K-Sea Transportation Partners L.P. reported record results of operations for its fiscal 2006 first quarter ended September 30, 2005. The Company also announced that its distribution to unitholders in respect of the first quarter will increase by $0.01 to $0.57 per unit, or $2.28 per unit annualized. The distribution will be payable on November 14, 2005 to unitholders of record on November 8, 2005.
For the three months ended September 30, 2005, the Company reported operating income of $6.2 million, an increase of $1.7 million, or 37%, compared to $4.5 million of operating income for the three months ended September 30, 2004. The increase resulted from the expansion of the Company's fleet barrel-carrying capacity over the past year and continued strong vessel utilization, plus improved average daily rates in the Company's coastwise trade as a result of continuing strong demand for refined petroleum products
and higher oil prices
. Additional vessels put into service over the past year include the tank barges acquired as part of the Norfolk acquisition in December 2004, which are now contributing positively to operating results, one vessel which was placed back in service in September 2004, after being double hulled, and one vessel placed back in service in May 2005 after being retrofitted. Hurricanes Katrina and Rita had no significant impact on operations for the quarter.
These improvements were partially offset by increased general and administrative costs and depreciation. The increase in general and administrative expenses of $1.6 million resulted from $0.6 million of increases in personnel costs in support of the Company's growth, a $0.4 million increase in costs associated with being a public company (including costs for compliance with the Sarbanes-Oxley Act of 2002), and costs related to the Norfolk operations
acquired in late 2004. Earnings before interest, taxes, depreciation, amortization, and losses on reduction of debt (EBITDA) increased by $1.8 million, or 18%, to $11.6 million for the three months ended September 30, 2005, compared to $9.9 million in the fiscal 2005 first quarter.
Net income for the three months ended September 30, 2005 was $4.2 million, or $0.47 per fully diluted limited partner unit, an increase of $1.1 million compared to $3.1 million, or $0.37 per fully diluted limited partner unit, for the three months ended September 30, 2004. The increase in net income resulted from the improved operating earnings offset by increased interest expense in the fiscal 2006 first quarter due to higher average borrowings incurred to finance vessel acquisitions over the past year.
As previously reported, on October 18, 2005 K-Sea closed its acquisition of Sea Coast Transportation LLC
. Sea Coast operates fifteen tank barges and fifteen tugboats, representing 705,000 barrels of capacity, which represents a 27% increase in the barrel-carrying capacity of the K-Sea fleet to almost 3.3 million barrels, which K-Sea believes makes it the largest coastwise tank barge operator
, measured by barrel-carrying capacity, in the United States
. Additionally, on October 21, 2005, K-Sea acquired an 80,000 barrel integrated tug-barge unit for approximately $13 million, for operation on the Great Lakes
, which is expected to be immediately accretive to distributable cash flow.
President and CEO Timothy J. Casey said
"Our results for the fiscal 2006 first quarter improved significantly from the prior year, reflecting the factors mentioned above. We expect our results to be strengthened further by our ongoing capacity additions, in particular the acquisition of Sea Coast in October. Additionally, five new vessels currently under construction, including one 100,000 barrel and four 28,000 barrel tank barges, are scheduled to be delivered during fiscal 2006, which we expect to contribute further to the growth in earnings and distributable cash flow. In light of our results and expectations, our Board of Directors has approved a one cent per unit increase in our quarterly distribution, the fourth distribution increase since our initial public offering in January 2004."
The Company's distributable cash flow for the first quarter of fiscal 2006 was $6.6 million, or approximately 1.15 times the amount needed to cover the increased cash distribution of $5.8 million declared in respect of the period. During October 2005, the Company issued a total of 950,000 new common units in a public offering, and 125,000 new common units in connection with the Sea Coast acquisition. Excluding these new units, distribution coverage for the quarter ended September 30, 2005 would have been 1.28 times.