5.
Financing
The Partnerships outstanding debt balances were as follows as of the
dates indicated:
|
|
December 31,
2007
|
|
June 30,
2007
|
|
|
|
|
|
|
|
Term loans
|
|
$
|
168,226
|
|
$
|
145,944
|
|
Capital lease
obligations
|
|
1,391
|
|
1,272
|
|
Credit line
borrowings
|
|
180,350
|
|
97,071
|
|
|
|
349,967
|
|
244,287
|
|
Less current
portion
|
|
(12,246
|
)
|
(9,270
|
)
|
|
|
$
|
337,721
|
|
$
|
235,017
|
|
Credit Agreement
The Partnership maintains a revolving credit
agreement with a group of banks,
with KeyBank National Association as
administrative agent and lead arranger, to
provide financing for its operations. On
August 14, 2007, the Partnership amended and restated its revolving credit
agreement to provide for (1) an increase in availability to $175,000 under
the primary revolving facility, with an increase in the term to seven years, (2) an
additional $45,000 364-day senior secured revolving credit facility, (3) amendments
to certain financial covenants and (4) a reduction in interest rate
margins. Under certain conditions, the
Partnership has the right to increase the primary revolving facility by up to
$75,000, to a maximum total facility amount of $250,000. On November 7, 2007, the Partnership
exercised this right and increased the facility by $25,000 to $200,000. The primary revolving facility is, and the
364-day facility was, collateralized by
a first perfected security interest in vessels having a total fair market value
of approximately $275,000 and certain equipment and machinery related to such
vessels. The revolving facility bears
interest at the London Interbank Offered Rate, or LIBOR, plus a margin ranging
from 0.7% to 1.5% depending on the Partnerships ratio of total funded debt to
EBITDA (as defined in the agreement). On
August 14, 2007, the Partnership borrowed $67,000 under the primary
revolving facility and $45,000 under the 364-day facility to fund a portion of
the purchase price of the Smith Maritime Group (see note 3).
Also on August 14, 2007, the Partnership entered into a bridge
loan facility for up to $60,000 with an affiliate of KeyBank National
Association in connection with the Smith Maritime Group acquisition. While outstanding, the bridge loan facility
bore interest at an annual rate of LIBOR plus 1.5%, and was to mature on November 12,
2007. During an event of default, the
bridge loan facility provided for interest at an annual rate of LIBOR plus
7.5%.
Both the $45,000 364-day senior secured facility and the $60,000 bridge
loan were repaid on September 26, 2007 upon closing of an offering of
common units by the Partnership. See Common
Unit Offering below. As of December 31,
2007, the Partnership had $180,350 outstanding on the revolving facility. The Partnership also maintains a separate
revolver with a commercial bank to support its daily cash management
activities; there was no outstanding balance on this revolver at December 31,
2007.
On August 14, 2007, in connection with the acquisition of the
Smith Maritime Group, the Partnership also assumed two term loans totaling
$23,511. The first, in the amount of
$19,464, bears interest at LIBOR plus 1.25% and is repayable in equal monthly
installments of $147, plus interest, through August 2018. The second, in the amount of $4,047, bears
interest at LIBOR plus 1.0% and is repayable in monthly installments ranging
from $59 to $81, plus interest, through May 2012. These loans are collateralized by three tank
barges. The Partnership also agreed with
the related lending institution to assume the two existing interest rate swaps
relating to these two loans. The LIBOR-based, variable rate interest payments
on these loans have been swapped for fixed payments at an average rate of
5.44%, plus a margin, over the same terms as the loans.
On November 30, 2007, the Partnership entered into agreements with
a financial institution to swap the LIBOR-based, variable rate interest
payments on $104,850 of its credit agreement borrowings for fixed rates, for a
term of three years. The fixed rates to
be paid by the Partnership average 4.01% plus the applicable margin.
Common Unit Offering
On September 26, 2007, the Partnership closed a
public offering of 3,500,000 common units representing limited partner
interests. The price to the public was $39.50 per unit. The net proceeds of $131,918 from the
offering, after payment of underwriting discounts and commissions and expenses,
were used to repay borrowings under the credit agreement, including the $45,000
364-day facility, and also the $60,000 bridge loan facility described above.
9
Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations.
General
We are a leading provider
of refined petroleum product marine transportation, distribution and logistics
services in the United States domestic marine transportation business. We currently operate a fleet of 73 tank
barges, one tanker and 58 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 East, West and Gulf Coast regions of the
United States, including Alaska and Hawaii.
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, 2007,
our fleet transported approximately 140 million barrels of refined petroleum
products for our customers, including BP, Chevron, ConocoPhillips, ExxonMobil
and Rio Energy. We do not assume
ownership of any of the products we transport.
During fiscal 2007, we derived approximately 79% 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.
Approximately 74% of our barrel-carrying capacity is 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 and petroleum products in U.S. waters. All of our tank vessels except
two operate under the U.S. flag, and all but four are qualified to transport
cargo between U.S. ports under the Jones Act, 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 black oil
products and distillates, such as heating oil, generally increase during the
winter months, while movements of asphalt products generally increase in the
spring through fall months. Unseasonably
cold winters result in significantly higher demand for heating oil in the
northeastern United States. Meanwhile,
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. 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. 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.
Significant Events
Acquisition of
the Smith Maritime Group
On August 14, 2007, we, through certain wholly owned subsidiaries,
completed the acquisition of all of the equity interests in Smith Maritime,
Ltd. (Smith Maritime), Go Big Chartering, LLC (Go Big), and Sirius
Maritime, LLC (Sirius Maritime and, together with Smith Maritime and Go Big the
Smith Maritime Group). This transaction
is part of our business strategy to expand our fleet through strategic and
accretive acquisitions. The Smith
Maritime Group provides marine transportation and logistics services to major
oil companies, oil traders and refiners in Hawaii and along the West Coast of
the United States. The aggregate
purchase price was $203.4 million, consisting of $169.6 million of cash,
including $1.5 million of direct expenses, $23.5 million of assumed debt
and common units valued at approximately $10.2 million. As further described below, we financed the
cash portion of the purchase through additional borrowings under our revolving
credit agreement and a bridge loan.
The acquisition of the Smith Maritime Group added
eleven petroleum tank barges and ten tugboats, aggregating 777,000 barrels of
capacity (of which 669,000 barrels, or 86%, are double-hulled) to our fleet,
representing a 22% increase in our barrel-carrying capacity as of the
acquisition date.
Under the purchase method of accounting, we allocated the aggregate
purchase price of $203.4 million to the tangible assets, intangible assets, and
liabilities acquired based on their fair values. The purchased identifiable intangible assets
are being amortized on a straight-line basis over their respective estimated
useful lives. The excess
12
of the purchase price over the fair value of the
acquired net assets has been recorded as goodwill, which is not amortized but
which will be reviewed annually for impairment.
In connection with the acquisition, we assumed an excise tax liability
of $2.7 million for which we have been indemnified by the sellers. This liability was settled by the sellers in December 2007
and is no longer reflected in our consolidated balance sheet.
Acquisition Financing
To finance the acquisition, on August 14, 2007 we amended and
restated our revolving credit agreement with KeyBank National Association, as
administrative agent and lead arranger, to provide for (1) an increase in
availability to $175.0 million under our senior secured revolving credit
facility, with an increase in the term to seven years, (2) a $45.0 million
364-day senior secured revolving credit facility, (3) amendments to
certain financial covenants and (4) a reduction in interest rate margins. We also entered into a bridge loan facility
for up to $60.0 million with an affiliate of KeyBank National Association. On August 14, 2007, we borrowed $67.0
million under the revolving facility, $45.0 million under the 364-day facility,
and $60.0 million under the bridge loan facility to fund the cash portion of
the purchase price of the Smith Maritime Group.
See Liquidity and Capital Resources Credit Agreement below for
further discussion of these facilities.
Common Unit Offering
On September 26, 2007, we completed a public
offering of 3,500,000 common units representing limited partner interests. The
price to the public was $39.50 per unit.
The net proceeds of $131.9 million from the offering, after payment of
underwriting discounts and commissions and expenses, were used to repay
borrowings under our credit agreement, including the $45.0 million 364-day
facility, and also the $60.0 million bridge loan described above.
Definitions
In order to understand our 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 Managements 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, 2007
for definitions of certain other terms used in our discussion of results of
operations.
13
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
December 31,
|
|
Six Months Ended
December 31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Voyage revenue
|
|
$
|
80,416
|
|
$
|
52,921
|
|
$
|
149,361
|
|
$
|
105,668
|
|
Bareboat charter
and other revenue
|
|
3,260
|
|
3,110
|
|
6,076
|
|
5,273
|
|
Total
revenues
|
|
83,676
|
|
56,031
|
|
155,437
|
|
110,941
|
|
Voyage expenses
|
|
19,632
|
|
10,465
|
|
35,375
|
|
22,046
|
|
Vessel operating
expenses
|
|
32,374
|
|
24,425
|
|
59,891
|
|
47,761
|
|
% of
voyage and vessel operating expenses to total revenue
|
|
62.2
|
%
|
62.2
|
%
|
61.3
|
%
|
62.9
|
%
|
General and
administrative expenses
|
|
7,251
|
|
5,256
|
|
13,595
|
|
10,063
|
|
% of
total revenue
|
|
8.7
|
%
|
9.4
|
%
|
8.7
|
%
|
9.1
|
%
|
Depreciation and
amortization
|
|
11,109
|
|
8,127
|
|
20,765
|
|
15,812
|
|
Net (gain) loss
on disposal of vessels
|
|
(79
|
)
|
|
|
(300
|
)
|
(16
|
)
|
Operating
income
|
|
13,389
|
|
7,758
|
|
26,111
|
|
15,275
|
|
% of
total revenue
|
|
16.0
|
%
|
13.9
|
%
|
16.8
|
%
|
13.8
|
%
|
Interest
expense, net
|
|
5,338
|
|
3,419
|
|
11,158
|
|
6,741
|
|
Other expense
(income), net
|
|
(2,168
|
)
|
(15
|
)
|
(2,173
|
)
|
(31
|
)
|
Income
before provision for income taxes
|
|
10,219
|
|
4,354
|
|
17,126
|
|
8,565
|
|
Provision for
income taxes
|
|
289
|
|
408
|
|
525
|
|
533
|
|
Net
income
|
|
$
|
9,930
|
|
$
|
3,946
|
|
$
|
16,601
|
|
$
|
8,032
|
|
|
|
|
|
|
|
|
|
|
|
Net
voyage revenue by trade
|
|
|
|
|
|
|
|
|
|
Coastwise
|
|
|
|
|
|
|
|
|
|
Total tank
vessel days
|
|
3,987
|
|
2,760
|
|
7,277
|
|
5,520
|
|
Days worked
|
|
3,558
|
|
2,547
|
|
6,549
|
|
5,064
|
|
Scheduled
drydocking days
|
|
178
|
|
80
|
|
322
|
|
193
|
|
Net utilization
|
|
89
|
%
|
92
|
%
|
90
|
%
|
92
|
%
|
Average daily
rate
|
|
$
|
13,556
|
|
$
|
11,971
|
|
$
|
13,497
|
|
$
|
11,858
|
|
Total
coastwise net voyage revenue (a)
|
|
$
|
48,233
|
|
$
|
30,490
|
|
$
|
88,394
|
|
$
|
60,050
|
|
Local
|
|
|
|
|
|
|
|
|
|
Total tank
vessel days
|
|
2,279
|
|
2,146
|
|
4,763
|
|
4,426
|
|
Days worked
|
|
1,857
|
|
1,801
|
|
3,746
|
|
3,486
|
|
Scheduled
drydocking days
|
|
|
|
41
|
|
39
|
|
114
|
|
Net utilization
|
|
81
|
%
|
84
|
%
|
79
|
%
|
79
|
%
|
Average daily
rate
|
|
$
|
6,759
|
|
$
|
6,644
|
|
$
|
6,832
|
|
$
|
6,762
|
|
Total
local net voyage revenue (a)
|
|
$
|
12,551
|
|
$
|
11,966
|
|
$
|
25,592
|
|
$
|
23,572
|
|
|
|
|
|
|
|
|
|
|
|
Tank
vessel fleet
|
|
|
|
|
|
|
|
|
|
Total tank
vessel days
|
|
6,266
|
|
4,906
|
|
12,040
|
|
9,946
|
|
Days worked
|
|
5,415
|
|
4,348
|
|
10,295
|
|
8,550
|
|
Scheduled
drydocking days
|
|
178
|
|
121
|
|
361
|
|
307
|
|
Net utilization
|
|
86
|
%
|
89
|
%
|
86
|
%
|
86
|
%
|
Average daily
rate
|
|
$
|
11,225
|
|
$
|
9,765
|
|
$
|
11,072
|
|
$
|
9,780
|
|
Total
fleet net voyage revenue (a)
|
|
$
|
60,784
|
|
$
|
42,456
|
|
$
|
113,986
|
|
$
|
83,622
|
|
(a) Net voyage revenue
is equal to voyage revenue less voyage expenses. Net voyage revenue is a non-GAAP measure and
is reconciled to voyage revenue, the nearest GAAP measure, under Voyage
Revenue and Voyage Expenses in the period-to-period comparison below.
14
Three Months Ended December 31, 2007 Compared to Three Months
Ended December 31, 2006
Voyage Revenue and Voyage Expenses
Voyage revenue was $80.4 million for the three months
ended December 31, 2007, an increase of $27.5 million, or 52%, as compared
to voyage revenue of $52.9 million for the three months ended December 31,
2006. Voyage expenses were $19.6 million
for the three months ended December 31, 2007, an increase of $9.1 million,
or 87%, as compared to voyage expenses of $10.5 million incurred for the three
months ended December 31, 2006.
Net
voyage revenue
Net voyage revenue was $60.8 million for the three months ended December 31,
2007, which exceeded net voyage revenue of $42.5 million for the three months
ended December 31, 2006 by $18.3 million, or 43%. In our coastwise trade, net voyage revenue
was $48.2 million, an increase of $17.7 million, or 58%, as compared to $30.5
million for the three months ended December 31, 2006. Net utilization in our coastwise trade was
89% for the three months ended December 31, 2007 as compared to 92% for
the three-month period ended December 31, 2006. The acquisition of the
Smith Maritime Group in August 2007 resulted in increased coastwise net
voyage revenue of $13.2 million. Net
voyage revenue increased by an additional $3.4 million due to an increase in
the number of working days for (1) the DBL 104, which began operations in April 2007,
(2) the KTC 80, which was in shipyard for most of the fiscal 2007 second
quarter and (3) the Columbia, which was purchased and placed in service in
September 2007. Net utilization
decreased as a result of increased scheduled drydocking days. Coastwise average daily rates increased 13%
to $13,556 for the three months ended December 31, 2007 from $11,971 for
the three months ended December 31, 2006.
Net voyage revenue in our local trade for the three months ended December 31,
2007 increased by $0.6 million, or 5%, to $12.6 million from $12.0 million for
the three months ended December 31, 2007.
Local net voyage revenue increased by $2.2 million during the three
months ended December 31, 2007 due to the increased number of work days for
the new-build barges DBL 27, DBL 22 and DBL 23, which were delivered in January 2007, June 2007 and September 2007,
respectively. This was partially offset by lower net utilization in our local
trade which was 81% for the three months ended December 31, 2007, compared
to 84% for the three months ended December 31, 2006, impacted by some
weakness in the market for certain older, smaller units. Average daily rates in our local trade
increased to $6,759 for the three months ended December 31, 2007 from
$6,644 for the comparative prior year period.
Bareboat
Charter and Other Revenue
Bareboat charter and other revenue was $3.3 million for the three
months ended December 31, 2007, compared to $3.1 million for the three
months ended December 31, 2006. The
Smith Maritime Group contributed $1.5 million of other revenue, which was
partially offset by a $0.3 million decrease in revenue from our water treatment
plant in Norfolk and a $0.8 million decrease in chartering of tank barges to
third parties.
Vessel
Operating Expenses
Vessel operating expenses were $32.4 million for the three months ended
December 31, 2007 compared to $24.4 million for the three months ended December 31,
2006, an increase of $8.0 million. Voyage and vessel operating expenses as a
percentage of total revenues was 62.2% for each of the three months ended December 31,
2007 and 2006. Vessel labor and related
costs increased $4.5 million as a result of contractual labor
rate increases and a higher average number of employees due to the
acquisition of the Smith Maritime Group and operation of the additional barges
described under Net voyage revenue above.
Insurance costs and vessel repairs and supplies increased $2.7 million
as a result of the operation of the larger number of vessels.
Depreciation
and Amortization
Depreciation and amortization was $11.1 million for
the three months ended December 31, 2007, an increase of $3.0 million, or
37%, compared to $8.1 million for the three months ended December 31,
2006. The increase resulted from
additional depreciation and drydocking amortization on our newbuild and
purchased vessels described above in addition to the acquisition of the Smith
Maritime Group.
15
General and Administrative Expenses
General and
administrative expenses were $7.3 million for the three months ended December 31,
2007, an increase of $2.0 million, or 38%, as compared to general and
administrative expenses of $5.3 million for the three months ended December 31,
2006. As a percentage of total revenues,
general and administrative expenses were 8.7% for the three month period ended December 31,
2007 and 9.4% for the three month period ended December 31, 2006. The $2.0 million increase is a result of
increased personnel costs resulting from the Smith Maritime Group acquisition,
additional headcount to support our growth, and the additional facilities costs
of our new offices in Hawaii and Seattle.
Interest
Expense, Net
Net interest expense was $5.3 million for the three months ended December 31,
2007, or $1.9 million higher than the $3.4 million incurred in the three months
ended December 31, 2006. The
increase resulted from higher average debt balances resulting from increased
credit line and term loan borrowings in connection with our acquisitions and
newbuild vessels.
Provision
for Income Taxes
Our interim provisions for income taxes are based on our estimated
annual effective tax rate. For the three
months ended December 31, 2007, this rate was 2.8% as compared to a rate
of 9.4% for the three months ended December 31, 2006. 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 partnerships corporate subsidiaries. Our effective tax rate for the quarter ended December 31,
2007 was lower than the comparable prior year period because a smaller portion
of our pre-tax income was attributable to our corporate subsidiaries compared
to the quarter ended December 31, 2006.
Net
income
Net income was $9.9 million for the three months ended December 31,
2007, an increase of $6.0 million compared to net income of $3.9 million for
the three months ended December 31, 2006.
This increase resulted primarily from a $5.6 million increase in
operating income, a $2.2 million increase in other income (expense) and a $0.1
million decrease in provision for income taxes; partially offset by a $1.9
million increase in interest expense.
Six Months Ended December 31, 2007 Compared to Six Months Ended December 31,
2006
Voyage Revenue and Voyage Expenses
Voyage revenue was $149.4 million for the six months
ended December 31, 2007, an increase of $43.7 million, or 41%, as compared
to voyage revenue of $105.7 million for the six months ended December 31,
2006. Voyage expenses were $35.4 million
for the six months ended December 31, 2007, an increase of $13.4 million,
or 61%, as compared to voyage expenses of $22.0 million incurred for the six
months ended December 31, 2006.
Net
voyage revenue
Net voyage revenue was $114.0 million for the six months ended December 31,
2007, which exceeded net voyage revenue of $83.6 million for the six months
ended December 31, 2006 by $30.4 million, or 36%. In our coastwise trade, net voyage revenue
was $88.4 million for the six months ended December 31, 2007, an increase
of $28.3 million, or 47%, as compared to $60.1 million in the six months ended December 31,
2006. The acquisition of the Smith
Maritime Group in August 2007 resulted in increased coastwise net voyage
revenue of $19.0 million. Net voyage
revenue increased by an additional $7.5 million due to an increase in the
number of working days for (1) the DBL 104, which began operations in April 2007,
(2) the DBL 151, which was in the shipyard for an extended stay in the
prior fiscal period (3) the DBL
134, which was in shipyard being coupled with the Irish Sea in the prior fiscal
period (4) the Columbia, which was purchased and placed in service in September 2007
. Net utilization in our coastwise trade
was 90% for the six-month period ended December 31, 2007 as compared to
92% for the six month period ended December 31, 2006. Net utilization decreased as a result of
increased scheduled drydocking days and unscheduled repair days. Average daily rates in the coastwise trade
increased 14% to $13,497 for the six months ended December 31, 2007 from
$11,858 for the six months ended December 31, 2006.
Net voyage revenue in our local trade for the six months ended December 31,
2007 increased by $2.0 million, or 8%, to $25.6 million from $23.6 million for
the six months ended December 31, 2006.
Local net voyage
16
revenue increased by $3.9 million during the six
months ended December 31, 2007 due to the increased number of work days
for the new-build barges DBL 27, DBL 22 and DBL 23, which were delivered in January 2007,
June 2007 and September 2007, respectively. Net utilization in our local trade was 79%
for the six months ended December 31, 2007 and 2006. Average daily rates in our local trade
increased 1% to $6,832 for the six months ended December 31, 2007 from
$6,762 for the comparative prior year.
Bareboat
Charter and Other Revenue
Bareboat charter and other revenue was $6.1 million for the six months
ended December 31, 2007, compared to $5.3 million for the six months ended
December 31, 2006. The Smith
Maritime Group contributed $2.1 million of other revenue, and $0.3 million was
contributed by a small lube oil operation purchased in the fall of 2006. This
was partially offset by a $1.8 million decrease in chartering of tank barges to
third parties.
Vessel Operating Expenses
Vessel operating expenses were $59.9 million for the six months ended December 31,
2007 compared to $47.8 million for the six months ended December 31, 2006,
an increase of $12.1 million. Voyage and
vessel operating expenses as a percentage of total revenues decreased to 61.3%
for the six months ended December 31, 2007 from 62.9% for the six months
ended December 31, 2006. This
percentage has decreased as a result of the aggregate impact of the addition of
newer, larger double hulled vessels, which produce a greater contribution
margin, and our purchase of additional tugboats, which has reduced reliance on
more expensive outside tug chartering.
Vessel labor and related costs increased $7.8 million as a result of
contractual labor rate increases and a higher average number of
employees due to the operation of the additional barges described under Net
voyage revenue above. Insurance costs
and vessel repairs and supplies increased $4.7 million as a result of the
operation of the larger number of vessels.
Depreciation
and Amortization
Depreciation and amortization was $20.8 million for
the six months ended December 31, 2007, an increase of $5.0 million, or
32%, compared to $15.8 million for the six months ended December 31,
2006. The increase resulted from
additional depreciation and drydocking amortization on our newbuild and
purchased vessels described above in addition to the acquisition of the Smith
Maritime Group.
General and Administrative Expenses
General and
administrative expenses were $13.6 million for the six months ended December 31,
2007, an increase of $3.5 million, as compared to general and administrative
expenses of $10.1 million for the six months ended December 31, 2006. As a percentage of total revenues, general
and administrative expenses decreased to 8.7% for the six months ended December 31,
2007 from 9.1% for the six months ended December 31, 2006. The $3.5 million increase is a result of
increased personnel costs resulting from the Smith Maritime Group acquisition,
additional increased headcount to support our growth, and the additional
facilities costs of our new offices in Philadelphia, Hawaii, and Seattle.
Interest
Expense, Net
Net interest expense was $11.2 million for the six months ended December 31,
2007, or $4.5 million higher than the $6.7 million incurred in the six months
ended December 31, 2006. The
increase resulted from higher average debt balances resulting from increased
credit line and term loan borrowings in connection with our acquisitions and
newbuild vessels. In addition, $1.1
million of interest expense was incurred for bridge financing in connection
with the Smith Maritime Group acquisition.
Provision for Income Taxes
Our interim provisions for income taxes are based on our estimated
annual effective tax rate. For the six
months ended December 31, 2007, this rate was 3.1% as compared to a rate
of 6.2% for the six months ended December 31, 2006. Our effective tax rate comprises the New York
City Unincorporated Business Tax and foreign taxes on our operating partnership,
plus federal, state, local and foreign corporate income taxes on the taxable
income of our operating partnerships corporate subsidiaries. Our effective tax rate for the six months
ended December 31, 2007 was lower than the comparable prior year period
due to a smaller portion of our pre-tax income being attributable to our
corporate subsidiaries compared to the six months ended December 31, 2006.
17
Net Income
Net income was $16.6 million for the six months ended December 31,
2007, an increase of $8.6 million compared to net income of $8.0 million for
the six months ended December 31, 2006.
This increase resulted primarily from a $10.8 million increase in
operating income and a $2.1 million increase in other income (expense),
partially offset by a $4.4 million increase in interest expense.
Liquidity
and Capital Resources
Operating Cash Flows
. Net cash provided by operating activities was
$27.6 million for the six months ended December 31, 2007, an increase of
$4.9 million compared to $22.7 million for the six months ended December 31,
2006. The increase resulted from $11.2
million of improved operating results, after adjusting for non-cash expenses
such as depreciation and amortization, partially offset by a $4.9 million
negative impact from working capital changes and a $1.4 million increase in
drydocking expenditures. During the
six-month period ended December 31, 2006, our working capital decreased
primarily due to an increase in accounts payable and accrued expenses as a
result of an increase in operating expenditures for our expanded fleet, and a
decrease in prepaid expenses and other current assets as a result of collection
of claims receivables.
Investing Cash Flows
. Net cash used in investing activities totaled
$212.2 million for the six months ended December 31, 2007, compared to
$29.3 million used during the six months ended December 31, 2006. The six months ended December 31, 2007
included the $168.9 million cash portion of the purchase price for the Smith
Maritime Group. Vessel acquisitions for
the six months ended December 31, 2007 included $13.8 million to acquire
two existing barges and two existing tugs; the seller issued a $3.0 million
note on one of the barge purchases, which was paid in November 2007. Vessel acquisitions totaled $7.1 million for
the six months ended December 31, 2006, which were related to the purchase
of three tugboats and the purchase of certain small tank vessels and
tugboats. Tank vessel construction in the
six months ended December 31, 2007 aggregated $22.1 million and included
progress payments on the construction of three 80,000-barrel tank barges, three
new 28,000-barrel tank barges, a new 50,000-barrel tank barge and a new 185,000barrel
articulated tug-barge unit. Tank vessel
construction of $14.7 million in the comparative prior year period included
progress payments on construction of a new 100,000-barrel tank barge, two new
80,000-barrel tank barges and six new 28,000-barrel tank barges. Other capital
expenditures, relating primarily to coupling tugboats to our newbuild tank
barges, tank renovations of a tank barge and improvements on a newly purchased
tug, totaled $6.5 million in the six months ended December 31, 2007. Capital expenditures of $7.9 million in the
six months ended December 31, 2006 included coupling tugboats to our
newbuild tank barges and the rebuilding of one of our larger tank barges.
Financing Cash Flows
. Net cash provided by financing activities was
$185.4 million for the six months ended December 31, 2007 compared to $6.2
million of net cash provided by financing activities for the six months ended December 31,
2006. The primary financing activities
for the six month period ended December 31, 2007 were $138.3 million in
gross proceeds from the issuance of 3.5 million new common units in September 2007,
and $105.0 million of borrowings related to the Smith Maritime Group
acquisition, which were repaid with the equity offering proceeds. We also increased our credit line borrowings
by $83.3 million relating to the Smith Maritime Group acquisition and for
progress payments on barges under construction, and paid $18.0 million in
distributions to partners as described under Payment of Distributions
below. In the six months ended December 31,
2006, the primary financing activities were $11.0 million of borrowings on term
loans to finance the construction of new tank barges, a $14.4 million increase
in our credit line borrowings, and $13.0 million in distributions to partners.
Payment of Distributions
. The board of directors of K-Sea General
Partner GP LLC declared a quarterly distribution to unitholders of $0.70 per
unit in respect of the quarter ended June 30, 2007, which was paid on July 24,
2007 to unitholders of record on July 18, 2007. The board declared a quarterly distribution
to unitholders of $0.72 per unit in respect of the quarter ended September 30,
2007, which was paid on November 14, 2007 to unitholders of record on November 8,
2007. Additionally, the board declared a
quarterly distribution of $0.74 per unit in respect of the quarter ended December 31,
2007, payable on February 14, 2008 to unitholders of record on February 8,
2008.
Oil
Pollution Act of 1990.
Tank vessels are subject to the requirements of OPA 90, which mandates
that all single-hull tank vessels operating in U.S. waters be removed from
petroleum product transportation services at various times through January 1,
2015, and provides a schedule for the phase-out of the single-hull vessels
based on their age and size. At December 31,
2007, approximately 74% of the barrel-carrying capacity of our tank vessel
fleet was double-hulled in compliance with OPA 90, and the remainder will be in
compliance with OPA 90 until January 2015.
18
Ongoing
Capital Expenditures.
Marine transportation of refined petroleum products is a capital
intensive business, requiring significant investment to maintain an efficient
fleet and to stay in regulatory compliance. We estimate that, over the next
five years, we will spend an average of approximately $20.5 million per
year to drydock and maintain our fleet.
We expect such expenditures to approximate $21.5 million in fiscal
2008. In addition, we anticipate that we
will spend $1.0 million annually for other general capital
expenditures. Periodically, we also make
expenditures to acquire or construct additional tank vessel capacity and/or to
upgrade our overall fleet efficiency.
We define
maintenance capital expenditures as capital expenditures required to maintain,
over the long term, the operating capacity of our fleet, and expansion capital
expenditures as those capital expenditures that increase, over the long term,
the operating capacity of our fleet.
Examples of maintenance capital expenditures include costs related to
drydocking a vessel, retrofitting an existing vessel or acquiring a new vessel
to the extent such expenditures maintain the operating capacity of our
fleet. Generally, expenditures for
construction in progress are not included as capital expenditures until such
vessels are completed. Capital
expenditures associated with retrofitting an existing vessel, or acquiring a
new vessel, which increase the operating capacity of our fleet over the long
term, whether through increasing our aggregate barrel-carrying capacity,
improving the operational performance of a vessel or otherwise, are classified
as expansion capital expenditures.
Drydocking expenditures are more extensive in nature than normal routine
maintenance and, therefore, are capitalized and amortized over three years.
The following
table summarizes total maintenance capital expenditures, including drydocking
expenditures, and expansion capital expenditures for the periods presented (in
thousands):
|
|
Six months ended
December 31,
|
|
|
|
2007
|
|
2006
|
|
Maintenance
capital expenditures
|
|
$
|
10,171
|
|
$
|
14,546
|
|
Expansion
capital expenditures (including acquisitions)
|
|
188,998
|
|
8,966
|
|
Total capital
expenditures
|
|
$
|
199,169
|
|
$
|
23,512
|
|
Construction of
tank vessels
|
|
$
|
22,057
|
|
$
|
14,688
|
|
In September 2007 and December 2007, we took
delivery of two 28,000-barrel tank barges, the DBL 23 and DBL 24. In October 2007, we entered into an
agreement with a shipyard to construct a 185,000-barrel articulated tug-barge
unit, which is expected to be delivered in the fourth quarter of calendar 2009
at a cost of $68.0 million to $70.0 million.
We also have an agreement for a long-term charter for the unit with a
major customer that is expected to commence upon delivery. The shipyard agreement includes an option to
build a second unit of similar design and cost.
In December 2007, we entered into an agreement with a shipyard to
construct a 100,000-barrel tank barge. In
total, we have agreements with shipyards for the construction of nine
additional new tank barges. Deliveries
are expected as follows:
Date of Agreement
|
|
Vessels
|
|
Expected
Delivery
|
|
June 2006
|
|
One 28,000 barrel tank
barge
|
|
3rd Q fiscal 2008
|
|
August 2006
|
|
Two 80,000-barrel tank
barges
|
|
4th Q fiscal 20081st Q
fiscal 2009
|
|
December 2006
|
|
One 80,000-barrel tank
barge
|
|
1st Q fiscal 2009
|
|
June 2007
|
|
Four 50,000-barrel tank
barges
|
|
2nd Q fiscal 2010 2nd
Q fiscal 2011
|
|
October 2007
|
|
One 185,000-barrel
articulated tug-barge unit
|
|
2nd Q fiscal 2010
|
|
December 2007
|
|
One 100,000-barrel tank
barge
|
|
2nd Q fiscal 2010
|
|
The above tank barges are expected to cost, in the aggregate and after
the addition of certain special equipment, approximately $175.0 million, of
which $30.2 million has been spent as of December 31, 2007. We expect to spend approximately $26.0
million during the remainder of fiscal 2008 on these contracts.
19
Additionally, we intend to retire, retrofit or replace 27 (including
four chartered-in) single-hull tank vessels by December 2014, which at December 31,
2007 represented approximately 26% of our barrel-carrying capacity. The capacity of certain of these
single-hulled vessels has already been effectively replaced by double-hulled
vessels placed into service in the past two years. We estimate that the current cost to replace
the remaining capacity with newbuildings and by retrofitting certain of our
existing vessels will range from $78.0 million to $80.0 million. This capacity can also be replaced by
acquiring existing double-hulled tank vessels as opportunities arise. We evaluate the most cost-effective means to
replace this capacity on an ongoing basis.
Liquidity Needs.
Our primary short-term liquidity needs are to
fund general working capital requirements, distributions to unitholders and
drydocking expenditures, while our long-term liquidity needs are primarily
associated with expansion and other maintenance capital expenditures. Expansion capital expenditures are primarily
for the purchase of vessels, while maintenance capital expenditures include
drydocking expenditures and the cost of replacing tank vessel operating
capacity. Our primary sources of funds
for our short-term liquidity needs are cash flows from operations and
borrowings under our credit facility, while our long-term sources of funds are
cash from operations, long-term bank borrowings and other debt or equity
financings.
We believe that cash flows from operations and borrowings under our
credit agreement, described below, plus our access to the long-term debt and
equity markets, will be sufficient to meet our liquidity needs for the next 12
months and for the long-term.
Credit
Agreement
. We maintain a revolving credit agreement with a
group of banks, with KeyBank National Association as administrative
agent and lead arranger, to provide
financing for our operations. On August 14,
2007, we amended and restated our revolving credit agreement to provide for (1) an
increase in availability to $175.0 million under the primary revolving
facility, with an increase in the term to seven years, (2) an additional
$45.0 million 364-day senior secured facility, (3) amendments to certain
financial covenants and (4) a reduction in interest rate margins. Under certain conditions, we have the right
to increase the primary revolving facility by up to $75.0 million, to a maximum
total facility amount of $250.0 million.
On November 7, 2007, we exercised this right and increased the
facility by $25.0 million to $200.0 million. The primary revolving facility is, and the
364-day facility was, collateralized by
a first perfected security interest, subject to permitted liens, on certain of
our vessels having a fair market value equal to at least 1.25 times the amount
of the obligations (including letters of credit) outstanding. The revolving facility bears interest at the
London Interbank Offered Rate, or LIBOR, plus a margin ranging from 0.7% to
1.5% depending on our ratio of total funded debt to EBITDA (as defined in the
agreement). We also incur commitment
fees, payable quarterly, on the unused amount of the facility. On August 14, 2007, we borrowed $67.0
million under the primary revolving facility and $45.0 million under the
364-day facility to fund a portion of the purchase price of the Smith Maritime
Group (see Significant Events above).
Also on August 14, 2007, we entered into a bridge loan facility
for up to $60.0 million with an affiliate of KeyBank National Association, also
in connection with the Smith Maritime Group acquisition. While outstanding, the bridge loan facility
bore interest at an annual rate of LIBOR plus 1.5%, and was to mature on November 12,
2007. During an event of default, the
bridge loan facility provided for interest at an annual rate of LIBOR plus
7.5%.
Both the $45.0 million 364-day senior secured facility and the $60.0
million bridge loan were repaid on September 26, 2007 upon our closing of
an offering of common units. See Common
Unit Offering below. As of December 31,
2007, we had $180.4 million outstanding on the revolving facility. We also have a separate revolver with a
commercial bank to support our daily cash management; there were no borrowings
outstanding on this revolver at December 31, 2007.
On August 14, 2007, in connection with our acquisition of the
Smith Maritime Group, we also assumed two term loans totaling $23.5
million. The first, in the amount of
$19.5 million, bears interest at the same LIBOR-based variable rate as the
credit agreement and is repayable in equal monthly installments of
$147,455 plus interest, through August 2018. The second, in the amount of $4.0 million,
bears interest at LIBOR plus 1.0% and is repayable in monthly installments
ranging from $59,269 to $81,320, plus interest, through May 2012. These loans are collateralized by three tank
barges. We also agreed with the related
lending institution to assume the two existing interest rate swaps relating to
these two loans. The LIBOR-based, variable rate interest payments
on these loans have been swapped for fixed payments at an average rate of
5.44%, plus a margin, over the same terms as the loans.
On November 30, 2007, we entered into agreements with a financial
institution to swap the LIBOR-based, variable rate interest payments on $104.9
million of our credit agreement borrowings for fixed rates, for a term of three
years. The fixed rates to be paid by us
average 4.01% plus the applicable margin.
20
Restrictive
Covenants.
The
agreements governing the credit agreement and our term loans contain
restrictive covenants that, among other things, (a) prohibit distributions
under defined events of default, (b) restrict investments and sales of
assets, and (c) require the Partnership to adhere to certain financial
covenants, including defined ratios of fixed charge coverage and funded debt to
EBITDA (earnings before interest, taxes, depreciation and amortization, as
defined). As of December 31, 2007,
we were in compliance with all of our debt covenants.
Common Unit Offering.
On September 26, 2007,
the Partnership completed a public offering of 3,500,000 common units
representing limited partner interests. The price to the public was $39.50 per
unit. The net proceeds of $131.9 million
from the offering, after payment of underwriting discounts and commissions and
expenses, were used to repay borrowings under the credit agreement.
Contingencies
. We are a party to various claims and lawsuits
in the ordinary course of business for monetary relief arising principally from
personal injuries, collision or other casualty and to claims arising under
vessel charters. All of these personal
injury, collision and casualty claims are fully covered by insurance, subject
to deductibles ranging from $25,000 to $100,000. We accrue on a current basis for estimated
deductibles we expect to pay.
As previously reported,
in November 2005 one of our tank barges, the DBL 152, struck submerged
debris in the U.S. Gulf of Mexico, causing significant damage which resulted in
the barge eventually capsizing. At the time of the incident, the barge was
carrying approximately 120,000 barrels of No. 6 fuel oil, a heavy oil
product. In January 2006, submerged
oil recovery operations were suspended and a monitoring program, which sought to
determine if any recoverable oil could be found on the ocean floor, was begun.
In February 2007, the Coast Guard agreed to end the cleanup and response
phase, including our obligation to conduct any further monitoring of the area
around the spill site. Our incident response effort is complete. We are not
aware of any further recovery, cleanup or other costs. However, if any such
costs are incurred, they are expected to be paid by our insurers.
Our insurers responded
to the pollution-related costs and environmental damages resulting from the
incident, paying approximately $65 million less $60,000 in total deductibles,
and have been pursuing their own financial recovery efforts. In December 2007, a court made a final
determination of liability in this case, resulting in a defined financial
recovery by our insurers, and also by us.
As a result of the ruling, we were awarded a reimbursement of certain
expenses totaling $2.1 million, which has been included in other expense
(income) in our consolidated statement of operations and in prepaid expenses
and other assets in the December 31, 2007 consolidated balance sheet. This amount was received in January 2008.
The European Union
is currently working toward a new directive for the insurance industry, called Solvency
2, that is expected to become law within three to four years and require
increases in the level of free, or unallocated, reserves required to be
maintained by insurance entities, including protection and indemnity clubs that
provide coverage for the maritime industry. The West of England Ship
Owners Insurance Services Ltd. (WOE), a mutual insurance association
based in Luxembourg, provides our protection and indemnity insurance coverage
and would be impacted by the new directive. In anticipation of these new
regulatory requirements, the WOE has assessed its members an additional capital
call which it believes will contribute to achievement of the projected required
free reserve increases. Our capital call was $1.1 million and was paid during
calendar year 2007. A further request
for capital may be made in the future; however, the amount of such further
assessment, if any, cannot be reasonably estimated at this time. As a
shipowner member of the WOE, we have an interest in the WOEs free reserves,
and therefore have recorded the additional $1.1 million capital call as an
investment, at cost, subject to periodic review for impairment. This
amount is included in other assets in the December 31, 2007 balance sheet.
EW Transportation
Corp., a predecessor to our Partnership, and many other marine transportation
companies operating in New York have come under audit with respect to the New
York State Petroleum Business Tax (PBT), which is a tax on vessel fuel
consumed while operating in New York State territorial waters. An industry group in which we and EW
Transportation Corp. participate has come to a final agreement with the New
York taxing authority on a calculation methodology for the PBT. Effective January 1, 2007, we and the
other marine transportation companies began rebilling this tax to
customers. For applicable periods prior
to 2007, we have accrued an estimated liability using the agreed
methodology. In accordance with the
agreements entered into in connection with our initial public offering in January 2004,
any liability resulting from the PBT prior to January 14, 2004 (the
effective date of the offering) is a retained liability of our predecessor
companies. The New York taxing authority
has completed an audit of all open periods and has issued a proposed assessment
which has been substantially accepted by us.
Our final liability is not materially different from the accruals
previously recorded and will be paid during the quarter ended March 31,
2008.
Off-Balance Sheet Arrangements.
There were no off-balance
sheet arrangements as of December 31, 2007.
21
Seasonality
See discussion under General above.
Critical Accounting Policies
There have been no
material changes in our Critical Accounting
Policies as
disclosed in our Annual Report on Form 10-K for the
fiscal year
ended June 30, 2007.
New Accounting Pronouncements
On February 16, 2006, the FASB issued FASB
Statement No. 155, Accounting for Certain Hybrid Financial Instruments,
an amendment of FASB Statements No. 133 and 140 (FAS 155). FAS 155
amends FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities and FASB Statement No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. We adopted FAS 155 as of July 1, 2007,
and such adoption did not have any impact on our financial position, results of
operations or cash flows.
In June 2006, the FASB issued FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109 (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and
measurement attribute for financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. We adopted
FIN 48 as of July 1, 2007, and such adoption had no impact on our
financial position, results of operations or cash flows.
At the date of the adoption, there were no
unrecognized tax benefits and consequently no related interest and
penalties. The significant jurisdictions
in which we file tax returns and are subject to tax include New York City,
Venezuela and Puerto Rico. The
significant jurisdictions in which our corporate subsidiaries file tax returns
and are subject to tax include the United States and Canada. The tax returns filed in the United States
and state jurisdictions are subject to examination for the years 2004 through
2007 and in foreign jurisdictions for the years 2005 through 2007. We have adopted a policy to record tax
related interest and penalties under interest expense and general and
administrative expenses, respectively.
In September 2006, the FASB issued FASB Statement
No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. FAS 157 applies under other accounting
pronouncements that require or permit fair value measurements. FAS 157 is effective for fiscal years
beginning after November 15, 2007, and we are currently analyzing its
impact, if any.
In December 2007, the FASB issued Statement of
Financial Accounting Standards (FAS) No. 141 (revised 2007), Business
Combinations (FAS 141(R)) which replaces FAS No.141, Business Combinations.
FAS 141(R) retains the underlying concepts of FAS 141 in that all business
combinations are still required to be accounted for at fair value under the purchase
method of accounting, but FAS 141(R) changed the method of applying the purchase
method in a number of significant aspects.
FAS 141(R) is effective on a prospective basis for all business
combinations for which the acquisition date is on or after the beginning of the
first fiscal year subsequent to December 15, 2008, with the exception of
the accounting for valuation allowances on deferred taxes and acquired tax
contingencies. FAS 141(R) amends FAS 109 such that adjustments made
to valuation allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective date of FAS 141(R) would
also apply the provisions of FAS 141(R).
We are currently analyzing its impact, if any.
In December 2007, the FASB issued Statement of
Financial Accounting Standards (FAS) No. 160, Non-controlling Interests
in Consolidated Financial Statements, an Amendment of ARB 51 (FAS 160). FAS
160 amends ARB 51 to establish new standards that will govern the accounting
for and reporting of (1) non-controlling interest in partially owned
consolidated subsidiaries and (2) the loss of control of
subsidiaries. FAS 160 is effective on a
prospective basis for all fiscal years, and interim periods within those fiscal
years beginning on or after December 15, 2008, except for the presentation
and disclosure requirements, which will be applied retrospectively. We are currently analyzing its impact, if
any.
22
Forward-looking Statements
Statements included in this Form 10-Q that are not historical
facts (including statements concerning plans and objectives of management for
future operations or economic performance, or assumptions related thereto) are
forward-looking statements. In addition,
we may from time to time make other oral or written statements that are also
forward-looking statements.
Forward-looking statements appear in a number of
places in this Form 10-Q and include statements with respect to, among
other things:
·
our
ability to pay distributions;
·
planned capital
expenditures and availability of capital resources to fund capital
expenditures;
·
our expected
cost of complying with OPA 90;
·
estimated future
expenditures for drydocking and maintenance of our tank vessels operating
capacity;
·
our plans for
the retirement or retrofitting of tank vessels and the expected delivery, and
cost, of newbuild or retrofitted vessels;
·
the integration
of acquisitions of tank barges and tugboats, including the timing, cost and
effects thereof;
·
expected demand
in the domestic tank vessel market in general and the demand for our tank
vessels in particular;
·
the adequacy and
availability of our insurance and the amount of any capital calls;
·
expectations
regarding litigation;
·
the effect of
new or existing regulations or requirements on our financial position;
·
our future
financial condition or results of operations and our future revenues and
expenses;
·
our business
strategies and other plans and objectives for future operations;
·
our future
financial exposure to lawsuits currently pending against EW Transportation LLC
and its predecessors; and
·
any other
statements that are not historical facts.
These forward-looking statements are made based upon managements
current plans, expectations, estimates, assumptions and beliefs concerning
future events and, therefore, involve a number of risks and uncertainties. We caution that forward-looking statements
are not guarantees and that actual results could differ materially from those
expressed or implied in the forward-looking statements.
Important factors that could cause our actual results of operations or
our actual financial condition to differ include, but are not limited to:
·
insufficient
cash from operations;
·
a decline in
demand for refined petroleum products;
·
a decline in
demand for tank vessel capacity;
·
intense
competition in the domestic tank vessel industry;
·
the occurrence
of marine accidents or other hazards;
23
·
the loss of any
of our largest customers;
·
fluctuations in
voyage charter rates;
·
delays or cost
overruns in the construction of new vessels or the retrofitting or modification
of older vessels;
·
difficulties in
integrating acquired vessels into our operations;
·
failure to
comply with the Jones Act;
·
modification or
elimination of the Jones Act;
·
adverse
developments in our marine transportation business; and
·
the other
factors set forth under the caption Item 1A. Risk Factors in our Annual
Report on Form 10-K for the fiscal year ended June 30, 2007.
24