Highlights
For the three months ended September 30, 2018, KNOT
Offshore Partners LP (“KNOT Offshore Partners” or the
“Partnership”):
• Generated total revenues of $70.7 million,
operating income of $31.7 million and net income of $20.9 million.
• Generated quarterly Adjusted EBITDA of $54.1
million.1 • Generated quarterly distributable cash
flow of $26.3 million. 1 • Reported a distribution
coverage ratio of 1.46. 2 • Fleet operated with 99.9%
utilization for scheduled operations and 97.4% utilization taking
into account the scheduled drydocking of the Hilda Knutsen and
Torill Knutsen, which were offhire for 24 and 14 days,
respectively, in the third quarter of 2018.
Other events:
• On July 13, 2018, a subsidiary of Royal Dutch Shell
(“Shell”) exercised its option to extend the time charter of the
Windsor Knutsen by one additional year until October 2019. •
On August 3, 2018, the Partnership entered an amended time
charter with Eni Trading & Shipping S.p.A. (“Eni”), extending
the duration of the Hilda Knutsen time charter for four years until
August 2022. • On August 14, 2018, the Partnership
paid a cash distribution of $0.52 per common unit with respect to
the quarter ended June 30, 2018 to all common unitholders of record
on August 1, 2018. On August 14, 2018, the Partnership also paid a
cash distribution to Series A Preferred unitholders with respect to
the quarter ended June 30, 2018 in an aggregate amount equal to
$1.8 million. • On September 5, 2018, Eni exercised
its option to extend the time charter of the Torill Knutsen by one
additional year until November 2019. • On September
20, 2018, the Partnership refinanced credit facilities secured by
the Windsor Knutsen, the Bodil Knutsen, the Fortaleza Knutsen, the
Recife Knutsen, the Carmen Knutsen, and the Ingrid Knutsen, with
loan facilities totaling $375 million. • On November
9, 2018, Equinor ASA (formerly Statoil ASA) exercised its option to
extend the time charter of the Bodil Knutsen by one additional year
until May 2020. • On November 14, 2018, the
Partnership paid a cash distribution of $0.52 per common unit with
respect to the quarter ended September 30, 2018 to all common
unitholders of record on November 1, 2018. On November 14, 2018,
the Partnership also paid a cash distribution to Series A Preferred
unitholders with respect to the quarter ended September 30, 2018 in
an aggregate amount equal to $1.8 million.
Financial Results Overview
Total revenues were $70.7 million for the three months
ended September 30, 2018 (the “third quarter”) compared to
$69.8 million for the three months ended June 30, 2018 (the
“second quarter”). The increase in revenues was mainly due to full
earnings from the Brasil Knutsen, as the vessel had finished its
scheduled first special survey drydocking during the second
quarter, and one additional calendar day in the third quarter. The
increase was partly offset by reduced revenues from the Hilda
Knutsen and Torill Knutsen due to the offhire periods for each of
these vessels as a result of their scheduled first special survey
drydockings, both of which commenced in the third quarter.
Vessel operating expenses for the third quarter of 2018 were
$15.3 million, an increase of $1.3 million from
$14.0 million in the second quarter of 2018. The increase was
mainly due to the scheduled drydocking of the Hilda Knutsen and
Torill Knutsen and one additional calendar day in the third
quarter. In addition, the receipt of insurance proceeds in
connection with the propeller repairs of the Carmen Knutsen in the
second quarter of 2018 had reduced previous quarter costs. This was
partially offset by reduced bunkers consumption in connection with
the drydocking of the Brasil Knutsen that was charged in the second
quarter and lower operating costs on average due to the
strengthening of the U.S dollar against the Norwegian Kroner
(NOK).
1 EBITDA, Adjusted EBITDA and distributable cash flow are
non-GAAP financial measures used by management and external users
of the Partnership’s financial statements. Please see Appendix A
for definitions of EBITDA, Adjusted EBITDA and distributable cash
flow and a reconciliation to net income, the most directly
comparable GAAP financial measure. 2 Distribution coverage ratio is
equal to distributable cash flow divided by distributions declared
for the period presented.
General and administrative expenses were $1.3 million for
the third quarter compared to $1.4 million in the second
quarter.
Depreciation was $22.4 million for the third quarter, an
increase of $0.1 million from $22.3 million in the second
quarter. The increase is mainly due to increased depreciation for
the Brasil Knutsen, the Hilda Knutsen and the Torill Knutsen due to
drydock additions.
As a result, operating income for the third quarter of 2018 was
$31.7 million compared to $32.1 million in the second
quarter of 2018.
Interest expense for the third quarter of 2018 was
$13.5 million, an increase of $1.0 from $12.5 million for
the second quarter of 2018. The increase was mainly due to
increased amortization and extinguished debt issuance cost
connected to the multi-vessels refinancing of the Carmen Knutsen,
the Windsor Knutsen, the Bodil Knutsen, the Fortaleza Knutsen, the
Recife Knutsen and the Ingrid Knutsen in the third quarter, a
higher LIBOR rate on average and one additional day of interest in
the third quarter compared to the second quarter of 2018.
Realized and unrealized gain on derivative instruments was
$3.0 million in the third quarter of 2018, compared to
$2.0 million in the second quarter of 2018. The unrealized
non-cash element of the mark-to-market gain was $2.0 million
for the three months ended September 30, 2018 compared to
$1.8 million for the three months ended June 30, 2018. Of the
unrealized net gain for the third quarter of 2018,
$2.4 million is related to mark-to-market gains on interest
rate swaps and a loss of $0.3 million is related to foreign
exchange contracts. Of the unrealized gain for the second quarter
of 2018, $3.0 million is related to mark-to-market gains on
interest rate swaps and an unrealized loss of $1.2 million
related to foreign exchange contracts. The unrealized gains in 2018
were due to an increase in the US swap rate.
As a result, net income for the third quarter of 2018 was
$20.9 million compared to $21.7 million for the second
quarter of 2018.
Net income for the third quarter of 2018 decreased by
$0.2 million from net income of $21.1 million for the
three months ended September 30, 2017 to a net income of
$20.9 million for the three months ended September 30, 2018. The
operating income for the third quarter of 2018 increased by
$5.0 million compared to the third quarter of 2017, mainly due
to increased earnings from the Lena Knutsen, the Brasil Knutsen and
the Anna Knutsen being included in the Partnership’s results of
operations from September 30, 2017, December 15, 2017 and
March 1, 2018, respectively. Total finance expense for the
three months ended September 30, 2018 increased by
$5.2 million compared to finance expense for the three months
ended September 30, 2017, mainly due to additional debt
due to the acquisitions of the Lena Knutsen, the Brasil Knutsen and
the Anna Knutsen, refinancing of the Hilda facility and the Torill
facility and the multi-vessel refinancing of the Bodil Knutsen, the
Windsor Knutsen, the Carmen Knutsen, the Fortaleza Knutsen, the
Recife Knutsen and the Ingrid Knutsen, and higher LIBOR margin.
Distributable cash flow was $26.3 million for the third
quarter of 2018 compared to $27.0 million for the second quarter of
2018. The decrease in distributable cash flow is mainly due to
reduced earnings from the Hilda Knutsen and the Torill Knutsen as a
result of off-hire due to their scheduled drydocking on the third
quarter of 2018. This was partly offset by earnings from the Brasil
Knutsen as a result of its scheduled drydocking in the second
quarter of 2018. The distribution declared for the third quarter of
2018 was $0.52 per common unit, equivalent to an annualized
distribution of $2.08.
Operational review
The Partnership’s vessels operated throughout the third quarter
of 2018 with 99.9% utilization for scheduled operations and 97.4%
utilization considering the scheduled drydocking of the Hilda
Knutsen and the Torill Knutsen.
The Hilda Knutsen went offhire on July 25, 2018 for the
mobilization trip to a shipyard in Denmark in order to complete her
planned 5-year special survey drydocking. The Hilda Knutsen went
back on charter on August 18, 2018.
On July 13, 2018, Shell exercised its option to extend the
time charter of the Windsor Knutsen by one additional year until
October 2019. Following the exercise of the option, Shell has
four one-year options to extend the time charter.
On August 3, 2018, the Partnership entered into an amended
time charter with Eni, extending the duration of the Hilda Knutsen
time charter for four years until August 2022. Eni has three
one-year options to extend the time charter.
On September 5, 2018, Eni, exercised its option to extend
the time charter of the Torill Knutsen by one additional year until
November 2019. Following the exercise of the option, Eni has four
one-year options to extend the time charter.
The Torill Knutsen went offhire on September 17, 2018 for
the mobilization trip to a shipyard in Denmark in order to complete
her planned 5-year special survey drydocking. The Torill Knutsen
went back on charter on October 5, 2018.
On November 9, 2018, Equinor ASA exercised its option to
extend the time charter of the Bodil Knutsen by one additional year
until May 2020. Following the exercise of the option, Equinor has
four one-year options to extend the time charter.
Financing and Liquidity
As of September 30, 2018, the Partnership had
$78.7 million in available liquidity, which consisted of cash
and cash equivalents of $56.0 million and $22.7 million
of capacity under its revolving credit facilities. The revolving
credit facilities mature in August 2019 and September 2023. The
Partnership’s total interest-bearing debt outstanding as of
September 30, 2018 was $1,116.6 million
($1,105.8 million net of debt issuance cost). The average
margin paid on the Partnership’s outstanding debt during the
quarter ended September 30, 2018 was approximately 2.1% over
LIBOR.
As of September 30,2018, the Partnership had entered into
foreign exchange forward contracts, selling a total notional amount
of $30.0 million against the NOK at an average exchange rate
of NOK 8.05 per 1.00 U.S. Dollar and selling a total
notional amount of NOK 40.7 million against the USD at an exchange
rate of NOK 8.14 per 1.00 U.S. Dollar. These foreign exchange
forward contracts are economic hedges for certain vessel operating
expenses and general expenses in NOK.
As of September 30, 2018, the Partnership had entered into
various interest rate swap agreements for a total notional amount
of $536.4 million to hedge against the interest rate risks of
its variable rate borrowings. As of September 30, 2018, the
Partnership receives interest based on three or six month LIBOR and
pays a weighted average interest rate of 1.82% under its interest
rate swap agreements, which have an average maturity of
approximately 5.2 years. The Partnership does not apply hedge
accounting for derivative instruments, and its financial results
are impacted by changes in the market value of such financial
instruments.
As of September 30, 2018, the Partnership’s net exposure to
floating interest rate fluctuations on its outstanding debt was
approximately $524.2 million based on total interest bearing
debt outstanding of $1,116.6 million, less interest rate swaps
of $536.4 million and less cash and cash equivalents of
$56.0 million. The Partnership’s outstanding interest bearing
debt of $1,116.6 million as of September 30, 2018 is repayable
as follows:
(U.S. Dollars in thousands)
Period repayment
Balloon repayment Remainder of 2018 $
23,231 $ — 2019 84,534 25,000 2020 85,945 — 2021 86,545
70,811 2022 71,210 236,509 2023 and thereafter 70,715
362,077
Total
$ 422,180 $ 694,397
Refinancing
On September 20, 2018 the Partnership’s subsidiaries which
own the Windsor Knutsen, the Bodil Knutsen, the Fortaleza Knutsen,
the Recife Knutsen, the Carmen Knutsen and the Ingrid Knutsen (“the
Vessels”), refinanced their existing bank debt, entering new
long-term senior secured credit facilities. The new senior secured
credit facilities consist of a term loan of $320 million and a
$55 million revolving credit facility.
The term loan is repayable in 20 consecutive quarterly
installments, with a balloon payment of $ 177 million due at
maturity in September 2023. The term loan bears interest at a rate
per annum equal to LIBOR plus a margin of 2.125%. The revolving
credit facility will mature in September 2023, and bear interest at
LIBOR plus a margin of 2.125%. There is a commitment fee of 0.85%
payable on the undrawn portion of the revolving credit facility.
The loans are guaranteed by the Partnership and secured by
mortgages on the Vessels. The senior secured credit facilities
refinanced a previously existing term loan of $320 million and
$35 million of revolver credit which were due to mature
between December 2018 and June 2019.
Distributions
On August 14, 2018, the Partnership paid a quarterly cash
distribution of $0.52 per common unit with respect to the quarter
ended June 30, 2018 to all common unitholders of record as of
the close of business on August 1, 2018. On August 14,
2018, the Partnership also paid a cash distribution to the Series A
Preferred unitholders with respect to the quarter ended
June 30, 2018 in an aggregate amount equal to
$1.8 million.
On November 14, 2018, the Partnership paid a quarterly cash
distribution of $0.52 per common unit with respect to the quarter
ended September 30, 2018 to all common unitholders of record
as of the close of business on November 1, 2018. On
November 14, 2018, the Partnership also paid a cash
distribution to the Series A Preferred unitholders with respect to
the quarter ended September 30, 2018 in an aggregate amount
equal to $1.8 million.
Annual Meeting
On September 4, 2018, the Partnership held its annual meeting of
limited partners at which Edward A. Waryas was elected as a Class I
director of the Partnership whose term will expire at the 2022
annual meeting of limited partners.
Outlook
The Partnership’s earnings for the fourth quarter of 2018 will
be affected by the completion of the planned 5-year special survey
drydockings of both the Torill Knutsen and the Ingrid Knutsen. The
Torill Knutsen was back on charter on October 5, 2018 after
finalizing her first special survey and incurring approximately 18
days of offhire in total. The Ingrid Knutsen went offhire on
November 1, 2018 in order to complete her planned 5-year
special survey drydocking and was back on charter on November 22,
2018, incurring approximately 21 days of offhire.
Offsetting the impact of this offhire will be the Hilda Knutsen,
which is expected to operate for the entire fourth quarter after
being offhire for 24 days in the third quarter due to its scheduled
drydocking.
As of September 30, 2018, the Partnership’s fleet of
sixteen vessels had an average remaining fixed contract duration of
3.9 years. In addition, the charterers of the Partnership’s
time charter vessels have options to extend their charters by an
additional 4.4 years on average.
On September 26, 2018, Knutsen NYK Offshore Tankers AS, the
owner of the Partnership’s general partner (“Knusten NYK”), entered
into new long term charters with Equinor ASA for two Suezmax DP2
shuttle tanker newbuildings to be constructed by Hyundai Heavy
Industries in South Korea with delivery scheduled in the second
half of 2020.
Pursuant to the omnibus agreement the Partnership entered into
with Knutsen NYK at the time of its initial public offering, the
Partnership has the option to acquire from Knutsen NYK any offshore
shuttle tankers that Knutsen NYK acquires or owns that are employed
under charters for periods of five or more years.
There can be no assurance that the Partnership will acquire any
additional vessels from Knutsen NYK.
The Board believes that demand for newbuild offshore shuttle
tankers will continue to be driven over time based on the
requirement to replace older tonnage in the North Sea and Brazil
and further expansion into deep water offshore oil production areas
such as in Pre-salt Brazil and the Barents Sea. The Board further
believes that significant growth in demand exists and that this
will continue for new shuttle tankers as the availability of
existing vessels has reduced and modern operational demands have
increased. Consequently, there should be opportunities to further
grow the Partnership.
About KNOT Offshore Partners LP
KNOT Offshore Partners owns operates and acquires shuttle
tankers under long-term charters in the offshore oil production
regions of the North Sea and Brazil. KNOT Offshore Partners owns
and operates a fleet of sixteen offshore shuttle tankers with an
average age of 5.2 years.
KNOT Offshore Partners is structured as a publicly traded master
limited partnership. KNOT Offshore Partners’ common units trade on
the New York Stock Exchange under the symbol “KNOP.”
The Partnership plans to host a conference call on Tuesday,
November 27, 2018 at noon (Eastern Time) to discuss the results for
the third quarter of 2018, and invites all unitholders and
interested parties to listen to the live conference call by
choosing from the following options:
• By dialing 1-855-209-8259 or 1-412-542-4105, if
outside North America. •
By accessing the webcast, which will be
available for the next seven days on the Partnership’s website:
www.knotoffshorepartners.com.
November 26, 2018KNOT Offshore Partners L.P.Aberdeen, United
Kingdom
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
Three
Months Ended Nine Months Ended (U.S. Dollars in
thousands)
September 30, 2018
June 30, 2018
September 30, 2017
September 30, 2018
September 30, 2017
Time charter and bareboat revenues (1) (2) $ 70,706 $
69,221 $ 57,970 $ 207,313 $ 153,255 Loss of
hire insurance recoveries — 450 — 450 3,426 Other income (3) 12 94
247 762 934
Total revenues 70,718 69,765
58,217 208,525 157,615 Vessel operating
expenses 15,289 13,974 11,828 42,510 31,537 Depreciation 22,400
22,332 18,379 66,306 51,505 General and administrative expenses
1,307 1,350 1,285 4,002 4,247
Total operating expenses
38,996 37,656 31,492 112,818
87,289 Operating income 31,722 32,109
26,725 95,707 70,326 Finance income
(expense): Interest income 196 161 68 492 147 Interest expense
(13,472) (12,526) (8,040) (36,592) (21,506) Other finance expense
(406) (288) (327) (1,032) (956)
Realized and unrealized gain (loss) on
derivativeinstruments (4)
3,000 1,968 2,832 14,944 1,816 Net gain (loss) on foreign currency
transactions (100) 260 (176) (170) (395)
Total finance
expense (10,782) (10,425) (5,643)
(22,358) (20,894) Income before income taxes
20,940 21,684 21,082 73,349
49,432 Income tax benefit (expense) (9) (3) (3) (15) (9)
Net income 20,931 21,681 21,079
73,334 49,423
Weighted average units outstanding
(in thousands of units):
Common units 32,694 32,694 29,694 32,694 29,612 General Partner
units 615 615 559 615 559 (1) In May 2014, the Financial
Accounting Standards Board (the “FASB”) issued accounting standards
update (“ASU”) 2014-09 “ Revenue from Contracts With Customers
(Topic 606) ” and subsequent amendments. The Partnership has
adopted the new revenue standard on January 1, 2018 and there is no
impact on the adoption of this standard on the Unaudited
Consolidated Financial Statements. (2) Time charter revenues
for the third quarter of 2018, the second quarter of 2018 and the
third quarter of 2017 include a non-cash item of approximately $1.1
million, $0.9 million and $0.7 million, respectively, in reversal
of contract liability and asset provision, income recognition of
prepaid charter hire and accrued income for the Carmen Knutsen and
for the Brasil Knutsen based on the average charter rate for the
fixed period. (3) Other income is mainly related to
guarantee income from Knutsen NYK. Pursuant to the omnibus
agreement, Knutsen NYK agreed to guarantee the payments of the hire
rate that is equal to or greater than the hire rate payable under
the initial charters of the Bodil Knutsen and the Windsor Knutsen
for a period of five years from the closing date of the
Partnership’s initial public offering. In October 2015, the Windsor
Knutsen commenced operating under a new Shell time charter. The
hire rate for the new charter is below the initial charter hire
rate and the difference between the new hire rate and the initial
rate was paid by Knutsen NYK until April 15, 2018. (4)
Realized gains (losses) on derivative instruments relate to amounts
the Partnership actually received (paid) to settle derivative
instruments, and the unrealized gains (losses) on derivative
instruments related to changes in the fair value of such derivative
instruments, as detailed in the table below:
Three Months Ended Nine Months Ended (U.S.
Dollars in thousands)
September 30, 2018
June 30, 2018
September 30, 2017
September 30, 2018
September 30, 2017
Realized gain (loss): Interest rate swap contracts $ 716 $ 57 $
(469) $ 469 $ (2,076) Foreign exchange forward contracts 204
134 446 1,443 280 Total realized gain (loss):
920 191 (23) 1,912 (1,796) Unrealized gain (loss):
Interest rate swap contracts 2,384 2,995 1,223 14,325 948 Foreign
exchange forward contracts (304) (1,218) 1,632
(1,293) 2,664 Total unrealized gain (loss): 2,080
1,777 2,855 13,032 3,612
Total realized and unrealized gain (loss)
onderivative instruments:
$ 3,000 $ 1,968 $ 2,832 $ 14,944 $ 1,816
UNAUDITED CONDENSED CONSOLIDATED BALANCE
SHEET
(U.S. Dollars in thousands)
At September 30, 2018
At December 31, 2017
ASSETS Current assets: Cash and cash equivalents $
56,021 $ 46,104 Amounts due from related parties 1,781 571
Inventories 2,508 2,241 Derivative assets 4,451 1,579 Other current
assets 2,818 5,610
Total current assets
67,579 56,105 Long-term assets:
Vessels, net of accumulated depreciation 1,786,506 1,723,023
Intangible assets, net 2,043 2,497 Derivative assets 21,515 9,850
Accrued income 3,192 1,693
Total Long-term
assets 1,813,256 1,737,063 Total
assets $ 1,880,835 $
1,793,168
LIABILITIES AND EQUITY Current liabilities: Trade
accounts payable $ 5,146 $ 5,224 Accrued expenses 11,240 6,504
Current portion of long-term debt 105,679 92,985 Current portion of
derivative liabilities 506 978 Income taxes payable 9 175 Current
portion of contract liabilities 1,518 1,518 Prepaid charter and
deferred revenue 5,833 9,980 Amount due to related parties
1,496 5,450
Total current liabilities
131,427 122,814 Long-term
liabilities: Long-term debt 1,000,152 933,630 Derivative
liabilities — 164 Contract liabilities 5,583 6,722 Deferred tax
liabilities 631 624
Total long-term
liabilities 1,006,366 941,140
Total liabilities 1,137,793
1,063,954 Commitments and contingencies
Series A
Convertible Preferred Units 89,264 89,264
Equity:
Partners’ capital: Common unitholders 642,044 628,471 General
partner interest 11,734 11,479
Total partners’
capital 653,778 639,950 Total
liabilities and equity $ 1,880,835 $
1,793,168
UNAUDITED CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN PARTNERS’ CAPITAL
Partners' Capital
Accumulated Other
Comprehensive Income (Loss)
Total Partners' Capital
Series A Convertible
Preferred Units
(U.S. Dollars in thousands)
Common Units
General PartnerUnits
Consolidated balance at December
31, 2016
$ 511,413 $ 10,297 $ —
$ 521,710 $ — Net income 61,651 1,160 —
62,811 5,253 Other comprehensive income — — — — — Cash
distributions (64,307) (1,210) — (65,517) (3,453)
Net proceeds from issuance ofcommon
units
119,714 1,232 120,946 —
Net proceeds from sale of Series
AConvertible Preferred Units
— — — — 87,464
Consolidated balance at December
31, 2017
$ 628,471 $ 11,479 $ —
$ 639,950 $ 89,264 Net income 66,680
1,254 — 67,934 5,400 Other comprehensive income — — — — — Cash
distributions (53,103) (999) — (54,102) (5,400)
Net proceeds from issuance ofcommon
units
(4) — — (4) —
Consolidated balance at
September 30, 2018
$ 642,044 $ 11,734 $ —
$ 653,778 $ 89,264
UNAUDITED CONSOLIDATED STATEMENT OF CASH
FLOWS
Nine Months Ended September
30,
(U.S. Dollars in thousands) 2018 2017
OPERATING ACTIVITIES Net income $ 73,334 $ 49,423
Adjustments to reconcile net income to cash provided by operating
activities: Depreciation 66,306 51,505 Amortization of contract
intangibles / liabilities (684) (860) Amortization of deferred
revenue (993) (1,115) Amortization of deferred debt issuance cost
2,505 1,224 Drydocking expenditure (9,526) (4,288) Income tax
expense 15 9 Income taxes paid (190) (194) Unrealized (gain) loss
on derivative instruments (13,333) (3,612) Unrealized (gain) loss
on foreign currency transactions 22 (67) Changes in operating
assets and liabilities: Decrease (increase) in amounts due from
related parties (689) 62,076 Decrease (increase) in inventories
(10) (207) Decrease (increase) in other current assets 2,898 (646)
Decrease (increase) in accrued revenue (1,499) (446) Increase
(decrease) in trade accounts payable (995) (312) Increase
(decrease) in accrued expenses 3,723 350 Increase (decrease)
prepaid revenue (3,154) 5,669 Increase (decrease) in amounts due to
related parties (4,070) (88)
Net cash provided by
operating activities 113,660
158,421 INVESTING ACTIVITIES Disposals
(additions) to vessel and equipment 11 (256) Acquisition of Tordis
Knutsen (net of cash acquired) — (32,374) Acquisition of Vigdis
Knutsen (net of cash acquired) — (28,321) Acquisition of Lena
Knutsen (net of cash acquired) — (32,766) Acquisition of Anna
Knutsen (net of cash acquired) (15,376) —
Net cash
provided by (used in) investing activities
(15,365) (93,717) FINANCING
ACTIVITIES Proceeds from long-term debt 497,779 178,000
Repayment of long-term debt (498,749) (229,376) Repayment of
long-term debt from related parties (22,535) (93,369) Payment of
debt issuance cost (5,308) (1,159) Cash distribution (59,502)
(50,791) Net proceeds from issuance of common units (4) 54,879 Net
proceeds from sale of Convertible Preferred Units —
87,443
Net cash provided by (used in) financing activities
(88,319) (54,373) Effect of exchange
rate changes on cash (59) 123 Net increase in cash and cash
equivalents
9,917 10,454 Cash and cash equivalents at the
beginning of the period 46,104 27,664
Cash and
cash equivalents at the end of the period $
56,021 $ 38,118
APPENDIX A—RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
Distributable Cash Flow (“DCF”)
Distributable cash flow represents net income adjusted for
depreciation, unrealized gains and losses from derivatives,
unrealized foreign exchange gains and losses, distributions on the
Series A Convertible Preferred Units, other non-cash items and
estimated maintenance and replacement capital expenditures.
Estimated maintenance and replacement capital expenditures,
including estimated expenditures for drydocking, represent capital
expenditures required to maintain over the long-term the operating
capacity of, or the revenue generated by, the Partnership’s capital
assets. The Partnership believes distributable cash flow is an
important measure of operating performance used by management and
investors in publicly-traded partnerships to compare cash
generating performance of the Partnership from period to period and
to compare the cash generating performance for specific periods to
the cash distributions (if any) that are expected to be paid to the
common unitholders, the Partnership’s general partner and the
holder of the incentive distribution rights. Distributable cash
flow is a non-GAAP financial measure and should not be considered
as an alternative to net income or any other indicator of KNOT
Offshore Partners’ performance calculated in accordance with GAAP.
The table below reconciles distributable cash flow to net income,
the most directly comparable GAAP measure.
(U.S. Dollars in thousands)
Three Months Ended
September 30, 2018 (unaudited)
Three Months Ended June
30,2018 (unaudited)
Net income $ 20,931 $ 21,681
Add: Depreciation 22,400 22,332
Other non-cash items; deferred costs
amortizationdebt
1,234 697
Unrealized losses from interest rate
derivatives andforeign exchange currency contracts
— — Less:
Estimated maintenance and replacement
capitalexpenditures (including drydocking reserve)
(13,250) (13,250) Distribution to Convertible Preferred Units
(1,800) (1,800) Other non-cash items; deferred revenue (478) (599)
Other non-cash items; accrued income (615) (295)
Unrealized gains from interest rate
derivatives andforeign exchange currency contracts
(2,080) (1,777)
Distributable cash flow $
26,342 $ 26,989 Distributions declared
$ 18,034 $ 18,034 Distribution
coverage ratio (1) 1.46 1.50 (1)
Distribution coverage ratio is equal to distributable cash flow
divided by distributions declared for the period presented.
EBITDA and Adjusted EBITDA
EBITDA is defined as earnings before interest, depreciation and
taxes. Adjusted EBITDA refers to earnings before interest,
depreciation, taxes, goodwill impairment charges and other
financial items (including other finance expenses, realized and
unrealized gain (loss) on derivative instruments and net gain
(loss) on foreign currency transactions). EBITDA is used as a
supplemental financial measure by management and external users of
financial statements, such as the Partnership’s lenders, to assess
its financial and operating performance and compliance with the
financial covenants and restrictions contained in its financing
agreements. Adjusted EBITDA is used as a supplemental financial
measure by management and external users of financial statements,
such as investors, to assess the Partnership’s financial and
operating performance. The Partnership believes that EBITDA and
Adjusted EBITDA assist its management and investors by increasing
the comparability of its performance from period to period and
against the performance of other companies in its industry that
provide EBITDA and Adjusted EBITDA information. This increased
comparability is achieved by excluding the potentially disparate
effects between periods or companies of interest, other financial
items, taxes, goodwill impairment charges and depreciation, as
applicable, which items are affected by various and possibly
changing financing methods, capital structure and historical cost
basis and which items may significantly affect net income between
periods. The Partnership believes that including EBITDA and
Adjusted EBITDA as financial measures benefits investors in
(a) selecting between investing in the Partnership and other
investment alternatives and (b) monitoring the Partnership’s
ongoing financial and operational strength in assessing whether to
continue to hold common units. EBITDA and Adjusted EBITDA are
non-GAAP financial measures and should not be considered as
alternatives to net income or any other indicator of Partnership
performance calculated in accordance with GAAP.
The table below reconciles EBITDA and Adjusted EBITDA to net
income, the most directly comparable GAAP measure.
(USD in thousands)
Three Months Ended
September 30, 2018 (unaudited)
Three Months Ended June
30, 2018 (unaudited)
Net income $ 20,931 $ 21,681
Interest income (196) (161) Interest expense 13,472 12,526
Depreciation 22,400 22,332 Income tax expense 9 3 EBITDA 56,616
56,381 Other financial items (a) (2,494) (1,940)
Adjusted
EBITDA 54,122 54,441 (a) Other financial
items consist of other finance expense, realized and unrealized
gain (loss) on derivative instruments and net gain (loss) on
foreign currency transactions.
FORWARD-LOOKING STATEMENTS
This press release contains certain forward-looking statements
concerning future events and KNOT Offshore Partners’ operations,
performance and financial condition. Forward-looking statements
include, without limitation, any statement that may predict,
forecast, indicate or imply future results, performance or
achievements, and may contain the words “believe,” “anticipate,”
“expect,” “estimate,” “project,” “will be,” “will continue,” “will
likely result,” “plan,” “intend” or words or phrases of similar
meanings. These statements involve known and unknown risks and are
based upon a number of assumptions and estimates that are
inherently subject to significant uncertainties and contingencies,
many of which are beyond KNOT Offshore Partners’ control. Actual
results may differ materially from those expressed or implied by
such forward-looking statements. Forward-looking statements include
statements with respect to, among other things:
• market trends in the shuttle tanker or general
tanker industries, including hire rates, factors affecting supply
and demand, and opportunities for the profitable operations of
shuttle tankers; • Knutsen NYK’s and KNOT Offshore
Partners’ ability to build shuttle tankers and the timing of the
delivery and acceptance of any such vessels by their respective
charterers; • forecasts of KNOT Offshore Partners’
ability to make or increase distributions on its common units and
to make distributions on its Series A Convertible Preferred Units
and the amount of any such distributions; • KNOT
Offshore Partners’ ability to integrate and realize the expected
benefits from acquisitions; • KNOT Offshore Partners’
anticipated growth strategies; • the effects of a
worldwide or regional economic slowdown; • turmoil in
the global financial markets; • fluctuations in
currencies and interest rates; • fluctuations in the
price of oil; • general market conditions, including
fluctuations in hire rates and vessel values; •
changes in KNOT Offshore Partners’ operating expenses, including
drydocking and insurance costs and bunker prices; •
KNOT Offshore Partners’ future financial condition or results of
operations and future revenues and expenses; • the
repayment of debt and settling of any interest rate swaps; •
KNOT Offshore Partners’ ability to make additional
borrowings and to access debt and equity markets; •
planned capital expenditures and availability of capital resources
to fund capital expenditures; • KNOT Offshore
Partners’ ability to maintain long-term relationships with major
users of shuttle tonnage; • KNOT Offshore Partners’
ability to leverage Knutsen NYK’s relationships and reputation in
the shipping industry; • KNOT Offshore Partners’
ability to purchase vessels from Knutsen NYK in the future;
• KNOT Offshore Partners’ continued ability to enter into
long-term charters, which KNOT Offshore Partners defines as
charters of five years or more; • KNOT Offshore
Partners’ ability to maximize the use of its vessels, including the
re-deployment or disposition of vessels no longer under long-term
charter; • the financial condition of KNOT Offshore
Partners’ existing or future customers and their ability to fulfill
their charter obligations; • timely purchases and
deliveries of newbuilds; • future purchase prices of
newbuilds and secondhand vessels; • any impairment of
the value of KNOT Offshore Partners’ vessels; • KNOT
Offshore Partners’ ability to compete successfully for future
chartering and newbuild opportunities; • acceptance
of a vessel by its charterer; • termination dates and
extensions of charters; • the expected cost of, and
KNOT Offshore Partners’ ability to, comply with governmental
regulations, maritime self-regulatory organization standards, as
well as standard regulations imposed by its charterers applicable
to KNOT Offshore Partners’ business; • availability
of skilled labor, vessel crews and management; • KNOT
Offshore Partners’ general and administrative expenses and its fees
and expenses payable under the technical management agreements, the
management and administration agreements and the administrative
services agreement; • the anticipated taxation of
KNOT Offshore Partners and distributions to its unitholders;
• estimated future maintenance and replacement capital
expenditures; • KNOT Offshore Partners’ ability to
retain key employees; • customers’ increasing
emphasis on environmental and safety concerns; •
potential liability from any pending or future litigation; •
potential disruption of shipping routes due to accidents,
political events, piracy or acts by terrorists; •
future sales of KNOT Offshore Partners’ securities in the public
market; • KNOT Offshore Partners’ business strategy
and other plans and objectives for future operations; and •
other factors listed from time to time in the reports and
other documents that KNOT Offshore Partners files with the U.S
Securities and Exchange Commission, including its Annual Report on
Form 20-F for the year ended December 31, 2017 and subsequent
reports on Form 6-K.
All forward-looking statements included in this release are made
only as of the date of this release on. New factors emerge from
time to time, and it is not possible for KNOT Offshore Partners to
predict all of these factors. Further, KNOT Offshore Partners
cannot assess the impact of each such factor on its business or the
extent to which any factor, or combination of factors, may cause
actual results to be materially different from those contained in
any forward-looking statement. KNOT Offshore Partners does not
intend to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change
in KNOT Offshore Partners’ expectations with respect thereto or any
change in events, conditions or circumstances on which any such
statement is based.
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version on businesswire.com: https://www.businesswire.com/news/home/20181126005677/en/
Questions should be directed to:John Costain (+44 7496
170 620)
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