The Company also announced that its distribution to unitholders for the first quarter will remain at $.77 per unit, or $3.08 per unit annualized. The distribution will be payable on November 14, 2008 to unitholders of record on November 7, 2008.
President and CEO Timothy J. Casey said "Our first quarter results were satisfactory in light of the exceptional developments in the energy markets which disrupted demand in certain of our markets. There were also several factors that affected us which we believe are transitory in nature and which should ease as we progress in fiscal 2009. Our results for the first quarter reflected certain higher operating costs that will be increasingly offset by built-in contractual revenue escalators in our charter contracts which will go into effect at various times during the year. The sharp decline in the price of oil in September resulted in our recording a loss on the carrying value of the diesel fuel used to power our tugboats. We also had a negative swing, compared to last year's first quarter, on the disposition of equipment. The total of these items approximated $3.5m.
"Vessel utilization and average daily rates remain solid, clearly aided by our significant proportion of long-term charter contracts which have an average remaining duration of approximately 2.5 years. Also, we expect to take delivery in November of two new 80,000 barrel tank barges that are committed to long-term contracts. Our distribution coverage ratio is negatively skewed this quarter because we will pay the full distribution on the two million new units we issued in the middle of the quarter; however, we did not receive the benefit of a full quarter's reduction in interest expense.
"We believe our balance sheet and liquidity remain solid and the structure of our debt is a major advantage. Debt maturities total only $17m for the next twelve months, and $19m in fiscal 2010, which will be covered by availability of over $70m under our various loan agreements. Our bank revolver is non-amortizing and does not mature until 2014."
Three Months Ended September 30, 2008
For the three months ended September 30, 2008, K-Sea reported operating income of $9.9m, a decrease of $2.1m, or 18%, compared to $12m of operating income for the three months ended September 30, 2007. This decrease resulted from increased labor, insurance, and general and administrative expenses, and from higher depreciation and amortization resulting from the acquisition of the Smith Maritime Group in August 2007, the delivery of four newbuild tank barges since September 30, 2007, and the acquisition of eight tugboats in June 2008. The higher costs more than offset the impact of continued strong rates and solid vessel utilization. Utilization was positively impacted by a smaller number of scheduled drydockings compared to the prior year's quarter. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by $.3m, or 1%, to $22.7m for the three months ended September 30, 2008, compared to $22.4m for the three months ended September 30, 2007. EBITDA is a non-GAAP financial measure that is reconciled to net income, the most directly comparable GAAP measure, in the table below.
Net income for the three months ended September 30, 2008 was $3.9m, or $.26 per fully diluted limited partner unit, a decrease of $2.1m compared to net income of $6m, or $.56 per fully diluted limited partner unit, for the three months ended September 30, 2007. The fiscal 2009 first quarter was adversely impacted by the $2.1m decrease in operating income.
In assessing the appropriateness of the useful lives and salvage values of its vessels, K-Sea considered the recent growth in the fleet and changes in its composition. The company concluded, based on its accumulated data on useful lives and the planned future use of its vessels, as well as a review of industry data, that its assets are fully operative and economic for periods greater than those previously used for book depreciation purposes. Accordingly, effective July 1, 2008, the Company prospectively increased the estimated useful lives of double-hulled tank barges and tugboats, and increased salvage values for double-hulled tank barges. These changes in accounting estimates increased operating income and net income by $1.6m, and net income per fully diluted limited partner unit by $.11, for the three months ended September 30, 2008.