August 4, 2006
K-Sea reports record operating results
K-Sea Transportation Partners L.P. (NYSE: KSP) reporteded record operating results for its fourth quarter and fiscal year ended June 30, 2006. The company also announced that its distribution to unitholders for the fourth quarter will increase by $0.02, or 3.3%, to $0.62 per unit, or $2.48 per unit annualized. This is the fifth consecutive quarter of increased distributions, and the seventh such increase since the company's IPO in January 2004.
President and CEO Timothy J. Casey said, "We are pleased with our record operating results for fiscal 2006. We completed the integration of the operations acquired on the West Coast and in Norfolk, and the acquisition of four other vessels (three newbuilds and one existing tank barge). Our fleet capacity of almost 3.4 million barrels is now 46% larger than at the time of our IPO in January 2004. We will be taking delivery of an additional nine tank vessels over the next eighteen months as part of our fleet expansion and upgrading program. It is important to note that a significant portion of the vessel capacity added over the past eighteen months did not contribute fully to our results for the fiscal year ended June 2006. A full year's contribution of these assets in fiscal 2007, plus the newbuildings to be delivered, gives us confidence that we will continue to grow our earnings and cash flows in the coming quarters."
The company says that, during the fourth fiscal quarter, it placed orders for the construction of six additional new tank barges as part of its fleet expansion and upgrading program.
These most recent orders, with Bollinger Shipyards, Inc., include four 30,000-barrel tank barges, designed for both clean and black oil service, and two 80,000-barrel tank barges. The latest orders are in addition to two 30,000-barrel tank barges and one 100,000-barrel tank barge which are already under construction at Bollinger. The total estimated capital cost of the six additional tank barges, including certain special equipment, is approximately $42 million and is expected to be financed using the company's available credit facilities.
For the three months ended June 30, 2006, K-Sea reported operating income of $6.8 million, an increase of $2.2 million, or 48%, compared to $4.6 million of operating income for the three months ended June 30, 2005. The increase resulted from expansion of the company's fleet barrel-carrying capacity over the past year, primarily through the acquisition of Sea Coast Transportation in October 2005 and the addition of four tank barges, including three newbuilds. The company also realized higher average daily rates in its local trade, resulting primarily from higher charter rates.
Partially offsetting these improvements during the quarter was an extended shipyard period for one large tank barge, and the total loss of the DBL 152 in the previously-reported November 2005 Gulf Coast barge incident. In addition, K-Sea's waste water treatment facility contributed to results in the fourth quarter of fiscal 2006, compared to an essentially breakeven result in the fourth quarter of fiscal 2005.
The increased vessel earnings were partially offset by increased general and administrative costs, and higher depreciation of the expanded fleet. The $1.0 million increase in general and administrative expenses, as compared to the three months ended June 30, 2005, resulted from increased personnel and facilities costs in support of the company's growth, including general and administrative costs associated with Sea Coast. Depreciation and amortization increased $1.8 million as a result of the additional vessels. Earnings before interest, taxes, depreciation, amortization, and loss on reduction of debt (EBITDA) increased by $4.0 million, or 38%, to $14.4 million for the three months ended June 30, 2006, compared to $10.4 million for the three months ended June 30, 2005. EBITDA is a non-GAAP financial measure that is reconciled in the table below to net income, its most directly comparable GAAP measure.
Net income for the three months ended June 30, 2006 was $3.1 million, or $0.30 per fully diluted limited partner unit, compared to net income of $3.0 million, or $0.35 per fully diluted limited partner unit, for the three months ended June 30, 2005. The $0.1 million increase in net income resulted from the $2.2 million increase in operating income, partially offset by a $0.3 million loss on reduction of debt in connection with a downsizing of the Company's revolving credit facility in April 2006, and $1.5 million in higher interest expense resulting from higher debt balances incurred to finance vessel acquisitions over the past year and higher interest rates. Excluding the $0.03 per unit loss on reduction of debt, fully diluted net income per limited partner unit would have been $0.33 per unit.
For the year ended June 30, 2006, K-Sea reported operating income of $23.7 million, an increase of $8.1 million, or 52%, compared to $15.6 million of operating income for the year ended June 30, 2005. Similar to the fiscal 2006 fourth quarter, this increase resulted mainly from expansion of the company's barrel-carrying capacity. Additionally, average daily rates in the company's coastwise trade increased attributable to continued solid demand for refined petroleum products, and higher oil prices. These improvements were partially offset by extended shipyard periods, particularly for one large tank barge, the loss of the DBL 152, and the retirement of two single-hulled tank barges in December 2004.
General and administrative expenses increased by $6.1 million for the year ended June 30, 2006, as compared to the year ended June 30, 2005, reflecting $4.7 million of increased personnel and facilities costs in support of the company's growth, including acquisitions of two companies, and $0.3 million in costs related to a cancelled bond offering. Depreciation and amortization increased by $5.4 million as a result of the fleet expansion during the period. Although higher depreciation and amortization expense reduces net income per unit, it is passed on to unitholders as detailed in their annual tax K-1s and results in a greater deferral of income taxes on the company's annual cash distribution and a positive impact on after-tax return on investment. EBITDA increased by $13.5 million, or 37%, to $50.5 million for the year ended June 30, 2006, compared to $37.0 million for the year ended June 30, 2005.
Net income was $5.9 million for the year ended June 30, 2006, or $0.60 per fully diluted limited partner unit, compared to net income of $8.1 million, or $0.95 per fully diluted limited partner unit, for the year ended June 30, 2005. The $2.2 million decrease in net income resulted primarily from $7.2 million in losses on reduction of debt related to retirement of the Company's Title XI bonds in November 2005 and on other debt restructurings during the year, and a $4.2 million increase in interest expense on debt incurred to finance vessel acquisitions over the past year, partially offset by the $8.1 million improvement in operating income. Excluding the losses on reduction of debt which, after tax, totaled $0.72 per unit and $0.15 per unit in fiscal 2006 and 2005, respectively, fully diluted net income per limited partner unit would have been $1.32 per unit for fiscal 2006 compared to $1.10 per unit in fiscal 2005.