based on their carrying amounts.

        We have no separate operating activities apart from those conducted by KSP, and our cash flows currently consist solely of distributions from KSP on the partnership interests, including the incentive distribution rights, that we own. Accordingly, the discussion of our financial position and results of operations in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" primarily reflects the operating activities and results of operations of KSP.

67


        Because our financial statements consolidate the results of KSP, our financial statements are substantially similar to KSP's. The primary differences between our and KSP's financial statements primarily include the following adjustments:

    Non-controlling interests.    Our consolidated balance sheet includes non-controlling interests that reflects the proportion of KSP owned by its partners other than us. Similarly, the ownership interests in KSP held by its partners other than us are reflected in our consolidated income statement as non-controlling interests in income of consolidated subsidiaries. These balance sheet and income statement categories are not reflected on KSP's financial statements.

    Our capital structure.    In addition to incorporating the assets and liabilities of KSP, the partners' capital on our balance sheet represents our partners' capital as opposed to the capital reflected on KSP's balance sheet, which reflects the ownership interests of all of its partners, including its owners other than us.

    Debt and interest expense.    Our long-term debt and interest expense includes financing activities of EW LLC, a predecessor company of KSP.

    Our general and administrative expenses.    We expect to incur $0.4 million of fees to KSP for general and administrative services and approximately $1.0 million of general and administrative expenses that are independent from KSP's operations and are not reflected in KSP's consolidated financial statements or in our pro forma financial statements.

Factors That Significantly Affect Our Results and KSP's Results

        Our only cash-generating assets consist of our partnership interests, including the incentive distribution rights, in KSP. Therefore, our cash flow and resulting ability to make distributions to our unitholders will be completely dependent on the ability of KSP to make distributions in respect of those partnership interests. The actual amount of cash that KSP will have available for distribution will primarily depend on the amount of cash it generates from its operations.

        In addition, the actual amount of cash that we and KSP will have available for distribution will depend on other factors, some of which are beyond our and its control, including:

    the level of capital expenditures;

    the cost of acquisitions, if any;

    debt service requirements;

    fluctuations in working capital needs;

    restrictions on distributions contained in debt agreements;

    prevailing economic conditions; and

    the amount of cash reserves established for the proper conduct of our and KSP's business.

        For a description of factors that may impact our results and KSP's results, please read "Forward-Looking Statements."

Overview of Operations

        As discussed above, after this offering, we will have no independent operating activities apart from those conducted by KSP. Accordingly, the overview of our operations primarily reflects the operating activities of KSP.

        KSP is a leading provider of marine transportation, distribution and logistics services for refined petroleum products in the United States. KSP currently operates a fleet of 73 tank barges, one tanker and 59 tugboats that serves a wide range of customers, including major oil companies, oil traders and

68



refiners. With approximately 4.3 million barrels of capacity, KSP believes it currently operates the largest coastwise tank barge fleet in the United States.

        On August 14, 2007, KSP completed the acquisition of all of the equity interests in the Smith Maritime Group. On a combined basis, the operations of these companies included 11 petroleum tank barges and 14 tugboats, aggregating 777,000 barrels of capacity, of which 669,000 barrels, or 86%, are double-hulled. The tank barges added by this acquisition represent a 22% increase in the barrel-carrying capacity of KSP's fleet to approximately 4.3 million barrels. Because the acquisition of the Smith Maritime Group was completed after June 30, 2007, the operations of the Smith Maritime Group are not included in KSP's fiscal 2007 results.

        Demand for KSP's services is driven primarily by demand for refined petroleum products in the areas in which KSP operates. KSP generates revenue by charging customers for the transportation and distribution of their products utilizing KSP's tank vessels and tugboats. These services are generally provided under the following four basic types of contractual relationships:

    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 per barrel rate;

    voyage charters, which are charters for shorter intervals, usually a single round-trip, that are made on either a current market rate or advance contractual basis; and

    bareboat charters, which are longer-term agreements that allow a customer to operate one of KSP's vessels and utilize its own operating staff without taking ownership of the vessel.

        In addition, a variation of a voyage charter is known as a "consecutive voyage charter." Under this arrangement, consecutive voyages are performed for a specified period of time.

        The table below illustrates the primary distinctions among these types of contracts:

 
  Time Charter
  Contract of
Affreightment

  Voyage Charter(1)
  Bareboat Charter
Typical contract length   One year or more   One year or more   Single voyage   Two years or more
Rate basis   Daily   Per barrel   Varies   Daily
Voyage expenses(2)   Customer pays   KSP pays   KSP pays   Customer pays
Vessel operating expenses(2)   KSP pays   KSP pays   KSP pays   KSP pays
Idle Time   Customer pays as long as vessel is available for operations   Customer does not pay   Customer does not pay   Customer pays

(1)
Under a consecutive voyage charter, the customer pays for idle time.

(2)
Please read "—Definitions" below.

        For contracts of affreightment and voyage charters, KSP recognizes revenue based upon the relative transit time in each period, with expenses recognized as incurred. Although contracts of affreightment and certain contracts for voyage charters may be effective for a period in excess of one year, KSP recognizes revenue over the transit time of individual voyages, which are generally less than ten days in duration. For time charters and bareboat charters, revenue is recognized ratably over the contract period, with expenses recognized as incurred.

        One of the principal distinctions among these types of contracts is whether the vessel operator or the customer pays for voyage expenses, which include fuel, port charges, pilot fees, tank cleaning costs and canal tolls. Some voyage expenses are fixed, and the remainder can be estimated. If KSP, as the vessel operator, pays the voyage expenses, KSP typically passes these expenses on to its customers by

69



charging higher rates under the contract or re-billing such expenses to them. As a result, although voyage revenue from different types of contracts may vary, the net revenue that remains after subtracting voyage expenses, which KSP calls net voyage revenue, is comparable across the different types of contracts. Therefore, KSP principally uses net voyage revenue, rather than voyage revenue, when comparing performance between different periods. Since net voyage revenue is a non-GAAP measurement, it is reconciled to the nearest GAAP measurement, voyage revenue, under "—Results of Operations" below.

Definitions

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

    Voyage revenue.    Voyage revenue includes revenue from time charters, contracts of affreightment and voyage charters, where KSP, as vessel operator, pays the vessel operating expenses. Voyage revenue is impacted by changes in charter and utilization rates and by the mix of business among the types of contracts described in the preceding sentence.

    Voyage expenses.    Voyage expenses include items such as fuel, port charges, pilot fees, tank cleaning costs and canal tolls, which are unique to a particular voyage. Depending on the form of contract and customer preference, voyage expenses may be paid directly by customers or by KSP. If KSP pays voyage expenses, they are included in KSP's results of operations when they are incurred. Typically when KSP pays voyage expenses, KSP adds them to its freight rates at an approximate cost.

    Net voyage revenue.    Net voyage revenue is equal to voyage revenue less voyage expenses. As explained above, the amount of voyage expenses incurred by KSP for a particular contract depends upon the form of the contract. Therefore, in comparing revenues between reporting periods, KSP uses net voyage revenue to improve the comparability of reported revenues that are generated by the different forms of contracts. Since net voyage revenue is a non-GAAP measurement, it is reconciled to the nearest GAAP measurement, voyage revenue, under "—Results of Operations" below.

    Bareboat charter and other revenue.    Bareboat charter and other revenue includes revenue from bareboat charters and from towing and other miscellaneous services.

    Vessel operating expenses.    The most significant direct vessel operating expenses are wages paid to vessel crews, routine maintenance and repairs and marine insurance. KSP may also incur outside towing expenses during periods of peak demand and in order to maintain its operating capacity while its tugs are drydocked or otherwise out of service for scheduled and unscheduled maintenance.

    Depreciation and amortization.    KSP incurs fixed charges related to the depreciation of the historical cost of KSP's fleet and the amortization of expenditures for drydockings. The aggregate number of drydockings undertaken in a given period, the size of the vessels and the nature of the work performed determine the level of drydocking expenditures. KSP capitalizes expenditures incurred for drydocking and amortize these expenditures over 36 months. KSP also amortizes, over periods ranging from 3 to 20 years, intangible assets in connection with vessel acquisitions.

    General and administrative expenses.    General and administrative expenses generally consist of KSP's employment costs of shoreside staff and the cost of facilities, as well as legal, audit, insurance and other administrative costs for us and KSP.

70


    Total tank vessel days.    Total tank vessel days is equal to the number of calendar days in the period multiplied by the total number of tank vessels operating or in drydock during that period.

    Scheduled drydocking days.    Scheduled drydocking days are days designated for the inspection and survey of tank vessels, and identification and completion of required refurbishment 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. Generally, drydockings are required twice every five years and last between 30 and 60 days, based upon the size of the vessel and the type and extent of work required.

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

    Average daily rate.    Average daily rate, another key measure of KSP's operating performance, is equal to the net voyage revenue earned by a tank vessel or group of tank vessels during a defined period, divided by the total number of days actually worked by that tank vessel or group of tank vessels during that period. Fluctuations in average daily rates result not only from changes in charter rates charged to KSP's customers, but also from changes in vessel utilization and efficiency, which could result from internal factors, such as newer and more efficient tank vessels, and from external factors such as weather or other delays.

    Coastwise and local trades.    KSP's business is segregated into coastwise trade and local trade. KSP's coastwise trade generally comprises voyages of between 200 and 1,000 miles by vessels with greater than 40,000 barrels of barrel-carrying capacity. These voyages originate from the mid-Atlantic states to points as far north as Canada and as far south as Cape Hatteras, from points within the Gulf Coast region to other points within that region or to the Northeast, to and from points on the West Coast of the United States and Alaska, and to and from points within the Hawaiian islands. KSP also owns two non-Jones Act tank barges that transport petroleum products internationally. KSP's local trade generally comprises voyages by smaller vessels of less than 200 miles. The term U.S. coastwise trade is an industry term used generally for Jones Act purposes, and would include both KSP's coastwise and local trades.

71


Results of Operations

        The following table summarizes our results of operations for the periods presented (dollars in thousands, except average daily rates):

 
  For the Years Ended June 30,
  Six Months Ended
December 31,

 
 
  2005
  2006
  2007
  2006
  2007
 
Voyage revenue   $ 118,811   $ 176,650   $ 216,924   $ 105,668   $ 149,361  
Bareboat charter and other revenue     2,587     6,118     9,650     5,273     6,076  
   
 
 
 
 
 
    Total revenues     121,398     182,768     226,574     110,941     155,437  
Voyage expenses     24,220     37,973     45,875     22,046     35,375  
Vessel operating expenses     49,550     77,367     96,005     47,761     59,891  
      % of voyage and vessel operating expenses to total revenues     60.8 %   63.1 %   62.6 %   62.9 %   61.3 %
General and administrative expenses     11,365     17,473     20,731     10,118     13,902  
      % of total revenues     9.4 %   9.6 %   9.1 %   9.1 %   8.9 %
Depreciation and amortization     21,420     26,810     33,415     15,812     20,765  
Net (gain) loss on sale of vessels     (281 )   (313 )   102     (16 )   (300 )
   
 
 
 
 
 
    Operating income     15,124     23,458     30,446     15,220     25,804  
      % of total revenues     12.5 %   12.8 %   13.4 %   13.7 %   16.6 %
Interest expense, net     7,178     11,739     15,598     7,585     11,665  
Net loss on reduction of debt     1,359     7,224     359          
Other (income) expense, net     (239 )   (338 )   (301 )   (145 )   (2,301 )
   
 
 
 
 
 
    Income before provision for income taxes     6,826     4,833     14,790     7,780     16,440  
Provision for income taxes     430     801     1,105     662     765  
   
 
 
 
 
 
    Income before non-controlling interests   $ 6,396   $ 4,032   $ 13,685   $ 7,118   $ 15,675  
Non-controlling interests     4,006     3,276     9,235     4,573     10,308  
   
 
 
 
 
 
    Net Income   $ 2,390   $ 756   $ 4,450   $ 2,545   $ 5,367  
   
 
 
 
 
 

Net voyage revenue by trade

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 
Coastwise

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Total tank vessel days     6,691     9,430     11,032     5,520     7,277  
    Days worked     6,035     8,467     9,954     5,064     6,549  
    Scheduled drydocking days     142     403     511     193     322  
    Net utilization     90 %   90 %   90 %   92 %   90 %
    Average daily rate   $ 11,369   $ 11,967   $ 12,375   $ 11,858   $ 13,497  
      Total coastwise net voyage revenue(a)   $ 68,610   $ 101,324   $ 123,182   $ 60,050   $ 88,394  
 
Local

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Total tank vessel days     6,084     8,537     8,864     4,426     4,763  
    Days worked     6,534     6,987     4,795     3,486     3,746  
    Scheduled drydocking days     263     317     232     114     39  
    Net utilization     79 %   77 %   79 %   79 %   79 %
    Average daily rate   $ 5,418   $ 5,717   $ 6,851   $ 6,762   $ 6,832  
      Total local net voyage revenue(a)   $ 25,981   $ 37,353   $ 47,867   $ 23,572   $ 25,592  
 
Tank vessel fleet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Total tank vessel days     12,775     17,967     19,896     9,946     12,040  
    Days worked     10,830     15,001     16,941     8,550     10,295  
    Scheduled drydocking days     405     720     743     307     361  
    Net utilization     85 %   83 %   85 %   86 %   86 %
    Average daily rate   $ 8,734   $ 9,245   $ 10,097   $ 9,780   $ 11,072  
      Total fleet net voyage revenue(a)   $ 94,591   $ 138,677   $ 171,049   $ 83,622   $ 113,986  

    (a)
    Net voyage revenue is a non-GAAP measure which is defined above under "—Definitions" and reconciled to Voyage revenue, the nearest GAAP measure, under "—Voyage Revenue and Voyage Expenses" in the period-to-period comparisons below.

72


Six Months Ended December 31, 2007 Compared to Six Months Ended December 31, 2006

    Voyage Revenue and Voyage Expenses

        KSP's voyage revenue was $149.4 million for the six months ended December 31, 2007, an increase of $43.7 million, or 41%, as compared to voyage revenue of $105.7 million for the six months ended December 31, 2006. Voyage expenses were $35.4 million for the six months ended December 31, 2007, an increase of $13.4 million, or 61%, as compared to voyage expenses of $22.0 million incurred for the six months ended December 31, 2006.

    Net Voyage Revenue

        KSP's net voyage revenue was $114.0 million for the six months ended December 31, 2007, which exceeded net voyage revenue of $83.6 million for the six months ended December 31, 2006 by $30.4 million, or 36%. In KSP's coastwise trade, net voyage revenue was $88.4 million for the six months ended December 31, 2007, an increase of $28.3 million, or 47%, as compared to $60.1 million in the six months ended December 31, 2006. The acquisition of the Smith Maritime Group in August 2007 resulted in increased coastwise net voyage revenue of $19.0 million. KSP's net voyage revenue increased by an additional $7.5 million due to an increase in the number of working days for (1) the DBL 104, which began operations in April 2007, (2) the DBL 151, which was in the shipyard for an extended stay in the prior fiscal period (3) the DBL 134, which was in shipyard being coupled with the Irish Sea in the prior fiscal period (4) the Columbia, which was purchased and placed in service in September 2007. Net utilization in KSP's coastwise trade was 90% for the six-month period ended December 31, 2007 as compared to 92% for the six month period ended December 31, 2006. Net utilization in KSP's coastwise trade decreased as a result of increased scheduled drydocking days and unscheduled repair days. Average daily rates in KSP's coastwise trade increased 14% to $13,497 for the six months ended December 31, 2007 from $11,858 for the six months ended December 31, 2006.

        KSP's net voyage revenue in our local trade for the six months ended December 31, 2007 increased by $2.0 million, or 8%, to $25.6 million from $23.6 million for the six months ended December 31, 2006. KSP's local net voyage revenue increased by $3.9 million during the six months ended December 31, 2007 due to the increased number of work days for the new-build barges DBL 27, DBL 22 and DBL 23, which were delivered in January 2007, June 2007 and September 2007, respectively. Net utilization in KSP's local trade was 79% for the six months ended December 31, 2007 and 2006. Average daily rates in KSP's local trade increased 1% to $6,832 for the six months ended December 31, 2007 from $6,762 for the comparative prior year.

    Bareboat Charter and Other Revenue

        KSP's bareboat charter and other revenue was $6.1 million for the six months ended December 31, 2007, compared to $5.3 million for the six months ended December 31, 2006. The Smith Maritime Group contributed $2.1 million of other revenue, and $0.3 million was contributed by a small lube oil operation purchased in the fall of 2006. This was partially offset by a $1.8 million decrease in chartering of tank barges to third parties.

    Vessel Operating Expenses

        KSP's vessel operating expenses were $59.9 million for the six months ended December 31, 2007 compared to $47.8 million for the six months ended December 31, 2006, an increase of $12.1 million. KSP's voyage and vessel operating expenses as a percentage of total revenues decreased to 61.3% for the six months ended December 31, 2007 from 62.9% for the six months ended December 31, 2006. This percentage has decreased as a result of the aggregate impact of the addition of newer, larger double hulled vessels, which produce a greater contribution margin, and our purchase of additional tugboats, which has reduced reliance on more expensive outside tug chartering. KSP's vessel labor and related costs increased $7.8 million as a result of contractual labor rate increases and a higher average number of employees due to the operation of the additional barges described under "—Net voyage

73


revenue" above. KSP's insurance costs and vessel repairs and supplies increased $4.7 million as a result of the operation of the larger number of vessels.

    Depreciation and Amortization

        KSP's depreciation and amortization was $20.8 million for the six months ended December 31, 2007, an increase of $5.0 million, or 32%, compared to $15.8 million for the six months ended December 31, 2006. The increase resulted from additional depreciation and drydocking amortization on KSP's newbuild and purchased vessels described above in addition to the acquisition of the Smith Maritime Group.

    General and Administrative Expenses

        KSP's general and administrative expenses were $13.6 million for the six months ended December 31, 2007, an increase of $3.5 million, as compared to general and administrative expenses of $10.1 million for the six months ended December 31, 2006. As a percentage of total revenues, KSP's general and administrative expenses decreased to 8.9% for the six months ended December 31, 2007 from 9.1% for the six months ended December 31, 2006. The $3.5 million increase is a result of increased personnel costs resulting from the Smith Maritime Group acquisition, additional increased headcount to support growth, and the additional facilities costs of new offices in Philadelphia, Hawaii, and Seattle.

    Interest Expense, Net

        KSP's net interest expense was $11.2 million for the six months ended December 31, 2007, or $4.5 million higher than the $6.7 million incurred in the six months ended December 31, 2006. The increase resulted from higher average debt balances resulting from increased credit line and term loan borrowings in connection with KSP's acquisitions and newbuild vessels. In addition, $1.1 million of interest expense was incurred for bridge financing in connection with the Smith Maritime Group acquisition.

        We also incurred $0.5 million and $0.8 million of interest expense for the six months ended December 31, 2007 and 2006, respectively, relating to term loans of EW LLC.

    Provision for Income Taxes

        Our interim provisions for income taxes are based on our estimated annual effective tax rate. For the six months ended December 31, 2007, our effective tax rate was 4.7% as compared to a rate of 8.5% for the six months ended December 31, 2006. Our effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on our operating partnerships, plus federal, state, local and foreign corporate income taxes on the income of our operating partnership's corporate subsidiaries. Our effective tax rate for the six months ended December 31, 2007 was lower than the comparable prior year period due to a smaller portion of our pre-tax income being attributable to our corporate subsidiaries compared to the six months ended December 31, 2006.

    Non-controlling interests

        Non-controlling interests increased by $5.7 million for the six months ended December 31, 2007 compared to the prior year, as a result of the increase in KSP's income.

    Net Income

        Net income was $5.6 million for the six months ended December 31, 2007, an increase of $3.1 million compared to net income of $2.5 million for the six months ended December 31, 2006. This increase resulted primarily from a $10.9 million increase in operating income and a $2.2 million increase in other income (expense), partially offset by a $4.1 million increase in interest expense, $5.7 million in non-controlling interest and a $0.1 million increase in provision for income taxes.

74


Fiscal Year Ended June 30, 2007 Compared to the Fiscal Year Ended June 30, 2006

    Voyage Revenue and Voyage Expenses

        KSP's voyage revenue was $216.9 million for the fiscal year ended June 30, 2007, an increase of $40.2 million, or 23%, as compared to voyage revenue of $176.7 million for the fiscal year ended June 30, 2006. KSP's voyage expenses were $45.9 million for the fiscal year ended June 30, 2007, an increase of $7.9 million, or 21%, as compared to voyage expenses of $38.0 million for the fiscal year ended June 30, 2006.

    Net Voyage Revenue

        KSP's net voyage revenue was $171.0 million for the fiscal year ended June 30, 2007, an increase of $32.3 million, or 23%, as compared to net voyage revenue of $138.7 million for the fiscal year ended June 30, 2006. In KSP's coastwise trade, net voyage revenue was $123.2 million for the fiscal year ended June 30, 2007, an increase of $21.9 million, or 22%, as compared to $101.3 million for the fiscal year ended June 30, 2006. Net utilization in KSP's coastwise trade remained constant at 90% for both the fiscal year ended June 30, 2007 and 2006. KSP's acquisition of Sea Coast Transportation LLC, or Sea Coast, in October 2005 resulted in increased coastwise net voyage revenue of $14.3 million for the fiscal year ended June 30, 2007, as compared to the fiscal year ended June 30, 2006. Increases totaling $7.6 million in KSP's coastwise net voyage revenue resulted from an increase in days worked by the following vessels: (1) the DBL 103, which was placed in service in January 2006, (2) the DBL 104, which was placed in service in April 2007, (3) the McCleary's Spirit, which was purchased in October 2005, and (4) the DBL 53, which commenced operations in June 2006 after being rebuilt. These increases were partially offset by a $1.0 million decrease in KSP's coastwise net voyage revenue resulting from the loss of the DBL 152 in a November 2005 barge incident. Average daily rates in KSP's coastwise net voyage revenue increased 3% to $12,375 for the fiscal year ended June 30, 2007 from $11,967 for the fiscal year ended June 30, 2006, which accounted for approximately $3.5 million of increased net voyage revenue.

        Net voyage revenue in KSP's local trade for the fiscal year ended June 30, 2007 increased by $10.5 million, or 28%, to $47.9 million from $37.4 million for the year ended June 30, 2006. KSP's acquisition of Sea Coast in October 2005 resulted in increased local net voyage revenue of $1.8 million for the fiscal year ended June 30, 2007, as compared to the fiscal year ended June 30, 2006. Additionally, KSP's local net voyage revenue increased by $8.6 million for the fiscal year ended June 30, 2007 due to the increased number of work days for the newbuild barges DBL 28, DBL 29, DBL 26, and DBL 27 delivered in March 2006, May 2006, August 2006, and January 2007, respectively. This was partially offset by the retirement of three small tank vessels which decreased KSP's net voyage revenue by $3.4 million. Net utilization in KSP's local trade was 79% for the fiscal year ended June 30, 2007, compared to 77% for the fiscal year ended June 30, 2006. Average daily rates in KSP's local trade increased 20% to $6,851 for the fiscal year ended June 30, 2007 from $5,717 for the fiscal year ended June 30, 2006, reflecting the impact of higher charter rates resulting from strong market conditions, particularly for short-term charters. Increases in KSP's charter rates accounted for approximately $5.1 million of increased net voyage revenue for the fiscal year ended June 30, 2007.

    Bareboat Charter and Other Revenue

        KSP's bareboat charter and other revenue was $9.7 million for the fiscal year ended June 30, 2007, compared to $6.1 million for the fiscal year ended June 30, 2006. Of this $3.6 million increase, $1.5 million resulted from increased outside chartering of tank barges and $1.9 million was generated by a small lube oil operation purchased in the fall of 2006.

    Vessel Operating Expenses

        KSP's vessel operating expenses were $96.0 million for the fiscal year ended June 30, 2007, an increase of $18.6 million, or 24%, as compared to $77.4 million for the fiscal year ended June 30, 2006.

75


KSP's voyage and vessel operating expenses as a percentage of total revenues decreased to 62.6% for the fiscal year ended June 30, 2007 from 63.1% for the fiscal year ended June 30, 2006. KSP's vessel labor and related costs increased $11.4 million as a result of contractual labor rate increases and a higher average number of employees due to the operation of the additional barges described under "—Net Voyage Revenue" above, and additional tugboats purchased in October 2005, November 2006 and April 2007. KSP's insurance costs and vessel repairs and supplies increased $4.0 million as a result of the operation of the larger number of vessels. Additionally, outside towing increased $1.3 million during the fiscal year ended June 30, 2007 due to higher shipyard days of KSP's tugboats.

    Depreciation and Amortization

        KSP's depreciation and amortization was $33.4 million for the fiscal year ended June 30, 2007, an increase of $6.6 million, or 25%, as compared to $26.8 million for the fiscal year ended June 30, 2006. The increase resulted from additional depreciation and drydocking amortization on KSP's newbuild and purchased vessels described above, plus $0.4 million in increased amortization of certain intangible assets acquired in KSP's acquisition of Sea Coast.

    General and Administrative Expenses

        KSP's general and administrative expenses were $20.5 million for the fiscal year ended June 30, 2007, an increase of $3.2 million, or 18%, as compared to general and administrative expenses of $17.3 million for the fiscal year ended June 30, 2006. As a percentage of total revenues, KSP's general and administrative expenses decreased to 9.1% for the fiscal year ended June 30, 2007 from 9.6% for the fiscal year ended June 30, 2006. The $3.2 million increase included $1.1 million of increased personnel and facilities costs resulting from KSP's Sea Coast acquisition, and also a $2.2 million increase relating to increased headcount and facilities costs of KSP's new corporate office in Seattle and a small satellite office in Philadelphia to support KSP's growth.

        We also incurred $0.2 million of general and administrative expenses for the fiscal years ended June 30, 2007 and 2006 related to EW LLC administration.

    Interest Expense, Net

        KSP's net interest expense was $14.1 million for the fiscal year ended June 30, 2007, or $4.0 million higher than the $10.1 million incurred in fiscal year ended June 30, 2006. The increase resulted from higher average debt balances resulting from increased credit line and term loan borrowings in connection with KSP's acquisition and vessel newbuilding program, and higher average interest rates.

        We also incurred $1.5 million and $1.6 million of interest expense during fiscal 2007 and fiscal 2006, respectively, relating to a demand loan and term loans of EW LLC.

    Loss on Reduction of Debt

        In November 2005, in connection with KSP's redemption of the Title XI bonds (see "—Liquidity and Capital Resources—Title XI Borrowings" below), KSP made a make-whole payment of $4.0 million. After writing off $2.7 million in unamortized deferred financing costs relating to the Title XI bonds, and after costs and expenses relating to the transaction, KSP recorded a loss on reduction of debt of $6.9 million. KSP recorded an additional $0.3 million of loss on reduction of debt in April 2006 resulting from the write-off of deferred financing costs relating to a downsizing of its revolving credit facility.

        We also recognized $0.4 million in loss on reduction of debt during fiscal 2007 resulting from the write-off of deferred financing costs relating to a refinanced EW LLC term loan.

76


    Provision For Income Taxes

        For the year ended June 30, 2007, our effective tax rate decreased to 7.5%, compared to 16.6% in fiscal 2006. Our effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on our operating partnerships, plus federal, state, local and foreign corporate income taxes on the income of our corporate subsidiaries. Our effective tax rate for the fiscal year ended June 30, 2007 was lower than the comparable prior year period primarily because a smaller percentage of our pre-tax book income related to our corporate subsidiaries.

    Non-controlling Interest

        Non-controlling interest increased for the year ended June 30, 2007, compared to the prior year, primarily as a result of the increase in KSP's income.

    Net Income

        Net income was $4.5 million for the fiscal year ended June 30, 2007, an increase of $3.7 million compared to net income of $0.8 million for the fiscal year ended June 30, 2006. This increase resulted primarily from a $6.9 million decrease in the net loss on reduction of debt and a $7.0 million increase in operating income partially offset by a $3.9 million increase in interest expense, a $6.0 million increase in non-controlling interest expense, and a $0.3 million increase in provision for income taxes.

Fiscal Year Ended June 30, 2006 Compared to the Fiscal Year Ended June 30, 2005

    Voyage Revenue and Voyage Expenses

        KSP's voyage revenue was $176.7 million for the fiscal year ended June 30, 2006, an increase of $57.9 million, or 49%, as compared to voyage revenue of $118.8 million for the fiscal year ended June 30, 2005. KSP's voyage expenses were $38.0 million for the fiscal year ended June 30, 2006, an increase of $13.8 million, or 57%, as compared to voyage expenses of $24.2 million for the fiscal year ended June 30, 2005.

    Net Voyage Revenue

        KSP's net voyage revenue was $138.7 million for the fiscal year ended June 30, 2006, an increase of $44.1 million, or 47%, as compared to net voyage revenue of $94.6 million for the fiscal year ended June 30, 2005. In KSP's coastwise trade, net voyage revenue was $101.3 million for the fiscal year ended June 30, 2006, an increase of $32.7 million, or 48%, as compared to $68.6 million for the fiscal year ended June 30, 2005. Net utilization in KSP's coastwise trade remained constant at 90% for each fiscal year. KSP's acquisition of Sea Coast in October 2005 resulted in increased coastwise net voyage revenue of $23.0 million in the fiscal year ended June 30, 2006, compared to the fiscal year ended June 30, 2005. Other increases for the fiscal year ended June 30, 2006 included $14.0 million in KSP's coastwise net voyage revenue resulting from an increase in days worked by the following vessels: (1) the DBL 78, which was placed in service in June 2005, (2) the KTC 50, which was placed in service in January 2005, (3) the Spring Creek, which was in shipyard for most of the fiscal 2005 second quarter in preparation for a new time charter which commenced in January 2005, (4) the DBL 103, which was placed in service in January 2006, (5) the McCleary's Spirit, a Canadian-flag vessel which was purchased in October 2005, and (6) the DBL 155, which returned to service in September 2004 after its double-hulling. These increases were partially offset by a $7.2 million decrease in KSP's coastwise net voyage revenue during the fiscal year ended June 30, 2006 resulting from the phase-out of the KTC 90 and KTC 96 in December 2004, and the loss of the DBL 152. KSP's coastwise net voyage revenue also benefited from a 5% increase in average daily rates to $11,967 for the year ended June 30, 2006 from $11,369 for the year ended June 30, 2005, which accounted for approximately $3.6 million of increased net voyage revenue. KSP's coastwise average daily rates were positively impacted by the continuing strong demand for petroleum products and increasing oil prices.

77


        Net voyage revenue in KSP's local trade for the fiscal year ended June 30, 2006 increased by $11.4 million, or 44%, to $37.4 million from $26.0 million for the fiscal year ended June 30, 2005. KSP's acquisition of Sea Coast in October 2005 resulted in increased local net voyage revenue of $5.8 million for the fiscal year ended June 30, 2006. Additionally, KSP's local net voyage revenue increased by $3.0 million during the fiscal year ended June 30, 2006 due to the increased number of work days for vessels acquired in KSP's Norfolk acquisition in December 2004. KSP's newbuild barges DBL 28 and DBL 29, delivered during the third and fourth quarters of fiscal 2006, contributed $0.8 million of KSP's net voyage revenue. Net utilization in KSP's local trade was 77% for the fiscal year ended June 30, 2006, compared to 79% for the fiscal year ended June 30, 2005. Average daily rates in KSP's local trade increased 6% to $5,717 for the fiscal year ended June 30, 2006 from $5,418 for the comparative prior year period, reflecting the impact of higher charter rates resulting from strong market conditions, which accounted for approximately $1.4 million of increased net voyage revenue.

    Bareboat Charter and Other Revenue

        KSP's bareboat charter and other revenue was $6.1 million for the fiscal year ended June 30, 2006, compared to $2.6 million for the fiscal year ended June 30, 2005. Of this $3.5 million increase, $1.5 million resulted from increased revenue from KSP's water treatment plant in Norfolk, and an additional $1.8 million was generated by outside chartering of tank barges by Sea Coast.

    Vessel Operating Expenses

        KSP's vessel operating expenses were $77.3 million for the fiscal year ended June 30, 2006, an increase of $28.0 million, or 56%, as compared to $49.3 million for the fiscal year ended June 30, 2005. KSP's voyage and vessel operating expenses as a percentage of total revenues increased to 63.1% for the fiscal year ended June 30, 2006 from 60.6% for the fiscal year ended June 30, 2005, resulting mainly from a higher such percentage for the Sea Coast vessels acquired in October 2005. Four of the Sea Coast barges were chartered in, and KSP pays a charter fee that is included in vessel operating expenses. The charter fee increases the percentage of vessel operating expenses to total revenues; however, there is no associated depreciation or interest expense. KSP's vessel labor and related costs increased as a result of contractual labor rate increases and a higher average number of employees due to the operation of the additional barges described under "—Net Voyage Revenue" above, an additional tugboat purchased in October 2005, and integration of additional vessels purchased in December 2004. KSP's insurance costs and vessel repairs and supplies also increased during the fiscal year ended June 30, 2006 as a result of the operation of the larger number of vessels. KSP's outside towing expense increased by $1.8 million during fiscal 2006 due to the need for additional tugboats to satisfy increased demand for KSP's tank vessels, and to replace certain of KSP's tugboats during coupling and re-powering projects.

    Depreciation and Amortization

        KSP's depreciation and amortization was $26.8 million for fiscal 2006, an increase of $5.4 million, or 25%, as compared to $21.4 million for the fiscal year ended June 30, 2005. The increase resulted from additional depreciation and drydocking amortization on KSP's newbuild and purchased vessels, plus $0.7 million in amortization of certain intangible assets acquired in KSP's acquisition of Sea Coast.

    General and Administrative Expenses

        KSP's general and administrative expenses were $17.3 million for the fiscal year ended June 30, 2006, an increase of $6.1 million, or 54%, as compared to KSP's general and administrative expenses of $11.2 million for the fiscal year ended June 30, 2005. As a percentage of total revenues, general and administrative expenses increased to 9.6% for the fiscal year ended June 30, 2006 from 9.4% for the fiscal year ended June 30, 2005. The $6.1 million increase reflected $4.7 million of increased personnel

78


and facilities costs in support of KSP's growth, including the Norfolk and Sea Coast acquisitions, and $0.3 million in costs related to a cancelled bond offering.

        We also incurred $0.2 million of general and administrative expenses for each of fiscal 2007 and fiscal 2006 for EW LLC administration.

    Interest Expense, Net

        KSP's net interest expense was $10.1 million for the fiscal year ended June 30, 2006, or $4.2 million higher than the fiscal year ended June 30, 2005. The increase resulted from higher average debt balances resulting from increased credit line and term loan borrowings in connection with the Norfolk vessel acquisitions in fiscal 2005, the Sea Coast acquisition in October 2005 and higher average interest rates.

        We also incurred $1.6 million and $1.2 million of interest expense during fiscal 2006 and fiscal 2005, respectively, relating to a term loan of EW LLC.

    Loss on Reduction of Debt

        In connection with its redemption of Title XI bonds, KSP made a make-whole payment of $4.0 million during the fiscal year ended June 30, 2006. After writing off $2.7 million in unamortized deferred financing costs relating to those bonds, and after costs and expenses relating to the transaction, KSP recorded a loss on reduction of debt of $6.9 million. KSP recorded an additional $0.3 million of loss on reduction of debt in April 2006 resulting from the write-off of deferred financing costs relating to a downsizing of its revolving credit facility.

        In connection with the refinancing of its revolving credit facility and repayment of certain term loans in March 2005, KSP incurred a $1.4 million loss on reduction of debt. Included in this amount was $1.1 million in deferred financing costs related to the repaid debt that were written off and $0.3 million of prepayment costs.

    Provision For Income Taxes

        For the fiscal year ended June 30, 2006, our effective tax rate increased to 16.6%, compared to 6.3% in fiscal 2005, owing to an increased amount of non U.S. taxes incurred relative to its operations in Puerto Rico, Venezuela and Canada. Our effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on our operating partnerships, plus federal, state, local and foreign corporate income taxes on the income of our corporate subsidiaries.

    Non-controlling Interest

        Non-controlling interest decreased for fiscal 2006, as compared to fiscal 2005, due to the decrease in KSP's income.

    Net Income

        Net income was $0.8 million for the fiscal year ended June 30, 2006, a decrease of $1.6 million compared to net income of $2.4 million for the fiscal year ended June 30, 2005. This decrease resulted primarily from the $5.9 million increase in loss on reduction of debt, the $4.6 million increase in interest expense, net, and a $0.4 million increase in provision for income taxes, which were partially offset by the $8.3 million increase in operating income and a $0.7 million decrease in non-controlling interest expense.

79


Liquidity and Capital Resources

    Operating Cash Flows

        Net cash provided by operating activities was $15.5 million for the six months ended December 31, 2007, an increase of $0.9 million as compared to $14.6 million for the six months ended December 31, 2006. The increase resulted from $7.6 million of improved operating results, after adjusting for non-cash expenses such as depreciation and amortization, offset by a $5.3 million negative impact from working capital changes and a $1.4 million increase in drydocking expenditures. During the six-month period ended December 31, 2006, KSP's working capital decreased due primarily to an increase in accounts payable and accrued expenses primarily as a result of an increase in operating expenditures for KSP's expanded fleet, and by a decrease in prepaid and other current assets receivable as a result of collection of claims receivable.

        Net cash provided by operating activities was $24.6 million during the fiscal year ended June 30, 2007, $6.5 million during the fiscal year ended June 30, 2006 and $13.6 million during the fiscal year ended June 30, 2005. The increase of $18.1 million in fiscal 2007 as compared to fiscal 2006 resulted primarily from $12.3 million of improved operating results, after adjusting for non-cash expenses such as depreciation and amortization and net loss on reduction of debt, and a $8.6 million positive impact from changes in operating working capital, partially offset by increased drydocking payments of $2.9 million. The decrease of $7.1 million in fiscal 2006, compared to fiscal 2005, resulted primarily from a $4.9 million increase in drydocking expenditures and a $3.6 million negative impact from changes in operating working capital, partially offset by the improved operating income of $1.4 million, after adjusting for the aforementioned non-cash expenses. During the fiscal year ended June 30, 2007, KSP's working capital decreased mainly due to increases in accrued expenses and other current liabilities, which resulted from increased payroll, self-insured medical and claim accruals, and decreased prepaid and other current assets, which resulted mainly from the collection of insurance claim receivables. During the fiscal year ended June 30, 2006, working capital increased primarily as a result of increased accounts receivable due to increased revenues, and increased prepaid and other current assets primarily as a result of increases in insurance claims receivable.

    Investing Cash Flows

        Net cash used in investing activities totaled $212.2 million for the six months ended December 31, 2007, compared to $29.3 million used during the six months ended December 31, 2006. The six months ended December 31, 2007 included the $168.9 million cash portion of the purchase price for the Smith Maritime Group. KSP's vessel acquisitions for the six months ended December 31, 2007 included $13.8 million to acquire two existing barges and two existing tugs; the seller issued a $3.0 million note on one of the barge purchases, which was paid in November 2007. KSP's vessel acquisitions totaled $7.1 million for the six months ended December 31, 2006, which were related to its purchase of three tugboats and the purchase of certain small tank vessels and tugboats. KSP's tank vessel construction in the six months ended December 31, 2007 aggregated $22.1 million and included progress payments on the construction of three 80,000-barrel tank barges, three new 28,000-barrel tank barges, a new 50,000-barrel tank barge and a new 185,000—barrel articulated tug-barge unit. KSP's tank vessel construction of $14.7 million in the comparative prior year period included progress payments on construction of a new 100,000-barrel tank barge, two new 80,000-barrel tank barges and six new 28,000-barrel tank barges. Other capital expenditures, relating primarily to coupling tugboats to KSP's newbuild tank barges, tank renovations of a tank barge and improvements on a newly purchased tug, totaled $6.5 million in the six months ended December 31, 2007. Capital expenditures of $7.9 million in the six months ended December 31, 2006 included coupling tugboats to KSP's newbuild tank barges and the rebuilding of one of KSP's larger tank barges.

        Net cash used in investing activities totaled $63.6 million during the fiscal year ended June 30, 2007, $105.2 million during the fiscal year ended June 30, 2006 and $54.9 million during the fiscal year ended June 30, 2005. The primary elements of these activities were acquisitions of vessels and

80



companies, and construction of new vessels. Vessel acquisitions totaling $16.2 million for the fiscal year ended June 30, 2007 included the purchase of five tugboats and the purchase of certain small tank vessels. In fiscal 2006, KSP spent $76.5 million in cash, net, to acquire Sea Coast in October 2005. Also during fiscal 2006, KSP acquired an 85,000-barrel integrated tug-barge unit for approximately $13.1 million. During fiscal 2005, KSP acquired ten tank barges and seven tugboats from Bay Gulf Trading Company, Ltd. of Norfolk, Virginia and its affiliates. The purchase price of $21.2 million included a water treatment facility in Norfolk. The fiscal 2005 acquisitions included the Norfolk vessels and also the DBL 78, which was acquired in June 2005. Construction expenditures for KSP's tank vessel newbuilding program and rebuilding projects totaled $33.3 million in fiscal 2007, $20.7 million in fiscal 2006 and $16.8 million in fiscal 2005. Other capital expenditures of $14.8 million in fiscal 2007, $9.1 million in fiscal 2006 and $9.0 million in fiscal 2005 related primarily to repowering of, and installation of coupling systems on, certain tugboats used with KSP's newbuild tank barges, and expenditures related to upgrading the vessels acquired by KSP in December 2004. Additionally, in fiscal 2007 KSP completed rebuilding of one of its larger tank vessels. Capital expenditures made in the normal course of business are generally financed by cash from operations and, where necessary, borrowings under KSP's revolving credit agreement.

    Financing Cash Flows

        Net cash provided by financing activities was $197.5 million for the six months ended December 31, 2007 compared to $14.5 million of net cash provided by financing activities for the six months ended December 31, 2006. The primary financing activities for the six-month period ended December 31, 2007 were $138.3 million in gross proceeds from KSP's issuance of 3.5 million new common units in September 2007 and $105.0 million of borrowings related to KSP's acquisition of the Smith Maritime Group that were repaid with the equity offering proceeds. KSP also increased its credit line borrowings by $83.3 million during the six months ended December 31, 2007 relating to the Smith Maritime Group acquisition and for progress payments on barges under construction. Distributions to the ownership interests of EW LLC and KSP's general partner totaled $6.0 million for the six months ended December 31, 2007. In the six months ended December 31, 2006, the primary financing activities were $11.0 million of borrowings by KSP on term loans to finance the construction of new tank barges, a $14.4 million increase in KSP's credit line borrowings. Distributions to the ownership interests of EW LLC and KSP's general partner totaled $3.5 million for the six months ended December 31, 2006.

        Net cash provided by financing activities was $39.1 million during the fiscal year ended June 30, 2007, $99.4 million during the fiscal year ended June 30, 2006 and $40.8 million during the fiscal year ended June 30, 2005. During the fiscal year ended June 30, 2007, KSP increased its credit line borrowings by $43.1 million, increased borrowings on term loans by $14.9 million to finance the construction of new tank barges and repaid term loans of $7.7 million. EW LLC also borrowed $15.5 million under a demand loan and repaid $16.6 million in term loans and subordinated notes. Distributions to the ownership interests of EW LLC and KSP's general partner totaled $9.1 million.

        In fiscal 2006, KSP's primary financing activities were $109.4 million in new term loan borrowings and $34.0 million in gross proceeds from the sale of 950,000 common units in October 2005. These proceeds were used in financing the Sea Coast acquisition and the other investing activities described above. Additionally, KSP paid $36.8 million to redeem the principal balance of its Title XI bonds. KSP also amended its revolving credit agreement (see "—KSP's Credit Agreement" below) and increased its credit line borrowings by $6.9 million. EW LLC borrowed $7.0 million in new term loans and repaid $2.0 million in outstanding terms loans. Distributions to ownership interests of EW LLC and KSP's general partner totaled $14.0 million.

        As a result of a restructuring of its financial agreement for the Title XI bonds in January 2004, KSP was required to make monthly reserve fund deposits which were used to make semi-annual debt service payments. The principal portion of such deposits, which are reflected as principal payments to Title XI reserve funds, were $0.7 million and $1.6 million for fiscal 2006 and 2005, respectively. When

81



KSP redeemed the Title XI bonds in November 2005, the balance of the Title XI reserve funds of $2.9 million, which are reflected as proceeds from Title XI reserve funds under Investing Cash Flows above, was returned to KSP. For more information, please read "—KSP's Title XI Borrowings" below.

        During fiscal 2005, KSP increased its credit line borrowings and term loans by a net of $36.8 million, primarily to finance vessel acquisitions. EW LLC also repaid $1.6 million of term loans. In March 2005, KSP signed a new five-year $80.0 million credit agreement with a syndicate of banks, which replaced its then-existing $47.0 million credit agreement, which was repaid and terminated. On June 1, 2005, KSP issued and sold 500,000 common units in a private placement for gross proceeds of $16.0 million. Distributions to ownership interests of EW LLC and KSP's general partner totaled $7.4 million.

        Oil Pollution Act of 1990.    Tank vessels are subject to the requirements of OPA 90. OPA 90 mandates that all single-hull tank vessels operating in U.S. waters be removed from petroleum and petroleum product transportation services at various times through January 1, 2015, and provides a schedule for the phase-out of the single-hull vessels based on their age and size. At December 31, 2007, approximately 74% of the barrel-carrying capacity of KSP's tank vessel fleet was double-hulled in compliance with OPA 90, and the remainder will be in compliance with OPA 90 until January 2015.

        Ongoing Capital Expenditures.    Marine transportation of refined petroleum products is a capital intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance. KSP estimates that, over the next five years, it will spend an average of approximately $20.5 million per year to drydock and maintain its fleet. KSP expects drydocking and maintenance expenditures to approximate $21.5 million in fiscal 2008. In addition, KSP anticipates that it will spend $1.0 million annually for other general capital expenditures. Periodically, KSP also makes expenditures to acquire or construct additional tank vessel capacity and/or to upgrade its overall fleet efficiency.

        For a further discussion of maintenance and expansion capital expenditures, please read footnote 5 to the table in "Selected Historical and Pro Forma Financial and Operating Data" included elsewhere in the prospectus.

        The following table summarizes KSP's total maintenance capital expenditures, including drydocking expenditures, and expansion capital expenditures for the periods presented (in thousands):

 
  Years ended June 30,
  Six Months
Ended December 31,

 
  2005
  2006
  2007
  2006
  2007
Maintenance capital expenditures   $ 8,024   $ 13,753   $ 20,337   $ 14,546   $ 10,171
Expansion capital expenditures (including vessel and company acquisitions)     39,337     98,073     25,960     8,966     188,998
   
 
 
 
 
Total capital expenditures   $ 47,361   $ 111,826   $ 46,297   $ 23,512   $ 199,169
   
 
 
 
 
Construction of tank vessels   $ 16,816   $ 20,702   $ 33,315   $ 14,688   $ 22,057
   
 
 
 
 

        In September 2007 and December 2007, KSP took delivery of two 28,000-barrel tank barges, the DBL 23 and DBL 24. In October 2007, KSP entered into an agreement with a shipyard to construct a 185,000-barrel articulated tug-barge unit, which is expected to be delivered in the fourth quarter of calendar 2009 at a cost of $68.0 million to $70.0 million. KSP also has an agreement for a long-term charter for the unit with a major customer that is expected to commence upon delivery. In December 2007, KSP entered into an agreement with a shipyard to construct a 100,000-barrel tank barge. In total,

82



KSP has agreements with shipyards for the construction of nine additional new tank barges. Deliveries are expected as follows:

Date of
Agreement

  Vessels
  Expected
June 2006   One 28,000-barrel tank barge   3rd Quarter fiscal 2008
August 2006   Two 80,000-barrel tank barges   4th Quarter fiscal 2008—1st Quarter fiscal 2009
December 2006   One 80,000-barrel tank barge   1st Quarter fiscal 2009
June 2007   Four 50,000-barrel tank barges   2nd Quarter fiscal 2010—2nd Quarter fiscal 2011
October 2007   One 185,000-barrel articulated tug barge unit   2nd Quarter fiscal 2010
December 2007   One 100,000-barrel tank barge   2nd Quarter 2010

        The above vessels are expected to cost, in the aggregate and after the addition of certain special equipment, approximately $175.0 million, of which $30.2 million has been spent by KSP as of December 31, 2007. KSP expects to spend an additional $26.0 million during fiscal 2008 on these contracts.

        Additionally, KSP intends to retire, retrofit or replace 27 (including four chartered-in) single-hull tank vessels by December 2014, which at December 31, 2007 represented approximately 26% of its barrel-carrying capacity. The capacity of certain of these single-hulled vessels has already been effectively replaced by double-hulled vessels placed into service in the past two years. KSP estimates that the current cost to replace the remaining capacity with newbuildings and by retrofitting certain of its existing vessels will range from $78.0 million to $80.0 million. This capacity can also be replaced by acquiring existing double-hulled tank vessels as opportunities arise. KSP evaluates the most cost-effective means to replace this capacity on an ongoing basis.

        Liquidity Needs.    We have no significant liquidity needs. KSP's primary short-term liquidity needs are to fund general working capital requirements, distributions to unitholders and drydocking expenditures, while its long-term liquidity needs are primarily associated with expansion and other maintenance capital expenditures. KSP's expansion capital expenditures are primarily for the purchase of vessels, while maintenance capital expenditures include drydocking expenditures and the cost of replacing tank vessel operating capacity. KSP's primary sources of funds for its short-term liquidity needs are cash flows from operations and borrowings under its credit agreement, while its long-term sources of funds are cash from operations, long-term bank borrowings and other debt or equity financings.

        KSP believes that cash flows from operations and borrowings under its credit agreement, described under "—KSP's Credit Agreement" below, plus its access to the long-term debt and equity markets, will be sufficient to meet its liquidity needs for the next 12 months and for the long-term.

        KSP's Credit Agreement.    In March 2005, KSP entered into a new five-year $80.0 million revolving credit agreement with a syndicate of banks led by KeyBank National Association. The credit agreement replaced KSP's then-existing $47.0 million revolving credit agreement, which was repaid and terminated. On October 18, 2005, to partially finance the acquisition of Sea Coast, KSP amended its credit agreement to increase the available borrowings to $120.0 million, of which $77.0 million was drawn down to pay the cash portion of the purchase price. On November 29, 2005, to fund the redemption of its Title XI bonds (see "—KSP's Title XI Borrowings" below), KSP further amended the credit agreement to increase the maximum borrowings to $155.0 million. On April 3, 2006, KSP used the net proceeds from the issuance of $80.0 million in new term loans to repay outstanding borrowings under the revolving credit agreement, and further amended it to reduce the available borrowings, to release certain vessels from the collateral pool, and to reduce certain covenant requirements. During

83



fiscal 2007, KSP further amended the credit agreement to add additional bank participants, increase the available borrowings, amend certain financial covenants and reduce interest rates.

        On August 14, 2007, KSP amended and restated the credit agreement to provide for (1) an increase in availability to $175.0 million under a senior secured revolving credit facility, which we refer to as the revolving facility, with an extension of the term to seven years, to August 2014, (2) a $45.0 million 364-day senior secured revolving credit facility, which we refer to as the 364-day facility, (3) amendments to certain financial covenants and (4) a reduction in interest rate margins. Under certain conditions, KSP has the right to increase the revolving facility by up to $75.0 million, to a maximum total facility amount of $250.0 million. On November 7, 2007, KSP partially exercised this right and increased the facility by $25.0 million to $200.0 million. The revolving facility and the 364-day facility are collateralized by a first perfected security interest in vessels having a total fair market value of approximately $275.0 million and certain equipment and machinery related to such vessels. On August 14, 2007, KSP borrowed $67.0 million under the revolving facility and $45.0 million under the 364-day facility to fund a portion of the purchase price of the Smith Maritime Group. The entire 364-day facility and a portion of the revolving facility were repaid on September 26, 2007 with the proceeds from an offering by KSP of its common units. Please read "—KSP's Issuances of Common Units" below. The 364-day facility was terminated on September 26, 2007.

        The following table summarizes the rates of interest and commitment fees for the revolving facility under KSP's credit agreement:

Ratio of Total Funded Debt to EBITDA

  LIBOR
Margin

  Base Rate
Margin

  Commitment
Fee

 
Less than 2.00 : 1.00   0.70 % 0.00 % 0.150 %
Greater than or equal to 2.00 : 1.00 and less than 2.50 : 1.00   0.85 % 0.00 % 0.150 %
Greater than or equal to 2.50 : 1.00 and less than 3.00 : 1.00   1.10 % 0.00 % 0.200 %
Greater than or equal to 3.00 : 1.00 and less than 3.50 : 1.00   1.25 % 0.00 % 0.200 %
Greater than or equal to 3.50 : 1.00   1.50 % 0.25 % 0.300 %

        Interest on a base rate loan is payable monthly over the term of the agreement. Interest on a LIBOR-based loan is due, at KSP's election, one, two, three, six or twelve months after such loan is made. Outstanding principal amounts of the revolving facility are due upon termination of the credit agreement.

        Loan proceeds under KSP's credit agreement may be used for any purpose in the ordinary course of business, including vessel acquisitions, ongoing working capital needs and distributions. Amounts borrowed and repaid may be re-borrowed. Borrowings made for working capital purposes must be reduced to zero for a period of at least 15 consecutive days once each year.

        KSP's credit agreement contains covenants that include, among others:

    the maintenance of the following financial ratios (all as defined in the credit agreement):

    EBITDA to fixed charges of at least 1.85 to 1.00;

    total funded debt to EBITDA of no greater than 4.00 to 1.00;

    restrictions on creating liens on or disposing of the vessels collateralizing the credit agreement, subject to permitted exceptions;

    restrictions on merging and selling assets outside the ordinary course of business;

    prohibitions on making distributions to limited or general partners of ours during the continuance of an event of default; and

    restrictions on transactions with affiliates and materially changing its business.

        KSP's credit agreement contains customary events of default. If a default occurs and is continuing, KSP must repay all amounts outstanding under the agreement.

84


    Interest Rate Swap Agreements

        On November 30, 2007, KSP entered into agreements with a financial institution to swap the LIBOR-based, variable rate interest payments on a total of $104.9 million of its credit agreement borrowings for fixed rates, for a term of three years. The fixed rates to be paid by KSP beginning in December 2007 average 4.01%.

    KSP's Other Term Loans

        On August 14, 2007, in connection with the acquisition of the Smith Maritime Group, KSP entered into a bridge loan facility for up to $60.0 million with an affiliate of KeyBank National Association. The bridge loan facility, while outstanding, bore interest at a rate per annum equal to, at KSP's option, (a) the greater of the prime rate and the federal funds rate plus 0.25% or (b) the 30-day LIBOR plus a margin of 1.50%. Interest was due on a monthly basis. The bridge loan facility was repaid on September 26, 2007 with the proceeds of from an offering by KSP of its common units. Please read "—KSP's Issuances of Common Units" below.

        Also on August 14, 2007, in connection with the Smith Maritime Group acquisition, KSP assumed two term loans totaling $23.5 million. The first, in the amount of $19.5 million, bears interest at the same LIBOR-based variable rate as the credit agreement (see table under "—KSP's Credit Agreement" above) and is repayable in equal monthly installments of $147,455 plus interest, until August 2018. The second, in the amount of $4.0 million, bears interest at LIBOR plus 1.0% and is repayable in monthly installments ranging from $59,269 to $81,320 plus interest, until May 2012. The loans are collateralized by three tank barges. KSP also agreed with the related lending institution to assume the two existing interest rate swaps relating to these two loans. The LIBOR-based, variable interest payments on these loans have been swapped for fixed payments at an average rate of 5.44%, plus the applicable margin, over the same terms as the loans. Borrowings outstanding on these term loans were $22.7 million at December 31, 2007.

        On April 3, 2006, KSP entered into an agreement with a lending institution to borrow $80.0 million, for which KSP pledged six tugboats and six tank barges as collateral. KSP used the proceeds of these loans to repay indebtedness under its credit agreement. Borrowings are represented by six notes which have been assigned to other lending institutions. These loans bear interest at a rate equal to 30-day LIBOR plus 1.40%, and are repayable in 84 monthly installments with the remaining principal payable at maturity. The agreement contains certain prepayment premiums. Borrowings outstanding on these loans totaled $75.9 million as of June 30, 2007 and $74.0 million as of December 31, 2007. Also on April 3, 2006, KSP entered into an agreement with the lending institution to swap the one-month, LIBOR based, variable interest payments on the $80.0 million of loans for a fixed payment at a rate of 5.2275%, plus the margin, over the same terms as the loans. This swap will result in a fixed interest rate on the Notes of 6.6275% for their seven-year term.

        KSP's swap contracts have been designated as cash flow hedges. Therefore, the unrealized gains and losses during fiscal 2007 and 2006 resulting from the change in fair value of the swap contract have been reflected in other comprehensive income. The fair value of the swap contracts of $0.4 million and $1.1 million as of June 30, 2007 and 2006, respectively, is included in other assets in the consolidated balance sheet, and the fair value of these contracts of negative $5.3 million has been included in other liabilities in the consolidated balance sheet as of December 31, 2007.

        On December 19, 2005, one of KSP's subsidiaries entered into a seven year Canadian dollar term loan to refinance purchase of an integrated tug-barge unit. The proceeds of $13.0 million were used to repay borrowings under the amended revolving credit agreement which had been used to finance purchase of the unit. The loan bears interest at a fixed rate of 6.59%, is repayable in 84 monthly installments of CDN 136,328 with the remaining principal amount payable at maturity, and is

85



collateralized by the related tug-barge unit and one other tank barge. Borrowings outstanding on this loan total $13.4 million as of June 30, 2007 and $14.0 million as of December 31, 2007.

        In May 2006, KSP entered into an agreement to borrow up to $23.0 million to partially finance construction of two 28,000-barrel and one 100,000-barrel tank barges. The third and final vessel was delivered, and the note termed-out, during the fourth quarter of fiscal 2007. The loan bears interest at 30-day LIBOR plus 1.40%, and is repayable, plus accrued interest, over seven years, with the remaining principal amount payable at maturity. The loan is collateralized by the related tank barges and two other tank vessels. Borrowings outstanding on this loan total $20.3 million at June 30, 2007 and $19.6 million as of December 31, 2007.

        In March 2005, KSP entered into an agreement to borrow up to $11.0 million to partially finance construction of a 100,000-barrel tank barge. The loan bears interest at 30-day LIBOR plus 1.05%, and is repayable in monthly principal installments of $65,500 with the remaining principal amount payable at maturity. The loan is collateralized by the related tank barge. Borrowings outstanding on this loan totaled $9.9 million at June 30, 2007 and $9.5 million as of December 31, 2007.

        In March 2005, KSP entered into a three-year term loan in the amount of $11.7 million. The loan bears interest at a fixed rate of 6.25% annually, and is repayable in monthly principal installments of $69,578, with the remaining principal amount payable at maturity. The loan is collateralized by three vessels and the proceeds were used to refinance an existing term loan. Borrowings outstanding on this loan total $9.8 million at June 30, 2007 and $9.4 million as of December 31, 2007, and is classified as a long-term liability because KSP intends to refinance it with its credit agreement.

        In June 2005, KSP entered into an agreement to borrow up to $18.0 million to finance the purchase of an 80,000-barrel double-hull tank barge and construction of two 28,000-barrel double-hull tank barges. The loan bears interest at 30-day LIBOR plus 1.71%, and is repayable in monthly principal installments of $107,143 with the remaining principal amount payable at maturity. The loan is collateralized by the related tank barges. Borrowings outstanding on this loan were $16.6 million at June 30, 2007 and $16.0 million as of December 31, 2007.

        KSP's Title XI Borrowings.    On June 7, 2002, to provide financing for four newbuild tank vessels, KSP privately placed $40.4 million of bonds ("Title XI bonds"), which were guaranteed by the Maritime Administration of the U.S. Department of Transportation, or MARAD, pursuant to Title XI of the Merchant Marine Act of 1936. The proceeds of $39.1 million, net of certain closing fees, were deposited in a reserve account with the U.S. Department of the Treasury and used to fund construction of the related vessels. On November 29, 2005, KSP redeemed the outstanding $36.8 million principal balance of bonds, paid $0.8 million of accrued interest, and made a make-whole payment of $4.0 million as required under the trust indenture. KSP funded the redemption using funds from its revolving credit agreement. After writing off $2.7 million in unamortized deferred financing costs, and after costs and expenses relating to the transaction, KSP recorded a loss on reduction of debt of $6.9 million. Retirement of the Title XI bonds improved KSP's borrowing flexibility, and eliminated certain restrictive covenants, collateral requirements, and working capital constraints.

        KSP's Restrictive Covenants.    The agreements governing KSP's amended credit facility and term loans contain restrictive covenants that, among others, (a) prohibit distributions under defined events of default, (b) restrict investments and sales of assets, and (c) require us to adhere to certain financial covenants, including defined ratios of fixed charge coverage and funded debt to EBITDA (earnings before interest, taxes, depreciation and amortization, as defined).

        KSP's Issuances of Common Units.    On September 26, 2007, KSP sold 3,500,000 of its common units in a public offering under its shelf registration statement. The net proceeds of $132.7 million from the offering, after payment of underwriting discounts and commissions but before payment of expenses, were used to repay borrowings related to the acquisition of the Smith Maritime Group. KSP also issued

86



250,000 common units to the sellers of the Smith Maritime Group on August 14, 2007, as part of the purchase price. On October 14, 2005, KSP sold 950,000 of its common units in a public offering under its shelf registration statement. The net proceeds of $33.1 million from the offering, after payment of underwriting discounts and commissions but before payment of expenses, were used to repay borrowings under KSP's amended credit agreement. On October 18, 2005, KSP issued 125,000 units to the seller in connection with its acquisition of Sea Coast. On June 1, 2005, KSP issued and sold 500,000 common units in a private placement for proceeds of $16.0 million, before expenses associated with the offering. A shelf registration statement with respect to the Sea Coast issuance and the June 2005 private placement was declared effective by the Commission in February 2006.

        Contractual Obligations and Contingencies.    Contractual obligations at June 30, 2007 consisted of the following (in thousands):


Payments Due by Period

 
  Total
  Less than
1 Year

  2-3
Years

  4-5
Years

  After
5 Years

Long-term debt and capital lease obligations(1)   $ 259,787   $ 18,466   $ 18,170   $ 114,325   $ 108,826
Interest on long-term debt and capital lease obligations(2)     29,729     6,379     10,747     9,186     3,417
Operating lease obligations     7,614     3,093     2,836     717     968
Purchase obligations(3)     84,825     35,304     38,521     11,000    
   
 
 
 
 
    $ 381,955   $ 63,242   $ 70,274   $ 135,228   $ 113,211
   
 
 
 
 

(1)
Long-term debt and capital lease obligations includes a demand note for $15,500 of EW LLC.

(2)
Interest is only on fixed rate debt. See "—Quantitative and Qualitative Disclosures About Market Risk" for a discussion of interest on variable rate debt.

(3)
Capital expenditures relating to shipyard payments for the construction of three new 28,000-barrel double-hull tank barges, three new 80,000-barrel double-hull tank barges and four new 50,000-barrel double-hull tank barges.

        Certain executive officers of KSP GP, KSP's general partner, have entered into employment agreements with K-Sea Transportation Inc., KSP's indirect wholly owned corporate subsidiary. Each of these employment agreements had an initial term of one year, which is automatically extended for successive one-year terms unless either party gives 30 days written notice prior to the end of the term that such party desires not to renew the employment agreement. The employment agreements currently provide for annual base salaries aggregating $930,000. In addition, each employee is eligible to receive an annual bonus award based upon consideration of KSP's partnership performance and individual performance. If the employee's employment is terminated without cause or if the employee resigns for good reason, the employee will be entitled to severance in an amount equal to the greater of (a) the product of 1.3125 (1.75 multiplied by .75) multiplied by the employee's base salary at the time of termination or resignation and (b) the product of 1.75 multiplied by the remaining term of the employee's non-competition provisions multiplied by the employee's base salary at the time of termination or resignation.

        KSP is a party to various claims and lawsuits in the ordinary course of business for monetary relief arising principally from personal injuries, collision or other casualty and to claims arising under vessel charters. All of these personal injury, collision and casualty claims are fully covered by insurance, subject to deductibles ranging from $25,000 to $100,000. KSP accrues on a current basis for estimated deductibles it expects to pay.

87


        The European Union is currently working toward a new directive for the insurance industry, called "Solvency 2", that is expected to become law within four to five years and require increases in the level of free, or unallocated, reserves required to be maintained by insurance entities, including protection and indemnity clubs that provide coverage for the maritime industry. The West of England Ship Owners Insurance Services Ltd., or WOE, a mutual insurance association based in Luxembourg, provides KSP's protection and indemnity insurance coverage and would be impacted by the new directive. In anticipation of these new regulatory requirements, the WOE has assessed its members an additional capital call which it believes will contribute to achievement of the projected required free reserve increases. KSP's capital call was $1.1 million and was paid in February 2007. A further request for capital may be made in the future; however, the amount of such further assessment, if any, cannot be reasonably estimated at this time. As a shipowner member of the WOE, KSP has an interest in the WOE's free reserves, and therefore have recorded the additional $1.1 million capital call as an investment, at cost, subject to periodic review for impairment. This amount is included in other assets in the June 30, 2007 and December 31, 2007 consolidated balance sheets.

        EW Transportation Corp., a subsidiary of EW LLC, a predecessor to KSP, and many other marine transportation companies operating in New York have come under audit with respect to the New York State Petroleum Business Tax, or PBT, which is a tax on vessel fuel consumed while operating in New York State territorial waters. An industry group in which KSP and EW Transportation Corp. participate has come to a final agreement with the New York taxing authority on a calculation methodology for the PBT. Effective January 1, 2007, KSP and the other marine transportation companies began rebilling this tax to customers. For applicable periods prior to 2007, KSP accrued an estimated liability using the agreed methodology, which is currently under final audit by the New York taxing authority. In accordance with the agreements entered into in connection with our initial public offering, any liability resulting from the PBT prior to January 14, 2004 (the effective date of KSP's initial public offering) is a retained liability of EW Transportation Corp. The New York taxing authority has completed an audit of all open periods and has issued a proposed assessment which has been substantially accepted by KSP. The final liability is not materially different from the accruals previously recorded and will be paid during the quarter ended March 31, 2008.

        As discussed in note 4 to our audited consolidated financial statements, one of KSP's tank barges struck submerged debris in the U.S. Gulf of Mexico in November 2005, causing significant damage which resulted in the barge eventually capsizing. At the time of the incident, the barge was carrying approximately 120,000 barrels of No. 6 fuel oil, a heavy oil product. In January 2006, submerged oil recovery operations were suspended and a monitoring program, which sought to determine if any recoverable oil could be found on the ocean floor, was begun. In February 2007, the Coast Guard agreed to end the cleanup and response phase, including KSP's obligation to conduct any further monitoring of the area around the spill site.

        KSP's insurers responded to the pollution-related costs and environmental damages resulting from the incident, paying approximately $65.0 million less $60,000 in total deductibles, and are pursuing their own financial recovery efforts. In December 2007, a court made a final determination of liability in this case, resulting in a financial recovery by KSP's insurers, and also by KSP. As a result of the ruling, KSP was awarded a reimbursement of certain expenses totaling $2.1 million, which has been included in other expense (income) in the consolidated statement of operations and in prepaid expenses and other assets in the December 31, 2007 consolidated balance sheet. This amount was received in January 2008. KSP's incident response effort is complete. KSP is not aware of any further recovery, cleanup or other costs. However, if any such costs are incurred, they are expected to be paid by the insurers.

        EW LLC and its predecessors have been named, together with a large number of other companies, as co-defendants in 39 civil actions by various parties, including former employees, alleging unspecified damages from past exposure to asbestos and second-hand smoke aboard some of the vessels that it contributed to KSP in connection with KSP's initial public offering. EW LLC and its predecessors have

88



been dismissed from 38 of these lawsuits for an aggregate sum of approximately $47,000 and are seeking to settle the other case. KSP may be subject to litigation in the future involving these plaintiffs and others alleging exposure to asbestos due to alleged failure to properly encapsulate friable asbestos or remove friable asbestos on its vessels, as well as for exposure to second-hand smoke and other matters.

Inflation

        During the last three years, inflation has had a relatively minor effect on KSP's financial results. KSP's contracts generally contain escalation clauses whereby certain cost increases, including labor and fuel, can be passed through to its customers.

Related Party Transactions

        We share KSP's corporate office in East Brunswick, New Jersey. KSP leases its Staten Island office and pier facilities from, and charter certain vessels to, affiliates of an employee. Additionally, KSP utilizes one of these affiliates for tank cleaning services. Please read note 7 to our audited consolidated financial statements included elsewhere in this prospectus.

        KSP Investors A L.P., KSP Investors B L.P., KSP Investors C L.P., EW LLC and their controlled affiliates have agreed to indemnify KSP for claims associated with certain retained liabilities. For more information regarding the indemnification obligations and other related party transactions, please read "Certain Relationships and Related Transactions."

Seasonality

        KSP operates its tank vessels in markets that exhibit seasonal variations in demand and, as a result, in charter rates. For example, movements of clean oil products, such as motor fuels, generally increase during the summer driving season. In certain regions, movements of black oil products and distillates, such as heating oil, generally increase during the winter months, while movements of asphalt products generally increase in the spring through fall months. Unseasonably cold winters result in significantly higher demand for heating oil in the northeastern United States. Meanwhile, KSP's operations along the West Coast and in Alaska historically have been subject to seasonal variations in demand that vary from those exhibited in the East Coast and Gulf Coast regions. The summer driving season can increase demand for automobile fuel in all of KSP's markets and, accordingly, the demand for its services. A decline in demand for, and level of consumption of, refined petroleum products could cause demand for tank vessel capacity and charter rates to decline, which would decrease KSP's revenues and cash flows. KSP's West Coast operations provide seasonal diversification primarily as a result of service to its Alaskan markets, which experience the greatest demand for petroleum products in the summer months, due to weather conditions. Considering the above, KSP believes seasonal demand for its services is lowest during its third fiscal quarter. KSP does not see any significant seasonality in the Hawaiian market.

Critical Accounting Policies

        The accounting treatment of a particular transaction is governed by generally accepted accounting principles, or GAAP, and, in certain circumstances, requires us to make estimates, judgments and assumptions that we believe are reasonable based upon information available. We base our estimates, judgments and assumptions on historical experience and known facts that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. We believe that, of our significant accounting policies discussed in note 2 to our audited consolidated financial statements, the following may involve a higher degree of judgment.

89


Revenue Recognition

        KSP earns revenue under contracts of affreightment, voyage charters, time charters and bareboat charters. For contracts of affreightment and voyage charters, revenue is recognized based upon the relative transit time in each period, with expenses recognized as incurred. Although contracts of affreightment and certain contracts for voyage charters may be effective for a period in excess of one year, revenue is recognized over the transit time of individual voyages, which are generally less than ten days in duration. For time charters and bareboat charters, revenue is recognized ratably over the contract period, with expenses recognized as incurred. Estimated losses on contracts of affreightment and charters are accrued when such losses become evident.

Depreciation

        KSP's vessels and equipment are recorded at cost, including capitalized interest where appropriate, and depreciated using the straight-line method over the estimated useful lives of the individual assets as follows: tank vessels—ten to twenty-five years; tugboats—ten to twenty years; and pier and office equipment—five years. For single-hull tank vessels, these useful lives are limited to the remaining period of operation prior to mandatory retirement as required by OPA 90. Also included in vessels are drydocking expenditures that are capitalized and amortized over three 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. To date, KSP's experience confirms that these policies are reasonable, although there may be events or changes in circumstances in the future that indicate the recovery of the carrying amount of a vessel might not be possible. Examples of events or changes in circumstances that could indicate that the recoverability of a vessel's carrying amount should be assessed might include a change in regulations such as OPA 90, or continued operating losses, or projections thereof, associated with a vessel or vessels. If events or changes in circumstances as set forth above indicate that a vessel's carrying amount may not be recoverable, KSP would then be required to estimate the undiscounted future cash flows expected to result from the use of the vessel and its eventual disposition. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the vessel, KSP would recognize an impairment loss to the extent the carrying value exceeds its fair value by appraisal. KSP's assumptions and estimates would include, but not be limited to, the estimated fair market value of the assets and their estimated future cash flows, which are based on additional assumptions such as asset utilization, length of service of the asset and estimated salvage values. Although KSP believes their assumptions and estimates are reasonable, deviations from the assumptions and estimates could produce a materially different result.

Amortization of Drydocking Expenditures

        Drydocking expenditures are capitalized and amortized over three years. Drydocking of vessels is required by both the U.S. Coast Guard and by the applicable classification society, which in KSP's case is the American Bureau of Shipping. Such drydocking activities include, but are not limited to, the inspection, refurbishment and replacement of steel, engine components, tailshafts, mooring equipment and other parts of the vessel. Amortization of drydocking expenditures is included in depreciation and amortization expense.

Accounts Receivable

        KSP extends credit to its customers in the normal course of business. KSP regularly reviews their accounts, estimate the amount of uncollectible receivables each period, and establish an allowance for uncollectible amounts. The amount of the allowance is based on the age of unpaid amounts, information about the current financial strength of customers, and other relevant information. Estimates of uncollectible amounts are revised each period, and changes are recorded in the period

90



they become known. Historically, credit risk with respect to KSP's trade receivables has generally been considered minimal because of the financial strength of its customers.

Deferred Income Taxes

        We provide deferred taxes for the tax effects of differences between the financial reporting and tax bases of assets and liabilities at enacted tax rates in effect in the jurisdictions where we and KSP operate for the years in which the differences are expected to reverse. A valuation allowance is provided, if necessary, for deferred tax assets that are not expected to be realized.

New Accounting Pronouncements

        On June 2, 2005, the FASB issued FASB Statement No. 154, "Accounting Changes and Error Corrections—a replacement of APB No. 20 and FAS No. 3" ("FAS 154"). FAS 154 replaces APB Opinion No. 20, "Accounting Changes" ("APB 20") and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements" and changes the requirements for the accounting for and reporting of a change in accounting principle. FAS 154 applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. We adopted FAS 154 as of July 1, 2006, and such adoption did not have a significant impact on our financial position, results of operations or cash flows.

        On February 16, 2006 the FASB issued FASB Statement No. 155, "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140" ("FAS 155"). FAS 155 amends FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" and FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." We adopted FAS 155 as of July 1, 2007, and such adoption had no impact on our financial position, results of operations or cash flows.

        In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We adopted FIN 48 as of July 1, 2007, and such adoption had no impact on our financial position, results of operations or cash flows.

        At the date of the adoption, there were no unrecognized tax benefits and consequently no related interest and penalties. The significant jurisdictions in which we file tax returns and are subject to tax include New York, Venezuela and Puerto Rico. The significant jurisdictions in which our corporate subsidiaries file tax returns and are subject to tax include the United States and Canada. The tax returns filed in the United States and state jurisdictions are subject to examination for the years 2004 through 2007 and in foreign jurisdictions for the years 2005 through 2007. We have adopted a policy to record tax related interest and penalties under interest expense and general and administrative expenses, respectively.

        In September 2006, the FASB issued FASB Statement No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. FAS 157 applies under other accounting pronouncements that require or permit fair value measurements.

91



FAS 157 is effective for fiscal years beginning after November 15, 2007, and we are currently analyzing its impact, if any.

        In December 2007, the FASB issued FASB Statement No. 141 (revised 2007), "Business Combinations" ("FAS 141(R)") which replaces FAS No.141, "Business Combinations". FAS 141(R) retains the underlying concepts of FAS 141 in that all business combinations are still required to be accounted for at fair value under the purchase method of accounting, but FAS 141(R) changed the method of applying the purchase method in a number of significant aspects. FAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first fiscal year subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. FAS 141(R) amends FAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of FAS 141(R) would also apply the provisions of FAS 141(R). We are currently analyzing its impact, if any.

        In December 2007, the FASB issued FASB Statement No. 160, "Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB 51" ("FAS 160"). FAS 160 amends ARB 51 to establish new standards that will govern the accounting for and reporting of (1) non-controlling interest in partially owned consolidated subsidiaries and (2) the loss of control of subsidiaries. FAS 160 is effective on a prospective basis for all fiscal years, and interim periods within those fiscal years beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. We are currently analyzing its impact, if any.

Quantitative and Qualitative Disclosures About Market Risk

        Our primary market risk is the potential impact of changes in interest rates on our variable rate borrowings. After considering the interest rate swap agreements discussed below, as of December 31, 2007 approximately $229.4 million of our debt, all debt of KSP, bore interest at fixed interest rates ranging from 5.26% to 6.81%. EW LLC's demand loan, borrowings under KSP revolving credit agreement, and certain other KSP debt totaling $136.1 million at December 31, 2007, bore interest at a floating rate based on LIBOR, which subjected us to increases or decreases in interest expense resulting from movements in that rate. Based on our total outstanding floating rate debt as of December 31, 2007, the impact of a 1% change in interest rates would result in a change in interest expense, and a corresponding impact on income before income taxes, of approximately $1.4 million annually.

        As of December 31, 2007, KSP had six outstanding interest rate swap agreements that expire over the periods from 2012 to 2018, concurrently with the hedged loans. As of December 31, 2007, the notional amount of the swaps was $200.9 million, KSP was paying a weighted average fixed rate of 5.92%, and KSP was receiving a weighted average variable rate of 6.36%. The primary objective of these contracts is to reduce the aggregate risk of higher interest costs associated with variable rate debt. The interest rate swap contracts KSP holds have been designated as cash flow hedges and, accordingly, gains and losses resulting from changes in the fair value of these contracts are recognized as other comprehensive income. KSP is exposed to credit related losses in the event of non-performance by counterparties to these instruments; however, the counterparties are major financial institutions and KSP considers such risk of loss to be minimal. KSP does not hold or issue derivative financial instruments for trading purposes.

92



OUR BUSINESS

General

        We are a Delaware limited partnership formed in December 2007, and our cash generating assets consist solely of partnership interests in K-Sea Transportation Partners L.P. (NYSE: KSP). KSP is a publicly traded Delaware limited partnership that provides marine transportation, distribution and logistics services for refined petroleum products in the United States. KSP currently operates a fleet of 73 tank barges, one tanker and 59 tugboats that serves a wide range of customers, including major oil companies, oil traders and refiners. With approximately 4.3 million barrels of capacity, KSP believes it owns and operates the largest coastwise tank barge fleet in the United States.

        Upon completion of this offering, we will own:

    100% of the incentive distribution rights in KSP, which we hold through our 100% ownership interest in KSP GP;

    4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and

    all of the 1.5% general partner interest in KSP, which we hold through our 100% ownership interest in KSP GP.

Our Strategy

        Our primary business objective is to increase our cash distributions to our unitholders through our ownership of KSP. KSP's primary business objective is to increase distributable cash flow per unit by:

    expanding its fleet through newbuildings and accretive and strategic acquisitions;

    maximizing fleet utilization and improving productivity;

    maintaining safe, low-cost and efficient operations;

    balancing its fleet deployment between longer-term contracts and shorter-term business in an effort to provide stable cash flows through business cycles, while preserving flexibility to respond to changing market conditions; and

    attracting and maintaining customers by adhering to high standards of performance, reliability and safety.

        We may facilitate KSP in the implementation of its business strategy through the use of our capital resources, which could involve capital contributions, loans or other forms of financial support.

Our Interest in KSP

        Our ownership of 100% of KSP's incentive distribution rights entitles us to receive the following increasing percentages of cash distributed by KSP:

    13% of all incremental cash distributed in a quarter after $0.55 has been distributed in respect of each common unit and subordinated unit of KSP for that quarter;

    23% of all incremental cash distributed after $0.625 has been distributed in respect of each common unit and subordinated unit of KSP for that quarter; and

    the maximum sharing level of 48% of all incremental cash distributed after $0.75 has been distributed in respect of each common unit and subordinated unit of KSP for that quarter.

        Since 2004, KSP has increased its quarterly cash distribution for the last 11 consecutive quarters, and 13 times since its initial public offering in 2004, from $0.50 per common unit ($2.00 on an annualized basis) to $0.74 per common unit ($2.96 on an annualized basis), which is the most recently paid distribution. The distribution of $0.74 per limited partner unit paid by KSP for the quarter ended December 31, 2007 entitles us to receive 23% of the cash distribution from KSP in excess of its target

93



distribution level of $0.625 per common unit, which, in addition to the distributions we receive in respect of our common and subordinated units and general partner units, collectively comprises 35% of the cash distributed by KSP in respect of that quarter.

        As KSP has increased the quarterly cash distribution paid on its units, the target cash distribution levels described above have been exceeded, thereby increasing the amounts paid by KSP to its general partner as the owner of KSP's incentive distribution rights. As a consequence, our cash distributions from KSP that are based on our ownership of the incentive distribution rights have increased more rapidly than distributions based on our other ownership of interests in KSP. Any further increases in the quarterly cash distributions above $0.75 per unit from KSP would entitle us to receive 48% of such excess and would have the effect of disproportionately increasing the amount of all distributions that we receive from KSP based on our ownership interest in the incentive distribution rights in KSP.

        All of our cash flows are generated from the cash distributions we receive with respect to the KSP partnership interests we own. KSP is required by its partnership agreement to distribute, and it has historically distributed within 45 days of the end of each quarter, all of its cash on hand at the end of each quarter, less cash reserves established by its general partner in its sole discretion to provide for the proper conduct of KSP's business or to provide for future distributions. While we, like KSP, are structured as a limited partnership, our capital structure and cash distribution policy differ materially from those of KSP. Most notably, our general partner does not have an economic interest in us and is not entitled to receive any distributions from us and our capital structure does not include incentive distribution rights. Therefore, our distributions are allocated exclusively to our common units, which is our only class of security currently outstanding. Further, unlike KSP, we do not have subordinated units, and as a result, our common units carry no right to arrearages.

        The graph below illustrates the historical growth in KSP's quarterly distributions per common unit and the corresponding historical growth in quarterly distributions that would have been made to us, including the general partner interest and the incentive distribution rights:


KSP Distribution Growth

GRAPHIC

        The following graph shows hypothetical cash distributions payable to us with respect to our partnership interests in KSP, including the incentive distribution rights, the general partner interest and the limited partner interests, across a range of hypothetical annualized distributions made by KSP. This information assumes:

    KSP has a total of 13,713,450 limited partner units outstanding, consisting of 11,630,950 common units and 2,082,500 subordinated units; and

94


    our ownership of:

    100% of the incentive distribution rights in KSP;

    4,165,000 units of KSP, consisting of 2,082,500 common units and 2,082,500 subordinated units of KSP, representing an aggregate 29.9% limited partner interest in KSP; and

    all of the 1.5% general partner interest in KSP.

The graph also illustrates the impact to us of KSP raising or lowering its quarterly cash distribution from the most recently paid distribution of $0.74 per common unit ($2.96 on an annualized basis), which was paid on February 14, 2008 with respect to the quarter ended December 31, 2007. This information is presented for illustrative purposes only. This information is not intended to be a prediction of future performance and does not attempt to illustrate the impact of changes in our or KSP's business, including changes that may result from changes in interest rates and general economic conditions, or the impact of any acquisition or, expansion projects, divestitures or issuance of additional units or debt.


Hypothetical Annualized Distributions

GRAPHIC

        The impact to us of changes in KSP's cash distribution levels will vary depending on several factors, including the impact of the incentive distribution rights structure. In addition, the level of cash distributions we receive may be affected by risks associated with the underlying business of KSP. Please read "Risk Factors."

        If KSP is successful in implementing its business strategies and increasing distributions to its partners, we generally would expect to increase distributions to our unitholders, although the timing and amount of any such increase in our distributions will not necessarily be comparable to any increase in KSP's distributions. We cannot assure you that any distributions will be declared or paid by KSP. Please read "Our Cash Distribution Policy and Restrictions on Distributions" and "Risk Factors."

        KSP's cash distributions to us will vary depending on several factors, including KSP's total outstanding partnership interests on the record date for the distribution, the per unit distribution and our relative ownership of KSP's partnership interests.

        It is not likely that our common units and KSP's common units will trade in simple relation or proportion to one another. Instead, while the trading prices of our common units and KSP's common

95



units are likely to follow generally similar broad trends, the trading prices may diverge because, among other things:

    with respect to KSP's distributions, KSP's common unitholders have a priority over our incentive distribution rights in KSP;

    we participate in KSP's general partner's distributions and the incentive distribution rights, and KSP's common unitholders do not; and

    we may enter into other businesses separate from KSP or any of its affiliates.

        Please read "Comparison of Rights of Holders of KSP's Common Units and Our Common Units" for a summary comparison of certain features of KSP's common units and our common units.

How Our Partnership Agreement Terms Differ from Those of Other Publicly Traded Partnerships

        Although we are organized as a limited partnership, the terms of our partnership agreement differ from those of KSP and many other publicly traded partnerships. For example:

    Our general partner is not entitled to incentive distributions. Most publicly traded partnerships have incentive distribution rights that entitle the general partner to receive increasing percentages, commonly up to 50%, of the cash distributed in excess of a certain per unit distribution.

    We do not have subordinated units. Most publicly traded partnerships initially have subordinated units that (1) do not receive distributions in a quarter until all common units receive the minimum quarterly distribution plus arrearages and (2) convert to common units upon meeting certain financial tests.

    Our general partner is not required to make additional capital contributions to us in connection with additional issuances of units by us because it has no economic interest in us. Most general partners of publicly traded partnerships have a 2% general partner interest and are required to or have the option to make additional capital contributions to the partnership in order to maintain their percentage general partner interest upon issuance of additional partnership interests by the partnership.

        You should read the summaries in "Description of Our Common Units" and "Description of Our Partnership Agreement," as well as Appendix A—Form of Agreement of Limited Partnership of K-Sea GP Holdings LP, for a more complete description of the terms of our partnership agreement.

Legal Proceedings

        EW LLC and its predecessors have been named, together with a large number of other companies, as co-defendants in 39 civil actions by various parties, including former employees, alleging unspecified damages from past exposure to asbestos and second-hand smoke aboard some of the vessels that it contributed to us in connection with our initial public offering. EW LLC and its predecessors have been dismissed from 38 of these lawsuits for an aggregate sum of approximately $47,000, and are seeking to settle the other case. We may be subject to litigation in the future from these plaintiffs and others alleging exposure to asbestos due to alleged failure to properly encapsulate or remove friable asbestos on our vessels, as well as for exposure to second-hand smoke and other matters. For a related discussion of insurance coverage, please read "Business of K-Sea Transportation Partners L.P.—Insurance Program."

        For a discussion of legal proceedings related to KSP, please read "Business of K-Sea Transportation Partners L.P.—Legal Proceedings."

96



BUSINESS OF K-SEA TRANSPORTATION PARTNERS L.P.

        KSP is a leading provider of marine transportation, distribution and logistics services for refined petroleum products in the United States. KSP currently operates a fleet of 73 tank barges, one tanker and 59 tugboats that serves a wide range of customers, including major oil companies, oil traders and refiners. With approximately 4.3 million barrels of capacity, KSP believes it owns and operates the largest coastwise tank barge fleet in the United States.

        For the fiscal year ended June 30, 2007, KSP's fleet transported approximately 140 million barrels of refined petroleum products for KSP's customers, including BP, Chevron, ConocoPhillips, ExxonMobil and Rio Energy. KSP's five largest customers in fiscal 2007 have been doing business with KSP for approximately 17 years on average. KSP does not assume ownership of any of the products it transports. During fiscal 2007, KSP derived approximately 79% of its revenue from longer-term contracts that are generally for periods of one year or more.

        KSP believes it has a high-quality, well-maintained fleet. Approximately 74% of its current barrel-carrying capacity is double-hulled. Furthermore, KSP will be permitted to continue to operate its single-hull tank vessels until January 1, 2015 in compliance with OPA 90, which mandates the phase-out of all single-hull tank vessels transporting petroleum and petroleum products in U.S. waters. All of KSP's tank vessels except two operate under the U.S. flag, and all but four are qualified to transport cargo between U.S. ports under the Jones Act, the federal statutes that restrict foreign owners from operating in the U.S. maritime transportation industry.

Growth of KSP

        KSP's predecessor company, Eklof Marine Corp., was founded in 1959. Following the acquisition of Eklof in April 1999, KSP implemented an expansion plan fuelled by acquisitions and newbuilding programs. In April 1999, KSP owned 24 tank barges, 6 tankers and 8 tugboats with a total barrel-carrying capacity of approximately 1.1 million barrels. From April 1999 through December 2003, KSP acquired 18 tank vessels in 9 separate transactions, increasing the total barrel-carrying capacity of its fleet, net of vessel sales and retirements to approximately 2.3 million barrels. A majority of this capacity increase resulted from KSP's acquisition of vessels from Maritrans, which included 8 tugboats and 10 barges with a combined carrying capacity of nearly one million barrels, located predominately in the Northeast.

        In January 2004, KSP went public on the New York Stock Exchange. Under the same management, KSP has continued to grow its business—both in terms of the size and scale of operations and in terms of the geographical and commercial scope of its business. KSP's growth has been prudently managed and accretive to cash flow. Quarterly distributions have increased from $0.50 per common unit for the quarter ended March 31, 2004 (prorated for the number of days between the date of its initial public offering to March 31, 2004) to $0.74 for the quarter ended December 31, 2007, reflecting 13 quarterly distribution increases.

        Significant acquisitions since KSP's initial public offering include:

    In January 2004, KSP purchased a 140,000 barrel barge and a tugboat from SeaRiver Maritime, Inc., a subsidiary of ExxonMobil.

    In December 2004, KSP acquired 10 tank barges and seven tugboats from Bay Gulf Trading of Norfolk, Virginia, representing a combined total barrel-carrying capacity of 255,000 barrels.

    In October 2005, KSP acquired 15 tank barges and 15 tugboats through its acquisition of Sea Coast Towing, Inc., thereby increasing its barrel-carrying capacity by 705,000 barrels and providing it with an attractive entry point into the complementary markets of the Pacific Northwest and Alaska.

97


    In August 2007, KSP acquired 11 tank barges and 14 tugboats with a combined capacity of 777,000 barrels through its acquisition of the Smith Maritime Group.

        Since January 2004, KSP has also purchased four existing tank barges with a combined capacity of 328,000 barrels in separate transactions and nine existing tugboats. In October 2007, KSP entered into an agreement with a shipyard to construct a 185,000-barrel articulated tug-barge unit, which is expected to be delivered in the fourth quarter of calendar 2009. The shipyard agreement includes an option to build a second unit of similar design and cost. KSP has an agreement for a long-term charter for a 185,000-barrel articulated tug-barge unit with a major customer that is expected to commence upon delivery. KSP has a vessel newbuilding program for nine additional tank barges totaling 568,000 barrels of capacity. These tank barges are expected to be delivered periodically between the third quarter of fiscal 2008 and the second quarter of fiscal 2011. KSP has firm commitments with its customers for 368,000 barrels of this capacity and expects to be able to employ the remaining capacity upon its delivery. As a result of its expansion program, KSP's total barrel-carrying capacity, net of vessel sales and retirements, is expected to increase to between 4.6 million and 4.8 million by 2010, roughly double the size of its fleet at its initial public offering and four times its size in 1999.

        The following table sets forth certain financial and operating data for KSP for the year ended June 30, 2004 as compared to pro forma information for the year ended June 30, 2007.

(Dollars in millions)

 
  June 30, 2004

  Pro Forma
June 30, 2007(1)

  % Change
 
Operating Data                  
Number of Barges     34     71   108.8 %
Number of Tankers     2     1   (50.0 )%
   
 
 
 
Total Fleet     36     72   100 %
Total Carrying Capacity (mm bbls)     2,410     4,240   75.9 %
Number of Tugboats     19     58   205.3 %

Financial Data

 

 

 

 

 

 

 

 

 
  Revenues   $ 95.8   $ 283.5   195.9 %
  Net Voyage Revenue(4)     77.6     216.2   178.6 %
  Net Income(2)     21.2     17.8   (16.0 )%
  EBITDA(3)(4)     29.4     93.7   218.7 %

(1)
Pro forma for acquisition of the Smith Maritime Group.

(2)
Includes a non cash tax benefit of $17.6 million for fiscal 2004 attributable to a reduction in deferred taxes resulting from the change in income tax status of the assets and liabilities constituting the business of KSP's predecessor that were transferred at the date of KSP's initial public offering.

(3)
EBITDA has been reduced by a net loss on reduction of debt of $3.2 million for the year ended June 30, 2004.

(4)
The following table presents a reconciliation on the non-GAAP financials measures of net voyage revenue and EBITDA to the most directly comparable GAAP financial measures for each of the periods indicated. For an explanation of EBITDA and Net voyage revenue, please read

98


    "Prospectus Summary—Non-GAAP Financial Measures" (Adjusted EBITDA excludes non-controlling interest).

 
  Year Ended
June 30, 2004

  Pro-forma
Year Ended
June 30, 2007(1)

 
  (in millions)

Reconciliation of "Net voyage revenue" to "Voyage Revenue"            
Voyage revenue   $ 93.9   $ 267.9
Voyage expenses     16.3     51.7
   
 
Net voyage revenue   $ 77.6   $ 216.2
   
 
Reconciliation of "EBITDA" to "Net Income"            
Net income   $ 21.2   $ 17.8
  Interest expense, net     6.4     29.4
  Depreciation and amortization     18.6     45.6
  Provision for income taxes     (16.8 )   0.9
   
 
EBITDA   $ 29.4   $ 93.7
   
 
Reconciliation of "EBITDA" to "Net Cash provided by operating activities"            
Net cash provided by operating activities   $ 10.9      
  Payment of drydocking expenditures     7.0      
  Interest paid     5.3      
  Income taxes paid          
  (Increase) decrease in operating working capital     2.7      
  Other, net     (4.7 )    
   
     
EBITDA   $ 21.20      
   
     

Competitive Strengths

        KSP's competitive strengths include:

    A large, versatile fleet that enables KSP to maximize utilization and provide comprehensive customer service.    KSP has a large and versatile tank vessel fleet of 73 tank barges, one tanker and 59 tugboats. KSP believes that its tank vessel fleet, with over 4.3 million barrels of carrying capacity, is the largest coastwise tank barge fleet in the United States, as measured by barrel-carrying capacity. Many of KSP's tank vessels can be transitioned between clean and black oil products and among geographic locations with relative ease, giving KSP the flexibility and efficiency to allocate the right vessel for the right cargo assignment on a timely basis. This flexibility allows KSP to reduce its waiting time between charter assignments and to provide comprehensive and efficient customer service.

    A significant percentage of double-hulled tank vessels in relation to the industry average, which should benefit KSP given the projected decrease in tank vessel capacity due to OPA 90.    As of December 31, 2007, approximately 74% of KSP's barrel-carrying capacity was double-hulled. Without a meaningful increase in new tank vessel construction or retrofittings of existing tank vessels, KSP believes there will be a decrease in tank vessel supply due to OPA 90.

    A reputation for high standards of performance, reliability and safety, which fosters long-term customer relationships with major oil companies, oil traders and refiners.    KSP has actively developed and maintained relationships with major oil companies, oil traders and refiners. KSP has been doing business with BP, Chevron, ConocoPhillips, ExxonMobil and Rio Energy for 34,

99


      18, 11, 11 and 9 years, respectively. KSP believes its customers place significant importance on its established reputation for high standards of performance, reliability and safety.

    A proven track record of successfully acquiring and integrating vessels and businesses.    From April 30, 1999 through December 31, 2007, KSP acquired 61 tank vessels which increased the total barrel-carrying capacity of KSP's fleet, net of vessel sales and retirements, from approximately 1.1 million barrels to approximately 4.3 million barrels. Over the same period, KSP increased the net utilization of the tank vessels KSP operates from 79% to 86%.

    The financial flexibility to pursue acquisitions and other expansion opportunities through the issuance of additional common units and borrowings under KSP's revolving credit agreement.    As of December 31, 2007, KSP had approximately $19.7 million available for working capital purposes and internal growth and acquisitions under KSP's revolving credit agreement. Under certain conditions, KSP has the right to increase its borrowing capacity under the revolving credit agreement by up to $75 million. KSP believes the borrowings available under its credit agreement and its ability to issue additional debt or equity securities should provide it with financial flexibility to enable it to pursue expansion and acquisition opportunities.

    A management team with extensive industry experience.    Members of KSP's management team have, on average, more than 20 years of experience in the maritime transportation industry. Further, members of KSP's management team have been employed by KSP or one of KSP's predecessors, on average, for approximately 12 years. KSP's management team has a successful track record of achieving internal growth and completing acquisitions. KSP believes its management team's experience and familiarity with its industry and businesses are important assets that will assist it in implementing its business strategies and pursuing its growth strategies.

Business Strategies

        KSP's primary business objective is to increase distributable cash flow per unit by executing the following strategies:

    Expanding its fleet through newbuildings and accretive and strategic acquisitions.    KSP has grown successfully in the past through newbuildings and strategic acquisitions. KSP expects to continue this strategy by regularly surveying the marketplace to identify and pursue newbuilding opportunities and acquisitions that expand the services and products KSP offers or KSP's geographic presence. Since KSP's initial public offering in January 2004, KSP has grown its fleet barrel-carrying capacity from 2.3 million barrels to 4.3 million barrels currently, and it has an additional 753,000 barrels of capacity under construction.

    Maximizing fleet utilization and improving productivity.    The interchangeability of KSP's tank vessels and the critical mass of KSP's fleet give KSP the flexibility to allocate the right vessel for the right cargo assignment on a timely basis. KSP intends to continue improving its operational efficiency through the use of new technology and comprehensive training programs for new and existing employees. KSP also intends to minimize down time by emphasizing efficient scheduling and timely completion of planned and preventative maintenance.

    Maintaining safe, low-cost and efficient operations.    KSP believes it is a cost-efficient and reliable tank vessel operator. KSP intends to continue to reduce operating costs through constant evaluation of each vessel's performance and concurrent adjustment of operating and chartering procedures to maximize each vessel's safety and profitability. KSP also intends to continue to minimize costs through an active preventative maintenance program both on-shore and at sea, employing qualified officers and crew and continually training its personnel to ensure safe and reliable vessel operations.

100


    Balancing fleet deployment between longer-term contracts and shorter-term business in an effort to provide stable cash flows through business cycles, while preserving flexibility to respond to changing market conditions.    During fiscal 2007, KSP derived approximately 79% of its revenue from time charters, consecutive voyage charters, contracts of affreightment and bareboat charters, all of which are generally for periods of one year or more. KSP derived the remaining 21% of its revenue for fiscal 2007 from single voyage charters, which are generally priced at prevailing market rates. Vessels operating under voyage charters may generate increased profit margins during periods of improved charter rates, while vessels operating on time charters generally provide more predictable cash flow. KSP intends to pursue a strategy of emphasizing longer-term contracts, while preserving operational flexibility to take advantage of changing market conditions.

    Attracting and maintaining customers by adhering to high standards of performance, reliability and safety.    Customers place particular emphasis on efficient operations and strong environmental and safety records. KSP intends to continue building on KSP's reputation for maintaining high standards of performance, reliability and safety, which KSP believes will enable it to attract increasingly selective customers.

KSP's Industry

Introduction

        Tank vessels, which include tank barges and tankers, are a critical link in the refined petroleum product distribution chain. Tank vessels transport gasoline, diesel fuel, heating oil, asphalt and other products from refineries and storage facilities to a variety of destinations, including other refineries, distribution terminals, power plants and ships. According to a June 2006 study by the Association of Oil Pipe Lines, 29.9% of all domestic refined petroleum product transportation was by water in 2004, making waterborne transportation the most used mode of transportation for refined petroleum products after pipelines.

        Among the laws governing the domestic tank vessel industry is the one commonly referred to as the Jones Act, the federal statute that restricts foreign competition in the U.S. marine transportation industry. Under the Jones Act, marine transportation of cargo between points in the United States, generally known as U.S. coastwise trade, is limited to U.S.-flag vessels that were built in the United States and are owned, manned and operated by U.S. citizens. All of our tank vessels except two operate under the U.S. flag, and all but four are qualified to transport cargo between U.S. ports under the Jones Act.

        OPA 90 mandates, among other things, the phase-out of all single-hull tank vessels transporting petroleum and petroleum products in U.S. waters at varying times by January 1, 2015. The effect of this legislation has been, and is expected to continue to be, the replacement of domestic single-hull tank vessel capacity with newbuildings and retrofitting of existing single-hull tank vessels.

Demand for Domestic Tank Vessel Service

        The demand for domestic tank vessels is driven primarily by U.S. demand for refined petroleum products, which can be categorized as either clean oil products or black oil products. Clean oil products include motor gasoline, diesel fuel, heating oil, jet fuel and kerosene. Black oil products, which are what remain after clean oil products have been separated from crude oil, include residual fuel oil in the refining process, asphalt, petrochemical feedstocks and bunker fuel. The demand for clean oil products is impacted by vehicle usage, air travel and prevailing weather conditions, while demand for black oil products varies depending on the type of product transported and other factors, such as oil refinery requirements and turnarounds, asphalt use, the use of residual fuel oil by electric utilities and bunker fuel consumption.

101


        The Energy Information Administration, or EIA, projects that refined petroleum product consumption in the United States will increase by an average of approximately 1.09% per year from 2006 to 2015. The U.S. demand for refined petroleum products has grown at an average annual rate of 1.06% from 1998 to 2006. In 2006, the East and West Coast regions consumed 6.2 million and 3.2 million barrels of refined petroleum products per day, respectively, or 30.14% and 15.55%, respectively, of the total average daily consumption of refined petroleum products in the United States. The following table shows the average daily demand for refined petroleum products in each region of the United States since 1998:


Average Daily Demand of Refined Petroleum Products

 
  1998
  % of
Total

  1999
  % of
Total

  2000
  % of
Total

  2001
  % of
Total

 
East Coast   5,733   30 % 5,818   30 % 5,868   30 % 5,916   30 %
Midwest   4,820   25 % 4,995   26 % 4,971   25 % 4,913   25 %
Gulf Coast   4,911   26 % 5,217   27 % 5,288   27 % 5,189   26 %
Rockies   585   3 % 629   3 % 655   3 % 639   3 %
West Coast   2,868   15 % 2,861   15 % 2,919   15 % 2,991   15 %
   
 
 
 
 
 
 
 
 
Total   18,917   100 % 19,520   100 % 19,701   100 % 19,648   100 %
 
  2002
  % of
Total

  2003
  % of
Total

  2004
  % of
Total

  2005
  % of
Total

  200
6

  % of
Total

 
East Coast   5,869   30 % 6,253   31 % 6,435   31 % 6,545   31 % 6,206   30 %
Midwest   4,989   25 % 5,034   25 % 5,175   25 % 5,285   25 % 5,214   25 %
Gulf Coast   5,198   26 % 5,041   25 % 5,336   26 % 5,167   25 % 5,315   26 %
Rockies   648   3 % 656   3 % 686   3 % 643   3 % 651   3 %
West Coast   3,057   15 % 3,049   15 % 3,098   15 % 3,162   15 % 3,202   16 %
   
 
 
 
 
 
 
 
 
 
 
Total   19,761   100 % 20,033   100 % 20,730   100 % 20,802   100 % 20,588   100 %

Source: EIA, Petroleum Supply Annual 1998-2006.

        The demand for clean oil products is impacted by vehicle usage, air travel and prevailing weather conditions, while demand for black oil products varies depending on the type of product transported and other factors, such as oil refinery requirements and turnarounds, asphalt use, the use of residual fuel oil by electric utilities and bunker fuel consumption.

102


Transportation of Refined Petroleum Products

        Refined petroleum products are transported by pipelines, water carriers, motor carriers and railroads. In 2004, these modes of transportation carried refined petroleum products 528.4 billion ton-miles. The following chart shows the relative contribution by each mode of transportation:


Transportation of Petroleum Products by Mode
(Based on billions of ton-miles, 2004)

GRAPHIC


Source: Association of Oil Pipe Lines, Pipelines and Water Carriers Continue to Lead All Other Modes of Transport in Ton-Miles Movement of Oil in 2004 (June 2006)

        Tank vessels are used frequently to continue the transportation of refined petroleum products along the distribution chain after these products have first been transported by another method of transportation, such as a pipeline. For example, many areas have access to refined petroleum products only by using marine transportation as the last link in their distribution chain. In addition, tank vessel transportation is generally a more cost-effective and energy efficient means of transporting bulk commodities such as refined petroleum products than transportation by rail car or truck. The carrying capacity of a 100,000-barrel tank barge is the equivalent of approximately 162 average-size rail tank cars and approximately 439 average-size tractor trailer tank trucks.

Types of Tank Vessels

        The domestic tank vessel fleet consists of tankers, which have internal propulsion systems, and tank barges, which do not have internal propulsion systems and are instead pushed or towed by a tugboat. Tank barges generally move at slower speeds than comparably sized tankers, but are less expensive to build and operate. Although tank barge configuration varies, the bow and stern of most tank barges are square or sloped, with the stern of many tank barges having a notch of varying depth to permit pushing by a tug. While a larger tank vessel may be able to carry more cargo, some voyages require a tank vessel to go through a lock, bridge opening or narrow waterway, which limit the size of vessels that may be used. In addition, some loading and discharge facilities have physical limitations that prevent larger tank vessels from loading or discharging their cargo. Tank barges are often able to navigate the shallower waters of the inland waterway system and the waters along the coast. Tankers, however, are often confined to the deeper waters offshore due to their size.

        Tank vessels can be categorized by:

    Barrel-carrying Capacity—the number of barrels of refined product that it takes to fill a vessel;

    Gross Tonnage—the total volume capacity of the interior space of a vessel, including non-cargo space, using a convention of 100 cubic feet per gross ton;

103


    Net Tonnage—the volume capacity of a vessel determined by subtracting the engine room, crew quarters, stores and navigation space from the gross tonnage using a convention of 100 cubic feet per net ton;

    Deadweight Tonnage—the number of long-tons (2,240 pounds) of cargo that a vessel can transport. A deadweight ton is equivalent to approximately 6.5 to 7.5 barrels of capacity, depending on the specific gravity of the cargo. In this prospectus, we have assumed that a deadweight ton is equivalent to 7.0 barrels of capacity;

    Hull Type—the body or framework of a vessel. Vessels can have more than one hull, which means they have additional compartments between the cargo and the outside of the vessel. Typical vessels are single- or double-hulled; and

    Cargo—the type of commodity transported.

        Tank vessels can also be categorized into the following fleets based on the primary waterway system typically navigated by the vessel:

    Coastwise Fleet.    The term coastwise fleet generally refers to commercial vessels that transport goods in the following areas:

    along the Atlantic, Gulf and Pacific coasts;

    between the U.S. mainland and Puerto Rico, Alaska, Hawaii and other U.S. Pacific Islands; and

    between the Atlantic or Gulf and Pacific coasts by way of the Panama Canal.

    Inland Waterways Fleet.    The term inland waterways fleet generally refers to commercial vessels that transport goods on the navigable internal waterways of the Atlantic, Gulf and Pacific Coasts, and the Mississippi River System. The main arteries of the inland waterways network for the mid-continent are the Mississippi and the Ohio Rivers. The inland waterways fleet consists primarily of tugboats and tank barges, which typically have a shallower depth, and are generally less costly, than many tank barges operating in the coastwise fleet. The vessels comprising the inland waterways fleet are generally not built to standards required for operation in coastal waters.

    Great Lakes Fleet.    The term Great Lakes fleet generally refers to commercial vessels normally navigating the waters among the U.S. Great Lakes ports and connecting waterways.

Tugboats

        Tugboats are equipped to push, pull or tow tank barges alongside. The amount of horsepower required to handle a barge depends on a number of factors, including the size of the barge, the amount of product loaded, weather conditions and the waterways navigated. A typical tug is manned by six people: a captain, a mate, an engineer, an assistant engineer and two deckhands. These individuals perform the duties and tasks required to operate the tug, such as standing navigational watches, maintaining and repairing machinery, rigging and line-handling, and painting and other routine maintenance. A standard work schedule for a tugboat crew is 14 days on, 14 days off. While on duty, the crew members generally work two six-hour shifts each day.

Integrated Tug-Barge Units

        Tugboats can also be integrated into a barge utilizing a notching system that connects the two vessels. An integrated tug-barge unit, or ITB, has certain advantages over other tug-barge combinations, including higher speed and better maneuverability. In addition, an ITB can operate in certain sea and weather conditions in which conventional tug-barge combinations cannot.

104


KSP's Customers

        KSP provides marine transportation services primarily to major oil companies, oil traders and refiners in the East, West and Gulf Coast regions of the United States. KSP monitors the supply and distribution patterns of its actual and prospective customers and focuses its efforts on providing services that are responsive to the current and future needs of these customers.

        The following chart sets forth KSP's major customers and the number of years each of them has been a customer.


Major Customers

Major Customers

  Years as Customer
BP   34
Chevron   18
ConocoPhillips   11
ExxonMobil   11
Rio Energy   9

        KSP's two largest customers in fiscal 2007, were ExxonMobil and ConocoPhillips, each of which accounted for more than 10% of its fiscal 2007 consolidated revenue.

105


KSP's Vessels

Tank Vessel Fleet

        At December 31, 2007, KSP's fleet consisted of the following tank vessels:


K-Sea Transportation Partners L.P. Tank Vessel Fleet

Vessel(1)

  Year
Built

  Capacity
(barrels)

  Gross
Tons

  OPA 90
Phase-Out

Double-Hull Barges                
  DBL 155(2)   2004   165,882   12,152   N.A.
  DBL 151   1981   150,000   8,710   N.A.
  DBL 140   2000   140,000   10,303   N.A.
  DBL 134(3)   1994   134,000   9,514   N.A.
  DBL 105(4)   2004   105,000   11,438   N.A.
  DBL 101   2002   102,000   6,774   N.A.
  DBL 102   2004   102,000   6,774   N.A.
  DBL 103   2006   102,000   6,774   N.A.
  DBL 104   2007   102,000   6,774   N.A.
  Casablanca(5)   1987   89,293   5,736   N.A.
  Lemon Creek(5)   1987   89,293   5,736   N.A.
  Spring Creek(5)   1987   89,293   5,736   N.A.
  Nale(*)   2007   86,000   6,508   N.A.
  McCleary's Spirit(6)   1969   85,000   6,554   N.A.
  Antares(*)   2004   84,000   5,855   N.A.
  Deneb(*)   2006   84,000   5,855   N.A.
  DBL 81   2003   82,000   5,667   N.A.
  DBL 82   2003   82,000   5,667   N.A.
  Capella(*)(7)   2002   81,751   5,159   N.A.
  Leo(*)   2003   81,540   5,954   N.A.
  Pacific   1993   81,000   5,669   N.A.
  Rigel(*)   1993   80,861   5,669   N.A.
  Sasanoa   2001   81,000   5,790   N.A.
  DBL 78   2000   80,000   5,559   N.A.
  DBL 70   1972   73,024   5,248   N.A.
  Kays Point(7)   1999   67,000   4,720   N.A.
  Noa(*)   2002   67,000   4,826   N.A.
  Cascades(7)   1993   67,000   4,721   N.A.
  Columbia   1993   58,000   4,286   N.A.
  Na-Kao(*)   2005   52,000   4,076   N.A.
  Ne'ena(*)   2004   52,000   4,076   N.A.
  DBL 53   1965   53,000   4,543   N.A.
  DBL 31   1999   30,000   2,146   N.A.
  DBL 32   1999   30,000   2,146   N.A.
  DBL 28   2006   28,000   2,146   N.A.
  DBL 29   2006   28,000   2,146   N.A.
  DBL 26   2006   28,000   2,146   N.A.
  DBL 27   2007   28,000   2,146   N.A.
  DBL 22   2007   28,000   2,146   N.A.
  DBL 23   2007   28,000   2,146   N.A.
  DBL 24   2007   28,000   2,146   N.A.
  Puget Sounder   1992   25,000   1,870   N.A.
  DBL 2202   1962   22,000   1,830   N.A.
  DBL 16   1954   20,000   1,420   N.A.
  DBL 19   1998   18,000   1,499   N.A.
  DBL 18   1998   18,000   1,499   N.A.
  DBL 17   1998   18,000   1,499   N.A.
       
 
   
    Subtotal       3,225,937   231,754    
       
 
   

106



Single-Hull Tanker

 

 

 

 

 

 

 

 
  Great Gull   1969   30,000   1,729   2015

Single-Hull Barges

 

 

 

 

 

 

 

 
  KTC 80   1981   82,878   4,576   2015
  KTC 71   1975   81,759   4,719   2015
  BB 110(7)   1976   78,000   4,754   2015
  SCT 340   1983   75,000   4,395   2015
  344(7)   1984   75,000   5,214   2015
  Noho Hele(*)   1982   67,880   4,185   2015
  KTC 60   1980   61,638   3,824   2015
  KTC 55   1972   53,012   3,113   2015
  KTC 50   1974   54,716   3,367   2015
  SCT 280   1977   48,000   3,081   2015
  SCT 282   1978   48,000   3,081   2015
  Hui Mana(*)(7)   1988   40,000   2,299   2015
  Essex   1967   35,160   2,307   2015
  DBL 3201   1968   31,000   2,033   2015
  KTC 30   1960   30,000   1,807   2015
  Wallabout Bay   1986   28,330   1,687   2015
  Newark Bay   1969   27,390   1,595   2015
  PM 230(7)   1983   25,000   1,610   2015
  KTC 21   1961   20,000   1,214   2015
  KTC 20   1980   20,000   1,065   2015
  American 21   1968   19,500   1,262   2015
  Oyster Bay   1951   19,370   1,278   2015
  SCT 180   1980   16,250   1,053   2015
  Josiah Bartlett   1955   14,000   1,287   2015
  SEA 76   1969   13,313   830   2015
  KTC 14   1941   13,000   820   2015
       
 
   
    Subtotal       1,108,196   68,185    
       
 
   
    Total Fleet       4,334,133   299,939    
       
 
   

      (*)
      Acquired in the Smith Maritime Group acquisition on August 14, 2007.

      (1)
      Excludes one potable water barge and one deck barge which we also operate.

      (2)
      Built in 1974; double-hulling was completed and the vessel redelivered in September 2004.

      (3)
      Built in 1986 and rebuilt in 1994.

      (4)
      Built in 1982 and rebuilt for petroleum transportation in 2004.

      (5)
      Vessel not qualified for Jones Act trade due to foreign construction.

      (6)
      Built in 1969 and rebuilt in 2001.

      (7)
      Chartered-in vessel.

107


Newbuildings

        The following sets forth the size and expected delivery date for vessels in KSP's newbuilding program:

Vessels
  Expected Delivery
One 28,000-barrel tank barge   3rd Quarter fiscal 2008
Three 80,000-barrel tank barges   4th Quarter fiscal 2008—1st Quarter fiscal 2009
Four 50,000-barrel tank barges   2nd Quarter fiscal 2010—2nd Quarter fiscal 2011
One 185,000-barrel articulated tug-barge unit   2nd Quarter fiscal 2010
One 100,000-barrel tank barge   2nd Quarter fiscal 2010

        The total cost of the barges described above, in the aggregate and after the addition of certain special equipment, is approximately $175.0 million, of which approximately $30.2 million has been spent as of December 31, 2007. For more information on KSP's newbuilding program, please read "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Ongoing Capital Expenditures."

Tugboat Fleet

        KSP uses tugboats as the primary means of propelling KSP's tank barge fleet and generally do not charter them out to third parties. Therefore, KSP seeks to maintain the proper balance between the number of tugboats and the number of tank barges in its fleet. This balance is influenced by a variety of factors, including the condition of the vessels in KSP's fleet, the mix of KSP's coastwise business and KSP's local business and the level of longer-term contracts versus shorter-term business. KSP is also able to maintain a proper balance between tugboats and tank barges by analyzing the historical trading patterns of KSP's customers and the nature of their cargoes. While a tank barge is unloading, KSP often dispatches its tugboat to perform other work.

        At December 31, 2007, KSP operated the following tugboats:


K-Sea Transportation Partners L.P. Tugboat Fleet

Name(1)

  Year Built
  Horsepower
  Dimensions
Lincoln Sea   2000   8000   119' × 40' × 22'
Rebel   1975   7200   150' × 46' × 22'
Yankee   1976   7200   150' × 46' × 22'
Jimmy Smith(*)   1976   7200   150' × 40' × 22'
Barents Sea   1976   6200   136' × 40' × 16'
Irish Sea   1969   5750   135' × 35' × 18'
Sirius(*)   1974   5750   135' × 38' × 19'
Nakolo(*)   1974   5750   125' × 38' × 14'
El Lobo Grande(*)   1978   5750   128' × 36' × 19'
Nakoa(*)   1976   5500   118' × 34' × 17'
Volunteer   1982   4860   120' × 37' × 18'
Adriatic Sea(2)   2004   4800   126' × 34' × 15'
Java Sea(3)   2005   4800   119' × 34' × 15'
Namahoe(*)   1997   4400   105' × 34' × 16'
Pacific Freedom(4)   1998   4500   120' × 31' × 15'
Viking   1972   4300   133' × 34' × 18'
Beaufort Sea   1971   4300   113' × 32' × 16'
Pacific Wolf   1975   4100   111' × 24' × 13'
William J. Moore   1970   4000   135' × 35' × 20'
Niolo(*)   1982   4000   117' × 34' × 17'

108


Nokea(*)   1975   4000   105' × 30' × 14'
Nunui(*)   1978   4000   185' × 40' × 12'
Tasman Sea   1976   3900   124 × 34' × 16'
Norwegian Sea(5)   2006   3900   133' × 34' × 17'
Sea Hawk(6)   2006   3900   112' × 32' × 15'
John Brix(7)   1999   3900   141' × 35' × 8'
Pacific Avenger   1977   3900   140' × 34' × 17'
Altair(*)   1981   3800   106' × 33' × 17'
Kara Sea   1974   3520   111' × 32' × 14'
Coral Sea   1973   3280   111' × 32' × 14'
Nathan E. Stewart   2001   3200   95' × 32' × 14"
Maryland   1962   3010   110' × 28' × 14'
Baltic Sea   1973   3000   101' × 30' × 13'
Pacific Challenger   1976   3000   118' × 34' × 16'
Paragon   1978   3000   99' × 32' × 15'
Pacific Raven   1970   3000   112' × 31' × 14'
Na Hoku(*)   1981   3000   105' × 34' × 17'
Nalani(*)   1981   3000   105' × 34' × 17'
Nohea(*)   1983   3000   98' × 30' × 14'
Pacific Pride(8)   1989   2500   84' × 28' × 13'
Sargasso Sea   1972   2460   105' × 30' × 15"
Labrador Sea   2002   2400   82' × 26' × 12'
Bering Sea   1975   2250   105' × 29' × 13'
Caspian Sea   1981   2000   65' × 24' × 9'
Inland Sea   2000   2000   76' × 26' × 10'
Pacific Patriot   1981   2000   77' × 27' × 12'
Davis Sea   1982   2000   77.4' × 26' × 9'
Pacific Eagle(9)   2001   2000   98' × 27' × 13'
Tiger   1966   2000   88' × 27' 12'
Chukchi Sea   1979   2000   92' × 26' x 9'
Houma   1970   1950   90' × 29' × 11'
Timor Sea   1960   1920   80' × 24' × 10'
Odin   1982   1860   72' × 28' × 12'
Taurus   1979   1860   79' × 25' × 12'
Falcon   1978   1800   80' × 25' × 12'
Naupaka(*)   1983   1800   75' × 26' × 10'
Fidalgo   1973   1400   98' × 25' × 8'
Banda Sea   1966   1350   75' × 23' × 8'

      (*)
      Acquired in the Smith Maritime Group acquisition, which was completed on August 14, 2007.

      (1)
      Excluding certain workboats and other small vessels most of which are less than 1,000 HP.

      (2)
      Built in 1978 and rebuilt in 2004.

      (3)
      Built in 1981 and rebuilt in 2005.

      (4)
      Built in 1969 and rebuilt in 1998.

      (5)
      Built in 1976 and rebuilt in 2006.

      (6)
      Built in 1978 and rebuilt in 2006.

      (7)
      Built in 1963 and rebuilt in 1999.

      (8)
      Built in 1976 and rebuilt in 1989.

      (9)
      Built in 1966 and rebuilt in 1985 and 2001.

109


Integrated Tug-Barge Units

        KSP currently operates twenty ITBs. At December 31, 2007, ITBs represented approximately 38% of the barrel-carrying capacity of KSP's tank barge fleet.

Bunkering

        For over 30 years, KSP has specialized in the shipside delivery of fuel, known as bunkering, for the major and independent bunker suppliers in New York Harbor. KSP also provides bunkering services in the port of Norfolk, Virginia. Demand for bunkering services is driven primarily by the number of ship arrivals. A ship's time in port generally is limited, and the cost of delaying sailing due to bunkering or other activities can be significant. Therefore, KSP continually strives to improve the level of service and on-time deliveries it provides to its customers.

        The majority of KSP's bunker delivery tank vessels are equipped with advanced, whole-load sampling devices to provide the supplier and receiver a representative sample. KSP's bunker delivery tank barges are also equipped with extended booms for hose handling ease alongside ships, remote pump engine shut-offs, spill rails, spill containment equipment and supplies, VHF and UHF radio communication and fendering.

Preventative Maintenance

        KSP has a computerized preventative maintenance program that tracks U.S. Coast Guard and American Bureau of Shipping inspection schedules and establishes a system for the reporting and handling of routine maintenance and repair.

        Vessel captains submit monthly inspection reports, which are used to note conditions that may require maintenance or repair. Vessel superintendents are responsible for reviewing these reports, inspecting identified discrepancies, assigning a priority classification and generating work orders. Work orders establish job type, assign personnel responsible for the task and record target start and completion dates. Vessel superintendents inspect repairs completed by the crew, supervise outside contractors as needed and conduct quarterly inspections following the same criteria as the captains. Drills and training exercises are conducted in conjunction with these inspections, which are typically more comprehensive in scope. In addition, an operations duty officer is available on a 24-hour basis to handle any operational issues. The operations duty officer is prepared to respond on scene whenever required and is trained in technical repair issues, spill control and emergency response.

        The American Bureau of Shipping and the U.S. Coast Guard establish drydocking schedules. Typically, KSP drydocks its vessels twice every five years. Prior to sending a vessel to a shipyard, KSP develops comprehensive work lists to ensure all required maintenance is completed. Repair facilities bid on these work lists, and jobs are awarded based on price and time to complete. Vessels then report to a cleaning facility to prepare for shipyard. Once the vessel is gas-free, a certified marine chemist issues paperwork certifying that no dangerous vapors are present. The vessel proceeds to the shipyard where the vessel superintendent and certain crewmembers assist in performing the maintenance and repair work. The planned maintenance period is considered complete when all work has been tested to the satisfaction of American Bureau of Shipping or U.S. Coast Guard inspectors or both.

Safety

General

        KSP is committed to operating its vessels in a manner that protects the safety and health of its employees, the general public and the environment. KSP's primary goal is to minimize the number of safety- and health-related accidents on its vessels and its property. Its primary concerns are to avoid personal injuries and to reduce occupational health hazards. KSP wants to prevent accidents that may

110



cause damage to its personnel, equipment or the environment, such as fire, collisions, petroleum spills and groundings of its vessels. In addition, KSP is committed to reducing overall emissions and waste generation from each of its facilities and vessels and to the safe management of associated cargo residues and cleaning wastes.

        KSP's policy is to follow all laws and regulations as required, and it is actively participating with government, trade organizations and the public in creating responsible laws, regulations and standards to safeguard the workplace, the community and the environment. KSP's Operations Department is responsible for coordinating all facets of KSP's health and safety program and identifies areas that may require special emphasis, including new initiatives that evolve within the industry. KSP's Human Resources Department is responsible for all training, whether conducted in-house or at a training facility. Supervisors are responsible for carrying out and monitoring compliance for all of the safety and health policies on their vessels.

Tank Barge Characteristics

        To protect the environment, today's tank barge hulls are required not only to be leak-proof into the body of water in which they float but also to be vapor-tight to prevent the release of any fumes or vapors into the atmosphere. KSP's tank barges that carry light products such as gasoline or naphtha have alarms that indicate when the tank is full (95% of capacity) and when it is overfull (98% of capacity). Each tank barge also has a vapor recovery system that connects the cargo tanks to the shore terminal via pipe and hose to return to the plant the vapors generated while loading.

        The majority of KSP's bunker delivery tank barges are equipped with advanced, whole load sampling devices to provide the supplier and receiver a representative sample. KSP's bunker delivery tank barges are also equipped with extended booms for hose handling ease alongside ships, remote pump engine shut-offs, spill rails, spill containment equipment and supplies, VHF and UHF radio, satellite and internet communication.

Safety Management Systems

        KSP belongs to and adheres to the recommendations of the American Waterways Operators, or AWO, Responsible Carrier Program. The program is designed as a framework for continuously improving the industry's and member companies' safety performance. The program complements and builds upon existing government regulations, requiring company safety and training standards that in many instances exceed those required by federal law or regulation.

        Developed by the AWO, the Responsible Carrier Program incorporates best industry practices in three primary areas:

    management and administration;

    equipment and inspection; and

    human factors.

        The Responsible Carriers Program has been recognized by many groups, including the U.S. Coast Guard and shipper organizations. KSP is periodically audited by an AWO-certified auditor to verify compliance. KSP was last audited in early 2007, and KSP's Responsible Carrier Program certificate remains in effect until March 2010.

        KSP is also certified to the standards of the International Safety Management, or ISM, system. The ISM standards were promulgated by the International Maritime Organization, or IMO, and have been adopted through treaty by many IMO member countries, including the United States. Although ISM is not required for coastal tug and barge operations, KSP has determined that an integrated safety

111



management system including the ISM and Responsible Carriers Program standards promotes safer operations and provides KSP with necessary operational flexibility as it continues to grow.

Ship Management, Crewing and Employees

        KSP maintains an experienced and highly qualified work force of shore-based and seagoing personnel. As of December 31, 2007, KSP employed 937 persons, comprising 156 shore staff and 781 fleet personnel. KSP's tug and tanker captains are non-union management supervisors. Effective July 1, 2004, KSP entered into a new four-year collective bargaining agreement with its maritime union covering certain of its seagoing personnel comprising 44% of its workforce. The collective bargaining agreement provides for wage increases totaling 15% over its term, and requires KSP to make contributions to certain pension and other welfare programs. No unfunded pension liability exists under any of these programs. KSP's vessel employees are paid on a daily or hourly basis and typically work 14 days on and 14 days off. KSP's shore-based personnel are generally salaried and most are located at its headquarters in East Brunswick, New Jersey or at its facilities in Staten Island, New York, Seattle, Washington and Norfolk, Virginia. KSP believes that its relations with its employees are satisfactory.

        KSP's shore staff provides worldwide support for all aspects of its fleet and business operations, including sales and scheduling, crewing and human resources functions, engineering, compliance and technical management, financial and insurance services, and information technology. A staff of dispatchers and schedulers maintain a 24-hour duty rotation to monitor communications and to coordinate fleet operations with KSP's customers and terminals. Communication with KSP's vessels is accomplished by various methods, including wireless data links, cellular telephone, VHF, UHF and HF radio.

        KSP's crews regularly inspect each vessel, both at sea and in port, and perform most of the ordinary course maintenance. KSP's procedures call for a member of its shore-based staff to inspect each vessel at least once each fiscal quarter, making specific notations and recommendations regarding the overall condition of the vessel, maintenance, safety and crew welfare. In addition, selected vessels are inspected each year by independent consultants. All of the vessels that are on bareboat charters to third parties are managed and operated by the customer.

Classification, Inspection and Certification

        Most of KSP's coastwise vessels have been certified as being "in class" by the American Bureau of Shipping and, in the case of one vessel, by Lloyds of London. Other vessels, primarily in KSP's West Coast operations, have the required "loadline" certification. The American Bureau of Shipping is one of several internationally recognized classification societies that inspect vessels at regularly scheduled intervals to ensure compliance with American Bureau of Shipping classification rules and some applicable federal safety regulations. Most insurance underwriters require at least a loadline certification by a classification society before they will extend coverage to a coastwise vessel. The classification society certifies that the pertinent vessel has been built and maintained in accordance with the rules of the society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. Inspections are conducted on the pertinent vessel by a surveyor of the classification society in three surveys of varying frequency and thoroughness: annual surveys each year, an intermediate survey every two to three years and a special survey every four to five years. As part of the intermediate survey, a vessel may be required to be drydocked every 24 to 30 months for inspection of its underwater parts and for any necessary repair work related to such inspection.

        KSP's vessels are also inspected at periodic intervals by the U.S. Coast Guard to ensure compliance with Federal safety regulations. All of KSP's tank vessels carry Certificates of Inspection issued by the U.S. Coast Guard.

112


        KSP's vessels and shoreside operations are also inspected and audited periodically by its customers, in some cases as a precondition to chartering its vessels. KSP maintains all necessary approvals required for its vessels to operate in their normal trades. KSP believes that the high quality of its tonnage, its crews and its shoreside staff are advantages when competing against other vessel operators for long-term business.

Insurance Program

        KSP maintains insurance coverage consistent with industry practice that it believes is adequate to protect against the accident-related risks involved in the conduct of its business and risks of liability for environmental damage and pollution. Nevertheless, KSP cannot provide assurance that all risks are adequately insured against, that any particular claims will be paid or that it will be able to procure adequate insurance coverage at commercially reasonable rates in the future. KSP GP, KSP's general partner, maintains a key man insurance policy on Mr. Timothy J. Casey, its President and Chief Executive Officer.

        KSP's hull and machinery insurance covers risks of actual or constructive loss from collision, towers' liabilities, fire, grounding and engine breakdown up to an agreed value per vessel. KSP's war-risks insurance covers risks of confiscation, seizure, capture, vandalism, sabotage and other war-related risks. While some tanker owners and operators obtain loss-of-hire insurance covering the loss of revenue during extended tanker off-hire periods, KSP does not have this type of coverage. KSP believes that, given its diversified marine transportation operations and high utilization rate, this type of coverage is not economical and is of limited value to it. However, KSP evaluates the need for such coverage on an ongoing basis taking into account insurance market conditions and the employment of its vessels.

        KSP's protection and indemnity insurance covers third-party liabilities and other related expenses from, among other things, injury or death of crew, passengers and other third parties, claims arising from collisions, damage to cargo, damage to third-party property, asbestos exposure and pollution arising from oil or other substances. KSP's current protection and indemnity insurance coverage for pollution is $1 billion per incident and is provided by West of England Ship Owners Insurance Services Ltd., or West of England, a mutual insurance association. West of England is a member of the International Group of protection and indemnity mutual assurance associations. The protection and indemnity associations that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. Each protection and indemnity association has capped its exposure to this pooling agreement at approximately $4.3 billion per non-pollution incident. As a member of West of England, KSP is subject to calls payable to the association based on its claim records, as well as the claim records of all other members of the individual associations and members of West of England.

        KSP is not currently the subject of any claims alleging exposure to asbestos or second-hand smoke, although such claims have been brought against KSP's predecessors and may be brought against KSP in the future. KSP's predecessor company, EW LLC, has contractually agreed to retain any such liabilities that occurred prior to KSP's initial public offering in January 2004, will indemnify KSP for up to $10 million of such liabilities until January 2014, and will make available to KSP the benefit of certain indemnities it received in connection with the purchase of certain vessels. If, notwithstanding the foregoing, KSP is ultimately obligated to pay any asbestos-related or similar claims for any reason, KSP believes that it or EW LLC would have adequate insurance coverage for periods after March 1986 to pay such claims. However, EW LLC and its predecessors may not have insurance coverage prior to March 1986. If KSP was subject to claims related to that period, including claims from current or former employees, EW LLC may not have insurance to pay the liabilities, if any, that could be imposed on it. If KSP had to pay claims solely out of its own funds, it could have a material adverse effect on its financial condition. Furthermore, any claims covered by insurance would be subject to deductibles,

113



and because it is possible that a large number of claims could be brought, the aggregate amount of these deductibles could be material.

        KSP may not be able to obtain insurance coverage in the future to cover all risks inherent in its business, and insurance, if available, may be at rates that it does not consider to be commercially reasonable. In addition, as more single-hull vessels are retired from active service, insurers may be less willing to insure, and customers less willing to hire, single-hull vessels.

Competition

        The domestic tank vessel industry is highly competitive. The Jones Act restricts U.S. point-to-point maritime shipping to vessels built in the United States, owned and operated by U.S. citizens and manned by U.S. crews. In KSP's market areas, its primary direct competitors are the operators of U.S.-flag ocean-going tank barges and U.S.-flag refined petroleum product tankers, including the captive fleets of major oil companies.

        In the voyage and short-term charter market, KSP's vessels compete with all other vessels of a size and type required by a charterer that can be available at the date specified. In the voyage market, competition is based primarily on price and availability, although charterers have become more selective with respect to the quality of vessels they hire, with particular emphasis on factors such as age, double hulls and the reliability and quality of operations. Increasingly, major charterers are demonstrating a preference for modern vessels based on concerns about the environmental risks associated with older vessels. Consequently, KSP believes that owners of large modern fleets have been able to gain a competitive advantage over owners of older fleets.

        U.S.-flag tank vessels also compete with petroleum product pipelines and are affected by the level of imports on foreign flag products carriers. The Colonial Pipeline system, which originates in Texas and terminates at New York Harbor, the Plantation Pipe Line system, which originates in Louisiana and terminates in Washington D.C., and smaller regional pipelines between Philadelphia and New York carry refined petroleum products to the major storage and distribution facilities that KSP currently serves. KSP believes that high capital costs, tariff regulation and environmental considerations make it unlikely that a new refined product pipeline system will be built in KSP's market areas in the near future. It is possible, however, that new pipeline segments, including pipeline segments that connect with existing pipeline systems, could be built or that existing pipelines could be converted to carry refined petroleum products. Either of these occurrences could have an adverse effect on KSP's ability to compete in particular locations.

Regulation

        KSP's operations are subject to significant federal, state and local regulation, the principal provisions of which are described below.

Environmental

        General.    Government regulation significantly affects the ownership and operation of KSP's tank vessels. KSP's tank vessels are subject to international conventions, federal, state and local laws and regulations relating to safety and health and environmental protection, including the generation, storage, handling, emission, transportation, and discharge of hazardous and non-hazardous materials. Although KSP believes that it is in substantial compliance with applicable environmental laws and regulations, it cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of its tank vessels. The recent trend in environmental legislation is toward stricter requirements, and this trend will likely continue. In addition, a future serious marine incident occurring in U.S. waters, or internationally, that results in significant

114


oil pollution or causes significant environmental impact could result in additional legislation or regulation that could affect KSP's profitability.

        Various governmental and quasi-governmental agencies require KSP to obtain permits, licenses and certificates for the operation of its tank vessels. While KSP believes that it is in substantial compliance with applicable environmental laws and regulations and have all permits, licenses and certificates necessary for the conduct of its operations, frequently changing and increasingly stricter requirements, future non-compliance or failure to maintain necessary permits or approvals could require KSP to incur substantial costs or temporarily suspend operation of one or more of KSP's tank vessels.

        KSP maintains operating standards for all its tank vessels that emphasize operational safety, quality maintenance, continuous training of its crews and officers, care for the environment and compliance with U.S. regulations. KSP's tank vessels are subject to both scheduled and unscheduled inspections by a variety of governmental and private entities, each of which may have unique requirements. These entities include the local port authorities (U.S. Coast Guard, harbor master or equivalent), classification societies, flag state administration and charterers, particularly terminal operators and oil companies.

        Finally, KSP manages its exposure to losses from potential discharges of pollutants through the use of well-maintained and well-managed facilities, well maintained and well equipped vessels and safety and environmental programs, including a maritime compliance program and its insurance program. Moreover, KSP believes it will be able to accommodate reasonably foreseeable environmental regulatory changes. However, the risks of substantial costs, liabilities, and penalties are inherent in marine operations. As a result, there can be no assurance that any new regulations or requirements or any discharge of pollutants by KSP will not have a material adverse effect on it.

        The Oil Pollution Act of 1990.    The Oil Pollution Act of 1990, or OPA 90, affects all vessels trading in U.S. waters including the exclusive economic zone extending 200 miles seaward. OPA 90 sets forth various technical and operating requirements for tank vessels operating in U.S. waters. Existing single-hull, double-sided and double-bottomed tank vessels are to be phased out of service at varying times based on their tonnage and age, with all such vessels being phased out by January 2015. As of August 15, 2007, 28 of KSP's tank vessels, which are single-hulled, will be precluded from transporting petroleum products as of January 1, 2015.

        Under OPA 90, owners or operators of tank vessels and certain non-tank vessels operating in U.S. waters must file vessel spill response plans with the U.S. Coast Guard and operate in compliance with the plans. These vessel response plans must, among other things:

    address a "worst case" scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources;

    describe crew training and drills; and

    identify a qualified individual with specific authority and responsibility to implement removal actions in the event of an oil spill.

        KSP's vessel response plans have been approved by the U.S. Coast Guard, and all of its tankermen have been trained to comply with these guidelines. In addition, KSP conduct regular oil-spill response drills in accordance with the guidelines set out in OPA 90. KSP believes that all of its tank vessels are in substantial compliance with OPA 90.

115


        Environmental Spill and Release Liability.    OPA 90 and various state laws substantially increased over historic levels the statutory liability of owners and operators of vessels for the discharge or substantial threat of a discharge of oil and the resulting damages, both regarding the limits of liability and the scope of damages. OPA 90 imposes joint and several strict liability on responsible parties, including owners, operators and bareboat charterers, for all oil spill and containment and clean-up costs and other damages arising from spills attributable to their vessels. A complete defense is available only when the responsible party establishes that it exercised due care and took precautions against foreseeable acts or omissions of third parties and when the spill is caused solely by an act of God, act of war (including civil war and insurrection) or a third party other than an employee or agent or party in a contractual relationship with the responsible party. These limited defenses may be lost if the responsible party fails to report the incident or reasonably cooperate with the appropriate authorities or refuses to comply with an order concerning clean-up activities. Even if the spill is caused solely by a third party, the owner or operator must pay removal costs and damage claims and then seek reimbursement from the third party or the trust fund established under OPA 90. Finally, in certain circumstances involving oil spills, OPA 90 and other environmental laws may impose criminal liability on personnel and/or the corporate entity.

        OPA 90 limits the liability of each responsible party for oil pollution from vessels, and these limits were increased substantially in 2006. The limits for a tank vessel without a qualifying double hull are the greater of (1) $3,000 per gross ton or (2) $22 million for a tank vessel of greater than 3,000 tons or $6 million for a tank vessel of 3,000 gross tons or less. The limits for a tank vessel with a qualifying double hull are the greater of (1) $1,900 per gross ton or (2) $16 million for a tank vessel of greater than 3,000 gross tons or $4 million for a tank vessel of 3,000 gross tons or less. The limits for any vessel other than a tank vessel are the greater of $950 per gross ton or $0.8 million. The limits of liability are subject to periodic increase to account for inflation. These limits do not apply where, among other things, the spill is caused by gross negligence or willful misconduct of, or a violation of an applicable federal safety, construction or operating regulation by, a responsible party or its agent or employee or any person acting in a contractual relationship with a responsible party. In addition to removal costs, OPA 90 provides for recovery of damages, including:

    natural resource damages and related assessment costs;

    real and personal property damages;

    net loss of taxes, royalties, rents, fees and other lost revenues;

    net costs of public services necessitated by a spill response, such as protection from fire, safety or health hazards;

    loss of profits or impairment of earning capacity due to the injury, destruction or loss of real property, personal property or natural resources; and

    loss of subsistence use of natural resources.

        OPA 90 requires owners and operators of vessels operating in U.S. waters to establish and maintain with the U.S. Coast Guard evidence of their financial responsibility sufficient to meet their potential liabilities imposed by OPA 90. Under the regulations, we may provide evidence of insurance, a surety bond, a guarantee, letter of credit, qualification as a self-insurer or other evidence of financial responsibility. KSP has qualified as a self-insurer under the regulations and have received Certificates of Financial Responsibility from the U.S. Coast Guard for all of KSP's tank vessels subject to this requirement.

        OPA 90 expressly provides that individual states are entitled to enforce their own oil pollution liability laws, even if inconsistent with or imposing greater liability than OPA 90. There is no uniform liability scheme among the states. Some states have OPA 90-like schemes for limiting liability to various amounts, some rely on common law fault-based remedies and others impose strict and/or unlimited liability on an owner or operator. Virtually all coastal states have enacted their own pollution

116



prevention, liability and response laws, whether statutory or through court decisions, with many providing for some form of unlimited liability. KSP believes that the liability provisions of OPA 90 and similar state laws have greatly expanded potential liability in the event of an oil spill, even where KSP is not at fault. Some states have also established their own requirements for financial responsibility. However, at least two states have repealed regulations concerning the operation, manning, construction or design of tank vessels as a result of the U.S. Supreme Court's 2000 ruling in United States v. Locke. In Locke, the Court held that the regulation of maritime commerce is generally a federal responsibility because of the need for national and international uniformity.

        Parties affected by oil pollution that do not fully recover from a responsible party may pursue relief from the Oil Spill Liability Trust Fund. Responsible parties may seek reimbursement from the fund for costs incurred that exceed the liability limits of OPA 90. In order to obtain reimbursement of excess costs, the responsible party would need to establish that it is entitled to a statutory limitation of liability as discussed above. If we are deemed a responsible party for an oil pollution incident and are ineligible for reimbursement of excess costs, the costs of responding to an oil pollution incident could have a material adverse effect on KSP's results of operations, financial condition and cash flows. KSP presently maintains oil pollution liability insurance in an amount in excess of that required by OPA 90. Through West of England, KSP's current coverage for oil pollution is $1 billion per incident. It is possible, however, that KSP's liability for an oil pollution incident may be in excess of the insurance coverage it maintains.

        KSP is also subject to potential liability arising under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, which applies to the discharge of hazardous substances, whether on land or at sea. Specifically, CERCLA provides for liability of owners and operators of vessels for cleanup and removal of hazardous substances. Liability under CERCLA for releases of hazardous substances from vessels is limited to the greater of $300 per gross ton or $5 million per incident unless attributable to willful misconduct or neglect, a violation of applicable standards or rules, or upon failure to provide reasonable cooperation and assistance. CERCLA liability for releases from facilities other than vessels is generally unlimited.

        KSP is required to show proof of insurance, surety bond, self insurance or other evidence of financial responsibility to pay damages under OPA 90 and CERCLA in the amount of $1,500 per gross ton for vessels, consisting of the sum of the OPA 90 liability limit of $1,200 per gross ton or $10 million per discharge and the CERCLA liability limit of $300 per gross ton or $5 million per discharge. KSP has satisfied these requirements and obtained a U.S. Coast Guard Certificate of Financial Responsibility for each of KSP's tank vessels. OPA 90 and CERCLA each preserve the right to recover damages under other existing laws, including maritime tort law.

        Water.    The federal Clean Water Act, or CWA, imposes restrictions and strict controls on the discharge of pollutants into navigable waters, and such discharges generally require permits. The CWA provides for civil, criminal and administrative penalties for any unauthorized discharges and imposes substantial liability for the costs of removal, remediation and damages. State laws for the control of water pollution also provide varying civil, criminal and administrative penalties and liabilities in the case of a discharge of petroleum, its derivatives, hazardous substances, wastes and pollutants into state waters. In addition, the Coastal Zone Management Act authorizes state implementation and development of programs of management measures for non-point source pollution to restore and protect coastal waters.

        A 2005 United States district court decision could result in certain of KSP's vessels being required to obtain Clean Water Act permits for the discharge of ballast water. Under current CWA regulations, KSP's vessels are exempt from such permitting requirements, but in the March 2005 Northwest Environmental Advocates v. EPA decision, the federal district court in California ordered the EPA to repeal the exemption. Under the court's ruling owners and operators of vessels would be required to comply with the Clean Water Act permitting requirements or face penalties. The remedy phase of the

117



proceeding is ongoing. However, if the permitting exemption is repealed, KSP will incur certain costs to obtain Clean Water Act permits for KSP's vessels. Because KSP does not yet know how or when this matter ultimately will be resolved, KSP cannot estimate its potential financial impact at this time. However, KSP believes that any financial impacts resulting from the repeal of the permitting exemption for ballast water discharge will not be material.

        Solid Waste.    KSP's operations occasionally generate and require the transportation, treatment and disposal of both hazardous and non-hazardous solid wastes that are subject to the requirements of the federal Resource Conservation and Recovery Act, or RCRA, and comparable state and local requirements. In addition, in the course of KSP's tank vessel operations, KSP engages contractors to remove and dispose of waste material, including tank residue. In the event that such waste is found to be "hazardous" under either RCRA or the CWA, and is disposed of in violation of applicable law, KSP could be found jointly and severally liable for the cleanup costs and any resulting damages. Finally, the EPA does not currently classify "used oil" as "hazardous waste," provided certain recycling standards are met. However, some states in which KSP operates have classified "used oil" as "hazardous" under state laws patterned after RCRA. The cost of managing wastes generated by tank vessel operations has increased in recent years under stricter state and federal standards. Additionally, from time to time KSP arranges for the disposal of hazardous waste or hazardous substances at offsite disposal facilities. If such materials are improperly disposed of by third parties, KSP could be liable for clean up costs under CERCLA or the equivalent state laws. KSP uses only certified haulers for this work.

        EW Transportation Corp. (formerly K-Sea Transportation Corp., a predecessor company) was previously notified that it is potentially responsible for the cleanup of hazardous substances at the "Palmer Barge Site" in Port Arthur, Texas, where cleaning was performed on two of its barges in 1996 and 1997. KSP assumed this liability at the time of its initial public offering, subject to insurance and certain indemnification from its predecessors (see "Certain Relationships and Related Transactions—Omnibus Agreement and Non-Compete Agreement—Indemnification"). In August 2007, KSP agreed to settle its share of liability for the EPA-mandated investigation and site cleanup of $25,000, which it anticipates will be indemnified by its predecessor. KSP believes that further costs, if any, will be immaterial to its financial position, results of operations and cash flows.

        Air Emissions.    The federal Clean Air Act, or CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. KSP's vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. KSP's tank barges are equipped with vapor control systems that satisfy these requirements. In addition, the EPA issued final rules regarding emissions standards for various classes of marine diesel engines. While these rules are currently limited to new engines beginning with the 2004 model year, the EPA has noted that it may revisit the application of emissions standards to rebuilt or remanufactured engines if the industry does not take steps to introduce new pollution control technologies. Adoption of such standards could require modifications to some existing marine diesel engines and may require substantial expenditures.

        The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or industrial areas. Where states fail to present approvable SIPs or SIP revisions by certain statutory deadlines, the federal government is required to draft a Federal Implementation Plan. Several SIPs regulate emissions resulting from barge loading and degassing operations by requiring the installation of vapor control equipment. As stated above, KSP's tank barges are already equipped with vapor control systems that satisfy these requirements. Although a risk exists that new regulations could require significant capital expenditures and otherwise increase KSP's costs, it believes, based upon the regulations that have been proposed to date, that no material capital expenditures beyond those currently contemplated and no material increase in costs are likely to be required.

118


Coastwise Laws

        A substantial portion of KSP's operations are conducted in the U.S. domestic trade, which is governed by the coastwise laws of the United States. The U.S. coastwise laws reserve marine transportation between points in the United States, including harbor tug services, to vessels built in and documented under the laws of the United States (U.S.-flag) and owned and manned by U.S. citizens. Generally, an entity is deemed a U.S. citizen for these purposes so long as:

    it is organized under the laws of the United States or a state;

    each of its chief executive officer (by whatever title) and the chairman of its board of directors is a U.S. citizen;

    no more than a minority of the number of its directors necessary to constitute a quorum for the transaction of business are non-U.S. citizens;

    at least 75.0% of the interest and voting power in the corporation is held by U.S. citizens free of any trust, fiduciary arrangement or other agreement, arrangement or understanding whereby voting power may be exercised directly or indirectly by non-U.S. citizens; and

    in the case of a limited partnership, the general partner meets U.S. citizenship requirements for U.S. coastwise trade.

        Because KSP could lose the privilege of operating its vessels in the U.S. coastwise trade if non-U.S. citizens were to own or control in excess of 25.0% of KSP's outstanding interests, KSP's limited partnership agreement restricts foreign ownership and control of KSP's common and subordinated units to not more than 15.0% of KSP's outstanding interests.

        There have been repeated efforts aimed at repeal or significant change of the Jones Act. Although KSP believe it is unlikely that the Jones Act will be substantially modified or repealed, there can be no assurance that Congress will not substantially modify or repeal such laws. Such changes could have a material adverse effect on KSP's operations and financial condition.

Other

        KSP's vessels are subject to the jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board, the U.S. Customs and Border Protection (CBP) and the U.S. Maritime Administration, as well as subject to rules of private industry organizations such as the American Bureau of Shipping. These agencies and organizations establish safety standards and are authorized to investigate vessels and accidents and to recommend improved maritime safety standards. Moreover, to ensure compliance with applicable safety regulations, the U.S. Coast Guard is authorized to inspect vessels at will.

Occupational Health Regulations

        KSP's shoreside facilities are subject to occupational safety and health regulations issued by the U.S. Occupational Safety and Health Administration, or OSHA, and comparable state programs. These regulations currently requires KSP to maintain a workplace free of recognized hazards, observe safety and health regulations, maintain records, and keep employees informed of safety and health practices and duties. KSP's vessel operations are also subject to occupational safety and health regulations issued by the U.S. Coast Guard and, to an extent, OSHA. These regulations currently require KSP to perform monitoring, medical testing and recordkeeping with respect to mariners engaged in the handling of the various cargoes transported by KSP's chemical and petroleum product carriers.

Vessel Condition

        KSP's vessels are subject to periodic inspection and survey by, and drydocking and maintenance requirements of, the U.S. Coast Guard and/or the American Bureau of Shipping. KSP believes it is currently in compliance in all material respects with the environmental and other laws and regulations, including health and safety requirements, to which its operations are subject. KSP is unaware of any

119



pending or threatened litigation or other judicial, administrative or arbitration proceedings against it occasioned by any alleged non-compliance with such laws or regulations. The risks of substantial costs, liabilities and penalties are, however, inherent in marine operations, and there can be no assurance that significant costs, liabilities or penalties will not be incurred by or imposed on KSP in the future.

Properties

        KSP leases pier facilities and approximately 7,000 square feet of office space in Staten Island, New York. The lease expires in April 2009; however, KSP has the option to renew it for two additional ten-year periods. KSP owns and uses a 2,100 square-foot modular facility for additional office space on the premises.

        KSP leases pier facilities, a water treatment facility and approximately 10,500 square feet of office space in Norfolk, Virginia. This lease expires in January 2010, and KSP has an option to purchase the facility.

        KSP leases approximately 9,500 square feet of office space for its principal executive office in East Brunswick, New Jersey, for which the lease expires in December 2013.

        KSP leases pier facilities and approximately 16,000 square feet of office space in Seattle, Washington. This lease expires in October 2008 with a renewal option for one additional five-year term.

        KSP also leases pier facilities and approximately 22,000 square feet of office and warehouse space in Philadelphia, Pennsylvania, which terminates in December 2009, and KSP also leases pier facilities and approximately 2,800 square feet of office and warehouse space, on a month-to-month basis, in Honolulu, Hawaii.

Legal Proceedings

        KSP is a party to various suits in the ordinary course of business for monetary relief arising principally from personal injury, collision or other casualty and to claims arising under vessel charters. All of these personal injury, collision and casualty claims against us are fully covered by insurance, subject to deductibles ranging from $10,000 to $100,000 in amount. KSP reserves on a current basis for amounts it expects to pay. Although the outcome of any individual claim or action cannot be predicted with certainty, KSP believes that any adverse outcome, individually or in the aggregate, would be substantially mitigated by applicable insurance or indemnification from previous owners of its assets, and would not have a material adverse effect on its financial position, results of operations or cash flows.

        In November 2005, one of KSP's tank barges struck submerged debris in the U.S. Gulf of Mexico, causing significant damage which resulted in the barge eventually capsizing. At the time of the incident, the barge was carrying approximately 120,000 barrels of No. 6 fuel oil, a heavy oil product. In January 2006, submerged oil recovery operations were suspended and a monitoring program, which sought to determine if any recoverable oil could be found on the ocean floor, was begun. In February 2007, the Coast Guard agreed to end the cleanup and response phase, including KSP's obligation to conduct any further monitoring of the area around the spill site.

        KSP's insurers responded to the pollution-related costs and environmental damages resulting from the incident, paying approximately $65 million less $60,000 in total deductibles, and are pursuing their own financial recovery efforts. In December 2007, a court made a final determination of liability in this case, resulting in a defined financial recovery by KSP's insurers, and also by KSP. As a result of the ruling, KSP was awarded a reimbursement of certain expenses totaling $2.1 million, which has been included in other expense (income) in our consolidated statement of operations and in prepaid expenses and other assets in the December 31, 2007 consolidated balance sheet. This amount was received in January 2008. KSP's incident response effort is complete. KSP is not aware of any further recovery, cleanup or other costs. However, if any such costs are incurred, they are expected to be paid by the insurers.

        KSP's predecessors have agreed to indemnify us for certain liabilities. For more information, please read "Certain Relationships and Related Transactions—Omnibus Agreement and Non-Compete Agreement—Indemnification."

120



MANAGEMENT

K-Sea GP Holdings LP and K-Sea Transportation Partners L.P.

    Partnership Management and Governance

        Our general partner's limited liability company agreement establishes a board of directors that will be responsible for the oversight of our business and operations. Our general partner's board of directors will be elected by the members of our general partner.

        Our general partner will manage our operations and activities. Unitholders are limited partners and will not participate in the management of our operations. As a general partner, our general partner is liable for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are made specifically non-recourse to it. Our general partner has the sole discretion to incur indebtedness or other obligations on our behalf on a non-recourse basis to the general partner.

        We and our general partner have no employees. All of our officers and other personnel necessary for our business to function (to the extent not out-sourced) will be employed by KSP pursuant to an administrative agreement. As a result, the administrative agreement will provide for our payment of an annual fee to KSP for general and administrative services. This fee will initially be $350,000 per year. The fee will also be subject to upward adjustment if a material event occurs that impacts the general and administrative services provided to us such as acquisitions, entering into new lines of business or changes in laws, regulations or accounting rules. In addition to this fee for general and administrative services provided to us by KSP, we expect to incur direct annual expenses of approximately $1,000,000 for recurring costs associated with becoming a separate publicly traded entity, including legal, tax and accounting expenses. All of the officers and a majority of the directors of our general partner are also officers or directors of KSP. Our general partner's executive officers expect to spend the substantial majority of their time managing the business of KSP, which benefits us as KSP's performance will determine our success. We currently anticipate that these officers will spend approximately 5% to 15% of their time on our business as distinct from KSP's. The actual time devoted by these officers to managing our business as well as KSP's will fluctuate as a result of KSP's relative activity levels between the two entities. The amount of incremental time spent by non-officer directors who serve on both boards will depend to some extent on committee assignments, but we estimate that such directors will spend on average an incremental 15% to 20% more time by serving on our board. Upon completion of the offering, we will have one independent director as defined by the rules of the NYSE. This director may also serve as an independent director of KSP. Following completion of this offering, two additional independent directors will be appointed to the board of directors of our general partner in accordance with applicable NYSE and SEC rules.

        We will reimburse KSP for expenses incurred (1) on our behalf; (2) on behalf of our general partner; or (3) to maintain KSP's legal existence and good standing. We will also reimburse our general partner for any additional expenses incurred on our behalf or to maintain its legal existence and good standing.

        The directors of our general partner will be designated and elected by agreement of the owners of our general partner.

121


    Directors and Executive Officers of Our General Partner and KSP GP

        The following table provides information concerning the directors and executive officers of our general partner and KSP GP as of December 2007.

Name

  Age
  Position with Our General Partner
  Position with KSP GP

James J. Dowling

 

61

 

Chairman of the Board

 

Chairman of the Board

Timothy J. Casey

 

46

 

President, Chief Executive Officer and Director

 

President, Chief Executive Officer and Director

John J. Nicola

 

53

 

Chief Financial Officer

 

Chief Financial Officer

Thomas M. Sullivan

 

48

 

Vice President, Operations

 

 

Richard P. Falcinelli

 

46

 

Vice President, Administration and Secretary

 

 

Gregory J. Haslinsky

 

44

 

Vice President, Sales and Marketing

 

 

Charles Kauffman

 

56

 

Vice President, Corporate Development

 

 

Anthony S. Abbate

 

67

 

Director

 

 

Barry J. Alperin

 

67

 

Director

 

 

Brian P. Friedman

 

52

 

Director

 

Director

Frank Salerno

 

48

 

Director

 

 

        James J. Dowling has served as Chairman of the Board of our general partner since December 2007 and as Chairman of the Board of KSP GP since July 2003, has served as Chairman of the Board of EW LLC (formerly K-Sea Transportation LLC) since January 2002 and has served as a director of EW LLC since its formation in April 1999. Mr. Dowling has been a Managing Director of Jefferies Capital Partners, a private investment firm, since January 2002, and is a director of various private companies in which Jefferies Capital Partners has an interest. Jefferies Capital Partners is the manager of Furman Selz Investors II L.P. and its affiliated entities, principal o