EDISON, NJ (the "Partnership") today reported its results for
the first quarter ended March 31, 2008.
The Partnership had voyage revenue of $51.5 million, operating
income of $0.5 million and a net loss of $5.8 million for the three
months ended March 31, 2008 compared to voyage revenue of $42.1
million, operating income of $10.4 million and net income of $5.7
million for the same period in 2007.
Certain items affected comparability of results across both
periods. In 2008, the Partnership's financial results were
unfavorably impacted by a non-cash impairment charge of $5.7
million related to the adjustment of the fair value of the
construction in progress of the fifth Articulated Tug Barge unit
("ATB") to zero, while 2007 results were favorably affected by a
$3.5 million contract settlement. Excluding these items, 2008
operating income would have been $6.2 million and net loss would
have been $0.1 million, and 2007 operating income would have been
$6.9 million and net income would have been $2.3 million.
Earnings before interest, taxes and depreciation and
amortization and other non-cash expenses ("Adjusted EBITDA"), a
non-GAAP measure, were $17.7 million for the three months ended
March 31, 2008 compared to $19.5 million for the comparable period
in 2007.
The Partnership declared a distribution of $0.45 per common unit
in respect of the first quarter payable May 21, 2008 to unitholders
of record as May 16, 2008. Consistent with the previously disclosed
request of the holder of the subordinated and general partner
units, the Partnership did not declare a distribution on its
subordinated units and general partner units for the first quarter
in order to allow the Partnership to retain the cash for working
capital purposes; to increase reserves available for payment of
future quarterly distributions on its common units; for the
completion of its capital construction program; and to strengthen
coverage with respect to the financial covenants under the
Partnership's credit facility in future periods.
The Partnership is in compliance with all its financial
covenants as of the end of the first quarter of 2008. However, the
Partnership's earnings before interest, taxes and depreciation and
amortization ("EBITDA") and liquidity have come under increasing
pressure due to the current difficult market conditions discussed
further below, and unless there is a significant improvement in
utilization of, and charter rates for, the Integrated Tug Barge
units ("ITBs") and a resumption of growth in the Partnership's
chemical business, and/or an amendment to the Partnership's
financial covenants, it is possible that the Partnership will fall
out of compliance with certain financial ratio covenants under its
senior credit facility measured at the end of the second quarter
and likely that the Partnership will fall out of compliance with
these same covenants measured at the end of the third quarter,
although the Partnership expects to have sufficient cash resources
to service its debt. If the Partnership is not in compliance with
its financial covenants, the lenders have a number of remedies,
including not permitting the Partnership to make distributions on
its common units until the Partnership is again in compliance,
although any unpaid distributions on the common units will continue
to accrue.
The Partnership announced that it has retained Greenhill &
Co., LLC and Jefferies & Company, Inc. to assist it in
exploring a number of strategic alternatives, which could include,
among other things, a recapitalization of the Partnership, the sale
of new equity and other ways to increase liquidity and strengthen
the financial resources of the Partnership.
"We are facing difficult current market conditions. Demand in
the spot market has recently deteriorated significantly due to
overall declining economic activity and decreased demand for the
domestic coastwise transportation of petroleum products.
Additionally, refinery utilization has declined considerably, fuel
prices for operating our vessels are at record levels and increased
industry capacity from newbuilds is serving the Jones Act market,"
said Paul Gridley, U.S. Shipping Partners' CEO. "Due to these
market shifts, the ITBs have recently incurred idle periods greater
than, and charter rates below, our previous expectations.
Additionally, we have observed modest decreased demand for the
domestic coastwise transportation of chemical products served by
our chemical transporting vessels, which we believe is due to our
customers working off inventory levels."
"The current spot market in which our ITBs operate is
significantly more challenging than we had expected. Although
current market conditions are difficult, and we cannot give
assurances as to future developments, we remain confident in our
long term plan for the Partnership's vessels, particularly the new
ATBs coming on line later this year. These new vessels will enable
us to operate at lower cost and compete more effectively for a
wider range of transport business, and we expect our currently
available resources will enable us to sustain our strong
relationships with customers and suppliers," said Mr. Gridley.
Three Months Ended March 31, 2008
Voyage revenue was $51.5 million for the three months ended
March 31, 2008, an increase of $9.4 million from $42.1 million for
the three months ended March 31, 2007. Revenues are affected by
several factors, such as the mix of charter types; the charter
rates attainable in the market; fleet utilization and other items
such as fuel surcharges. Certain charters, including contracts of
affreightment and consecutive voyage charters generally provide for
fuel escalation charges, but do not protect the Partnership fully
when the price of fuel increases. These charges generally increase
revenue, but only serve to offset the increase in fuel
expenses.
For the quarter ended March 31, 2008, the ATB Freeport, which
was placed in service in July 2007, contributed $4.2 million
(including $1.0 million in fuel surcharges) to revenues. Fuel
surcharges on the remaining fleet increased revenues by $2.4
million. The change in the mix of charter types decreased revenues
by approximately $1.7 million (with a corresponding decrease to
voyage expenses of approximately $1.5 million) as one of the ITBs
was on a short-term time-charter during the first quarter of 2008.
The increase in days worked (due to 2008 being a leap year),
increased charter rates and the recording of 100% of the revenue
related to the Partnership's first grain charter increased revenues
by approximately $4.5 million. First quarter results included
revenue from a single voyage by the ITB Philadelphia commenced in
December 2007 to transport grain from the U.S. to Africa for
various humanitarian organizations. As the Partnership was required
to bag all of the grain following discharge and transport a portion
via truck to points inland, no voyage revenue or voyage expenses
were recognized until the grain was delivered to its final
destination in February 2008.
During the three months ended March 31, 2008, voyage expenses
increased by $6.2 million over the prior year due to the addition
of the ATB Freeport, which contributed $1.5 million in voyage
expenses, offset by a reduction in voyage expenses of approximately
$1.5 million due to an ITB being on a short-term time charter, and
increases in fuel, port, commission and other costs on the
remaining fleet of approximately $6.2 million. Approximately $1.8
million of this increase related to the reimbursed costs of the
grain voyage completed by the ITB Philadelphia during the first
quarter of 2008 and $3.5 million of this increase related to
increased fuel costs, which were partially offset by the $2.4
million of increased fuel surcharge revenue.
During the three months ended March 31, 2008 vessel operating
expenses increased $2.1 million from the first quarter of 2007,
primarily due to the addition of the ATB Freeport, which increased
vessel operating expenses by $1.3 million. Additionally, crew wages
and benefits increased by $0.9 million as a result of new
collective bargaining agreements. These increases were offset by a
$0.1 million net decrease in all other vessel operating
expenses.
General and administrative expenses increased $0.2 million in
the three months ended March 31, 2008 compared to the same period
in 2007. An increase in professional fees of $0.5 million was
partially offset by a decrease in wages and benefits of $0.3
million.
During the three months ended March 31, 2008, depreciation and
amortization expense increased by $1.5 million from the same period
in 2007. The increase is primarily due to additional amortization
of drydock expenditures of $1.1 million, principally resulting from
drydocks completed in 2007, and $0.8 million attributable to the
addition of the ATB Freeport. These increases to depreciation and
amortization expense were offset by a decrease of $0.4 million
resulting from an adjustment to the values assigned to the vessels
in the original purchase of the ITBs due to net payments made to
the Partnership under the Hess Support Agreement, which were
considered an adjustment to the original purchase price.
Other expense in the three months ended March 31, 2008 includes
an impairment loss of $5.7 million. The Partnership previously
entered into contracts to construct four additional ATB units
similar to the ATB Freeport, each of which is specified to have a
carrying capacity of approximately 156,000 barrels at 98% of
capacity. However, the Partnership has the option to cancel the
fifth ATB unit prior to June 30, 2008. While the Partnership has
obtained financing for construction of the second, third and fourth
ATB units, it has not obtained financing for the fifth ATB unit.
Based on current market conditions, the Partnership expects to
exercise the cancellation option for the fifth barge in June 2008,
and it does not expect to exercise its option to construct the
fifth tug, although it continues to pursue charters for the
operation of, and financing for the construction of, the vessel.
Accordingly, the Partnership has assessed the fair value of the
construction in progress of the fifth ATB unit at zero, resulting
in a non-cash impairment charge of $5.7 million. For the three
months ended March 31, 2007, a $3.5 million contract settlement was
paid to the Partnership, resulting in other income for the
period.
Interest expense increased by $1.0 million for the three months
ended March 31, 2008 compared to the same period in 2007 due
primarily to increased borrowings. Interest income earned by the
Partnership decreased by $1.6 million, due primarily to reduced
balances in the Partnership's restricted cash accounts as funds
were released in connection with the construction of the ATBs and
the tankers being constructed by the joint venture entered into by
the Partnership in 2006 to construct new product tankers (the
"Joint Venture"). The restricted cash accounts consist of two
escrow accounts which were established as part of the Partnership's
2006 debt and equity financings to fund the construction of three
new ATBs and the Partnership's remaining committed equity
contributions to the Joint Venture. Interest income will continue
to decrease as funds in these escrow accounts are used to fund the
construction of the three new ATBs and the Partnership's equity
contributions to the Joint Venture. The Partnership recorded gains
on derivative financial instruments of $0.7 million and the Joint
Venture recorded losses of $0.3 million on derivative financial
instruments during the three months ended March 31, 2008.
The net loss per basic and diluted limited partnership unit for
the three months ended March 31, 2008 was $0.31 compared to net
income per basic and diluted limited partnership unit of $0.31 for
the three months ended March 31, 2007.
Adjusted EBITDA decreased by $1.8 million to $17.7 million for
the three months ended March 31, 2008 from $19.5 million for the
comparable period in 2007. The decrease was primarily due to
increases in vessel operating expenses, voyage expenses and general
and administrative expenses of $2.1 million, $6.2 million and $0.2
million, respectively, offset by an increase in voyage revenues of
$9.4 million. Additionally, Adjusted EBITDA for the 2008 period
reflects a $0.4 million net gain on derivative financial
instruments recorded by the Partnership and the Joint Venture and
$0.4 million of noncontrolling interest in the loss of the Joint
Venture. Adjusted EBITDA for the 2007 period reflected a $3.5
million contract settlement. Adjusted EBITDA is a non-GAAP measure
explained in greater detail below under "Use of Non-GAAP Financial
Information."
Distributable Cash Flow
Distributable cash flow ("DCF") for the three months ended March
31, 2008 was $9.1 million, or 1.78 times the cash distribution of
$5.1 million declared on the common units in respect of the period.
DCF for the quarter would have been 1.08 times the distributions
that would have been paid if a distribution had been made on all
outstanding common, subordinated and general partner units in
respect of the first quarter of 2008. As permitted by the
Partnership agreement, the calculation of DCF includes two addbacks
for financing costs incurred relative to the Partnership's
construction projects. The distribution addback represents the
distributions on units issued to finance the funding of the
Partnership's commitment to the Joint Venture entered into by the
Partnership in 2006. The additional interest adjustment is
attributable to interest expense incurred on borrowings used to
fund the construction of three ATBs. DCF varies from quarter to
quarter based on the timing of drydocks. DCF is a non-GAAP
financial measure explained in greater detail below under "Use of
Non-GAAP Financial Information."
Earnings Conference Call
We have scheduled a conference call for Tuesday, May 13, 2008 at
8:30 am Eastern Time, to review the Partnership's first quarter
results. Dial-in information for this call is 1-800-435-1261
(Domestic) and 1-617-614-4076 (International). The participant
passcode is 50780584. The conference call can also be accessed by
webcast, which will be available at www.usslp.com.
About U.S. Shipping Partners L.P.
U.S. Shipping Partners L.P. is a leading provider of long-haul
marine transportation services, principally for refined petroleum
products, petrochemical and commodity chemical products, in the
U.S. domestic "coastwise" trade. The Partnership's existing fleet
consists of eleven tank vessels: six integrated tug barge units;
one product tanker; three chemical parcel tankers and one ATB that
was delivered in June 2007 and entered service in July 2007. The
Partnership has embarked on a capital construction program to build
additional ATBs and, through a joint venture, additional tank
vessels that upon completion will result in the Partnership having
one of the most modern fleets in service. For additional
information about U.S. Shipping Partners L.P., please visit
www.usslp.com.
Use of Non-GAAP Financial Information
U.S. Shipping Partners L.P. reports its financial results in
accordance with generally accepted accounting principles. However,
we also present certain non-GAAP financial measures, such as EBITDA
and distributable cash flow, which we use in our business.
EBITDA is used as a supplemental financial measure by management
and by external users (including our lenders) of our financial
statements to assess (a) the financial performance of our assets,
and our ability to generate cash sufficient to pay interest on our
indebtedness and make distributions to partners, (b) our operating
performance and return on invested capital as compared to other
companies in our industry, and (c) our compliance with certain
financial covenants in our debt agreements. The calculation of
EBITDA is detailed in the table below. Distributable cash flow is
another non-GAAP financial measure we use in our business to
indicate our ability to generate cash and pay distributions to
partners. The calculation of distributable cash flow is detailed in
the table below. Neither EBITDA nor distributable cash flow should
be considered an alternative to net income, operating income, cash
flow from operating activities, or any other measure of financial
performance or liquidity under GAAP. EBITDA and distributable cash
flow, as presented herein, may not be comparable to similarly
titled measures of other companies.
The Partnership has presented in the tables below a
reconciliation of each of these measures to the most directly
comparable GAAP measurement.
This press release may include "forward-looking statements" as
defined by the Securities and Exchange Commission. All statements,
other than statements of historical facts, included in this press
release that address activities, events or developments that the
Partnership expects, believes or anticipates will or may occur in
the future are forward-looking statements. These statements are
based on certain assumptions made by the Partnership based on its
experience and perception of historical trends, current conditions,
expected future developments and other factors it believes are
appropriate in the circumstances. Such statements are subject to a
number of assumptions, risks and uncertainties, many of which are
beyond the control of the Partnership, which may cause our actual
results to differ materially from those implied or expressed by the
forward-looking statements. Such assumptions, risks and
uncertainties are discussed in detail in the Partnership's filings
with the SEC and include, among other things, future charter rates,
demand in the spot market for vessels and timely and on-budget
delivery in the second half of 2008 of two ATBs currently under
construction.
U.S. Shipping Partners L.P.
Consolidated Statements of Operations
(in thousands, except for per unit data) (unaudited)
For the Three Months
Ended
March 31,
--------------------
2008 2007
--------- ---------
Voyage revenue $ 51,504 $ 42,082
--------- ---------
Vessel operating expenses 17,021 14,918
% of voyage revenue 33.0% 35.4%
Voyage expenses 13,679 7,437
% of voyage revenue 26.6% 17.7%
General and administrative expenses 3,994 3,765
% of voyage revenue 7.8% 8.9%
Depreciation and amortization 10,504 9,048
Other expense (income) 5,787 (3,486)
--------- ---------
Total operating expenses, net 50,985 31,682
--------- ---------
Operating income 519 10,400
% of voyage revenue 1.0% 24.7%
Interest expense 7,891 6,917
Interest income (1,040) (2,675)
Net gains on derivative financial instruments (442) -
--------- ---------
(Loss) income before income taxes and
noncontrolling interest (5,890) 6,158
Provision for income taxes 292 420
--------- ---------
(Loss) income before noncontrolling interest (6,182) 5,738
Noncontrolling interest in Joint Venture losses 404 11
--------- ---------
Net (loss) income $ (5,778) $ 5,749
========= =========
General partner's interest in net (loss) income $ (116) $ 115
Limited partners' interest in:
Net (loss) income $ (5,662) $ 5,634
Net (loss) income per unit - basic and diluted $ (0.31) $ 0.31
Weighted average units outstanding - basic and
diluted 18,234 18,234
U.S. Shipping Partners L.P.
Supplemental Operating Statistics
For the Three Months
Ended
March 31,
--------------------
2008 2007
--------- ---------
Total fleet
Vessel days 1,001 900
Days worked (1) 966 893
Drydocking days - -
Net utilization (1) (2) 97% 99%
Average time charter equivalent rate (3) (4) $ 38,436 $ 38,796
(1) There were 19 days of unscheduled off-hire in the first quarter of 2008
that were required to complete repairs to one of the engines on the ITB
Philadelphia damaged enroute back to New York during the grain voyage
in February 2008. As a result days worked is reduced by these days and
net utilization is negatively affected.
(2) Net utilization is equal to the total number of days worked by our
vessels during a defined period, divided by total vessel days (number
of vessels x calendar days) for that period.
(3) Average time charter equivalent rate is equal to net voyage revenue
earned by our vessels during a defined period, divided by the total
number of actual days worked by those vessels during that period. Net
voyage revenue is calculated by subtracting voyage expenses from voyage
revenue.
(4) The 2008 calculations of average time charter equivalent rate include
both the revenue and eighteen days worked by the ITB Philadelphia for
which no net voyage revenue was recorded in 2007.
U.S. Shipping Partners L.P.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
(in thousands) (unaudited)
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) and
Earnings before Interest, Taxes, Depreciation and Amortization and Other
Non-Cash Expense (Adjusted EBITDA)
For the Three Months
Ended
March 31,
--------------------
2008 2007
--------- ----------
Net (loss) income $ (5,778) $ 5,749
Adjustments to reconcile net (loss) income
to EBITDA and Adjusted EBITDA:
Depreciation and amortization 10,504 9,048
Interest expense, net 6,851 4,242
Provision for income taxes 292 420
--------- ----------
EBITDA 11,869 19,459
Other non-cash expense 5,787 -
--------- ----------
Adjusted EBITDA $ 17,656 $ 19,459
========= ==========
U.S. Shipping Partners L.P.
Distributable Cash Flow (1)
(in thousands) (unaudited)
For the Three
Months Ended
March 31, 2008
-------------------
Net loss $ (5,778)
Adjustments to reconcile net loss to
distributable cash flow:
Add: Depreciation and amortization (2) 10,968
Distribution addback (3) 1,995
Additional interest adjustment (3) 1,860
Provision for taxes 292
Partnership interest in Joint Venture loss (4) 269
Impairment of construction in progress 5,720
Loss on sale of surplus equipment 67
Less: Estimated maintenance capital expenditures (5) 5,225
Gain on derivative financial instruments 706
Income taxes paid 380
-------------------
Distributable cash flow $ 9,082
===================
Expected cash distribution in respect of the
period (6) $ 8,382
Distribution coverage 1.08
Actual cash distribution in respect of the
period $ 5,109
Distribution coverage 1.78
(1) Distributable Cash Flow provides additional information for evaluating
our ability to pay the minimum quarterly distributions on outstanding
common and subordinated units and the 2% general partner interest.
(2) Includes amortization of deferred financing costs, which is included
in interest expense in the Consolidated Statements of Operations.
(3) Our partnership agreement allows us to addback interest paid on debt
incurred and distributions paid on equity issued to finance the
construction of a capital improvement or replacement asset and paid
during the period beginning on the date the Partnership enters into a
binding obligation to commence construction of such capital improvement
and ending on the date the capital improvement is placed in service,
abandoned, or sold.
(4) The income and expenses incurred by the Joint Venture are excluded from
the Partnership?s distributable cash flow.
(5) Our partnership agreement requires us to subtract an estimate of the
average annual maintenance capital expenditures necessary to maintain
the operating capacity of our capital assets over the long term as
opposed to the actual amounts spent. This estimate is $20.9 million
for 2008.
(6) Represents the total distributions that would have been paid if
distributions were paid on both our subordinated and our 2% general
partner interest in the first quarter of 2008.
Contact Information: Albert Bergeron Chief Financial Officer
U.S. Shipping Partners L.P. 1-866-467-2400
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