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1) Description of Business
KNOT Offshore Partners LP (the “Partnership”) is a publicly traded Marshall Islands limited partnership initially formed for the purpose of acquiring 100% ownership interests in four shuttle tankers owned by Knutsen NYK Offshore Tankers AS (“KNOT”) in connection with the Partnership’s initial public offering of common units (the “IPO”), which was completed in April 2013.
As of June 30, 2017, the Partnership had a fleet of thirteen shuttle tankers, the Windsor Knutsen, the Bodil Knutsen, the Recife Knutsen, the Fortaleza Knutsen, the Carmen Knutsen, the Hilda Knutsen, the Torill Knutsen, the Dan Cisne, the Dan Sabia, the Ingrid Knutsen, the Raquel Knutsen, the Tordis Knutsen and the Vigdis Knutsen, each referred to as a “Vessel” and, collectively, as the “Vessels.” The Vessels operate under fixed charter contracts to charterers.
The initial term for a time charter or bareboat charter commences upon the vessel’s delivery to the customer. The Partnership’s charters include options, exercisable by the customer, to extend the charter’s initial term. Pursuant to the Omnibus Agreement, KNOT has agreed to guarantee the payments of the hire rate under the initial charters for the Windsor Knutsen and the Bodil Knutsen for five years from the closing of the Partnership’s IPO. The time charter for the Windsor Knutsen expires in 2018 and the charterer has five one-year extension options. The time charter for the Bodil Knutsen expires in 2019 and contains customer options for extension through 2024. The Recife Knutsen and the Fortaleza Knutsen are under bareboat charter contracts that expire in 2023. The time charter for the Carmen Knutsen expires in 2023 and contains customer options for extension through 2026. The time charters for the Hilda Knutsen and the Torill Knutsen each expire in 2018 and contain a customer option for extension through 2023. The Dan Cisne and the Dan Sabia are under bareboat charter contracts that expire in 2023 and 2024, respectively. The time charter for the Ingrid Knutsen expires in 2024 and contains customer options for extension through 2029. The time charter for the Raquel Knutsen expires in 2025 and contains customer options for extension through 2030. The time charter for the Tordis Knutsen expires in 2022 and contains customer options for extension through 2032. The time charter for the Vigdis Knutsen expires in 2022 and contains customer options for extension through 2032.
Under the Partnership’s Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”), KNOT Offshore Partners GP LLC, a wholly owned subsidiary of KNOT, and the general partner of the Partnership (the “General Partner”), has irrevocably delegated to the Partnership’s board of directors the power to oversee and direct the operations of, manage and determine the strategies and policies of the Partnership. During the period from the Partnership’s IPO in April 2013 until the time of the Partnership’s first annual general meeting (“AGM”) on June 25, 2013, the General Partner retained the sole power to appoint, remove and replace all members of the Partnership’s board of directors. From the first AGM, four of the seven board members became electable by the common unitholders and accordingly, from this date, KNOT, as the owner of the General Partner, no longer retains the power to control the Partnership’s board of directors and, hence, the Partnership. As a result, the Partnership is no longer considered to be under common control with KNOT and as a consequence, the Partnership will not account for any vessel acquisitions from KNOT after June 25, 2013 as a transfer of equity interests between entities under common control.
On January 10, 2017, the Partnership issued and sold 2,500,000 common units in an underwritten public offering (see Note 16(a) — Equity Offering), raising approximately $54.9 million in net proceeds.
On February 2, 2017, the Partnership issued and sold in a private placement 2,083,333 Series A Convertible Preferred Units (“Series A Preferred Units”) at a price of $24.00 per unit. After deducting estimated fees and expenses, the net proceeds from the sale were approximately $48.6 million.
On March 1, 2017, the Partnership’s wholly owned subsidiary, KNOT Shuttle Tankers AS, acquired KNOT Shuttle Tankers 24 AS, the company that owns the Tordis Knutsen, from KNOT. The acquisition of the Tordis Knutsen was accounted for as an acquisition of a business. As a result, the Partnership has recorded the results of operations of the Tordis Knutsen in its consolidated statement of operations from March 1, 2017. See Note 15—Business Acquisitions.
On June 1, 2017, KNOT Shuttle Tankers AS acquired KNOT Shuttle Tankers 25 AS, the company that owns the Vigdis Knutsen, from KNOT. The acquisition of the Vigdis Knutsen was accounted for as an acquisition of a business. As a result, the Partnership has recorded the results of operations of the Vigdis Knutsen in its consolidated statement of operations from June 1, 2017. See Note 15—Business Acquisitions.
On June 30, 2017, the Partnership issued and sold in a second private placement 1,666,667 additional Series A Preferred Units at a price of $24.00 per unit. After deducting estimated fees and expenses, the net proceeds from the sale were approximately $38.8 million.
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2) Summary of Significant Accounting Policies
(a) Basis of Preparation
The accompanying unaudited condensed consolidated interim financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information. In the opinion of management of the Partnership, all adjustments considered necessary for a fair presentation, which are of normal recurring nature, have been included. All intercompany balances and transactions are eliminated. The unaudited condensed consolidated financial statements do not include all the disclosures and information required for a complete set of annual financial statements; and, therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements for the year ended December 31, 2016, which are included in the Partnership’s Annual Report on Form 20-F (the “2016 20-F”).
(b) Significant Accounting Policies
The accounting policies adopted in the preparation of the unaudited condensed consolidated interim financial statements are consistent with those followed in the preparation of the Partnership’s audited consolidated financial statements for the year ended December 31, 2016, as contained in the Partnership’s 2016 20-F.
(c) Recent Accounting Pronouncements
Adoption of new accounting standards
There are no accounting pronouncements effective for the period, whose adoption had a material impact on the consolidated financial statements in the current period.
Accounting pronouncements to be adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued revised guidance for leasing. The objective is to establish the principles that lessors and lessees shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. The standard is effective for annual periods beginning after December 15, 2018. The Partnership is currently assessing the impact the adoption of this standard will have on the consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which provides new authoritative guidance on the methods of revenue recognition and related disclosure requirements. This new standard supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The new standard also requires additional qualitative and quantitative disclosures. In April 2015 the FASB proposed to defer the effective date of the guidance by one year. Based on this proposal, public entities would need to apply the new guidance for annual and interim periods beginning after December 15, 2017, and may apply it, at the company’s option, retrospectively to each period presented or as a cumulative-effect adjustment as at the date of adoption. Early adoption is not permitted until periods beginning after December 15, 2016. The Partnership has begun an initial assessment of the impact of this standard update on its consolidated financial statements and related disclosures and expects to adopt the standard from January 1, 2018. Based on the analysis to date, the Partnership does not expect the pattern of revenue recognition under the new guidance to materially differ from its current revenue recognition pattern and expects to transition using a modified retrospective approach whereby it will record the cumulative effect of applying the new standard to all outstanding contracts as at January 1, 2018 as an adjustment to opening retained earnings.
Any other accounting pronouncements yet to be adopted by the Partnership are consistent with those disclosed in the Partnership’s audited consolidated financial statements for the year ended December 31, 2016.
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3) Segment Information
The Partnership has not presented segment information as it considers its operations to occur in one reportable segment, the shuttle tanker market. As of June 30, 2017, the Partnership’s fleet consisted of thirteen vessels and operated under nine time charters and four bareboat charters. As of June 30, 2016, the Partnership’s fleet consisted of ten vessels and operated under six time charters and four bareboat charters. Under the time charters and bareboat charters, the charterer, not the Partnership, controls the choice of which trading areas the applicable Vessel will serve. Accordingly, the Partnership’s management, including the chief operating decision makers, does not evaluate performance according to geographical region.
The following table presents revenues and percentages of consolidated revenues for customers that accounted for more than 10% of the Partnership’s consolidated revenues during the three and six months ended June 30, 2017 and 2016. All of these customers are subsidiaries of major international oil companies.
Three Months
Ended June 30, |
Six Months
Ended June 30, |
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(U.S. Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||||
Eni Trading and Shipping S.p.A. |
$ | 11,345 | 22% | $ | 11,689 | 27% | $ | 22,905 | 24% | $ | 23,375 | 28% | ||||||||||||||||||||||
Fronape International Company, a subsidiary of Petrobras Transporte S.A. |
11,249 | 22% | 11,249 | 26% | 22,378 | 23% | 22,498 | 27% | ||||||||||||||||||||||||||
Statoil ASA |
5,778 | 11% | 5,710 | 13% | 11,459 | 12% | 10,229 | 12% | ||||||||||||||||||||||||||
Repsol Sinopec Brasil, S.A., a subsidiary of Repsol Sinopec Brasil, B.V. |
7,094 | 14% | 4,772 | 11% | 14,396 | 15% | 9,760 | 11% | ||||||||||||||||||||||||||
Brazil Shipping I Limited, a subsidiary of Royal Dutch Shell |
11,675 | 23% | 5,097 | 13% | 15,401 | 16% | 10,134 | 12% | ||||||||||||||||||||||||||
Standard Marine Tønsberg AS, a Norwegian subsidiary of ExxonMobil |
4,396 | 9% | 4,347 | 10% | 8,745 | 9% | 8,694 | 10% |
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4) Insurance Proceeds
In February 2017, the Raquel Knutsen damaged its propeller hub. As a result, the Vessel was off-hire from February 22, 2017 to May 15, 2017 for repairs. Under the Partnership’s loss of hire policies, its insurer will pay the Partnership the hire rate agreed in respect of each vessel for each day, in excess of 14 deductible days, for the time that the Vessel is out of service as a result of damage, for a maximum of 180 days. The Partnership received payments for loss of hire insurance of $2.15 million and $2.9 million during the three and six months ended June 30, 2017, respectively.
In addition, for the three and six months ended June 30, 2017, the Partnership recorded $2.17 million and $3.89 million, respectively, for recoveries up to the amount of loss under hull and machinery insurance for the repairs as a result of the propeller hub damage to the Raquel Knutsen. For the three and six months ended June 30, 2017, $0.1 million and $0.1 million, respectively, is classified under vessel operating expense along with the cost of the repairs.
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5) Other Finance Expenses
(a) Interest Expense
A reconciliation of total interest cost and interest expense as reported in the consolidated statements of operations for the three and six months ended June 30, 2017 and 2016:
Three Months Ended June 30, |
Six Months Ended June 30, |
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(U.S. Dollars in thousands) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest expense |
$ | 6,846 | $ | 4,768 | $ | 12,711 | $ | 9,511 | ||||||||
Amortization of debt issuance cost and fair value of debt assumed |
406 | 286 | 755 | 573 | ||||||||||||
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Total interest cost |
$ | 7,252 | $ | 5,054 | $ | 13,466 | $ | 10,084 | ||||||||
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(b) Other Finance Expense
The following table presents the other finance expense for three and six months ended June 30, 2017 and 2016:
Three Months Ended June 30, |
Six Months Ended June 30, |
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(U.S. Dollars in thousands) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Bank fees, charges |
$ | 119 | $ | 158 | $ | 191 | $ | 246 | ||||||||
Guarantee costs |
158 | 176 | 318 | 355 | ||||||||||||
Commitment fees |
51 | — | 121 | — | ||||||||||||
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Total other finance expense |
$ | 328 | $ | 334 | $ | 630 | $ | 601 | ||||||||
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6) Derivative Instruments
The unaudited condensed consolidated interim financial statements include the results of interest rate swap contracts to manage the Partnership’s exposure related to changes in interest rates on its variable rate debt instruments and the results of foreign exchange forward contracts to manage its exposure related to changes in currency exchange rates on its operating expenses, mainly crew expenses, in currency other than U.S. Dollars and on its contract obligations. The Partnership does not apply hedge accounting for derivative instruments. The Partnership does not speculate using derivative instruments.
By using derivative financial instruments to economically hedge exposures to changes in interest rates, the Partnership exposes itself to credit risk and market risk. Derivative instruments that economically hedge exposures are used for risk management purposes, but these instruments are not designated as hedges for accounting purposes. Credit risk is the failure of the counterparty to perform under the terms of the derivative instrument. When the fair value of a derivative instrument is positive, the counterparty owes the Partnership, which creates credit risk for the Partnership. When the fair value of a derivative instrument is negative, the Partnership owes the counterparty, and, therefore, the Partnership is not exposed to the counterparty’s credit risk in those circumstances. The Partnership minimizes counterparty credit risk in derivative instruments by entering into transactions with major banking and financial institutions. The derivative instruments entered into by the Partnership do not contain credit risk-related contingent features. The Partnership has not entered into master netting agreements with the counterparties to its derivative financial instrument contracts.
Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates, currency exchange rates or commodity prices. The market risk associated with interest rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
The Partnership assesses interest rate risk by monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating economical hedging opportunities.
The Partnership’s variable interest rate mortgage debt obligations expose the Partnership to variability in interest payments due to changes in interest rates. The Partnership believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, the Partnership has entered into London Interbank Offered Rate (“LIBOR”)-based interest rate swap contracts to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. These swaps change the variable rate cash flow exposure on the mortgage debt obligations to fixed cash flows. Under the terms of the interest rate swap contracts, the Partnership receives LIBOR-based variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed rate debt for the notional amount of its debt hedged.
As of June 30, 2017, the Partnership had entered into various interest swap agreements for a total notional amount of $536.7 million to hedge against the interest rate risks of its variable rate borrowings. Under the terms of the interest rate swap agreements, the Partnership receives interest based on three or six month LIBOR and pays a weighted average interest rate of 1.65%.
As of June 30, 2017 and December 31, 2016, the total notional amount of the Partnership’s outstanding interest rate swap contracts that were entered into in order to hedge outstanding or forecasted debt obligations were $536.7 million and $446.7 million, respectively. As of June 30, 2017 and December 31, 2016, the carrying amount of the interest rate swaps contracts were net assets of $2.1 million and $0.8 million, respectively. See Note 7—Fair Value Measurements.
Changes in the fair value of interest rate swap contracts are reported in realized and unrealized gain (loss) on derivative instruments in the same period in which the related interest affects earnings.
The Partnership and its subsidiaries utilize the U.S. Dollar as their functional and reporting currency, because all of their revenues and the majority of their expenditures, including the majority of their investments in vessels and their financing transactions, are denominated in U.S. Dollars. Payment obligations in currencies other than the U.S. Dollar, and in particular operating expenses in Norwegian Kroner (NOK), expose the Partnership to variability in currency exchange rates. The Partnership believes that it is prudent to limit the variability of a portion of its currency exchange exposure. To meet this objective, the Partnership entered into foreign exchange forward contracts to manage fluctuations in cash flows resulting from changes in the exchange rates towards the U.S. Dollar. The agreements change the variable exchange rate to fixed exchange rates at agreed dates.
As of June 30, 2017 and December 31, 2016, the total contract amount in foreign currency of the Partnership’s outstanding foreign exchange forward contracts that were entered into to economically hedge outstanding future payments in currencies other than the U.S. Dollar were NOK 332.5 million and NOK 290.1 million, respectively. As of June 30, 2017 and December 31, 2016, the carrying amount of the Partnership’s foreign exchange forward contracts was a net liability of $0.2 million and $1.3 million, respectively. See Note 7—Fair Value Measurements.
The following table presents the realized and unrealized gains and losses that are recognized in earnings as net gain (loss) for derivative instruments for the three and six months ended June 30, 2017 and 2016:
Three Months Ended June 30, |
Six Months Ended June 30, |
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(U.S. Dollars in thousands) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Realized gain (loss): |
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Interest rate swap contracts |
$ | (938 | ) | $ | (1,252 | ) | $ | (1,607 | ) | $ | (2,176 | ) | ||||
Foreign exchange forward contracts |
(97 | ) | (316 | ) | (166 | ) | (316 | ) | ||||||||
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Total realized gain (loss): |
(1,035 | ) | (1,568 | ) | (1,773 | ) | (2,492 | ) | ||||||||
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Unrealized gain (loss): |
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Interest rate swap contracts |
(1,334 | ) | (1,518 | ) | (275 | ) | (5,866 | ) | ||||||||
Foreign exchange forward contracts |
833 | (90 | ) | 1,031 | 1,998 | |||||||||||
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Total unrealized gain (loss): |
(501 | ) | (1,608 | ) | 756 | (3,868 | ) | |||||||||
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Total realized and unrealized gain (loss) on derivative instruments: |
$ | (1,536 | ) | $ | (3,176 | ) | $ | (1,017 | ) | $ | (6,360 | ) | ||||
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7) Fair Value Measurements
(a) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Partnership’s financial instruments as of June 30, 2017 and December 31, 2016. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
June 30, 2017 | December 31, 2016 | |||||||||||||||
(U.S. Dollars in thousands) | Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
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Financial assets: |
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Cash and cash equivalents |
$ | 64,501 | $ | 64,501 | $ | 27,664 | $ | 27,664 | ||||||||
Current derivative assets: |
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Interest rate swap contracts |
124 | 124 | — | — | ||||||||||||
Foreign exchange forward contracts |
138 | 138 | — | — | ||||||||||||
Non-current derivative assets: |
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Interest rate swap contracts |
4,461 | 4,461 | 3,154 | 3,154 | ||||||||||||
Foreign exchange forward contracts |
39 | 39 | — | — | ||||||||||||
Financial liabilities: |
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Current derivative liabilities: |
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Interest rate swap contracts |
1,634 | 1,634 | 2,039 | 2,039 | ||||||||||||
Foreign exchange forward contracts |
411 | 411 | 1,265 | 1,265 | ||||||||||||
Non-current derivative liabilities: |
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Interest rate swap contracts |
793 | 793 | 285 | 285 | ||||||||||||
Foreign exchange forward contracts |
— | — | — | — | ||||||||||||
Long-term debt, current and non-current |
912,010 | 911,083 | 745,649 | 743,898 |
The carrying amounts shown in the table above are included in the condensed consolidated balance sheets under the indicated captions. The carrying value of trade accounts receivable, trade accounts payable and receivables/payables to owners and affiliates approximate their fair value.
The fair values of the financial instruments shown in the above table as of June 30, 2017 and December 31, 2016 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Partnership’s own judgment about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Partnership based on the best information available in the circumstances, including expected cash flows, appropriately risk-adjusted discount rates and available observable and unobservable inputs.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
• | Cash and cash equivalents and restricted cash: The fair value of the Partnership’s cash balances approximates the carrying amounts due to the current nature of the amounts. |
• | Interest rate swap contracts: The fair value of interest rate swap contracts is determined using an income approach using the following significant inputs: the term of the swap, the notional amount of the swap, discount rates interpolated based on relevant LIBOR swap curves and the rate on the fixed leg of the swap. |
• | Foreign exchange forward contracts: The fair value is calculated using mid-rates (excluding margins) as determined by counterparties based on available market rates as of the balance sheet date. The fair value is discounted from the value at expiration to the current value of the contracts. |
• | Long-term debt: With respect to long-term debt measurements, the Partnership uses market interest rates and adjusts that rate for all necessary risks, including its own credit risk. In determining an appropriate spread to reflect its credit standing, the Partnership considered interest rates currently offered to KNOT for similar debt instruments of comparable maturities by KNOT’s and the Partnership’s bankers as well as other banks that regularly compete to provide financing to the Partnership. |
(b) Fair Value Hierarchy
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (including items that are required to be measured at fair value or for which fair value is required to be disclosed) as of June 30, 2017 and December 31, 2016:
Fair Value Measurements at Reporting Date Using |
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(U.S. Dollars in thousands) |
June 30, 2017 |
Quoted Price in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Financial assets: |
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Cash and cash equivalents |
$ | 64,501 | $ | 64,501 | $ | — | $ | — | ||||||||
Current derivative assets: |
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Interest rate swap contracts |
124 | — | 124 | — | ||||||||||||
Foreign exchange forward contracts |
138 | — | 138 | — | ||||||||||||
Non-current derivative assets: |
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Interest rate swap contracts |
4,461 | — | 4,461 | — | ||||||||||||
Foreign exchange forward contracts |
39 | — | 39 | — | ||||||||||||
Financial liabilities: |
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Current derivative liabilities: |
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Interest rate swap contracts |
1,634 | — | 1,634 | — | ||||||||||||
Foreign exchange forward contracts |
411 | — | 411 | — | ||||||||||||
Non-current derivative liabilities: |
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Interest rate swap contracts |
793 | — | 793 | — | ||||||||||||
Foreign exchange forward contracts |
— | — | — | — | ||||||||||||
Long-term debt, current and non-current |
912,010 | — | 911,083 | — |
Fair Value Measurements at Reporting Date Using |
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(U.S. Dollars in thousands) |
December 31, 2016 |
Quoted Price in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Financial assets: |
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Cash and cash equivalents |
$ | 27,664 | $ | 27,664 | $ | — | $ | — | ||||||||
Current derivative assets: |
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Interest rate swap contracts |
— | — | — | — | ||||||||||||
Foreign exchange forward contracts |
— | — | — | — | ||||||||||||
Non-current derivative assets: |
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Interest rate swap contracts |
3,154 | — | 3,154 | — | ||||||||||||
Foreign exchange forward contracts |
— | — | — | — | ||||||||||||
Financial liabilities: |
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Current derivative liabilities: |
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Interest rate swap contracts |
2,039 | — | 2,039 | — | ||||||||||||
Foreign exchange forward contracts |
1,265 | — | 1,265 | — | ||||||||||||
Non-current derivative liabilities: |
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Interest rate swap contracts |
285 | — | 285 | — | ||||||||||||
Foreign exchange forward contracts |
— | — | — | — | ||||||||||||
Long-term debt, current and non-current |
745,649 | — | 743,898 | — |
The Partnership’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2 or Level 3 as of June 30, 2017 and December 31, 2016.
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8) Income Taxes
The Norwegian government is in negotiations with the EFTA Surveillance Authority to extend the effective date of the Norwegian Tonnage Tax regime (the “NTT”). Pursuant to those negotiations, Norway has proposed restrictions that would eliminate the ability of companies that own vessels under certain bareboat charters to qualify for the NTT. Companies that no longer qualify for the NTT would instead be subject to Norwegian corporate income tax.
Subsidiaries of the Partnership collectively own four vessels under bareboat charters. Under the currently proposed changes to the NTT, the subsidiaries that own those vessels would no longer qualify for the NTT and would instead be subject to Norwegian corporate income tax, potentially as of January 1, 2018. The Partnership is evaluating potential alternatives that would avoid any of its subsidiaries being disqualified from the NTT. However, until any changes to the NTT are finalized, the Partnership can make no assurances that it can avoid the disqualification of certain of its subsidiaries from the NTT.
Components of Current and Deferred Tax Expense
After the reorganization of the Partnership’s predecessor’s activities into the new group structure in February 2013, all profit from continuing operations in Norway is taxable within the Norwegian Tonnage Tax regime (“the tonnage tax regime”). The consequence of the reorganization was a one-time entrance tax into the tonnage tax regime due to the Partnership’s acquisition of the shares in the subsidiary that owns the Fortaleza Knutsen and the Recife Knutsen. Under the tonnage tax regime, the tax is based on the tonnage of the vessel and operating income is tax free. The net financial income and expense remains taxable as ordinary income tax for entities subject to the tonnage tax regime. For the portion of activities subject to the tonnage tax regime, tonnage taxes are classified as vessel operating expenses while the current and deferred taxes arising on net financial income and expense are reflected as income tax expense in the consolidated financial statements.
The total amount of the entrance tax was estimated to be approximately $3.0 million, which was recognized in the three months ended March 31, 2013. The entrance tax is payable over several years and is calculated by multiplying the tax rate by the declining balance of the gain, which will decline by 20% each year. The amount payable will be affected by the change in tax rate which was reduced to 24% in 2017 from 25% in 2016, from 27% in 2014 and from 28% in 2013 and the fluctuation in currency rates. Approximately $0.2 and $0.1 million of the entrance tax was paid during the first and second quarter of 2017, respectively, and $0.2 million was paid during the first quarter of 2016. UK income tax is presented as income taxes payable, while $0.7 million is presented as non-current deferred taxes payable.
Significant components of current and deferred income tax expense attributable to income from continuing operations for the three and six months ended June 30, 2017 and 2016 as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
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(U.S. Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Income before income taxes |
$ | 16,918 | $ | 11,581 | $ | 28,350 | $ | 22,247 | ||||||||
Income tax (expense) |
(3 | ) | (3 | ) | (6 | ) | (6 | ) | ||||||||
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Effective tax rate |
$ | 0 | % | $ | 0 | % | $ | 0 | % | $ | 0 | % | ||||
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The Partnership records a valuation allowance for deferred tax assets when it is more likely than not that some of or all of the benefit from the deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, which relates to financial loss carry forwards and other deferred tax assets within the tonnage tax regime, the Partnership considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized taking into account all the positive and negative evidence available. As of June 30, 2017 and December 31, 2016 there are no deferred tax assets recognized.
|
9) Vessels and Equipment
(U.S. Dollars in thousands) | Vessels & equipment |
Accumulated depreciation |
Net Vessels | |||||||||
Vessels, December 31, 2015 |
$ | 1,351,219 | $ | (158,292 | ) | $ | 1,192,927 | |||||
Additions |
115,934 | — | 115,934 | |||||||||
Drydock costs |
4,258 | — | 4,258 | |||||||||
Disposals |
(2,498 | ) | 2,498 | — | ||||||||
Depreciation for the year |
— | (56,230 | ) | (56,230 | ) | |||||||
|
|
|
|
|
|
|||||||
Vessels, December 31, 2016 |
$ | 1,468,913 | $ | (212,024 | ) | $ | 1,256,889 | |||||
|
|
|
|
|
|
|||||||
Additions |
286,243 | — | 286,243 | |||||||||
Drydock costs |
9,263 | — | 9,263 | |||||||||
Disposals |
(1,508 | ) | 1,508 | — | ||||||||
Depreciation for the period |
— | (33,125 | ) | (33,125 | ) | |||||||
|
|
|
|
|
|
|||||||
Vessels, June 30, 2017 |
$ | 1,762,912 | $ | (243,641 | ) | $ | 1,519,270 | |||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
As of June 30, 2017 and December 2016, Vessels with a book value of $1,519 million and $1,257 million, respectively, are pledged as security held as a guarantee for the Partnership’s long-term debt. See Note 11—Long-term debt.
|
10) Intangible Assets
(U.S. Dollars in thousands) |
Above market time charter Tordis Knutsen |
Above market time charter Vigdis Knutsen |
Total intangibles |
|||||||||
Intangibles, December 31, 2015 |
$ | — | $ | — | $ | — | ||||||
Additions |
— | — | — | |||||||||
Amortization for the year |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
Intangibles, December 31, 2016 |
$ | — | $ | — | $ | — | ||||||
|
|
|
|
|
|
|||||||
Additions |
1,468 | 1,458 | 2,926 | |||||||||
Amortization for the period |
(101 | ) | (25 | ) | (126 | ) | ||||||
|
|
|
|
|
|
|||||||
Intangibles, June 30, 2017 |
$ | 1,367 | $ | 1,433 | $ | 2,800 | ||||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
The intangible for the above market value of time charter contract associated with the Tordis Knutsen is amortized to time charter revenue on a straight line basis over the remaining term of the contract of approximately 4.8 years as of the acquisition date. The intangible for the above market value of time charter contract associated with the Vigdis Knutsen is amortized to time charter revenue on a straight line basis over the remaining term of the contract of approximately 4.9 years as of the acquisition date. Also see Note 15 – Business Acquisitions.
|
11) Long-Term Debt
As of June 30, 2017 and December 31, 2016, the Partnership had the following debt amounts outstanding:
(U.S. Dollars in thousands) |
Vessel |
June 30, 2017 | December 31, 2016 |
|||||||
$220 million loan facility |
Windsor Knutsen, Bodil Knutsen, Carmen Knutsen |
$ | 172,857 | $ | 180,714 | |||||
$35 million revolving credit facility |
Windsor Knutsen, Bodil Knutsen, Carmen Knutsen |
30,000 | 25,000 | |||||||
$140 million loan facility |
Fortaleza Knutsen & Recife Knutsen |
113,750 | 118,125 | |||||||
$117 million loan facility |
Hilda Knutsen | — | 76,871 | |||||||
$117 million loan facility |
Torill Knutsen | 75,641 | 78,105 | |||||||
$172.5 million loan facility |
Dan Cisne, Dan Sabia | 95,939 | 100,539 | |||||||
$77.5 million loan facility |
Ingrid Knutsen | 64,368 | 67,652 | |||||||
$74.5 million loan facility |
Raquel Knutsen | 71,028 | 73,643 | |||||||
$25 million Seller’s Credit and Seller’s Loan |
Raquel Knutsen | — | 25,000 | |||||||
$114.4 million loan facility |
Tordis Knutsen | 93,581 | — | |||||||
$114.4 million loan facility |
Vigdis Knutsen | 94,846 | — | |||||||
$100 million loan facility |
Hilda Knutsen | 100,000 | — | |||||||
|
|
|
|
|||||||
Total long-term debt |
912,010 | 745,649 | ||||||||
|
|
|
|
|||||||
|
|
|
|
|||||||
Less: current installments |
66,661 | 60,314 | ||||||||
Less: unamortized deferred loan issuance costs |
1,643 | 1,330 | ||||||||
|
|
|
|
|||||||
Current portion of long-term debt |
65,018 | 58,984 | ||||||||
|
|
|
|
|||||||
Amounts due after one year |
845,350 | 685,335 | ||||||||
Less: unamortized deferred loan issuance costs |
4,468 | 2,673 | ||||||||
Less: $25 million Seller’s Credit and Seller’s Loan |
— | 25,000 | ||||||||
|
|
|
|
|||||||
Long-term debt, less current installments, Seller’s Credit and Seller’s Loan and unamortized deferred loan issuance costs |
$ | 840,882 | 657,662 | |||||||
|
|
|
|
|||||||
|
|
|
|
The Partnership’s outstanding debt of $912.0 million as of June 30, 2017 is repayable as follows:
(U.S. Dollars in thousands) | Period repayment |
Balloon repayment |
||||||
Remainder of 2017 |
$ | 33,331 | $ | — | ||||
2018 |
66,303 | 86,677 | ||||||
2019 |
50,085 | 267,678 | ||||||
2020 |
39,153 | — | ||||||
2021 |
39,753 | 70,811 | ||||||
2022 and thereafter |
85,507 | 172,712 | ||||||
|
|
|
|
|||||
Total |
$ | 314,132 | $ | 597,878 | ||||
|
|
|
|
As of June 30, 2017, the interest rates on the Partnership’s loan agreements (other than tranche two of the $77.5 million loan facility) were the London Interbank Offered Rate (“LIBOR”) plus a fixed margin ranging from 1.9% to 2.5%. On the export credit loan of $44.6 million which is tranche two of the $77.5 million loan facility secured by the Ingrid Knutsen, the annual rate is 3.85% composed of a 2.5% bank facility rate plus a commission of 1.35% to the export credit guarantor. The guarantee commission of 1.35% is classified as other finance expense.
In April 2015, KNOT Shuttle Tankers 24 AS, the subsidiary owning the Tordis Knutsen, as the borrower, entered into a secured loan facility (the “Tordis Facility”). As of the time of the acquisition of the Tordis Knutsen on March 1, 2017, the aggregate amount outstanding under the facility was $114.4 million. The Tordis Facility is repayable in quarterly installments with a final balloon payment of $70.8 million due at maturity in November 2021. The Tordis Facility bears interest at an annual rate equal to LIBOR plus a margin of 1.9%. The facility is secured by a vessel mortgage on the Tordis Knutsen. The Tordis Knutsen, assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Tordis Facility. The Partnership and KNOT Shuttle Tankers AS are the sole guarantors.
In April 2015, KNOT Shuttle Tankers 25 AS, the subsidiary owning the Vigdis Knutsen, as the borrower, entered into a secured loan facility (the “Vigdis Facility”). As of the time of the acquisition of the Vigdis Knutsen on June 1, 2017, the aggregate amount outstanding under the facility was $114.4 million. The Vigdis Facility is repayable in quarterly installments with a final balloon payment of $70.8 million due at maturity in February 2022. The Vigdis Facility bears interest at an annual rate equal to LIBOR plus a margin of 1.9%. The facility is secured by a vessel mortgage on the Vigdis Knutsen. The Vigdis Knutsen, assignments of earnings, charterparty contracts and insurance proceeds are pledged as collateral for the Vigdis Facility. The Partnership and KNOT Shuttle Tankers AS are the sole guarantors.
On May 26, 2017, the Partnership’s subsidiary, KNOT Shuttle Tankers 14 AS, which owns the vessel Hilda Knutsen, entered into a new $100 million senior secured term loan facility with Mitsubishi UFJ Lease & Finance (Hong Kong) Limited (the “New Hilda Facility”). The New Hilda Facility is repayable in twenty-eight (28) consecutive quarterly installments with a balloon payment of $58.5 million due at maturity. The New Hilda Facility bears interest at a rate per annum equal to LIBOR plus a margin of 2.2%. The facility matures in 2024 and is guaranteed by the Partnership and refinanced the $117 million loan facility associated with the Hilda Knutsen that bore interest at a rate of LIBOR plus 2.5% and was due to be paid in full in August 2018. As part of the refinancing, the $117 million loan facility including amortized loan expenses has been fully derecognized.
|
12) Related Party Transactions
(a) Related Parties
Net expenses (income) from related parties included in the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2017 and 2016 are as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(U.S. Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Statements of operations: |
||||||||||||||||
Other income: |
||||||||||||||||
Guarantee income from KNOT (1) |
593 | 192 | 687 | 381 | ||||||||||||
Operating expenses: |
||||||||||||||||
Technical and operational management fee from KNOT Management to Vessels (2) |
1,079 | 733 | 2,028 | 1,465 | ||||||||||||
General and administrative expenses: |
||||||||||||||||
Administration fee from KNOT Management (3) |
430 | 259 | 783 | 633 | ||||||||||||
Administration fee from KOAS (3) |
111 | 100 | 223 | 191 | ||||||||||||
Administration fee from KOAS UK (3) |
31 | 35 | 62 | 71 | ||||||||||||
Administration and management fee from KNOT (4) |
52 | 51 | 94 | 102 | ||||||||||||
Finance income (expense): |
||||||||||||||||
Interest expense charged from KNOT (5) |
— | — | 52 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,110 | $ | 986 | $ | 2,555 | $ | 2,081 | ||||||||
|
|
|
|
|
|
|
|
(U.S. Dollars in thousands) | At June 30, 2017 |
At December 31, 2016 |
||||||||||||||
Balance Sheet: |
||||||||||||||||
Vessels: |
||||||||||||||||
Drydocking supervision fee from KNOT (6) |
$ | 29 | $ | 38 | ||||||||||||
Drydocking supervision fee from KOAS (6) |
— | 16 | ||||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 29 | $ | 54 | ||||||||||||
|
|
|
|
(1) | Guarantee income from KNOT: Pursuant to the Omnibus Agreement, KNOT agreed to guarantee the payments of the hire rate under the initial charter of the Windsor Knutsen and Bodil Knutsen for a period of five years from the closing date of the IPO. In October 2015, the Windsor Knutsen commenced on a new Shell time charter with a hire rate below the hire rate in the initial charter. The difference between the new hire rate and the initial rate is paid by KNOT. See Note 12(b)—Related Party Transactions—Guarantees and Indemnifications. The Vigdis Knutsen suffered damages to its hull in connection with a ship-to-ship loading on May 24, 2017 and the vessel went offhire 6 days in June 2017 due to repairs of the damage. In connection with the Vigdis Knutsen acquisition KNOT agreed to pay for the repair cost and charter hire lost in connection with the incident. The reimbursement from KNOT for lost charter hire is accounted for as guarantee income. |
(2) | Technical and operational management fee from KNOT Management to Vessels: KNOT Management AS (“KNOT Management”) provides technical and operational management of the vessels on time charter including crewing, purchasing, maintenance and other operational services. In addition, there is also a charge for 24-hour emergency response services provided by KNOT for all vessels managed by KNOT. |
(3) | Administration fee from KNOT Management and Knutsen OAS Shipping AS (“KOAS”) and Knutsen OAS (UK) Ltd. (“KOAS UK”): Administration costs include the compensation and benefits of KNOT Management’s management and administrative staff as well as other general and administration expenses. Some benefits are also provided by KOAS and KOAS UK. Net administration costs are total administration cost plus a 5% margin, reduced for the total fees for services delivered by the administration staffs and the estimated shareholder costs for KNOT that have not been allocated. As such, the level of net administration costs as a basis for the allocation can vary from year to year based on the administration and financing services offered by KNOT to all the vessels in its fleet each year. KNOT Management also charges each subsidiary a fixed annual fee for the preparation of the statutory financial statement. |
(4) | Administration and management fee from KNOT: For bareboat charters, the shipowner is not responsible for providing crewing or other operational services and the customer is responsible for all vessel operating expenses and voyage expenses. However, each of the vessels under bareboat charters are subject to management and administration agreements with either KNOT Management or KNOT Management Denmark, pursuant to which these companies provide general monitoring services for the vessels in exchange for an annual fee. |
(5) | Interest expense charged from KNOT: KNOT invoiced interest (expense) income for any outstanding payables to (receivable from) owners and affiliates to the vessel-owning subsidiaries. |
(6) | Drydocking supervision fee from KNOT and KOAS: KNOT and KOAS provide supervision and hire out service personnel during drydocking of the vessels. The fee is calculated as a daily fixed fee. |
(b) Guarantees and Indemnifications
Pursuant to the Omnibus Agreement, KNOT agreed to guarantee the payments of the hire rate under the initial charters of each of the Windsor Knutsen and the Bodil Knutsen for a period of five years from the closing date of the IPO.
In April 2014, the Partnership was notified that Shell would not exercise its option to extend the Windsor Knutsen time charter after the expiration of its initial term. The vessel was re-delivered on July 28, 2014. In order to comply with its obligations under the Omnibus Agreement, on July 29, 2014, KNOT and the Partnership entered into a time charter for the vessel at a rate of hire that would have been in effect during the option period under the previous Shell time charter. This charter was effective until the new Shell time charter commenced in October, 2015. The new Shell charter has a hire rate that is lower than the hire rate in the initial charter. The difference between the new hire and the initial rate is paid by KNOT.
Under the Omnibus Agreement, KNOT has agreed to indemnify the Partnership until April 15, 2018, against certain environmental and toxic tort liabilities with respect to certain assets that KNOT contributed or sold to the Partnership to the extent arising prior to the time they were contributed or sold. However, claims are subject to a deductible of $0.5 million and an aggregate cap of $5 million.
(c) Transactions with Management and Directors
See the footnotes to Note 12(a)—Related Party Transactions for a discussion of the allocation principles for KNOT’s administrative costs, including management and administrative staff, included in the consolidated statements of operations.
(d) Amounts Due from (to) Related Parties
Balances with related parties consisted of the following:
(U.S. Dollars in thousands) | At June 30, 2017 |
At December 31, 2016 |
||||||
Balance Sheet: |
||||||||
Trading balances due from KOAS |
$ | 128 | $ | 108 | ||||
Trading balances due from KNOT and affiliates |
639 | 42 | ||||||
|
|
|
|
|||||
Amount due from related parties |
767 | 150 | ||||||
|
|
|
|
|||||
|
|
|
|
|||||
Trading balances due to KOAS |
$ | 835 | $ | 543 | ||||
Trading balances due to KNOT and affiliates |
6,212 | 291 | ||||||
|
|
|
|
|||||
Amount due to related parties |
$ | 7,047 | $ | 834 | ||||
|
|
|
|
|||||
|
|
|
|
Amounts due from (to) related parties are unsecured and intended to be settled in the ordinary course of business. They primarily relate to vessel management and other fees due to KNOT, KNOT Management, KOAS UK and KOAS.
(e) Trade accounts payables
Trade accounts payables to related parties are included in total trade accounts payables in the balance sheet. The balances to related parties consisted of the following:
(U.S. Dollars in thousands) | At June 30, 2017 |
At December 31, 2016 |
||||||
Balance Sheet: |
||||||||
Trading balances due to KOAS |
$ | 711 | $ | 727 | ||||
Trading balances due to KNOT and affiliates |
877 | 394 | ||||||
|
|
|
|
|||||
Trade accounts payables to related parties |
$ | 1,588 | $ | 1,121 |
(f) Long-term debt from related parties
The balances to related parties consisted of the following:
(U.S. Dollars in thousands) | At June 30, 2017 |
At December 31, 2016 |
||||||
Balance Sheet: |
||||||||
Long-term debt from related parties (KNOT) |
$ | — | $ | 25,000 | ||||
|
|
|
|
|||||
Total |
$ | — | $ | 25,000 | ||||
|
|
|
|
(g) Acquisitions from KNOT
On December 1, 2016, the Partnership acquired KNOT’s 100% interest in Knutsen NYK Shuttle Tankers 19 AS, the company that owns and operates the Raquel Knutsen. This acquisition was accounted for as an acquisition of a business.
On March 1, 2017, the Partnership acquired KNOT’s 100% interest in KNOT Shuttle Tankers 24 AS, the company that owns and operates the Tordis Knutsen. This acquisition was accounted for as an acquisition of a business.
On June 1, 2017, the Partnership acquired KNOT’s 100% interest in KNOT Shuttle Tankers 25 AS, the company that owns and operates the Vigdis Knutsen. This acquisition was accounted for as an acquisition of a business.
The board of directors of the Partnership (the “Board”) and the conflicts committee of the Board (the “Conflicts Committee”) approved the purchase price for each transaction described above. The Conflicts Committee retained a financial advisor to assist with its evaluation of each of the transactions. See Note 15—Business Acquisitions.
|
13) Commitments and Contingencies
Assets Pledged
As of June 30, 2017 and December 31, 2016, Vessels with a book value of $ 1,519 million and $1,257 million, respectively, were pledged as security held as guarantee for the Partnership’s long-term debt and interest rate swap obligations. See Note 6—Derivative Instruments and Note 11—Long-Term Debt.
Claims and Legal Proceedings
From time to time, the Partnership is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows.
Insurance
The Partnership maintains insurance on all the Vessels to insure against marine and war risks, which include damage to or total loss of the Vessels, subject to deductible amounts that average $0.15 million per Vessel, and loss of hire.
Under the loss of hire policies, the insurer will pay a compensation for the lost hire rate agreed in respect of each Vessel for each day, in excess of 14 deductible days, for the time that the Vessel is out of service as a result of damage, for a maximum of 180 days. In addition, the Partnership maintains protection and indemnity insurance, which covers third-party legal liabilities arising in connection with the Vessels’ activities, including, among other things, the injury or death of third-party persons, loss or damage to cargo, claims arising from collisions with other vessels and other damage to other third-party property, including pollution arising from oil or other substances. This insurance is unlimited, except for pollution, which is limited to $1 billion per vessel per incident. The protection and indemnity insurance is maintained through a protection and indemnity association, and as a member of the association, the Partnership may be required to pay amounts above budgeted premiums if the member claims exceed association reserves, subject to certain reinsured amounts. If the Partnership experiences multiple claims each with individual deductibles, losses due to risks that are not insured or claims for insured risks that are not paid, it could have a material adverse effect on the Partnership’s results of operations and financial condition.
|
14) Earnings per Unit and Cash Distributions
The calculations of basic and diluted earnings per unit are presented below:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(U.S. Dollars in thousands, except per unit data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income |
$ | 16,915 | $ | 11,578 | $ | 28,344 | $ | 22,241 | ||||||||
Less: Series A Preferred unitholders’ interest in net income |
1,009 | — | 1,653 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to the unitholders of KNOT Offshore Partners LP |
15,906 | 11,578 | 26,691 | 22,241 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Less: Distributions (2) |
16,379 | 15,027 | 32,758 | 30,122 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Under (over) distributed earnings |
(473 | ) | (3,449 | ) | (6,067 | ) | (7,881 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Under (over) distributed earnings attributable to: |
||||||||||||||||
Common unitholders (3) |
(464 | ) | (3,380 | ) | (5,955 | ) | (7,722 | ) | ||||||||
Subordinated unitholders (3) |
— | — | — | — | ||||||||||||
General Partner |
(9 | ) | (69 | ) | (112 | ) | (159 | ) | ||||||||
Weighted average units outstanding (basic) (in thousands): |
||||||||||||||||
Common unitholders |
29,694 | 22,581 | 29,570 | 20,604 | ||||||||||||
Subordinated unitholders |
— | 4,613 | — | 6,590 | ||||||||||||
General Partner |
559 | 559 | 559 | 559 | ||||||||||||
Weighted average units outstanding (diluted) (in thousands): |
||||||||||||||||
Common unitholders |
31,798 | 22,581 | 31,296 | 20,604 | ||||||||||||
Subordinated unitholders |
— | 4,613 | — | 6,590 | ||||||||||||
General Partner |
559 | 559 | 559 | 559 | ||||||||||||
Earnings per unit (basic) |
||||||||||||||||
Common unitholders (4) |
$ | 0.526 | $ | 0.502 | $ | 0.886 | $ | 0.810 | ||||||||
Subordinated unitholders (4) |
— | — | — | 0.767 | ||||||||||||
General Partner |
0.526 | 0.417 | 0.882 | 0.897 | ||||||||||||
Earnings per unit (diluted): |
||||||||||||||||
Common unitholders |
$ | 0.522 | $ | 0.502 | $ | 0.886 | $ | 0.810 | ||||||||
Subordinated unitholders (4) |
— | — | — | 0.767 | ||||||||||||
General Partner |
0.522 | 0.417 | 0.882 | 0.897 | ||||||||||||
Cash distributions declared and paid in the period per unit (5) |
0.520 | 0.520 | 1.040 | 1.040 | ||||||||||||
Subsequent event: Cash distributions declared and paid per
unit |
0.520 | 0.520 | 0.520 | 0.520 |
(1) | Earnings per unit have been calculated in accordance with the cash distribution provisions set forth in the Partnership’s Partnership Agreement. |
(2) | This refers to distributions made or to be made in relation to the period irrespective of the declaration and payment dates and based on the number of units outstanding at the record date. This includes cash distributions to the IDR holder (KNOT) for the three months ended June 30, 2017 and 2016 of $0.6 million and of $0.6 million, respectively, and for the six months ended June 30, 2017 and 2016 of $1.2 million and of $1.2 million, respectively. |
(3) | On May 18, 2016 all subordinated units converted into common units on a one-for-one basis. |
(4) | This includes the net income attributable to the IDR holder. The IDRs generally may not be transferred by KNOT until March 31, 2018. The net income attributable to IDRs for the three months ended June 30, 2017 and 2016 was $0.6 million and $0.6 million, respectively, and for the six months ended June 30, 2017 and 2016 was $1.2 million and $1.2 million, respectively. |
(5) | Refers to cash distributions declared and paid during the period. |
(6) | Refers to cash distributions declared and paid subsequent to the period end. |
As of June 30, 2017, the Partnership had 29,694,094 common units outstanding, of which 21,036,226 are held by the public and 8,567,500 are held by KNOT. In addition, KNOT, through its ownership of the General Partner, held 558,674 general partner units and 90,368 common units. The Partnership also has 3,750,000 Series A Preferred Units outstanding.
Earnings per unit is determined by dividing net income, after deducting the distributions paid or to be made in relation to the period, by the weighted-average number of units (other than the Series A Preferred Units) outstanding during the applicable period. The General Partner’s, common unitholders’ and subordinated unitholders’ interest in net income are calculated as if all net income was distributed according to the terms of the Partnership Agreement, regardless of whether those earnings would or could be distributed. The Partnership Agreement does not provide for the distribution of net income. Rather, it provides for the distribution of available cash, which is a contractually defined term that generally means all cash on hand at the end of each quarter less the amount of cash reserves established by the Board to provide for the proper conduct of the Partnership’s business, including reserves for maintenance and replacement capital expenditures and anticipated credit needs and capital requirements and for funds to pay quarterly distributions on, and make any redemption payments on, the Series A Preferred Units. In addition, KNOT, as the initial holder of all IDRs, has the right, at the time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (48.0% for each of the prior four consecutive fiscal quarters), to reset the initial cash target distribution levels at higher levels based on the distribution at the time of the exercise of the reset election. Unlike available cash, net income is affected by non-cash items, such as depreciation and amortization, unrealized gains and losses on derivative instruments and unrealized foreign currency gains and losses.
For a description of the provisions of the Partnership Agreement relating to cash distributions, please see the Partnership’s Form 8-A/A filed with the SEC on June 30, 2017.
|
15) Business Acquisitions
In December 2016, March 2017 and June 2017, the Partnership acquired from KNOT equity interests in certain subsidiaries which own and operate the Raquel Knutsen, the Tordis Knutsen and the Vigdis Knutsen, respectively.
The Board and the Conflicts Committee approved the purchase price for each transaction. The Conflicts Committee retained a financial advisor to assist with its evaluation of each of the transactions. The details of each transaction are as follows:
(U.S. Dollars in thousands) | Provisional Vigdis Knutsen June 1, 2017 |
Provisional Tordis Knutsen March 1, 2017 |
Final Raquel Knutsen December 1, 2016 |
|||||||||
Purchase consideration (1) |
$ | 31,759 | $ | 32,983 | $ | 20,252 | ||||||
Less: Fair value of net assets acquired: |
||||||||||||
Vessels and equipment (2) |
145,772 | 145,754 | 116,751 | |||||||||
Intangibles: Above market time charter |
1,458 | 1,468 | ||||||||||
Cash |
3,438 | 609 | 7,146 | |||||||||
Inventories |
190 | 129 | 307 | |||||||||
Derivative assets |
226 | 1,377 | 207 | |||||||||
Others current assets |
128 | 1,348 | 183 | |||||||||
Amounts due from related parties |
18,374 | 20,834 | 59 | |||||||||
Long-term debt |
(114,411 | ) | (114,411 | ) | (79,950 | ) | ||||||
Long-term debt from related parties |
(22,703 | ) | (22,960 | ) | (24,019 | ) | ||||||
Deferred debt issuance |
928 | 795 | 1,059 | |||||||||
Trade accounts payable |
(187 | ) | (106 | ) | (167 | ) | ||||||
Accrued expenses |
(1,082 | ) | (503 | ) | (1,179 | ) | ||||||
Prepaid charter and deferred revenue |
— | — | — | |||||||||
Amounts due to related parties |
(372 | ) | (1,351 | ) | (145 | ) | ||||||
|
|
|
|
|
|
|||||||
Subtotal |
31,759 | 32,983 | 20,252 | |||||||||
|
|
|
|
|
|
|||||||
Difference between the purchase price and fair value of net assets acquired |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
Goodwill |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
Difference between the purchase price and allocated values |
$ | — | $ | — | $ | — | ||||||
|
|
|
|
|
|
(1) The purchase price is comprised of the following:
(U.S. Dollars in thousands) |
Provisional Vigdis Knutsen June 1, 2017 |
Provisional Tordis Knutsen March 1, 2017 |
Final Raquel Knutsen December 1, 2016 |
|||||||||
Cash consideration paid to KNOT (from KNOT) |
$ | 28,109 | $ | 31,242 | $ | (12,019 | ) | |||||
Purchase price adjustments |
3,650 | 1,741 | 7,271 | |||||||||
Seller’s credit |
— | — | 12,981 | |||||||||
Seller’s loan |
— | — | 12,019 | |||||||||
Purchase price |
$ | 31,759 | $ | 32,983 | $ | 20,252 |
(2) | Vessels and equipment includes allocation to dry docking for the Raquel Knutsen of $1.7 million, Tordis Knutsen of $2.8 million, and for the Vigdis Knutsen of $2.7 million. |
Raquel Knutsen
On December 1, 2016, the Partnership’s wholly owned subsidiary, KNOT Shuttle Tankers AS, acquired KNOT’s 100% interest in Knutsen Shuttle Tankers 19 AS, the company that owns and operates the Raquel Knutsen. The purchase price was $116.5 million less $103.5 million of outstanding indebtedness related to the vessel plus other purchase price adjustments of $7.3 million. The Partnership accounted for this acquisition as an acquisition of a business. The purchase price of the acquisition has been allocated to the identifiable assets acquired. The allocation of the purchase price to acquired identifiable assets was based on their fair values at the date of acquisition.
Revenue and profit contributions
The Raquel Knutsen business contributed revenues of $1.5 million and net income of $0.2 million to the Partnership for the period from December 1, 2016 to December 31, 2016.
The table below shows comparative summarized consolidated pro forma financial information for the Partnership for the year ended December 31, 2016, giving effect to the Partnership’s acquisition and financing of the Raquel Knutsen as if this acquisition had taken place on January 1, 2016. The information is unaudited and is for illustration purposes only.
(U.S. Dollars in thousands) | Year Ended December 31, 2016 |
|||
Revenue |
$ | 190,229 | ||
Net income |
65,101 |
Included in the pro forma adjustments is depreciation related to the purchase price allocations performed on the acquired identifiable assets as if the acquisition had taken place on January 1, 2016. In addition, the pro forma adjustments reflect changes in guarantors as if the acquisition had taken place from the date of delivery of the vessel.
Tordis Knutsen
On March 1, 2017, the Partnership’s wholly owned subsidiary, KNOT Shuttle Tankers AS, acquired KNOT’s 100% interest in KNOT Shuttle Tankers 24 AS (“KNOT 24”), the company, that owns and operates the Tordis Knutsen. The purchase price was $147.0 million less $137.7 million of outstanding indebtedness plus $21.1 million for a receivable owed by KNOT to KNOT 24 and approximately $0.8 million for certain capitalized fees related to the financing of the Tordis Knutsen plus $1.7 million of post-closing adjustments for working capital and interest rate swaps. The Partnership accounted for this acquisition as an acquisition of a business. The purchase price of the acquisition has been allocated to the identifiable assets acquired. The provisional allocation of the purchase price to acquired identifiable assets was based on their fair values at the date of acquisition.
Revenue and profit contributions
The Tordis Knutsen business contributed revenues of $6.9 million and net income of $0.5 million to the Partnership for the period from March 1, 2017 to June 30, 2017.
The table below shows comparative summarized consolidated pro forma financial information for the Partnership for the six months ended June 30, 2017, giving effect to the Partnership’s acquisition and financing of the Tordis Knutsen as if this acquisition had taken place on January 1, 2017. Since Tordis Knutsen was delivered from the yard in late 2016 and commenced on its time charter contract in January 2017, there are no pro forma figures for the year ended December 31, 2016. The information is unaudited and is for illustration purposes only.
(U.S. Dollars in thousands) |
Six Months Ended June 30, 2017 |
|||
Revenue |
$ | 101,392 | ||
Net income |
26,864 |
Included in the pro forma adjustments is depreciation related to the purchase price allocations performed on the acquired identifiable assets as if the acquisition had taken place on January 1, 2017. In addition, the pro forma adjustments reflect changes in guarantors and amortization of the above market time charter as if the acquisition had taken place from the date of delivery of the vessel.
Vigdis Knutsen
On June 1, 2017, KNOT Shuttle Tankers AS, acquired KNOT’s 100% interest in KNOT Shuttle Tankers 25 AS (“KNOT 25”), the company that owns and operates the Vigdis Knutsen. The purchase price was $147.0 million less $137.7 million of outstanding indebtedness plus $17.9 million for a receivable owed by KNOT to KNOT 25 and approximately $0.9 million for certain capitalized fees related to the financing of the Vigdis Knutsen plus $3.7 million of post-closing adjustments for working capital and interest rate swaps. The Partnership accounted for this acquisition as an acquisition of a business. The purchase price of the acquisition has been allocated to the identifiable assets acquired. The provisional allocation of the purchase price to acquired identifiable assets was based on their fair values at the date of acquisition.
Revenue and profit contributions
The Vigdis Knutsen business contributed revenues of $1.7 million and net income of $0.2 million to the Partnership for the period from June 1, 2017 to June 30, 2017.
The table below shows comparative summarized consolidated pro forma financial information for the Partnership for the six months ended June 30, 2017, giving effect to the Partnership’s acquisition and financing of the Vigdis Knutsen as if this acquisition had taken place on January 1, 2017. Since Vigdis Knutsen was delivered from the yard in February 2017 and commenced on its time charter contract in April 2017, there are no pro forma figures for the year ended December 31, 2016. The information is unaudited and is for illustration purposes only.
(U.S. Dollars in thousands) |
Six Months Ended June 30, 2017 |
|||
Revenue |
$ | 102,548 | ||
Net income |
23,009 |
Included in the pro forma adjustments is depreciation related to the purchase price allocations performed on the acquired identifiable assets as if the acquisition had taken place on January 1, 2017. In addition, the pro forma adjustments reflect changes in guarantors and amortization of the above market time charter as if the acquisition had taken place from the date of delivery of the vessel.
|
16) Equity Offering and Sale of Series A Preferred Units
Equity Offering
(U.S. Dollars in thousands) | January 2017 Offering |
|||
Gross proceeds received |
$ | 56,125 | ||
Less: Underwriters’ discount |
925 | |||
Less: Offering expenses |
321 | |||
|
|
|||
Net proceeds received |
$ | 54,879 | ||
|
|
On January 10, 2017, the Partnership sold 2,500,000 common units, representing limited partner interests, in an underwritten public offering (the “January 2017 Offering”). The Partnership’s total net proceeds from the January 2017 Offering were $54.9 million.
The Partnership used the net proceeds from the January 2017 Offering to fund the cash portion of the purchase price of the Tordis Knutsen and to repay debt and for general partnership purposes.
Sale of Series A Preferred units
(U.S. Dollars in thousands) | February 2017 Series A Preferred Units |
June 2017 Series A Preferred Units |
Total Series A Preferred Units |
|||||||||
Gross proceeds received |
$ | 50,000 | $ | 40,000 | $ | 90,000 | ||||||
Less: Fee |
1,000 | 1,000 | 2,000 | |||||||||
Less: Expenses |
386 | 171 | 557 | |||||||||
|
|
|
|
|
|
|||||||
Net proceeds received |
$ | 48,614 | $ | 38,829 | $ | 87,443 | ||||||
|
|
|
|
|
|
On February 2, 2017, the Partnership issued and sold in a private placement 2,083,333 Series A Preferred Units at a price of $24.00 per unit. After deducting fees and expenses, the net proceeds from the sale were $48.6 million. The Partnership used the net proceeds from the sale to fund the cash portion of the purchase price of the Tordis Knutsen and to repay debt and for general partnership purposes.
On June 30, 2017, the Partnership (i) issued and sold in a second private placement 1,666,667 additional Series A Preferred Units at a price of $24.00 per unit and (ii) amended and restated its Partnership Agreement to make certain amendments to the terms of the Series A Preferred Units, including the 2,083,333 Series A Preferred Units issued on February 2, 2017. After deducting estimated fees and expenses, the net proceeds of the sale were $38.8 million. The Partnership used $30.0 million of the net proceeds to repay the revolving credit facility, which was drawn in connection with acquisition of the Vigdis Knutsen.
The Series A Preferred Units rank senior to the common units as to the payment of distributions and amounts payable upon liquidation, dissolution or winding up. The Series A Preferred Units have a liquidation preference of $24.00 per unit, plus any Series A unpaid cash distributions, plus all accrued but unpaid distributions on such Series A Preferred Unit with respect to the quarter in which the liquidation occurs to the date fixed for the payment of any amount upon liquidation. The Series A Preferred Units are entitled to cumulative distributions from their initial issuance date, with distributions being calculated at an annual rate of 8.0% on the stated liquidation preference and payable quarterly in arrears within 45 days after the end of each quarter, when, as and if declared by the Board.
The Series A Preferred Units will be generally convertible, at the option of the holders of the Series A Preferred Units, into common units commencing on February 2, 2019 at the then applicable conversion rate. The conversion rate will be subject to adjustment under certain circumstances. In addition, the conversion rate will be redetermined on a quarterly basis, such that the conversion rate will be equal to $24.00 (the “Issue Price”) divided by the product of (x) the book value per common unit at the end of the immediately preceding quarter (pro-forma for per unit cash distributions payable with respect to such quarter) multiplied by (y) the quotient of (i) the Issue Price divided by (ii) the book value per common unit on February 2, 2017. In addition, the Partnership may redeem the Series A Preferred Units at any time between February 2, 2019 and February 2, 2027 at the redemption price specified in the Partnership Agreement, provided, however, that upon notice from the Partnership to the holders of Series A Preferred Units of its intent to redeem, such holders may elect, instead, to convert their Series A Preferred Units into common units at the then applicable conversion rate.
Upon a change of control of the Partnership, the holders of Series A Preferred Units will have the right to require cash redemption at 100% of the Issue Price. In addition, the holders of Series A Preferred Units will have the right to cause the Partnership to redeem the Series A Preferred Units on February 2, 2027 in, at the option of the Partnership, (i) cash at a price equal to 70% of the Issue Price or (ii) common units such that each Series A Preferred Unit receives common units worth 80% of the Issue Price (based on the volume-weighted average trading price, as adjusted for splits, combinations and other similar transactions, of the common units as reported on the NYSE for the 30 trading day period ending on the fifth trading day immediately prior to the redemption date) plus any accrued and unpaid distributions. In addition, at any time following February 2, 2019 and subject to certain conditions, the Partnership will have the right to convert the Series A Preferred Units into common units at the then applicable conversion rate if the aggregate market value (calculated as set forth in the partnership agreement) of the common units into which the then outstanding Series A Preferred Units are convertible, based on the then applicable conversion rate, is greater than 130% of the aggregate Issue Price of the then outstanding Series A Preferred Units.
For additional information about the Series A Preferred Units, please read the Partnership’s Reports on Form 6-K filed with the Securities and Exchange Commission on February 2, 2017, May 17, 2017 and June 30, 2017 and Form 8-A/A filed on June 30, 2017.
|
17) Unit Activity
The following table shows the movement in the number of common units, subordinated units, general partner units and Series A Preferred Units from December 31, 2015 until June 30, 2017.
(in units) | Common Units | Subordinated Units | General Partner Units | Convertible Preferred Units | ||||||||||||
December 31, 2015 |
18,626,594 | 8,567,500 | 558,674 | — | ||||||||||||
Subordinated units converted to common units |
8,567,500 | (8,567,500 | ) | — | — | |||||||||||
December 31, 2016 |
27,194,094 | — | 558,674 | — | ||||||||||||
January 6, 2017: Public offering |
2,500,000 | — | — | — | ||||||||||||
February 2, 2017: Sale of Series A Preferred Units |
— | — | — | 2,083,333 | ||||||||||||
June 30, 2017: Sale of Series A Preferred Units |
— | — | — | 1,666,667 | ||||||||||||
June 30, 2017 |
29,694,094 | — | 558,674 | 3,750,000 |
On August 12, 2015, the Board authorized a program for the Partnership to repurchase up to 666,667 of its common units. The board of directors of the General Partner concurrently authorized the General Partner to purchase up to 333,333 common units of the Partnership. On August 10, 2016, the Board and the board of directors of the General Partner authorized an extension of the common unit purchase program to August 31, 2017, and on August 9, 2017, the Board and the board of directors of the General Partner authorized a further extension of the program to August 31, 2018. No additional common units were purchased by the Partnership or the General Partner in 2016 or to date in 2017. The Partnership and the General Partner may therefore purchase up to an additional 485,761 and 242,965 common units, respectively, under the extended program.
All purchases are made pursuant to a single program and are allocated approximately two-thirds to the Partnership and one-third to the General Partner. There is no obligation to purchase any specific number of common units and the program may be modified, suspended, extended or terminated at any time. Common units repurchased by the Partnership under the program have been cancelled.
The subordination period for the 8,567,500 subordinated units ended on May 18, 2016. All of the subordinated units, which were owned by KNOT, converted to common units on a one-for-one basis.
|
18) Subsequent Events
The Partnership has evaluated subsequent events from the balance sheet date through August 9, 2017, the date at which the unaudited condensed consolidated interim financial statements were available to be issued, and determined that there are no other items to disclose, except as follows:
On July 18, 2017, the Partnership declared a cash distribution of $0.52 per common unit with respect to the quarter ended June 30, 2017 to be paid on August 15, 2017 to unitholders of record as of the close of business on August 2, 2017. On July 18, 2017, the Partnership also declared a cash distribution payable to Series A Preferred Unitholders with respect to the quarter ended June 30, 2017 in an aggregate amount equal to $1.0 million.
On August 9, 2017, the Partnership entered into an agreement with NTT Finance Corporation for an unsecured revolving credit facility of $25 million. The facility will mature in August 2019, bear interest at LIBOR plus a margin of 1.8% and have a commitment fee of 0.5% on the undrawn portion of the facility. Closing of the facility is expected to occur by the end of August 2017.
On August 9, 2017, the Partnership’s wholly owned subsidiary, KNOT Shuttle Tankers AS, entered into a share purchase agreement with KNOT to acquire KNOT Shuttle Tankers 26 AS (“KNOT 26”), the company that owns the shuttle tanker, Lena Knutsen, from KNOT (the “Lena Acquisition”). The Partnership expects the Lena Acquisition to close by September 30, 2017, subject to customary closing conditions. The purchase price of the Lena Acquisition is $142.0 million, less approximately $133.8 million of outstanding indebtedness related to the Lena Knutsen plus approximately $24.1 million for a receivable owed by KNOT to KNOT 26 (the “KNOT 26 Receivable”) and approximately $1.0 million for certain capitalized fees related to the financing of the Lena Knutsen. On the closing of the Lena Acquisition, KNOT 26 will repay approximately $41.9 million of the indebtedness, leaving an aggregate of approximately $91.9 million of debt outstanding under the secured credit facility related to the vessel (the “Lena Facility”). The Lena Facility is repayable in quarterly installments with a final balloon payment of $69.8 million due at maturity in June 2022. The Lena Facility bears interest at an annual rate equal to LIBOR plus a margin of 1.9%. The purchase price will be settled in cash and will be subject to certain post-closing adjustments for currency fluctuations and accrued interest on the KNOT 26 Receivable, working capital, Norwegian tonnage entrance tax and interest rate swaps. On the closing of the Lena Acquisition, KNOT will repay the KNOT 26 Receivable in full.
|
(a) Basis of Preparation
The accompanying unaudited condensed consolidated interim financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information. In the opinion of management of the Partnership, all adjustments considered necessary for a fair presentation, which are of normal recurring nature, have been included. All intercompany balances and transactions are eliminated. The unaudited condensed consolidated financial statements do not include all the disclosures and information required for a complete set of annual financial statements; and, therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements for the year ended December 31, 2016, which are included in the Partnership’s Annual Report on Form 20-F (the “2016 20-F”).
(b) Significant Accounting Policies
The accounting policies adopted in the preparation of the unaudited condensed consolidated interim financial statements are consistent with those followed in the preparation of the Partnership’s audited consolidated financial statements for the year ended December 31, 2016, as contained in the Partnership’s 2016 20-F.
(c) Recent Accounting Pronouncements
Adoption of new accounting standards
There are no accounting pronouncements effective for the period, whose adoption had a material impact on the consolidated financial statements in the current period.
Accounting pronouncements to be adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued revised guidance for leasing. The objective is to establish the principles that lessors and lessees shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. The standard is effective for annual periods beginning after December 15, 2018. The Partnership is currently assessing the impact the adoption of this standard will have on the consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which provides new authoritative guidance on the methods of revenue recognition and related disclosure requirements. This new standard supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The new standard also requires additional qualitative and quantitative disclosures. In April 2015 the FASB proposed to defer the effective date of the guidance by one year. Based on this proposal, public entities would need to apply the new guidance for annual and interim periods beginning after December 15, 2017, and may apply it, at the company’s option, retrospectively to each period presented or as a cumulative-effect adjustment as at the date of adoption. Early adoption is not permitted until periods beginning after December 15, 2016. The Partnership has begun an initial assessment of the impact of this standard update on its consolidated financial statements and related disclosures and expects to adopt the standard from January 1, 2018. Based on the analysis to date, the Partnership does not expect the pattern of revenue recognition under the new guidance to materially differ from its current revenue recognition pattern and expects to transition using a modified retrospective approach whereby it will record the cumulative effect of applying the new standard to all outstanding contracts as at January 1, 2018 as an adjustment to opening retained earnings.
Any other accounting pronouncements yet to be adopted by the Partnership are consistent with those disclosed in the Partnership’s audited consolidated financial statements for the year ended December 31, 2016.
|
The following table presents revenues and percentages of consolidated revenues for customers that accounted for more than 10% of the Partnership’s consolidated revenues during the three and six months ended June 30, 2017 and 2016. All of these customers are subsidiaries of major international oil companies.
Three Months
Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||||||||||||||||||||
(U.S. Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||||
Eni Trading and Shipping S.p.A. |
$ | 11,345 | 22% | $ | 11,689 | 27% | $ | 22,905 | 24% | $ | 23,375 | 28% | ||||||||||||||||||||||
Fronape International Company, a subsidiary of Petrobras Transporte S.A. |
11,249 | 22% | 11,249 | 26% | 22,378 | 23% | 22,498 | 27% | ||||||||||||||||||||||||||
Statoil ASA |
5,778 | 11% | 5,710 | 13% | 11,459 | 12% | 10,229 | 12% | ||||||||||||||||||||||||||
Repsol Sinopec Brasil, S.A., a subsidiary of Repsol Sinopec Brasil, B.V. |
7,094 | 14% | 4,772 | 11% | 14,396 | 15% | 9,760 | 11% | ||||||||||||||||||||||||||
Brazil Shipping I Limited, a subsidiary of Royal Dutch Shell |
11,675 | 23% | 5,097 | 13% | 15,401 | 16% | 10,134 | 12% | ||||||||||||||||||||||||||
Standard Marine Tønsberg AS, a Norwegian subsidiary of ExxonMobil |
4,396 | 9% | 4,347 | 10% | 8,745 | 9% | 8,694 | 10% |
|
A reconciliation of total interest cost and interest expense as reported in the consolidated statements of operations for the three and six months ended June 30, 2017 and 2016:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(U.S. Dollars in thousands) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest expense |
$ | 6,846 | $ | 4,768 | $ | 12,711 | $ | 9,511 | ||||||||
Amortization of debt issuance cost and fair value of debt assumed |
406 | 286 | 755 | 573 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest cost |
$ | 7,252 | $ | 5,054 | $ | 13,466 | $ | 10,084 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
The following table presents the other finance expense for three and six months ended June 30, 2017 and 2016:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(U.S. Dollars in thousands) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Bank fees, charges |
$ | 119 | $ | 158 | $ | 191 | $ | 246 | ||||||||
Guarantee costs |
158 | 176 | 318 | 355 | ||||||||||||
Commitment fees |
51 | — | 121 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other finance expense |
$ | 328 | $ | 334 | $ | 630 | $ | 601 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
The following table presents the realized and unrealized gains and losses that are recognized in earnings as net gain (loss) for derivative instruments for the three and six months ended June 30, 2017 and 2016:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(U.S. Dollars in thousands) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Realized gain (loss): |
||||||||||||||||
Interest rate swap contracts |
$ | (938 | ) | $ | (1,252 | ) | $ | (1,607 | ) | $ | (2,176 | ) | ||||
Foreign exchange forward contracts |
(97 | ) | (316 | ) | (166 | ) | (316 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total realized gain (loss): |
(1,035 | ) | (1,568 | ) | (1,773 | ) | (2,492 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Unrealized gain (loss): |
||||||||||||||||
Interest rate swap contracts |
(1,334 | ) | (1,518 | ) | (275 | ) | (5,866 | ) | ||||||||
Foreign exchange forward contracts |
833 | (90 | ) | 1,031 | 1,998 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total unrealized gain (loss): |
(501 | ) | (1,608 | ) | 756 | (3,868 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total realized and unrealized gain (loss) on derivative instruments: |
$ | (1,536 | ) | $ | (3,176 | ) | $ | (1,017 | ) | $ | (6,360 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
The following table presents the carrying amounts and estimated fair values of the Partnership’s financial instruments as of June 30, 2017 and December 31, 2016. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
June 30, 2017 | December 31, 2016 | |||||||||||||||
(U.S. Dollars in thousands) | Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 64,501 | $ | 64,501 | $ | 27,664 | $ | 27,664 | ||||||||
Current derivative assets: |
||||||||||||||||
Interest rate swap contracts |
124 | 124 | — | — | ||||||||||||
Foreign exchange forward contracts |
138 | 138 | — | — | ||||||||||||
Non-current derivative assets: |
||||||||||||||||
Interest rate swap contracts |
4,461 | 4,461 | 3,154 | 3,154 | ||||||||||||
Foreign exchange forward contracts |
39 | 39 | — | — | ||||||||||||
Financial liabilities: |
||||||||||||||||
Current derivative liabilities: |
||||||||||||||||
Interest rate swap contracts |
1,634 | 1,634 | 2,039 | 2,039 | ||||||||||||
Foreign exchange forward contracts |
411 | 411 | 1,265 | 1,265 | ||||||||||||
Non-current derivative liabilities: |
||||||||||||||||
Interest rate swap contracts |
793 | 793 | 285 | 285 | ||||||||||||
Foreign exchange forward contracts |
— | — | — | — | ||||||||||||
Long-term debt, current and non-current |
912,010 | 911,083 | 745,649 | 743,898 |
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (including items that are required to be measured at fair value or for which fair value is required to be disclosed) as of June 30, 2017 and December 31, 2016:
Fair Value Measurements at Reporting Date Using |
||||||||||||||||
(U.S. Dollars in thousands) |
June 30, 2017 |
Quoted Price in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 64,501 | $ | 64,501 | $ | — | $ | — | ||||||||
Current derivative assets: |
||||||||||||||||
Interest rate swap contracts |
124 | — | 124 | — | ||||||||||||
Foreign exchange forward contracts |
138 | — | 138 | — | ||||||||||||
Non-current derivative assets: |
||||||||||||||||
Interest rate swap contracts |
4,461 | — | 4,461 | — | ||||||||||||
Foreign exchange forward contracts |
39 | — | 39 | — | ||||||||||||
Financial liabilities: |
||||||||||||||||
Current derivative liabilities: |
||||||||||||||||
Interest rate swap contracts |
1,634 | — | 1,634 | — | ||||||||||||
Foreign exchange forward contracts |
411 | — | 411 | — | ||||||||||||
Non-current derivative liabilities: |
||||||||||||||||
Interest rate swap contracts |
793 | — | 793 | — | ||||||||||||
Foreign exchange forward contracts |
— | — | — | — | ||||||||||||
Long-term debt, current and non-current |
912,010 | — | 911,083 | — |
Fair Value Measurements at Reporting Date Using |
||||||||||||||||
(U.S. Dollars in thousands) |
December 31, 2016 |
Quoted Price in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 27,664 | $ | 27,664 | $ | — | $ | — | ||||||||
Current derivative assets: |
||||||||||||||||
Interest rate swap contracts |
— | — | — | — | ||||||||||||
Foreign exchange forward contracts |
— | — | — | — | ||||||||||||
Non-current derivative assets: |
||||||||||||||||
Interest rate swap contracts |
3,154 | — | 3,154 | — | ||||||||||||
Foreign exchange forward contracts |
— | — | — | — | ||||||||||||
Financial liabilities: |
||||||||||||||||
Current derivative liabilities: |
||||||||||||||||
Interest rate swap contracts |
2,039 | — | 2,039 | — | ||||||||||||
Foreign exchange forward contracts |
1,265 | — | 1,265 | — | ||||||||||||
Non-current derivative liabilities: |
||||||||||||||||
Interest rate swap contracts |
285 | — | 285 | — | ||||||||||||
Foreign exchange forward contracts |
— | — | — | — | ||||||||||||
Long-term debt, current and non-current |
745,649 | — | 743,898 | — |
|
Significant components of current and deferred income tax expense attributable to income from continuing operations for the three and six months ended June 30, 2017 and 2016 as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(U.S. Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Income before income taxes |
$ | 16,918 | $ | 11,581 | $ | 28,350 | $ | 22,247 | ||||||||
Income tax (expense) |
(3 | ) | (3 | ) | (6 | ) | (6 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Effective tax rate |
$ | 0 | % | $ | 0 | % | $ | 0 | % | $ | 0 | % | ||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
(U.S. Dollars in thousands) | Vessels & equipment |
Accumulated depreciation |
Net Vessels | |||||||||
Vessels, December 31, 2015 |
$ | 1,351,219 | $ | (158,292 | ) | $ | 1,192,927 | |||||
Additions |
115,934 | — | 115,934 | |||||||||
Drydock costs |
4,258 | — | 4,258 | |||||||||
Disposals |
(2,498 | ) | 2,498 | — | ||||||||
Depreciation for the year |
— | (56,230 | ) | (56,230 | ) | |||||||
|
|
|
|
|
|
|||||||
Vessels, December 31, 2016 |
$ | 1,468,913 | $ | (212,024 | ) | $ | 1,256,889 | |||||
|
|
|
|
|
|
|||||||
Additions |
286,243 | — | 286,243 | |||||||||
Drydock costs |
9,263 | — | 9,263 | |||||||||
Disposals |
(1,508 | ) | 1,508 | — | ||||||||
Depreciation for the period |
— | (33,125 | ) | (33,125 | ) | |||||||
|
|
|
|
|
|
|||||||
Vessels, June 30, 2017 |
$ | 1,762,912 | $ | (243,641 | ) | $ | 1,519,270 | |||||
|
|
|
|
|
|
|
(U.S. Dollars in thousands) |
Above market time charter Tordis Knutsen |
Above market time charter Vigdis Knutsen |
Total intangibles |
|||||||||
Intangibles, December 31, 2015 |
$ | — | $ | — | $ | — | ||||||
Additions |
— | — | — | |||||||||
Amortization for the year |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
Intangibles, December 31, 2016 |
$ | — | $ | — | $ | — | ||||||
|
|
|
|
|
|
|||||||
Additions |
1,468 | 1,458 | 2,926 | |||||||||
Amortization for the period |
(101 | ) | (25 | ) | (126 | ) | ||||||
|
|
|
|
|
|
|||||||
Intangibles, June 30, 2017 |
$ | 1,367 | $ | 1,433 | $ | 2,800 | ||||||
|
|
|
|
|
|
|
As of June 30, 2017 and December 31, 2016, the Partnership had the following debt amounts outstanding:
(U.S. Dollars in thousands) |
Vessel |
June 30, 2017 | December 31, 2016 |
|||||||
$220 million loan facility |
Windsor Knutsen, Bodil Knutsen, Carmen Knutsen |
$ | 172,857 | $ | 180,714 | |||||
$35 million revolving credit facility |
Windsor Knutsen, Bodil Knutsen, Carmen Knutsen |
30,000 | 25,000 | |||||||
$140 million loan facility |
Fortaleza Knutsen & Recife Knutsen |
113,750 | 118,125 | |||||||
$117 million loan facility |
Hilda Knutsen | — | 76,871 | |||||||
$117 million loan facility |
Torill Knutsen | 75,641 | 78,105 | |||||||
$172.5 million loan facility |
Dan Cisne, Dan Sabia | 95,939 | 100,539 | |||||||
$77.5 million loan facility |
Ingrid Knutsen | 64,368 | 67,652 | |||||||
$74.5 million loan facility |
Raquel Knutsen | 71,028 | 73,643 | |||||||
$25 million Seller’s Credit and Seller’s Loan |
Raquel Knutsen | — | 25,000 | |||||||
$114.4 million loan facility |
Tordis Knutsen | 93,581 | — | |||||||
$114.4 million loan facility |
Vigdis Knutsen | 94,846 | — | |||||||
$100 million loan facility |
Hilda Knutsen | 100,000 | — | |||||||
|
|
|
|
|||||||
Total long-term debt |
912,010 | 745,649 | ||||||||
|
|
|
|
|||||||
|
|
|
|
|||||||
Less: current installments |
66,661 | 60,314 | ||||||||
Less: unamortized deferred loan issuance costs |
1,643 | 1,330 | ||||||||
|
|
|
|
|||||||
Current portion of long-term debt |
65,018 | 58,984 | ||||||||
|
|
|
|
|||||||
Amounts due after one year |
845,350 | 685,335 | ||||||||
Less: unamortized deferred loan issuance costs |
4,468 | 2,673 | ||||||||
Less: $25 million Seller’s Credit and Seller’s Loan |
— | 25,000 | ||||||||
|
|
|
|
|||||||
Long-term debt, less current installments, Seller’s Credit and Seller’s Loan and unamortized deferred loan issuance costs |
$ | 840,882 | 657,662 | |||||||
|
|
|
|
|||||||
|
|
|
|
The Partnership’s outstanding debt of $912.0 million as of June 30, 2017 is repayable as follows:
(U.S. Dollars in thousands) | Period repayment |
Balloon repayment |
||||||
Remainder of 2017 |
$ | 33,331 | $ | — | ||||
2018 |
66,303 | 86,677 | ||||||
2019 |
50,085 | 267,678 | ||||||
2020 |
39,153 | — | ||||||
2021 |
39,753 | 70,811 | ||||||
2022 and thereafter |
85,507 | 172,712 | ||||||
|
|
|
|
|||||
Total |
$ | 314,132 | $ | 597,878 | ||||
|
|
|
|
|
Net expenses (income) from related parties included in the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2017 and 2016 are as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(U.S. Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Statements of operations: |
||||||||||||||||
Other income: |
||||||||||||||||
Guarantee income from KNOT (1) |
593 | 192 | 687 | 381 | ||||||||||||
Operating expenses: |
||||||||||||||||
Technical and operational management fee from KNOT Management to Vessels (2) |
1,079 | 733 | 2,028 | 1,465 | ||||||||||||
General and administrative expenses: |
||||||||||||||||
Administration fee from KNOT Management (3) |
430 | 259 | 783 | 633 | ||||||||||||
Administration fee from KOAS (3) |
111 | 100 | 223 | 191 | ||||||||||||
Administration fee from KOAS UK (3) |
31 | 35 | 62 | 71 | ||||||||||||
Administration and management fee from KNOT (4) |
52 | 51 | 94 | 102 | ||||||||||||
Finance income (expense): |
||||||||||||||||
Interest expense charged from KNOT (5) |
— | — | 52 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,110 | $ | 986 | $ | 2,555 | $ | 2,081 | ||||||||
|
|
|
|
|
|
|
|
(U.S. Dollars in thousands) | At June 30, 2017 |
At December 31, 2016 |
||||||||||||||
Balance Sheet: |
||||||||||||||||
Vessels: |
||||||||||||||||
Drydocking supervision fee from KNOT (6) |
$ | 29 | $ | 38 | ||||||||||||
Drydocking supervision fee from KOAS (6) |
— | 16 | ||||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 29 | $ | 54 | ||||||||||||
|
|
|
|
(1) | Guarantee income from KNOT: Pursuant to the Omnibus Agreement, KNOT agreed to guarantee the payments of the hire rate under the initial charter of the Windsor Knutsen and Bodil Knutsen for a period of five years from the closing date of the IPO. In October 2015, the Windsor Knutsen commenced on a new Shell time charter with a hire rate below the hire rate in the initial charter. The difference between the new hire rate and the initial rate is paid by KNOT. See Note 12(b)—Related Party Transactions—Guarantees and Indemnifications. The Vigdis Knutsen suffered damages to its hull in connection with a ship-to-ship loading on May 24, 2017 and the vessel went offhire 6 days in June 2017 due to repairs of the damage. In connection with the Vigdis Knutsen acquisition KNOT agreed to pay for the repair cost and charter hire lost in connection with the incident. The reimbursement from KNOT for lost charter hire is accounted for as guarantee income. |
(2) | Technical and operational management fee from KNOT Management to Vessels: KNOT Management AS (“KNOT Management”) provides technical and operational management of the vessels on time charter including crewing, purchasing, maintenance and other operational services. In addition, there is also a charge for 24-hour emergency response services provided by KNOT for all vessels managed by KNOT. |
(3) | Administration fee from KNOT Management and Knutsen OAS Shipping AS (“KOAS”) and Knutsen OAS (UK) Ltd. (“KOAS UK”): Administration costs include the compensation and benefits of KNOT Management’s management and administrative staff as well as other general and administration expenses. Some benefits are also provided by KOAS and KOAS UK. Net administration costs are total administration cost plus a 5% margin, reduced for the total fees for services delivered by the administration staffs and the estimated shareholder costs for KNOT that have not been allocated. As such, the level of net administration costs as a basis for the allocation can vary from year to year based on the administration and financing services offered by KNOT to all the vessels in its fleet each year. KNOT Management also charges each subsidiary a fixed annual fee for the preparation of the statutory financial statement. |
(4) | Administration and management fee from KNOT: For bareboat charters, the shipowner is not responsible for providing crewing or other operational services and the customer is responsible for all vessel operating expenses and voyage expenses. However, each of the vessels under bareboat charters are subject to management and administration agreements with either KNOT Management or KNOT Management Denmark, pursuant to which these companies provide general monitoring services for the vessels in exchange for an annual fee. |
(5) | Interest expense charged from KNOT: KNOT invoiced interest (expense) income for any outstanding payables to (receivable from) owners and affiliates to the vessel-owning subsidiaries. |
(6) | Drydocking supervision fee from KNOT and KOAS: KNOT and KOAS provide supervision and hire out service personnel during drydocking of the vessels. The fee is calculated as a daily fixed fee. |
(U.S. Dollars in thousands) | At June 30, 2017 |
At December 31, 2016 |
||||||||||||||
Balance Sheet: |
||||||||||||||||
Vessels: |
||||||||||||||||
Drydocking supervision fee from KNOT (6) |
$ | 29 | $ | 38 | ||||||||||||
Drydocking supervision fee from KOAS (6) |
— | 16 | ||||||||||||||
|
|
|
|
|||||||||||||
Total |
$ | 29 | $ | 54 | ||||||||||||
|
|
|
|
Balances with related parties consisted of the following:
(U.S. Dollars in thousands) | At June 30, 2017 |
At December 31, 2016 |
||||||
Balance Sheet: |
||||||||
Trading balances due from KOAS |
$ | 128 | $ | 108 | ||||
Trading balances due from KNOT and affiliates |
639 | 42 | ||||||
|
|
|
|
|||||
Amount due from related parties |
767 | 150 | ||||||
|
|
|
|
|||||
|
|
|
|
|||||
Trading balances due to KOAS |
$ | 835 | $ | 543 | ||||
Trading balances due to KNOT and affiliates |
6,212 | 291 | ||||||
|
|
|
|
|||||
Amount due to related parties |
$ | 7,047 | $ | 834 | ||||
|
|
|
|
Trade accounts payables to related parties are included in total trade accounts payables in the balance sheet. The balances to related parties consisted of the following:
(U.S. Dollars in thousands) | At June 30, 2017 |
At December 31, 2016 |
||||||
Balance Sheet: |
||||||||
Trading balances due to KOAS |
$ | 711 | $ | 727 | ||||
Trading balances due to KNOT and affiliates |
877 | 394 | ||||||
|
|
|
|
|||||
Trade accounts payables to related parties |
$ | 1,588 | $ | 1,121 |
The balances to related parties consisted of the following:
(U.S. Dollars in thousands) | At June 30, 2017 |
At December 31, 2016 |
||||||
Balance Sheet: |
||||||||
Long-term debt from related parties (KNOT) |
$ | — | $ | 25,000 | ||||
|
|
|
|
|||||
Total |
$ | — | $ | 25,000 | ||||
|
|
|
|
|
The calculations of basic and diluted earnings per unit are presented below:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(U.S. Dollars in thousands, except per unit data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income |
$ | 16,915 | $ | 11,578 | $ | 28,344 | $ | 22,241 | ||||||||
Less: Series A Preferred unitholders’ interest in net income |
1,009 | — | 1,653 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to the unitholders of KNOT Offshore Partners LP |
15,906 | 11,578 | 26,691 | 22,241 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Less: Distributions (2) |
16,379 | 15,027 | 32,758 | 30,122 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Under (over) distributed earnings |
(473 | ) | (3,449 | ) | (6,067 | ) | (7,881 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Under (over) distributed earnings attributable to: |
||||||||||||||||
Common unitholders (3) |
(464 | ) | (3,380 | ) | (5,955 | ) | (7,722 | ) | ||||||||
Subordinated unitholders (3) |
— | — | — | — | ||||||||||||
General Partner |
(9 | ) | (69 | ) | (112 | ) | (159 | ) | ||||||||
Weighted average units outstanding (basic) (in thousands): |
||||||||||||||||
Common unitholders |
29,694 | 22,581 | 29,570 | 20,604 | ||||||||||||
Subordinated unitholders |
— | 4,613 | — | 6,590 | ||||||||||||
General Partner |
559 | 559 | 559 | 559 | ||||||||||||
Weighted average units outstanding (diluted) (in thousands): |
||||||||||||||||
Common unitholders |
31,798 | 22,581 | 31,296 | 20,604 | ||||||||||||
Subordinated unitholders |
— | 4,613 | — | 6,590 | ||||||||||||
General Partner |
559 | 559 | 559 | 559 | ||||||||||||
Earnings per unit (basic) |
||||||||||||||||
Common unitholders (4) |
$ | 0.526 | $ | 0.502 | $ | 0.886 | $ | 0.810 | ||||||||
Subordinated unitholders (4) |
— | — | — | 0.767 | ||||||||||||
General Partner |
0.526 | 0.417 | 0.882 | 0.897 | ||||||||||||
Earnings per unit (diluted): |
||||||||||||||||
Common unitholders |
$ | 0.522 | $ | 0.502 | $ | 0.886 | $ | 0.810 | ||||||||
Subordinated unitholders (4) |
— | — | — | 0.767 | ||||||||||||
General Partner |
0.522 | 0.417 | 0.882 | 0.897 | ||||||||||||
Cash distributions declared and paid in the period per unit (5) |
0.520 | 0.520 | 1.040 | 1.040 | ||||||||||||
Subsequent event: Cash distributions declared and paid per
unit |
0.520 | 0.520 | 0.520 | 0.520 |
(1) | Earnings per unit have been calculated in accordance with the cash distribution provisions set forth in the Partnership’s Partnership Agreement. |
(2) | This refers to distributions made or to be made in relation to the period irrespective of the declaration and payment dates and based on the number of units outstanding at the record date. This includes cash distributions to the IDR holder (KNOT) for the three months ended June 30, 2017 and 2016 of $0.6 million and of $0.6 million, respectively, and for the six months ended June 30, 2017 and 2016 of $1.2 million and of $1.2 million, respectively. |
(3) | On May 18, 2016 all subordinated units converted into common units on a one-for-one basis. |
(4) | This includes the net income attributable to the IDR holder. The IDRs generally may not be transferred by KNOT until March 31, 2018. The net income attributable to IDRs for the three months ended June 30, 2017 and 2016 was $0.6 million and $0.6 million, respectively, and for the six months ended June 30, 2017 and 2016 was $1.2 million and $1.2 million, respectively. |
(5) | Refers to cash distributions declared and paid during the period. |
(6) | Refers to cash distributions declared and paid subsequent to the period end. |
|
The Board and the Conflicts Committee approved the purchase price for each transaction. The Conflicts Committee retained a financial advisor to assist with its evaluation of each of the transactions. The details of each transaction are as follows:
(U.S. Dollars in thousands) | Provisional Vigdis Knutsen June 1, 2017 |
Provisional Tordis Knutsen March 1, 2017 |
Final Raquel Knutsen December 1, 2016 |
|||||||||
Purchase consideration (1) |
$ | 31,759 | $ | 32,983 | $ | 20,252 | ||||||
Less: Fair value of net assets acquired: |
||||||||||||
Vessels and equipment (2) |
145,772 | 145,754 | 116,751 | |||||||||
Intangibles: Above market time charter |
1,458 | 1,468 | ||||||||||
Cash |
3,438 | 609 | 7,146 | |||||||||
Inventories |
190 | 129 | 307 | |||||||||
Derivative assets |
226 | 1,377 | 207 | |||||||||
Others current assets |
128 | 1,348 | 183 | |||||||||
Amounts due from related parties |
18,374 | 20,834 | 59 | |||||||||
Long-term debt |
(114,411 | ) | (114,411 | ) | (79,950 | ) | ||||||
Long-term debt from related parties |
(22,703 | ) | (22,960 | ) | (24,019 | ) | ||||||
Deferred debt issuance |
928 | 795 | 1,059 | |||||||||
Trade accounts payable |
(187 | ) | (106 | ) | (167 | ) | ||||||
Accrued expenses |
(1,082 | ) | (503 | ) | (1,179 | ) | ||||||
Prepaid charter and deferred revenue |
— | — | — | |||||||||
Amounts due to related parties |
(372 | ) | (1,351 | ) | (145 | ) | ||||||
|
|
|
|
|
|
|||||||
Subtotal |
31,759 | 32,983 | 20,252 | |||||||||
|
|
|
|
|
|
|||||||
Difference between the purchase price and fair value of net assets acquired |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
Goodwill |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
Difference between the purchase price and allocated values |
$ | — | $ | — | $ | — | ||||||
|
|
|
|
|
|
(1) The purchase price is comprised of the following:
(U.S. Dollars in thousands) |
Provisional Vigdis Knutsen June 1, 2017 |
Provisional Tordis Knutsen March 1, 2017 |
Final Raquel Knutsen December 1, 2016 |
|||||||||
Cash consideration paid to KNOT (from KNOT) |
$ | 28,109 | $ | 31,242 | $ | (12,019 | ) | |||||
Purchase price adjustments |
3,650 | 1,741 | 7,271 | |||||||||
Seller’s credit |
— | — | 12,981 | |||||||||
Seller’s loan |
— | — | 12,019 | |||||||||
Purchase price |
$ | 31,759 | $ | 32,983 | $ | 20,252 |
(2) | Vessels and equipment includes allocation to dry docking for the Raquel Knutsen of $1.7 million, Tordis Knutsen of $2.8 million, and for the Vigdis Knutsen of $2.7 million. |
The table below shows comparative summarized consolidated pro forma financial information for the Partnership for the year ended December 31, 2016, giving effect to the Partnership’s acquisition and financing of the Raquel Knutsen as if this acquisition had taken place on January 1, 2016. The information is unaudited and is for illustration purposes only.
(U.S. Dollars in thousands) | Year Ended December 31, 2016 |
|||
Revenue |
$ | 190,229 | ||
Net income |
The table below shows comparative summarized consolidated pro forma financial information for the Partnership for the six months ended June 30, 2017, giving effect to the Partnership’s acquisition and financing of the Tordis Knutsen as if this acquisition had taken place on January 1, 2017. Since Tordis Knutsen was delivered from the yard in late 2016 and commenced on its time charter contract in January 2017, there are no pro forma figures for the year ended December 31, 2016. The information is unaudited and is for illustration purposes only.
(U.S. Dollars in thousands) |
Six Months Ended June 30, 2017 |
|||
Revenue |
$ | 101,392 | ||
Net income |
26,864 |
The table below shows comparative summarized consolidated pro forma financial information for the Partnership for the six months ended June 30, 2017, giving effect to the Partnership’s acquisition and financing of the Vigdis Knutsen as if this acquisition had taken place on January 1, 2017. Since Vigdis Knutsen was delivered from the yard in February 2017 and commenced on its time charter contract in April 2017, there are no pro forma figures for the year ended December 31, 2016. The information is unaudited and is for illustration purposes only.
(U.S. Dollars in thousands) |
Six Months Ended June 30, 2017 |
|||
Revenue |
$ | 102,548 | ||
Net income |
23,009 |
|
Equity Offering
(U.S. Dollars in thousands) | January 2017 Offering |
|||
Gross proceeds received |
$ | 56,125 | ||
Less: Underwriters’ discount |
925 | |||
Less: Offering expenses |
321 | |||
|
|
|||
Net proceeds received |
$ | 54,879 | ||
|
|
Sale of Series A Preferred units
(U.S. Dollars in thousands) | February 2017 Series A Preferred Units |
June 2017 Series A Preferred Units |
Total Series A Preferred Units |
|||||||||
Gross proceeds received |
$ | 50,000 | $ | 40,000 | $ | 90,000 | ||||||
Less: Fee |
1,000 | 1,000 | 2,000 | |||||||||
Less: Expenses |
386 | 171 | 557 | |||||||||
|
|
|
|
|
|
|||||||
Net proceeds received |
$ | 48,614 | $ | 38,829 | $ | 87,443 | ||||||
|
|
|
|
|
|
|
The following table shows the movement in the number of common units, subordinated units, general partner units and Series A Preferred Units from December 31, 2015 until June 30, 2017.
(in units) | Common Units | Subordinated Units | General Partner Units | Convertible Preferred Units | ||||||||||||
December 31, 2015 |
18,626,594 | 8,567,500 | 558,674 | — | ||||||||||||
Subordinated units converted to common units |
8,567,500 | (8,567,500 | ) | — | — | |||||||||||
December 31, 2016 |
27,194,094 | — | 558,674 | — | ||||||||||||
January 6, 2017: Public offering |
2,500,000 | — | — | — | ||||||||||||
February 2, 2017: Sale of Series A Preferred Units |
— | — | — | 2,083,333 | ||||||||||||
June 30, 2017: Sale of Series A Preferred Units |
— | — | — | 1,666,667 | ||||||||||||
June 30, 2017 |
29,694,094 | — | 558,674 | 3,750,000 |
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