General

We are a leading provider of marine transportation, distribution and logistics services for refined petroleum products in the United States. We currently operate a fleet of 73 tank barges and 66 tugboats that serves a wide range of customers, including major oil companies, oil traders and refiners. With approximately 4.3 million barrels of capacity, we believe we operate the largest coastwise tank barge fleet in the United States.

Demand for our services is driven primarily by demand for refined petroleum products in the areas in which we operate. We generate revenue by charging customers for the transportation and distribution of their products utilizing our tank vessels and tugboats. For the fiscal year ended June 30, 2008, our fleet transported approximately 160 million barrels of refined petroleum products for our customers, including BP, Chevron, ConocoPhillips, ExxonMobil and Tesoro. We do not assume ownership of any of the products we transport. During fiscal 2008, we derived approximately 81% of our revenue from longer-term contracts that are generally for periods of one year or more.

We believe we have a high-quality, well-maintained fleet. As of March 31, 2009, approximately 80% of our barrel-carrying capacity was double-hulled, and we are permitted to continue to operate our single-hull tank vessels until January 1, 2015 in compliance with the Oil Pollution Act of 1990, or OPA 90, which mandates the phase-out of all single-hull tank vessels transporting petroleum products in U.S. waters. All of our tank vessels except two operate under the U.S. flag, and all but three 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.

We operate our 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 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, our 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 our markets and, accordingly, the demand for our services. Our West Coast operations provide seasonal diversification primarily as a result of its services to our Alaskan markets, which experience the greatest demand for petroleum products in the summer months, due to weather conditions. Considering the above, we believe seasonal demand for our services is lowest during our third fiscal quarter. We do not see any significant seasonality in the Hawaiian market. 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 our revenues and cash flows.

Significant Events

Common Unit Offering

On August 20, 2008, we closed a public offering of 2,000,000 common units representing limited partner interests. The price to the public was $25.80 per unit. The net proceeds of $49.8 million from the offering, after payment of underwriting discounts and commissions and other transaction costs, were used to repay borrowings under the credit agreements and to make construction progress payments in connection with our vessel new-building program.

Change in Accounting Estimates

In assessing the appropriateness of the useful lives and salvage values of our vessels, we considered the recent growth in the fleet and changes in its composition. We concluded, based on our accumulated data on useful lives and the planned future use of our vessels, as well as a review of industry data, that our assets are fully operative and economic for periods greater than those previously used for book depreciation purposes. Accordingly, effective July 1, 2008, we prospectively increased the estimated useful lives of double-hulled tank barges and tugboats to a range of ten to thirty years, from the previous ranges of ten to twenty five years and ten to twenty years, respectively, and increased salvage values for double-hulled tank barges. These changes in accounting estimates increased both operating income and net income by $1.6 million and net income per fully diluted limited partner unit

by $0.09 for the three months ended March 31, 2009 and increased operating income and net income by $4.9 million and $4.8 million, respectively, and net income per fully diluted limited partner unit by $0.30 for the nine months ended March 31, 2009.

Insurance Call

In December 2008, we received an additional call from our mutual insurance carrier. The call was primarily retrospective for policy years covering February 2006 through February 2009. The decision to make the call was based primarily on falling investment returns and projected underwriting losses. Although such additional calls are uncommon, our insurance carrier has the right to make these calls when it believes the level of its reserves will be insufficient to meet certain regulatory requirements. The additional calls, which were based upon the information available in mid-November 2008, totaled approximately $3.4 million. The call for the first policy year was paid in February 2009. The remaining calls are scheduled for payment in August 2009 for the second policy year and January 2010 and August 2010 for the last policy year. Our insurance carrier has scheduled these payments over this time period to reassess at various points whether the calls are necessary. We received updated information from our insurance carrier reflecting improved investment returns and underwriting results. Based on the information provided, our financial statements reflect additional insurance expense, included in vessel operating expenses, of approximately $0.1 million and $2.5 million for the three and nine months ended March 31, 2009. Such estimates may be subject to change in the future and additional liabilities may be recorded if market conditions or underwriting results should deteriorate.

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 our analysis and the factors that influence our results of operations:

† Voyage revenue. Voyage revenue includes revenue from time charters, contracts of affreightment and voyage charters. 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 us. If we pay voyage expenses, they are included in our results of operations when they are incurred. Typically when we pay voyage expenses, we add them to our freight rates at an approximate cost.

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

Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Definitions" included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 for definitions of certain other terms used in our discussion of results of operations.

                             Results of Operations



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



                                      Three Months Ended           Nine Months Ended
                                           March 31,                   March 31,
                                      2009           2008          2009          2008

Voyage revenue                     $    74,628    $   77,644    $  242,302    $  227,005
Other revenue                            3,810         3,105        15,889         9,181
Total revenues                          78,438        80,749       258,191       236,186
Voyage expenses                         13,393        20,502        56,371        55,877
Vessel operating expenses               35,271        31,111       110,607        91,002
% of voyage and vessel
operating expenses to total
revenue                                   62.0 %        63.9 %        64.7 %        62.2 %
General and administrative
expenses                                 7,481         7,570        22,845        21,165
% of total revenue                         9.5 %         9.4 %         8.8 %         9.0 %
Depreciation and amortization           13,420        12,234        39,946        34,638
Net (gain) loss on disposal of
vessels                                    (53 )           3           250          (297 )
Operating income                         8,926         9,329        28,172        33,801
% of total revenue                        11.4 %        11.6 %        10.9 %        14.3 %
Interest expense, net                    4,879         4,892        16,293        16,050
Other expense (income), net                 84           271           202        (1,902 )
Income before income taxes               3,963         4,166        11,677        19,653
Provision (benefit) for income
taxes                                       55          (159 )         312           346
Net income                         $     3,908    $    4,325    $   11,365    $   19,307

Net voyage revenue by trade
Coastwise
Total tank vessel days                   4,042         3,913        12,352        11,190
Days worked                              3,449         3,201        10,932         9,750
Scheduled drydocking days                  128           266           268           588
Net utilization                             85 %          82 %          89 %          87 %
Average daily rate                 $    13,865    $   13,784    $   13,335    $   13,591
Total coastwise net voyage
revenue (a)                        $    47,819    $   44,122    $  145,774    $  132,516
Local
Total tank vessel days                   2,070         2,245         6,502         7,008
Days worked                              1,663         1,812         5,299         5,558
Scheduled drydocking days                   65            54           196            93
Net utilization                             80 %          81 %          81 %          79 %
Average daily rate                 $     8,067    $    7,185    $    7,578    $    6,947
Total local net voyage revenue
(a)                                $    13,416    $   13,020    $   40,157    $   38,612

Tank vessel fleet
Total tank vessel days                   6,112         6,158        18,854        18,198
Days worked                              5,112         5,013        16,231        15,308
Scheduled drydocking days                  193           320           464           681
Net utilization                             84 %          81 %          86 %          84 %
Average daily rate                 $    11,979    $   11,399    $   11,455    $   11,179
Total fleet net voyage revenue
(a)                                $    61,235    $   57,142    $  185,931    $  171,128

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Voyage Revenue and Voyage Expenses

Voyage revenue was $74.6 million for the three months ended March 31, 2009 a decrease of $3.0 million, or 3.9%, as compared to voyage revenue of $77.6 million for the three months ended March 31, 2008. Voyage expenses were $13.4 million for the three months ended March 31, 2009 a decrease of $7.1 million, or 34.6%, as compared to voyage expenses of $20.5 million for the three months ended March 31, 2008. The decrease in voyage expenses primarily relates to the decrease in the price of fuel.

Net voyage revenue

Net voyage revenue was $61.2 million for the three months ended March 31, 2009, which exceeded net voyage revenue of $57.1 million for the three months ended March 31, 2008 by $4.1 million, or 7.2%. In our coastwise trade, net voyage revenue was $47.8 million for the three months ended March 31, 2009, an increase of $3.7 million, or 8.4%, as compared to $44.1 million for the three months ended March 31, 2008. Net utilization in our coastwise trade was 85% for the three months ended March 31, 2009 as compared to 82% for the three months ended March 31, 2008. The net voyage revenue increase in our coastwise trade of $3.7 million for the three months ended March 31, 2009 is due to an increase of $5.2 million relating to an increase in the number of working days due to (1) the delivery of two of our newbuild barges, the DBL 77, which began operations in July 2008, and the DBL 76, which began operations in November 2008, and
(2) additional days worked by the DBL 105, DBL 155 and the Cascades, which were in the shipyard for an aggregate 158 days during the three months ended March 31, 2008. This increase was offset by a decrease of $0.5 million for the DBL 102, which was in the shipyard during the three months ended March 31, 2009, and a decrease of $1.0 million relating to the sale of a barge. Net utilization during the three months ended March 31, 2009 increased as a result of decreased scheduled drydocking days. Coastwise average daily rates increased 0.6% to $13,865 for the three months ended March 31, 2009 from $13,784 for the three months ended March 31, 2008 mainly as a result of annual rate increases.

Net voyage revenue in our local trade for the three months ended March 31, 2009 increased by $0.4 million, or 3.1%, to $13.4 million from $13.0 million for the three months ended March 31, 2008. The increase in net voyage revenue for the three months ended March 31, 2009 in our local trade is primarily due to a $0.7 million increase relating to the increased number of working days for one newbuild barge, the DBL 25, which began operations in April 2008, an increase of $0.5 million for a vessel operating at a higher rate as a result of significant ice charges and an increase of $0.4 million for a vessel that was moved from performing operational support activities in our waste treatment facility during the three months ended March 31, 2008 to the spot bunker market in the three months ended March 31, 2009. These increases were partially offset by a decrease of $1.1 million relating to the sale of two of our single hull vessels, in May and July 2008. Net utilization in our local trade was 80% for the three months ended March 31, 2009, compared to 81% for the three months ended March 31, 2008. Average daily rates in our local trade increased to $8,067 for the three months ended March 31, 2009 from $7,185 for the three months ended March 31, 2008 as a result of higher rates on certain clean oil vessels due to a colder winter as compared to the prior year period.

Other Revenue

Other revenue was $3.8 million for the three months ended March 31, 2009 as compared to $3.1 million for the three months ended March 31, 2008. The increase of $0.7 million was mainly attributable to increased towing revenue from the purchase of eight tugboats in June 2008.

Vessel Operating Expenses

Vessel operating expenses were $35.3 million for the three months ended March 31, 2009 as compared to $31.1 million for the three months ended March 31, 2008, an increase of $4.2 million. Voyage and vessel operating expenses as a percentage of total revenues was 62.0% for the three months ended March 31, 2009 compared to 63.9% for the three months ended March 31, 2008. Vessel labor and related costs for the three months ended March 31, 2009 increased $3.5 million as a result of a contractual labor rate increase reflected in our new two year labor contract with certain of our vessel employees and a higher average number of employees due to the operation of the additional barges and tugboats described under "-Net voyage revenue" and "- Other Revenue" above. Other vessel operating costs increased $0.7 million for the three months ended March 31, 2009. The increase was attributable to an increase in vessel insurance premiums of $0.7 million due an increased number of vessels and rate increases, an increase of $0.7 million for repairs, maintenance, supplies and parts, an increase of $0.6 million relating to bad debt expense primarily as a result of the resolution of an arbitration proceeding, and an increase of

$0.4 million in outside charter fees primarily due to certain sale leaseback agreements entered into in December 2008. Such increases were partially offset by a decrease of $1.8 million in outside towing expenses as a result of the purchase of eight additional tug boats in June 2008.

Depreciation and Amortization

Depreciation and amortization was $13.4 million for the three months ended March 31, 2009, an increase of $1.2 million, or 9.8%, as compared to $12.2 million for the three months ended March 31, 2008. Of this $1.2 million increase, $0.8 million was attributable to depreciation on our newbuilds placed in service and vessels purchased during fiscal years 2008 and 2009 and $1.7 million relates to increased drydocking amortization. These increases were partially offset by a decrease of $1.6 million due to the change in estimated useful lives of our vessels and salvage values as described under "-Significant Events" above.

General and Administrative Expenses

General and administrative expenses were $7.5 million for the three months ended March 31, 2009, a decrease of $0.1 million, or 1.3%, as compared to general and administrative expenses of $7.6 million for the three months ended March 31, 2008. As a percentage of total revenues, general and administrative expenses were 9.5% for the three month periods ended March 31, 2009 and 9.4% for the three months ended March 31, 2008. The $0.1 million decrease is a result of a $0.4 million decrease in professional fees and travel related expenses, offset by a $0.3 million increase in personnel costs resulting mainly from increased annual salaries and headcount.

Interest Expense, Net

Net interest expense was $4.9 million for the three months ended March 31, 2009 and March 31, 2008. Net interest expense remained constant for the three months ended March 31, 2009 and 2008 because of higher average debt balances, offset by lower variable interest rates for the three months ended March 31, 2009.

Provision for Income Taxes

Our interim provision (benefit) for income taxes are based on our estimated annual effective tax rate. For the three months ended March 31, 2009, our effective tax rate was a 1.4% tax provision as compared to a 3.8% tax benefit for the three months ended March 31, 2008. Our effective tax rate comprises the New York City Unincorporated Business Tax and foreign taxes on our operating partnership, plus federal, state, local and foreign corporate income taxes on the taxable income of our operating partnership's corporate subsidiaries. Our effective tax rate for the three months ended March 31, 2009 was higher than the effective tax rate for the three months ended March 31, 2008 primarily due to adjustments made in the fiscal 2008 period to the estimated tax liabilities for certain foreign jurisdictions based on actual returns as filed.

Net Income

Net income was $3.9 million for the three months ended March 31, 2009, a decrease of $0.4 million compared to net income of $4.3 million for the three months ended March 31, 2008. This decrease resulted primarily from a $0.4 million decrease in operating income and a $0.2 million increase in provision for income taxes, partially offset by a $0.2 million decrease in other income (expense).

Nine Months Ended March 31, 2009 Compared to Nine Months Ended March 31, 2008

Voyage Revenue and Voyage Expenses

Voyage revenue was $242.3 million for the nine months ended March 31, 2009, an increase of $15.3 million, or 6.7%, as compared to voyage revenue of $227.0 million for the nine months ended March 31, 2008. Voyage expenses were $56.4 million for the nine months ended March 31, 2009, a decrease of $0.5 million, or 0.9%, as compared to voyage expenses of $55.9 million for the nine months ended March 31, 2008.

Net voyage revenue

Net voyage revenue was $185.9 million for the nine months ended March 31, 2009, which exceeded net voyage revenue of $171.1 million for the nine months ended March 31, 2008 by $14.8 million, or 8.6%. In our coastwise trade, net voyage revenue was $145.8 million for the nine months ended March 31, 2009, an increase of

$13.3 million, or 10.0%, as compared to $132.5 million in the nine months ended March 31, 2008. The net voyage revenue increase in our coastwise trade of $13.3 million for the nine months ended March 31, 2009 is due to an increase of $13.1 million relating to an increase in the number of working days for (1) the DBL 77, which began operations in July 2008, (2) the DBL 101, the DBL 105 and the DBL 53, which were in the shipyard for extended periods in fiscal 2008, (3) the DBL 76, which began operations in November 2008, (4) the DBL 79, which began operations in January 2009, and (5) the Washington, which was placed in service in July 2008. Additionally, the inclusion for the nine months ended March 31, 2009 of the vessels acquired in the Smith Maritime Group in August 2007 resulted in increased coastwise net voyage revenue of $3.1 million. These increases were partially offset by a decrease of $0.9 million for the DBL 102, which was in the shipyard during the nine months ended March 31, 2009, a decrease of $0.9 million relating to a barge that was sold and a decrease of $1.1 million relating to a barge which worked in the spot market in the nine months ended March 31, 2009 as compared to being on a time charter for the nine months ended March 31, 2008. Net utilization in our coastwise trade was 89% for the nine months ended March 31, 2009 compared to 87% for the nine months ended March 31, 2008. Average daily rates in the coastwise trade decreased 1.9% to $13,335 for the nine months ended March 31, 2009 from $13,591 for the nine months ended March 31, 2008. The decrease in coastwise average daily rates is primarily due to lower average rates of certain vessels operated in the Gulf of Mexico as a result of Hurricanes Gustav and Ike and a $2.0 million write-down in the carrying value of fuel inventory used to operate our tugboats in the nine months ended March 31, 2009.

Net voyage revenue in our local trade for the nine months ended March 31, 2009 increased by $1.6 million, or 4.1%, to $40.2 million from $38.6 million for the nine months ended March 31, 2008. Local net voyage revenue increased by $3.5 million during the nine months ended March 31, 2009 due to the increased number of working days for the newbuild barges DBL 23, DBL 24 and DBL 25, which were delivered in September 2007, December 2007, and March 2008, respectively. Additionally, local net voyage revenue increased by $2.2 million due to the stronger utilization and higher rates for a vessel as the result of the sale of one of our single hull vessels and a vessel that was moved from performing operational support activities for our waste water treatment facility during the nine months ended March 31, 2008 to the spot bunker market in the nine months ended March 31, 2009. The $5.7 million increase was partially offset by a decrease in local net voyage revenue of $4.1 million due to the retirement of three single-hull vessels. Net utilization in our local trade was 81% for the nine months ended March 31, 2009 compared to 79% for the nine months ended March 31, 2008. Average daily rates in our local trade increased 9.1% to $7,578 for the nine months ended March 31, 2009 from $6,947 for the nine months ended March 31, 2008 due to higher rates on certain clean oil vessels due to a colder winter as compared to the nine months ended March 31, 2008 and higher rates on certain newbuild vessels.

Other Revenue

Other revenue was $15.9 million for the nine months ended March 31, 2009, compared to $9.2 million for the nine months ended March 31, 2008. Of this $6.7 million increase, $5.0 million was attributable to increased revenue from the purchase of eight tugboats in June 2008 and $1.4 million was a result of the Smith Maritime Group acquisition.

Vessel Operating Expenses

Vessel operating expenses were $110.6 million for the nine months ended March 31, 2009 compared to $91.0 million for the nine months ended March 31, 2008, an increase of $19.6 million. Voyage and vessel operating expenses as a percentage of total revenues increased to 64.7% for the nine months ended March 31, 2009 from 62.2% for the nine months ended March 31, 2008. Vessel labor and related costs for the nine months ended March 31, 2009 increased $16.0 million as a result of a contractual labor rate increase reflected in our new two year labor contract with certain of our vessel employees and a higher average number of employees due to the operation of the additional barges and tugboats described under "-Net voyage revenue" and "- Other Revenue" above. Other vessel operating costs increased $3.6 million for the nine months ended March 31, 2009. The increase was attributable to an increase in vessel insurance premiums of $4.4 million due an increased number of vessels and rate increases, including $2.5 million relating to the additional call described in "-Significant Events" above, an increase of $2.2 million for repairs, maintenance, supplies and parts, an increase of $0.6 million relating to bad debt expense primarily as a result of the resolution of an arbitration proceeding, an increase of $0.4 million in outside charter fees primarily due to certain sale leaseback agreements entered into in December 2008 and an increase of $1.0 million relating to fuel and other costs. Such increases were partially offset by a decrease of $5.2 million in outside towing expenses as a result of the purchase of eight additional tug boats in June 2008.

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