Highlights
For the three months ended June 30, 2017, KNOT Offshore Partners
LP (“KNOT Offshore Partners” or the “Partnership”):
- Generated highest ever quarterly total
revenues of $54.4 million, operating income of $26.1 million and
net income of $16.9 million.
- Generated highest ever quarterly
Adjusted EBITDA of $43.5 million.1
- Generated highest ever quarterly
distributable cash flow of $23.4 million.1
- Reported highest ever distribution
coverage ratio of 1.43.2
- Achieved strong performance with 100%
utilization of the fleet.3
Other events:
- On May 26, 2017, the Partnership
refinanced the credit facility secured by the Hilda Knutsen.
- On June 1, 2017, the Partnership
completed the acquisition from Knutsen NYK Offshore Tankers AS
(“Knutsen NYK”) of the entity that owns the Vigdis Knutsen.
- On June 30, 2017, the Partnership
issued and sold in a private placement 1,666,667 additional Series
A Preferred Units at a price of $24.00 per unit. After deducting
estimated fees and expenses, the net proceeds of the sale were
approximately $38.8 million.
- On July 14, 2017, Shell exercised its
option to extend the time charter of the vessel Windsor Knutsen by
one additional year until October 2018.
- On July 18, 2017, the Partnership
declared a quarterly cash distribution of $0.52 per common unit
with respect to the quarter ended June 30, 2017, to be paid on
August 15, 2017 to all unitholders of record as of the close of
business on August 2, 2017. On July 18, 2017, the Partnership also
declared a cash distribution payable to Series A Preferred
Unitholders with respect to the quarter ended June 30, 2017 in an
aggregate amount equal to $1.0 million to be paid on August 15,
2017.
- On August 9, 2017, the Partnership
entered into an agreement for a new $25 million unsecured revolving
credit facility.
- On August 9, 2017, the Partnership’s
wholly owned subsidiary, KNOT Shuttle Tankers AS, entered into a
share purchase agreement with Knutsen NYK to acquire KNOT Shuttle
Tankers 26 AS (“KNOT 26”), the company that owns the shuttle
tanker, Lena Knutsen, from Knutsen NYK (the “Lena Acquisition”).
The Partnership expects the Lena Acquisition to close by September
30, 2017, subject to customary closing conditions.
Financial Results Overview
Total revenues were $54.4 million for the three months ended
June 30, 2017 (the “second quarter”) compared to $45.0 million for
the three months ended March 31, 2017 (the “first quarter”). The
second quarter revenues were positively affected by (i) earnings
from the time charters for the Tordis Knutsen and the Vigdis
Knutsen being included in the results of operations from March 1,
2017 and June 1, 2017, respectively, (ii) a full quarter of
earnings from the Windsor Knutsen, which incurred 54.1 days of
off-hire during the first quarter in connection with its scheduled
drydocking and (iii) a full quarter of earnings from the Raquel
Knutsen, which incurred a 14-day deductible for offhire in the
first quarter.
Vessel operating expenses for the second quarter of 2017 were
$9.4 million, a decrease of $0.9 million from $10.3 million in the
first quarter of 2017. The decrease was mainly due to receipt of
insurance proceeds in the second quarter related to the technical
default with the Raquel Knutsen’s controllable pitch propeller in
the first quarter and bunkers consumption in connection with the
drydocking of the Windsor Knutsen that was charged in the first
quarter. This was partially offset by higher operating expenses due
to the Tordis Knutsen and the Vigdis Knutsen being included in the
results of operations from March 1, 2017 and June 1, 2017,
respectively.
General and administrative expenses of $1.5 million in the
second quarter were unchanged from the first quarter.
As a result, operating income for the second quarter of 2017 was
$26.1 million compared to $17.5 million in the first quarter of
2017.
Interest expense for the second quarter of 2017 was $7.3
million, compared to $6.2 million for the first quarter of 2017.
The increase was mainly due to the additional debt incurred in
connection with the acquisitions of the Tordis Knutsen and the
Vigdis Knutsen.
Realized and unrealized loss on derivative instruments was
$1.5 million in the second quarter of 2017, compared to a gain
of $0.5 million in the first quarter of 2017. The unrealized
non-cash element of the mark-to-market loss was $0.5 million
for the three months ended June 30, 2017 compared to a gain of
$1.3 million for the three months ended March 31, 2017. Of the
unrealized loss for the second quarter of 2017, $1.3 million
related to mark-to-market losses on interest rate swaps due to a
decrease in swap rate during the quarter, and an unrealized gain of
$0.8 million related to foreign exchange contracts due to the
strength of the Norwegian Kroner (NOK) against the U.S. Dollar. Of
the unrealized gain for the first quarter of 2017, $1.1 million
related to mark-to-market gains on interest rate swaps due to an
increase in swap rate during the quarter, and an unrealized gain of
$0.2 million related to foreign exchange contracts due to a
slightly stronger U.S. Dollar against the NOK.
As a result, net income for the second quarter of 2017 was $16.9
million compared to $11.4 million for the first quarter of
2017.
Net income for the second quarter of 2017 increased by $5.3
million from net income of $11.6 million for the three months ended
June 30, 2016. The operating income for the second quarter of 2017
increased by $5.9 million compared to the second quarter of 2016,
mainly due to increased earnings from the Raquel Knutsen, the
Tordis Knutsen and the Vigdis Knutsen being included in the
Partnership’s results of operations from December 1, 2016, March 1,
2017 and June 1, 2017, respectively. Total finance expense for the
three months ended June 30, 2017 increased by $0.6 million compared
to the second quarter of 2016, mainly due to additional debt due to
the acquisitions of the Raquel Knutsen, the Tordis Knutsen and the
Vigdis Knutsen and higher LIBOR margin. This was partially offset
by changes in unrealized gain and loss on derivative
instruments.
Distributable cash flow was $23.4 million for the second quarter
of 2017, compared to $15.6 million for the first quarter of
2017. The increase in distributable cash flow is mainly due to full
operational performance of the fleet in the second quarter,
including a full quarter of earnings from the Tordis Knutsen and
one month of earnings from the Vigdis Knutsen, compared to 54.1
days of scheduled offhire for the drydocking of the Windsor Knutsen
and 14 days of deductible offhire for the Raquel Knutsen in the
first quarter of 2017. The distribution declared for the second
quarter of 2017 was $0.52 per common unit, equivalent to an
annualized distribution of $2.08.
Operational review
All thirteen of the Partnership’s vessels operated well
throughout the second quarter of 2017 with 100% utilization of the
fleet, which reflects 45 days of offhire for the Raquel Knutsen
which was reimbursed by the Partnership’s loss of hire
insurance.
On July 14, 2017, Shell exercised its option to extend the time
charter of the Windsor Knutsen by one additional year until October
2018. Following the exercise of the option, Shell has five
remaining one-year options to extend the time charter.
Financing and Liquidity
On May 26, 2017, the Partnership’s subsidiary, KNOT Shuttle
Tankers 14 AS, which owns the Hilda Knutsen, entered into an
agreement for a new $100 million senior secured term loan facility
with Mitsubishi UFJ Lease & Finance (Hong Kong) Limited (the
“New Hilda Facility”). The New Hilda Facility replaced the existing
$75.6 million loan facility secured by the Hilda Knutsen, which was
due to be paid in full in August 2018. The New Hilda Facility will
be repayable in twenty-eight (28) consecutive quarterly
installments with a balloon payment of $58.5 million due at
maturity. The New Hilda Facility bears interest at a rate per annum
equal to LIBOR plus a margin of 2.2%. The facility matures in
2024.
On August 9, 2017, the Partnership entered into an agreement
with NTT Finance Corporation for an unsecured revolving credit
facility of $25 million. The facility will mature in August 2019,
bear interest at LIBOR plus a margin of 1.8% and have a commitment
fee of 0.5% on the undrawn portion of the facility. Closing of the
facility is expected to occur by the end of the August 2017.
As of June 30, 2017, the Partnership had $69.5 million in
available liquidity which consisted of cash and cash equivalents of
$64.5 million and $5.0 million of capacity under its
$35.0 million revolving credit facility. The revolving credit
facility is available until June 10, 2019. The Partnership’s total
interest-bearing debt outstanding as of June 30, 2017 was
$912.0 million ($905.9 million net of debt issuance cost). The
average margin paid on the Partnership’s outstanding debt during
the quarter ended June 30, 2017 was approximately 2.2% over
LIBOR.
As of June 30, 2017, the Partnership had entered into foreign
exchange forward contracts, selling a total notional amount of
$40.0 million against the NOK at an average exchange rate of
NOK 8.31 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 June 30, 2017, the Partnership had entered into various
interest rate swap agreements for a total notional amount of
$536.7 million to hedge against the interest rate risks of its
variable rate borrowings. As of June 30, 2017, the Partnership
receives interest based on three or six month LIBOR and pays a
weighted average interest rate of 1.65% under its interest rate
swap agreements, which have an average maturity of approximately
4.1 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 June 30, 2017, the Partnership’s net exposure to floating
interest rate fluctuations on its outstanding debt was
approximately $266.2 million based on total interest bearing
debt outstanding of $912.0 million, less interest rate swaps
of $536.7 million, less a 3.85% fixed rate export credit loan
of $44.6 million and less cash and cash equivalents of
$64.5 million. The Partnership’s outstanding interest bearing
debt of $912.0 million as of June 30, 2017 is repayable as
follows:
(U.S. Dollars in thousands)
Period
repayment Balloon repayment Remainder of 2017 $
33,331
$ — 2018 66,303
86,677
2019 50,085 267,678 2020 39,153 — 2021 39,753 70,811 2022 and
thereafter 85,507 172,712 Total $
314,132 $ 597,878
Acquisition of Lena Knutsen
On August 9, 2017, the Partnership’s wholly owned subsidiary,
KNOT Shuttle Tankers AS, entered into a share purchase agreement to
acquire KNOT 26, the company that owns the shuttle tanker, Lena
Knutsen, from Knutsen NYK. The Partnership expects the Lena
Acquisition to close by September 30, 2017, subject to
customary closing conditions. The purchase price of the Lena
Acquisition is $142.0 million, less approximately $133.8 million of
outstanding indebtedness related to the Lena Knutsen plus
approximately $24.1 million for a receivable owed by Knutsen NYK to
KNOT 26 (the “KNOT 26 Receivable”) and approximately $1.0 million
for certain capitalized fees related to the financing of the Lena
Knutsen. On the closing of the Lena Acquisition, KNOT 26 will repay
approximately $41.9 million of the indebtedness, leaving an
aggregate of approximately $91.9 million of debt outstanding under
the secured credit facility related to the vessel (the “Lena
Facility”). The Lena Facility is repayable in quarterly
installments with a final balloon payment of $69.8 million due at
maturity in June 2022. The Lena Facility bears interest at an
annual rate equal to LIBOR plus a margin of 1.9%.
The purchase price will be settled in cash and will be subject
to certain post-closing adjustments for currency fluctuations and
accrued interest on the KNOT 26 Receivable, working capital,
Norwegian tonnage entrance tax and interest rate swaps. On the
closing of the Lena Acquisition, Knutsen NYK will repay the KNOT 26
Receivable.
The Lena Knutsen was delivered in June 2017 and is scheduled to
operate in Brazil under a five-year time charter with a subsidiary
of Royal Dutch Shell plc, which is expected to commence in
September 2017. The charterer has options to extend the charter for
two five-year periods.
The Board and the Conflicts Committee have approved the purchase
price of the Lena Acquisition. The Conflicts Committee retained an
outside financial advisor to assist with its evaluation of the Lena
Acquisition.
The Partnership estimates that the Lena Acquisition will
generate approximately $7.0 million of net income and approximately
$15.8 million of EBITDA4 for the twelve months following the
closing of the Lena Acquisition. However, the Partnership may not
realize this level of estimated net income or EBITDA from the Lena
Acquisition during such 12-month period.
Series A Convertible Preferred Units
On June 30, 2017, the Partnership (i) issued and sold in a
second private placement 1,666,667 additional Series A Preferred
Units at a price of $24.00 per unit and (ii) amended and restated
its partnership agreement to make certain amendments to the terms
of the Series A Preferred Units, including the 2,083,333 Series A
Preferred Units issued on February 2, 2017. After deducting fees
and expenses, the net proceeds from the second private placement
were $38.8 million. The Partnership used $30.0 million of the net
proceeds to repay the revolving credit facility which was drawn in
connection with the Vigdis Knutsen acquisition.
Acquisition of Vigdis Knutsen
On June 1, 2017, the Partnership’s wholly owned subsidiary, KNOT
Shuttle Tankers AS, acquired KNOT Shuttle Tankers 25 (“KNOT 25”),
the company that owns the shuttle tanker, the Vigdis Knutsen, from
Knutsen NYK. The purchase price of the acquisition was $147.0
million, less approximately $137.7 million of outstanding
indebtedness related to the Vigdis Knutsen plus approximately $17.9
million for a receivable owed by Knutsen NYK to KNOT 25 (the “KNOT
25 Receivable”) and approximately $0.9 million for certain
capitalized fees related to the financing of the Vigdis Knutsen
plus $3.7 million of post-closing adjustments for working capital
and interest rate swaps. On the closing of the Vigdis Knutsen
acquisition, KNOT 25 repaid approximately $42.9 million of the
indebtedness, leaving an aggregate of approximately $94.8 million
of debt outstanding under the secured credit facility related to
the Vigdis Knutsen (the “Vigdis Facility”). On the closing of the
acquisition, Knutsen NYK repaid the KNOT 25 Receivable. The
purchase price was settled in cash.
KNOT 25 is the borrower under the Vigdis Facility, a senior
secured loan facility secured by a vessel mortgage on the Vigdis
Knutsen. The Vigdis Facility is guaranteed by the Partnership. The
Vigdis Facility is repayable in quarterly installments with a final
balloon payment of $70.8 million due at maturity in May 2022. The
Vigdis Facility bears interest at an annual rate equal to LIBOR
plus a margin of 1.9%.
The Vigdis Knutsen was delivered in February 2017 and is
operating in Brazil under a five-year time charter with a
subsidiary of Royal Dutch Shell plc, which will expire in the
second quarter of 2022. The charterer has options to extend the
charter for two five-year periods.
The Partnership’s board of directors (the “Board”) and the
conflicts committee of the Board approved the purchase price of the
acquisition. The conflicts committee retained an outside financial
advisor to assist with its evaluation of the acquisition and the
purchase price offered by Knutsen NYK.
Outlook
The Partnership expects its earnings for the third quarter of
2017 to be higher than its earnings for the second quarter of 2017,
due to a full quarter of earnings from the Vigdis Knutsen, as the
vessel was included in the Partnership’s results of operations from
June 1, 2017. These increased earnings will be slightly offset by
approximately 7 days of unplanned offhire for repair of damage
sustained by the Tordis Knutsen. There is no further expected
offhire for the fleet during the third quarter of 2017.
As of June 30, 2017, the Partnership’s fleet of thirteen vessels
had an average remaining fixed contract duration of 4.6 years.
In addition, the charterers of the Partnership’s time charter
vessels have options to extend their charters by an additional
4.1 years on average.
The Partnership expects to receive an option to acquire one
additional vessel owned by Knutsen NYK pursuant to the terms of the
omnibus agreement entered into in connection with the Partnership's
initial public offering (“IPO”). As of June 30, 2017, the remaining
fixed contract duration for the vessel is 5.0 years and the
charterer has options to extend the charter by 6.0 years.
On July 5, 2017, Knutsen NYK acquired from Chevron the Brazil
Voyager, a DP2 Suezmax class shuttle tanker built in 2013. The
vessel, which is located in Brazil, is not currently under
contract. The vessel has been renamed Brasil Knutsen, and Knutsen
NYK is seeking to secure a long-term time charter for it.
Pursuant to the omnibus agreement, 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 there will be and is significant growth in demand 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 thirteen offshore shuttle tankers with an
average age of 4.5 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 Thursday,
August 10, 2017 at noon (Eastern Time) to discuss the results for
the second quarter of 2017, 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.
August 9, 2017KNOT Offshore Partners L.P.Aberdeen, United
Kingdom
________________________________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.3
Reflects 45 days of offhire for the Raquel Knutsen in the three
months ended June 30, 2017 which was reimbursed by the
Partnership’s loss of hire insurance.4 Please see Appendix A for
guidance on the underlying assumptions used to derive KNOT 26’s
estimated EBITDA and estimated net income, and a reconciliation of
KNOT 26’s estimated EBITDA to estimated net income, the most
directly comparable GAAP financial measure for the twelve months
following the Lena Acquisition.
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
Three Months Ended Six Months
Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(U.S. Dollars in thousands)
2017
2017
2016
2017
2016
Time charter and bareboat revenues (1) $ 51,537 $ 43,747 $ 42,864 $
95,284 $ 84,690 Loss of hire insurance recoveries 2,276 1,150 —
3,426 — Other income (2) 593 95
199 687 399
Total revenues
54,406 44,992
43,063 99,397 85,089
Vessel operating expenses 9,427 10,282 7,975 19,709 15,622
Depreciation 17,372 15,753 13,913 33,125 27,805 General and
administrative expenses 1,493 1,469
948 2,962 2,256
Total
operating expenses 28,292
27,504 22,836
55,796 45,683 Operating
income 26,114 17,488
20,227 43,601
39,406 Finance income (expense): Interest
income 44 36 — 80 3 Interest expense (7,252 ) (6,215 ) (5,055 )
(13,466 ) (10,084 ) Other finance expense (328 ) (302 ) (334 ) (630
) (601 ) Realized and unrealized gain (loss) on derivative
instruments (3) (1,536 ) 519 (3,176 ) (1,017 ) (6,360 ) Net gain
(loss) on foreign currency transactions (124 ) (94 )
(82 ) (218 ) (117 )
Total finance
expense (9,196 ) (6,056
) (8,646 ) (15,251
) (17,159 ) Income before income
taxes 16,918 11,432 11,581 28,350
22,247 Income tax benefit (expense) (3 ) (3 )
(3 ) (6 ) (6 )
Net income
16,915 11,429
11,578 28,344
22,241 Weighted average units outstanding (in
thousands of units): Common units (4) 29,694 29,444 22,581
29,694 20,604 Subordinated units (4) — — 4,613 — 6,590 General
Partner units 559 559 559 559 559 (1) Time charter revenues
for the second quarter of 2017, first quarter of 2017 and second
quarter of 2016 include a non-cash item of approximately $0.8
million, $0.9 million and $1.0 million, respectively, in reversal
of contract liability provision, income recognition of prepaid
charter hire and accrued income for the Carmen Knutsen based on the
average charter rate for the fixed period. (2) 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 IPO. 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 is paid by Knutsen NYK. (3)
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:
(4)
On May 18, 2016, all subordinated units
converted into common units on a one-for-one basis.
Three Months Ended Six
Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(U.S. Dollars in thousands)
2017
2017
2016
2017
2016
Interest rate swap contracts $ (938 ) $ (669 ) $ (1,252 ) $
(1,607 ) $ (2,176 ) Foreign exchange forward contracts (97 ) (69 )
(316 ) (166 ) (316 ) (1,035 ) (738 ) (1,568 ) (1,773 ) (2,492 )
Unrealized gain (loss): Interest rate swap contracts (1,334 ) 1,059
(1,518 ) (275 ) (5,866 ) Foreign exchange forward contracts 833
198 (90 ) 1,031 1,998 (501 ) 1,257
(1,608 ) 756 (3,868 ) Total realized and unrealized
gain (loss) (1,536 ) 519 (3,176 ) (1,017 ) (6,360 )
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEET
(U.S. Dollars in thousands)
At June 30, 2017
At December 31, 2016 ASSETS Current
assets: Cash and cash equivalents $
64,501
$
27,664
Amounts due from related parties 767 150 Inventories 1,712 1,176
Derivative assets 262 — Other current assets 5,481
2,089
Total current assets
72,723 31,079
Long-term assets: Vessels, net of accumulated depreciation
1,519,270 1,256,889 Intangible assets, net 2,800 — Derivative
assets 4,500 3,154 Accrued income 1,453 1,153
Total assets $ 1,600,746
$ 1,292,275 LIABILITIES AND
EQUITY Current liabilities: Trade accounts payable $
2,595 $ 2,221 Accrued expenses 5,779 3,368 Current portion of
long-term debt 65,018 58,984 Current portion of derivative
liabilities 2,045 3,304 Income taxes payable 18 190 Current portion
of contract liabilities 1,518 1,518 Prepaid charter and deferred
revenue 7,578 7,218 Amount due to related parties 7,047
834
Total current liabilities
91,598 77,637
Long-term liabilities: Long-term debt 840,882 657,662
Long-term debt from related parties — 25,000 Derivative liabilities
793 285 Contract liabilities 7,480 8,239 Deferred tax liabilities
707 685 Other long-term liabilities 313 1,057
Total long-term liabilities 850,175
692,928 Total liabilities
941,773 770,565 Commitments and
contingencies
Series A Convertible Preferred Units
88,451 — Equity: Partners’ capital: Common
unitholders 560,337 511,413 General partner interest 10,185
10,297
Total partners’ capital
570,522 521,710 Total
liabilities and equity $ 1,600,746 $
1,292,275
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
Accumulated
Other
Series A
Comprehensive
Total Partners'
Convertible
Partners' Capital
Income (Loss)
Capital
Preferred Units
Common
Subordinated
General Partner
(U.S. Dollars in thousands)
Units
Units
Units
Consolidated balance at December 31, 2015 $
411,317 $ 99,158 $
10,295 $
—
$ 520,770 $ — Net income 16,688 5,052
501 — 22,241 — Other comprehensive income — — — — — — Cash
distributions (19,372 ) (10,088 ) (648 ) — (30,108 ) — Conversion
of subordinated units to common units 94,123
(94,123 ) — —
— —
Consolidated balance at June 30,
2016 $ 502,756 $
— $ 10,148 $
— $ 512,903 $ —
Consolidated balance at December 31, 2016
$ 511,413 $ — $ 10,297
$ — $ 521,710 $ — Net
income 26,198 — 493 — 26,691 1,653 Other comprehensive income — — —
— — — Cash distributions (32,153 ) — (605 ) — (32,758 ) (645 ) Net
proceeds from issuance of common units 54,879 — — — 54,879 — Net
proceeds from sale of Convertible Preferred Units —
— — —
— 87,443
Consolidated balance
at June 30, 2017 $ 560,337 $
— $ 10,185
$ — $ 570,522 $
88,451
UNAUDITED CONSOLIDATED STATEMENT OF
CASH FLOWS
Six Months ended
June 30,
(U.S. Dollars in thousands) 2017 2016
OPERATING ACTIVITIES Net income $ 28,344 $ 22,241
Adjustments to reconcile net income to cash provided by operating
activities: Depreciation 33,125 27,805 Amortization of contract
intangibles / liabilities (632 ) (759 ) Amortization of deferred
revenue (743 ) (886 ) Amortization of deferred debt issuance cost
755 573 Drydocking expenditure (3,800 ) (2,595 ) Income tax expense
6 6 Income taxes paid (182 ) (241 ) Unrealized (gain) loss on
derivative instruments (757 ) 3,868 Unrealized (gain) loss on
foreign currency transactions (2 ) 63 Changes in operating assets
and liabilities Decrease (increase) in amounts due from related
parties 38,590 33 Decrease (increase) in inventories (216 ) 75
Decrease (increase) in other current assets (1,914 ) 94 Decrease
(increase) in accrued revenue (300 ) (706 ) Increase (decrease) in
trade accounts payable 71 (87 ) Increase (decrease) in accrued
expenses 826 (419 ) Increase (decrease) prepaid revenue 360 3,776
Increase (decrease) in amounts due to related parties 4,490
(356 )
Net cash provided by operating
activities 98,021 52,485
INVESTING ACTIVITIES Disposals (additions) to
vessel and equipment (180 ) (521 ) Acquisition of Tordis Knutsen
(net of cash acquired) (32,374 ) — Acquisition of Vigdis Knutsen
(net of cash acquired) (28,321 ) —
Net cash
used in investing activities (60,875 )
(521 ) FINANCING ACTIVITIES
Proceeds from long-term debt 130,000 5,000 Repayment of long-term
debt (167,460 ) (24,642 ) Repayment of long-term debt from related
parties (70,663 ) - Payment on debt issuance cost (1,140 ) (144 )
Cash distribution (33,403 ) (30,107 ) Net proceeds from issuance of
common units 54,879 — Net proceeds from sale of Convertible
Preferred Units 87,443 —
Net cash
used in financing activities (344 )
(49,893 ) Effect of exchange rate changes on cash 35
23 Net increase in cash and cash equivalents 36,837 2,094 Cash and
cash equivalents at the beginning of the period 27,664
23,573
Cash and cash equivalents at the end
of the period $
64,501 $
25,667
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 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 our
unitholders. 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.
Three Months Ended
Three Months Ended
June 30,
March 31,
2017
2017
(U.S. Dollars in thousands)
(unaudited)
(unaudited)
Net income $ 16,915 $ 11,429
Add: Depreciation 17,372 15,753 Other non-cash items; deferred
costs amortization debt 407 348 Unrealized losses from interest
rate derivatives and foreign exchange currency contracts 1,334 —
Less: Estimated maintenance and replacement capital expenditures
(including drydocking reserve) (9,990 ) (9,120 ) Distribution to
Series A Preferred Units (1,009 ) (645 ) Other non-cash items;
deferred revenue (650 ) (726 ) Other non-cash items; accrued income
(151 ) (149 ) Unrealized gains from interest rate derivatives and
foreign exchange currency contracts (833 ) (1,258 )
Distributable cash flow $ 23,395 $
15,632 Distributions declared $ 16,379
$ 16,379 Distribution coverage ratio(1)
1.43 0.95
(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 our lenders, to assess our financial
and operating performance and our compliance with the financial
covenants and restrictions contained in our financing agreements.
Adjusted EBITDA is used as a supplemental financial measure by
management and external users of financial statements, such as
investors, to assess our 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.
Three Months Ended
Three Months Ended
June 30,
March 31,
2017
2017
(USD in thousands)
(unaudited)
(unaudited)
Net income $ 16,915 $ 11,429
Interest income (44 ) (36 ) Interest expense 7,252 6,215
Depreciation 17,372 15,753 Income tax expense 3 3 EBITDA 41,498
33,364 Other financial items (a) 1,988 (123 )
Adjusted
EBITDA $ 43,486 $ 33,241
____________
(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.
Estimated Net Income and Estimated EBITDA for KNOT 26 for the
Twelve Months Following the Closing of the Acquisition
For KNOT 26, the entity that the Partnership intends to purchase
in the Lena Acquisition, estimated net income and estimated EBITDA
for the twelve months following the closing of the Lena Acquisition
are based on the following assumptions:
- timely receipt of charter hire
specified in the time charter contract;
- utilization of the Lena Knutsen for 363
days during such 12-month period and no drydocking of the
vessel;
- no realized or unrealized gains or
losses on derivative instruments related to KNOT 26’s financing
arrangements;
- vessel operating costs according to
current internal estimates; and
- general and administrative expenses
based on management’s current internal estimates.
We consider the above assumptions to be reasonable as of the
date of this press release, but if these assumptions prove to be
incorrect, actual net income and EBITDA for KNOT 26 could differ
materially from our estimates. Neither our independent auditors nor
any other independent accountants have compiled, examined, or
performed any procedures with respect to the prospective financial
information contained herein, nor have they expressed any opinion
or any other form of assurance on such information or its
achievability and assume no responsibility for, and disclaim any
association with, such prospective financial information.
The table below reconciles for the twelve months following the
closing of the Lena Acquisition, estimated EBITDA to estimated net
income, the most directly comparable GAAP measure:
(USD in thousands)
KNOT 26 Net
income $
7,000
Interest expense 3,000 Depreciation 5,800 Income tax expense
—
EBITDA $ 15,800
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 Preferred Units and the
amount of any such distributions;
- KNOT Offshore Partners’ ability to
integrate and realize the expected benefits from acquisitions,
including the acquisition of KNOT 25 and the intended acquisition
of KNOT 26;
- the estimated net income and estimated
EBITDA relating to the intended acquisition of KNOT 26 for the
twelve months following the closing of the Lena Acquisition;
- 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 KNOT Offshore Partners’
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,
2016.
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: http://www.businesswire.com/news/home/20170809005631/en/
KNOT Offshore Partners L.P.John Costain, +44 7496
170 620
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