UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
6-K
REPORT
OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
OF
THE
SECURITIES EXCHANGE ACT OF 1934
DATE
OF REPORT: AUGUST 29, 2008
Commission
File Number 001-33373
CAPITAL
PRODUCT PARTNERS L.P.
(Translation
of registrant’s name into English)
PIRAEUS,
18537 GREECE
(address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F.
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Form
20-F
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x | Form 40-F | o |
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1):
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Yes
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o | No | x |
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(7):
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Yes
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o | No | x |
Indicate
by check mark whether the registrant by furnishing the information contained in
this Form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
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Yes
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o | No | x |
If “yes”
is marked, indicate below this file number assigned to the registrant in
connection with Rule 12g3-2(b): N/A
Item
1 – Information Contained in this Form 6-K Report
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(i)
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Exhibit
I is Capital Product Partners L.P.’s operating and financial review and
prospects for the period ending December 31, 2007;
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(ii)
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Exhibit
II are Capital Product Partners L.P.’s supplemental consolidated and
predecessor combined financial statements for the periods
ending December 31, 2007, 2006 and 2005; and
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(iii)
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Exhibit
III are Capital Product Partners L.P.’s selected financial
data for the periods ending December 31, 2007, 2006 and
2005.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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CAPITAL
PRODUCT PARTNERS L.P.,
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By:
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Capital
GP L.L.C., its general partner
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/s/
Ioannis
E. Lazaridis
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| Name: |
Ioannis
E. Lazaridis
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| Title: |
Chief
Executive Officer and
Chief Financial Officer of Capital GP L.L.C. |
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Dated: August
29, 2008
Exhibit
I
Operating
and Financial Review and Prospects.
On
March 27 and April 30, 2008, respectively, Capital Product Partners
L.P. acquired the shares of the vessel owning companies of the Motor
Tankers (“M/T”) Amore Mio II and Aristofanis from Capital Maritime and Trading
Corp (“Capital Maritime”). In accordance with SFAS No. 141 “Business
Combinations”, these transactions are accounted for as a combination of entities
under common control, in a manner similar to a pooling of interests. In
accordance with SEC Staff Interpretations of APB 16 “Business Combinations”,
where a transaction has occurred that will be accounted for as a pooling of
interests and post-consummation period results have not been published,
financial statements giving effect to the pooling should be presented in
transactional filings or in voluntary supplemental filings as “supplemental
financial statements.” Accordingly, our supplemental consolidated and
predecessor combined financial statements for the fiscal years ended December
31, 2007, 2006 and 2005 (the “Supplemental Financial Statements”) reflect the
retroactive adjustment of the financial statements included in our Annual Report
on Form 20-F for the year ended December 31, 2007 (the “Annual
Report”) to reflect the operations of the M/T Amore Mio II and the
M/T Aristofanis as though the acquisition of shares of the relevant vessel
owning companies had occurred on the dates such vessels were acquired
by Capital Maritime.
You
should read the following discussion of our financial condition and results of
operations in conjunction with the Supplemental Financial Statements included
herein. Among other things, the Supplemental Financial Statements include more
detailed information regarding the basis of presentation for the following
information. The Supplemental Financial Statements have been prepared in
accordance with U.S. GAAP and are presented in U.S. Dollars.
A.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Overview
We are an
international owner of product tankers formed in January 2007 by Capital
Maritime, an international shipping company with a long history of operating and
investing in the shipping market. Our fleet currently consists of 18
double-hull, high specification tankers with an average age of approximately 2.4
years. Eight of our vessels were transferred to us by Capital Maritime at the
time of our initial public offering in April 2007 (the “Offering”). Concurrently
with the Offering, we also agreed to purchase an additional seven newbuildings
from Capital Maritime delivered or scheduled for delivery during 2007 and 2008
at a fixed price, four of which had been delivered as of December 31, 2007.
These four Ice Class 1A IMO II/III newbuilding sister vessels were delivered
between May and September 2007. Between January and August 2008, we took
delivery of three newbuilding 51,000 dwt MR IMO II/III chemical/product tanker
sister vessels which we contracted to acquire from Capital Maritime at the time
of our Offering. In September 2007, March and April 2008 we also acquired three
additional vessels from Capital Maritime which we had not previously agreed to
purchase: the M/T Attikos, a 12,000 dwt, 2005 built product tanker, the M/T
Amore Mio II, a 159,982 dwt, 2001 built tanker and the M/T Aristofanis, a 12,000
dwt, 2005 built product tanker.
Our
primary business objective is to provide our unitholders with steadily rising
distributions per unit over the long-term. Our growth strategy focuses on
maintaining and growing our cash flows, continuing to grow our product tanker
fleet and maintaining and building on our ability to meet rigorous industry and
regulatory safety standards. We believe that the combination of the medium to
long-term nature of our charters and our agreement with Capital Ship Management
for the commercial and technical management of our vessels, which provides for a
fixed management fee for an initial term of approximately five years from when
we take delivery of each vessel, will provide us with a strong base of stable
cash flows in the medium term. We intend to continue to
make strategic acquisitions and leverage the expertise and reputation of Capital
Maritime in a prudent manner that is accretive to our unitholders and to
long-term distribution growth.
1
Our
Initial Public Offering
On April
3, 2007, we completed our Offering on the Nasdaq Global Market of 13,512,500
common units at a price of $21.50 per unit which included 1,762,500 common units
issued to the underwriters in connection with the exercise of their
over-allotment option. The Offering also included 8,805,522 subordinated units
issued to Capital Maritime and 455,470 general partner units issued to Capital GP
L.L.C., our general partner, a wholly owned subsidiary of Capital Maritime. The net proceeds from
the Offering were $270,472,956.0, including the proceeds from the exercise of
the over-allotment option by the underwriters. We did not receive any proceeds
from the sale of our common units. Capital Maritime used part of the proceeds
from our Offering to repay the debt on the eight vessels that made up our fleet
at the time of the Offering. Capital Maritime transferred its interest in the
vessel-owning companies of these eight vessels to us at the time of the
Offering. Capital Maritime also paid the offering expenses, underwriting
discounts, selling commissions and brokerage fees incurred in connection with
the Offering. As of December 31, 2007, Capital Maritime owned a 40.7% interest
in us, including a 2% interest through its ownership of our general partner.
Currently, Capital Maritime owns a 46.6% interest in us, including a 2% interest
through its ownership of our general partner.
Potential
Additional Vessels
Pursuant
to our omnibus agreement with Capital Maritime, we have been granted a right of
first offer to purchase up to an additional six vessels from Capital Maritime if
they are fixed under charters of two or more years. Capital Maritime also owns
or has on order a number of modern, double-hull, product and
crude oil tankers of different sizes which we may potentially acquire in the
event those vessels were fixed under charters of two or more years. Furthermore,
we will continue to evaluate opportunities to acquire both newbuildings and
second-hand vessels from Capital Maritime and from third parties as we seek to
grow our fleet.
Historical
Results of Operations
We
commenced operations as an independent entity on April 4, 2007, at which time
Capital Maritime transferred its interest in eight vessel-owning companies to
us. Our historical results are not necessarily indicative of the results that
may be expected in the future. Specifically, our Supplemental Financial
Statements are not comparable, as our Offering and certain other transactions
that occurred during 2007, including the delivery of four newbuildings, the
acquisition of the M/T Attikos, the agreement we entered into with Capital Ship
Management for the provision of management and administrative services to our
fleet for a fixed fee and the new financing arrangements we entered into, have
affected our results of operations. Furthermore, for the year ended December 31,
2006, only seven of the vessels in our current fleet had been delivered to
Capital Maritime. Five of these vessels were delivered between April and
November 2006 and were in operation for only a portion of the year. For the year
ended December 31, 2005, only two vessels currently in our fleet had been
delivered to Capital Maritime.
For more
detail on the differences between our historical results and expected future
results, please read “—Factors to Consider when Evaluating our Results” and
“—Results of Operations” below.
Accounting
for Deliveries of Vessels
All
vessels we acquire or have acquired from Capital Maritime are or were
transferred to us at historical cost and accounted for as a combination of
entities under common control or a transfer of assets between entities under
common control. All assets, liabilities and equity, other than the relevant
vessel, related charter agreement and related permits, of these vessels’
ship-owning companies were retained by Capital Maritime.
At the
time of our Offering, Capital Maritime contributed eight vessels to our fleet.
Between May and September 2007 we acquired an additional five vessels from
Capital Maritime for a total purchase price of $247.0 million. These five
vessels have been recorded in our Supplemental Financial Statements at the
amount of $166.1 million, which represents the net book value of the vessels as
reflected in Capital Maritime’s consolidated financial statements at the time of
transfer. We recognize transfers of assets between entities under common control
at Capital Maritime’s basis in the assets contributed. The amount of the
purchase price in excess of Capital Maritime’s basis in the assets, $80.9
million, was recognized as a reduction to partners’ capital and presented as a
financing activity in the statement of cash flows. For additional information on
how we have accounted for specific transfers of vessels please see Note 1 (Basis
of Presentation and General Information) to our Supplemental Financial
Statements included herein.
2
Our
Charters
We
generate revenues by charging our customers for the use of our vessels to
transport their products. Historically, we have provided services to our
customers under the following two types of contractual
relationships:
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Time charters, which
are contracts for the use of a vessel for a fixed period of time at a
specified daily rate. With the exception of our time charters with Morgan
Stanley Capital Group Inc., where we receive net daily rates, we are
responsible for the payment of all commissions under our time charters.
All other expenses related to time charter voyages are assumed by the
charterers. Capital Ship Management, our manager, is generally responsible
for commercial, technical, health and safety and other management
services related to the vessels’ operation. With the exception of the time
charter for the M/T Attikos and the M/T Aristofanis, all of our time
charter agreements contain profit sharing arrangements. Profit sharing
refers to an arrangement between owners and charterers to share, at a
pre-determined percentage, voyage profit in excess of the basic hire
rate.
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Bareboat charters,
which are contracts pursuant to which the vessel owner provides the vessel
to the charterer for a fixed period of time at a specified daily rate, and
the charterer provides for all of the vessel’s operating expenses
including crewing, repairs, maintenance, insurance, stores, lube oils and
communication expenses in addition to the voyage costs (with the exception
of commissions) and generally assumes all risk of
operation.
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Currently,
all of the vessels in our fleet, including the vessels delivered or acquired in
2008, are under medium- to long-term time or bareboat charters of between two to
10 years, with an average remaining term of approximately 4.7. years commencing at the
time of their delivery. In addition, of our 18 charter contracts, 14 are
scheduled to expire on or after January 2010 and of our 12 time charters, 10
contain profit-sharing arrangements, including the three-year time charter of
the M/T Amore Mio II, purchased in March 2008 from Capital
Maritime.
All of
our vessels are under charter contracts with BP Shipping Limited, Morgan Stanley
Capital Group Inc., Trafigura Beheer B.V., Shell International Trading &
Shipping Company Ltd. and subsidiaries of Overseas Shipholding Group Inc. For
the year ended December 31, 2007, BP Shipping Limited and Morgan Stanley Capital
Group Inc. accounted for 58% and 24% of our revenues, respectively, and 42%
and 18% of our revenues for the year ended December 31, 2006, respectively. For
the year ended December 31, 2006, Canterbury Tankers Inc., the charterer for the
M/T Attikos, and Shell International Trading & Shipping Company Ltd., the
charterer for the M/T Aristofanis, each represented 20% of the revenues of our
predecessor. During 2008, we expect to derive the majority of our revenues from
BP Shipping Limited, Morgan Stanley Capital Group Inc., and Overseas Shipholding
Group Inc. In the future, as our fleet expands, we also expect to enter into
charters with new charterers in order to maintain a portfolio that is diverse
from a customer, geographic and maturity perspective. The M/T Amore Mio II,
purchased in March 2008 from Capital Maritime, is also under time charter with
BP Shipping Limited. We may in the future operate vessels in the spot market
until the vessels have been chartered under appropriate medium to long-term
charters.
Please
read “Item 4: Business—Our Fleet”, “Item 4: Business—Our Charters” and “Item 4:
Business—Profit Sharing Arrangements” in our Annual Report for additional
details regarding the length, daily charter rate, information regarding the
calculation of our profit share arrangements and description of our
charters.
3
Factors
Affecting Our Future Results of Operations
We
believe the principal factors that will affect our future results of operations
are the economic, regulatory, political and governmental conditions that affect
the shipping industry generally and that affect conditions in countries and
markets in which our vessels engage in business. Other key factors that will be
fundamental to our business, future financial condition and results of
operations include:
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the
continuing strong demand for seaborne transportation
services;
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supply
of product and crude oil tankers and specifically the number of
newbuildings entering the world tanker fleet each
year;
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the
successful implementation of our fleet expansion strategy, including
taking delivery of our newbuildings on or about their scheduled delivery
dates;
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the
ability of Capital Maritime’s commercial and chartering operations to
successfully employ our vessels at economically attractive rates,
particularly as our fleet expands and our charters
expire;
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our
ability to benefit from new maritime regulations concerning the phase-out
of single-hull vessels and the more restrictive regulations for the
transport of certain products and
cargoes;
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the
effective and efficient technical management of our
vessels;
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Capital
Maritime’s ability to obtain and maintain major international oil company
approvals and to satisfy their technical, health, safety and compliance
standards; and
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the
strength of and growth in the number of our customer relationships,
especially with major international oil companies and major commodity
traders.
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In
addition to the factors discussed above, we believe certain specific factors
have impacted, and will continue to impact, our results of operations. These
factors include:
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the
charterhire earned by our vessels under time charters and bareboat
charters;
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our
access to capital required to acquire additional vessels and/or to
implement our business strategy;
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our
ability to sell vessels at prices we deem
satisfactory;
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our
level of debt and the related interest expense and amortization of
principal; and
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the
level of any distribution on our common
units.
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Please
read “Risk Factors” in our Annual Report for a discussion of certain risks
inherent in our business.
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Factors
to Consider When Evaluating Our
Results
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Our
historical results of operations and cash flows are not indicative of results of
operations and cash flows to be expected from any future period and our
Supplemental Financial Statements and the financial statements of our
predecessor are not comparable, principally for the following
reasons:
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Supplemental Financial Statements.
Our Supplemental Financial Statements for the year ended December
31, 2007 include the results of operations of the eight vessels comprising
our fleet at the time of our Offering, the four vessels we had contracted
to purchase from Capital Maritime which were delivered during 2007, and
the M/T Attikos, the M/T Amore Mio II and the M/T Aristofanis, which were
acquired from an entity under common control on September 24, 2007, March
27, 2008 and April 30, 2008, respectively. The Supplemental Financial
Statements for 2006 and 2005 have also been retroactively adjusted to
reflect the results of operations of the M/T Attikos and the M/T
Aristofanis as if they were owned by us for the entire period from their
delivery to Capital Maritime on January 20, 2005 and June 2, 2005,
respectively.
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4
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Limited
Operations. The results of operations and cash flows
presented in our audited Supplemental Financial Statements for the years
ended December 31, 2007, 2006 and 2005 do not reflect operations of all
the vessels comprising our fleet for the reporting period. The
Supplemental Financial Statements for the year ended December 31, 2007
include operations of the M/T Attikos, the M/T Aristofanis and the five
vessels from our initial fleet which had been delivered to Capital
Maritime as of December 31, 2006. The remaining eight vessels which were
acquired or delivered to us or to Capital Maritime between January and
September of 2007, including the M/T Amore Mio II, are included in
our results of operations and cash flows only as of their respective
delivery dates. Supplemental Financial statements for the year ended
December 31, 2006 include operations of five vessels which were in
operation for only a part of the reporting period and the M/T Attikos and
M/T Aristofanis which were in operation for the whole year. Supplemental
Financial statements for the year ended December 31, 2005 include
operations of the M/T Attikos and the M/T Aristofanis, which were in
operation for the period from January 20, 2005 and June 2, 2005,
respectively, to December 31, 2005. The three pre-contracted vessels we
have taken delivery of during 2008 are not reflected in our Supplemental
Financial Statements. Please read “—Accounting for Deliveries of Vessels”
above and “—Different Statements of Income” below for a description of the
financial treatment of vessel
acquisitions.
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Different Sources of
Revenues. A portion of the revenues generated during the
years ended December 31, 2006 and December 31, 2005, and for the
period ended April 3, 2007 was derived from charters with different terms
than the charters that are currently in
place.
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Different Structure of
Operating Expenses. On April 3, 2007, we entered into a
management agreement with Capital Ship Management pursuant to which
Capital Ship Management agreed to provide commercial and technical
management services to us for an initial term of approximately five years
from when we take delivery of each vessel. Under the agreement we pay
Capital Ship Management a fixed daily fee of $5,500 per vessel (except for
the M/T Amore Mio II for which we pay $8,500) for our time chartered
vessels which covers vessel operating expenses, including crewing, repairs
and maintenance, insurance and the cost of the next scheduled
special/intermediate surveys for each vessel, and related drydocking, as
applicable, and a fixed daily fee of $250 per bareboat chartered vessel.
Operating expenses for the year ended December 31, 2006 and for the period
ended April 3, 2007 for the initial vessels, for the period ended
September 23, 2007 for the M/T Attikos, and for the year ended December
31, 2007 for the M/T Amore Mio II and the M/T Aristofanis represent actual
costs incurred by the vessel-owning subsidiaries and Capital Ship
Management in the operation of the vessels that were operated as part of
Capital Maritime’s fleet.
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Different Structure of General
and Administrative Expenses. Since our Offering we have
incurred certain general and administrative expenses as a publicly traded
limited partnership that we had not previously incurred. For the years
ended December 31, 2006 and 2005, we did not incur any similar general and
administrative expenses.
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Different Financing
Arrangements. The vessels delivered to Capital Maritime
during 2005, 2006 and 2007 were purchased under financing arrangements
with terms that differ from those of the $370.0 million credit facility we
entered into at the time of the Offering as well as from those of the
$350.0 million credit facility we entered into in March 2008 and which we
used to finance the acquisition of the additional vessels we have
purchased from Capital Maritime since our Offering. Importantly, under
these credit facilities, we are not required to make repayments of
principal before June 2012 and March 2013, respectively. In addition, the
historical bank debt bore interest at floating rates while we have entered
into interest rate swap agreements to fix the LIBOR portion of our
interest rate in connection with the debt drawn down under our credit
facilities. For a description of our non-amortizing revolving credit
facilities, please read “—Liquidity and Capital Resources—Revolving Credit
Facilities” below.
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5
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The Size of our Fleet
Continues to Change. At the time of our Offering, our fleet
consisted of eight vessels and we contracted to purchase an additional
seven vessels from Capital Maritime. Between May and September 2007 we
took delivery of four of the contracted vessels and also acquired the M/T
Attikos from Capital Maritime. All of the vessels delivered between May
and September 2007 were under long-term charters at the time of their
delivery. The
remaining three contracted vessels were delivered between January and
August 2008. During the first half of 2008 we acquired two additional
vessels, the M/T Amore Mio II and the M/T Aristofanis, from Capital
Maritime which we had not contracted to purchase at the time of our
Offering and we intend to continue to make strategic acquisitions in a
prudent manner that is accretive to our distributable cash flow per
unit.
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Results
of Operations
Because
we have a limited operating history, with the years ended December 31,
2007, and December 31, 2006 being the only periods with meaningful operations,
other period-to-period comparisons of our results of operations are not
yet possible and may not be meaningful in the near future.
Year Ended December 31, 2007
Compared to Year Ended December 31, 2006
Revenues
Time and
bareboat charter revenues amounted to approximately $86.5 million for the year
ended December 31, 2007, as compared to $24.6 million for the year ended
December 31, 2006 primarily due to the higher number of vessels in our
fleet. The revenues for the year ended December 31, 2007 have been retroactively
adjusted and reflect revenues from the M/T Amore Mio II and the M/T Aristofanis,
respectively, for the periods that they were part of Capital Maritime’s
fleet.
Time and
bareboat charter revenues are mainly comprised of the charter hire received from
unaffiliated third-party customers. Time and bareboat charter revenues are
affected by daily hire rates, the number of days our vessels operate and the
overall number of vessels in our fleet. For an explanation why
revenues for this period are not indicative of revenues to be expected from any
future period, please read “—Factors to Consider When Evaluating Our Results”
above. Please also read “Item 4: Business Overview—Our Fleet” and “—Our
Charters” in our Annual Report for information about the charters on these
vessels, including daily charter rates.
Voyage
Expenses
Voyage
expenses amounted to $3.6 million for the year ended December 31, 2007, as
compared to $0.4 million for the year ended December 31, 2006 primarily due
to the higher number of vessels in our fleet.
Voyage
expenses are direct expenses to voyage revenues and primarily consist of
commissions, port expenses, canal dues and bunkers. Voyage costs, except for
commissions, are paid for by the charterer under time and bareboat charters. In
the case of our time charters with Morgan Stanley Capital Group Inc., the
charterer is also responsible for commissions.
Vessel
Operating Expenses
For the
year ended December 31, 2007, our vessel operating expenses amounted to
approximately $19.0 million, of which $12.7 million was paid to our
manager. For the
year ended December 31, 2006, vessel operating expenses amounted to
approximately $6.8 million, of which $1.1 million was paid to the
manager.
6
Vessel
operating expenses for the years ended December 31, 2007 and December 31, 2006
are not comparable. Vessel operating expenses for the year ended December 31,
2007 represent management fees payable to Capital Ship Management pursuant to
our management agreement and actual costs incurred by the vessels which were
operated as part of Capital Maritime’s fleet prior to their acquisition by us.
For each time chartered vessel in our fleet as of December 31, 2007 we paid
Capital Ship Management a fixed daily fee of $5,500 for the provision of
commercial and technical services such as crewing, repairs and maintenance,
insurance, stores, spares and lubricants. The fee also includes expenses related
to the next scheduled special and intermediate survey, and related drydocking
for each vessel. For each bareboat chartered vessel we paid a fixed daily fee of
$250 to Capital Ship Management mainly for expenses to cover compliance costs,
while the bareboat charterer is responsible for all other operating expenses
such as crewing, repairs and maintenance, insurance, stores, spares,
lubricants and
expenses related to the next scheduled surveys and related drydocking of each
vessel. The fee is payable
for an initial term of approximately five years from when we take delivery of
each vessel. Vessel operating expenses for each vessel operated as part of
Capital Maritime’s fleet prior to its acquisition by us represent actual costs
incurred by the vessel-owning subsidiaries in the operation of such vessels
during the relevant time period.
General
and Administrative Expenses
General
and administrative expenses amounted to $1.5 million for the year ended December
31, 2007. General and administrative expenses include consultancy fees, board of
directors’
fees and expenses, audit fees, and other fees related to the expenses of the
publicly traded company. For the year ended December 31, 2006, we did not incur
any similar general and administrative expenses.
Depreciation
and Amortization
Depreciation
and amortization of fixed assets amounted to $15.4 million for the year ended
December 31, 2007 as compared to $3.8 million for the year ended
December 31, 2006.
This
amount primarily represents depreciation on seven vessels for the whole year and
on eight vessels for a part of the year commencing from their delivery dates in
2007. The amount of depreciation for the year ended December 31, 2006 represents
depreciation on two vessels for the whole year and on five vessels for a part of
the year commencing from their delivery dates in 2006.
Depreciation
is expected to increase as our fleet grows.
Other
Income (Expense), Net
Other
income (expense), net for the year ended December 31, 2007 was
approximately $(16.2) million as compared to $(5.2) million for the year
ended December 31, 2006.
The 2007
amount represents interest expense and amortization of financing charges and
bank charges of $(16.9) million of which $(3.8) million represent a loss from
the transfer of interest rate swap agreements entered into by Capital Maritime
prior to April 4, 2007 and acquired by us on that date. Interest income for the
period was $0.7 million. The 2006 amount represents interest expense charged to
the vessel-owning companies and amortization of financing charges and bank
charges of $(5.1) million and $(0.1) million of foreign currency loss. Interest
expense for the period ending December 31, 2006 is not indicative of interest
expense to be expected for any future period, predominantly because the
historical bank debt bore interest at floating rates while we have entered into
interest rate swap agreements to fix the LIBOR portion of our interest rate in
connection with the debt drawn down under our credit facilities.
Net
Income
Net
income for the year ended December 31, 2007 amounted to $31.0 million
as compared to $8.4 million for the year ended December 31, 2006. For an
explanation of why our historical net income is not indicative of net income to
be expected in future periods, please refer to the discussion under “— Factors
to Consider When Evaluating Our Results,”
“—Time and Bareboat Charter Revenues,” “—Voyage Expenses”, and “—Vessel Operating Expenses” above.
“—Time and Bareboat Charter Revenues,” “—Voyage Expenses”, and “—Vessel Operating Expenses” above.
7
Year Ended December 31, 2006
Compared to Year Ended December 31, 2005
The
results of operations for the years ended December 31, 2006 and December 31,
2005 are not necessarily indicative of the results that may be expected in the
future and as such we do not believe that a presentation of the comparison of
the results of operations for these years would be useful to our investors or
provide meaningful information regarding our current results of operations as
the number of vessels, chartering agreements, nature of operating expenses and
management and financing arrangements in place during these two years differ
significantly from the arrangements in place as of the time of our
Offering.
In
particular, for the year ended December 31, 2006, only seven of the vessels in
our current fleet had been delivered to Capital Maritime. Five of these were
delivered between April and November 2006 and were in operation for only a
portion of the year. During the year ended December 31, 2005, the M/T Attikos
and the M/T Aristofanis were the only two vessels which had been delivered to
Capital Maritime and were in operation from January 20, 2005 and June 2, 2005,
respectively. In addition, during the years ended December 31, 2006 and 2005
these vessels were managed as part of Capital Maritime’s fleet and operating
expenses represented actual costs incurred by the vessel-owning subsidiaries and
Capital Ship Management in the operation of the vessels. As of the time of our
Offering, however, we entered into a fixed fee agreement with Capital Ship
Management for the provision of technical and management services to our vessels
for an initial term of approximately five years from the date each vessel was
delivered to us. Furthermore, the vessels delivered to Capital Maritime during
2005 and 2006 were purchased under financing arrangements with terms that differ
from those of the existing credit facility which we used to finance the
acquisition of the vessels. Importantly, under the financing arrangements
entered into following our Offering, we are not required to make repayments of
principal before June 2012. In addition, the historical bank debt bore interest
at floating rates while we have currently entered into interest rate swap
agreements to fix the LIBOR portion of our interest rate in connection with the
debt drawn down under our existing credit facility. Finally, we do not believe
that the presentation of information regarding the charter agreements our
vessels operated under in 2005 is useful to our investors as the M/T Attikos
traded in the spot market from the date of its delivery to May 2005, at which
time it entered into a two year time-charter with Canterbury Tankers Inc. on
different terms from the time-charter it is currently under with Trafigura
Beheer B.V. The M/T Aristofanis has operated under a time charter with Shell
International Trading & Shipping Company Ltd. as of the date of its delivery
to Capital Maritime for different time periods than its current
time-charter.
B.
Liquidity and Capital Resources
As at
December 31, 2007, total cash and cash equivalents were $19.9 million and total
liquidity including cash and undrawn long-term borrowings was
$115.4 million. As at December 31, 2006 total cash and cash equivalents
were $1.2 million. This increase is primarily due to the different financing
arrangements in place prior to the Offering and the increased number of vessels
in our fleet.
We
anticipate that our primary sources of funds for our liquidity needs will be
cash flows from operations. Generally, our long-term sources of funds will be
from cash from operations, long-term bank borrowings and other debt or equity
financings. Because we distribute all of our available cash, we expect that we
will rely upon external financing sources, including bank borrowings and the
issuance of debt and equity securities, to fund acquisitions and expansion and
investment capital expenditures, including opportunities we may pursue under the
omnibus agreement with Capital Maritime.
We
believe that our working capital will be sufficient to meet our existing
liquidity needs for at least the next 12 months.
8
|
|
Cash
Flows
|
Net
Cash Provided by Operating Activities
Net cash
provided by operating activities increased to $53.0 million for the year
ended December 31, 2007 from $10.3 million for the year ended December
31, 2006 primarily due to an increase in net income due to the higher number of
vessels in our fleet and an increase in hire received in advance from charterers
($8.6 million in 2007 as compared to $0.5 million in 2006). For an explanation
of why our historical net cash provided by operating activities is not
indicative of net cash provided by operating activities to be expected in future
periods, please read “—Factors to Consider when Evaluating our Results” as well
as “—Time and Bareboat Charter Revenues”, “—Voyage Expenses” and “—Vessel
Operating Expenses” above.
Net
Cash Used in Investing Activities
Net cash
used in investing activities amounted to $335.0 million for the year ended
December 31, 2007, up from $162.0 million for the year ended
December 31, 2006. Cash was used primarily for vessel acquisitions.
Specifically, for the year ended December 31, 2007, $331.8 million of the net
cash used was comprised of:
|
|
§
|
$77.6
million, representing advances to the shipyards paid by Capital Maritime
between January 1, 2007 and April 3, 2007 with respect to the construction
of three of the vessels in our initial fleet: the M/T Aiolos, the M/T Avax
and the M/T Axios; and
|
|
|
§
|
$166.1
million, representing the net book value at the time of their acquisition
by us of the M/T Attikos and of the four vessels we contracted to purchase
from Capital Maritime at the time of our Offering delivered between May
and September 2007: the M/T Atrotos, the M/T Akeraios, the M/T Anemos I
and the M/T Apostolos; and
|
|
|
§
|
$88.1
million, representing the purchase price for the M/T Amore Mio II paid by
Capital Maritime in July 2007.
|
The
remaining $3.2 million represents restricted cash, which is the minimum amount
of free cash we were required to maintain under our credit facilities for the
period.
For the
year ended December 31, 2006, $142.8 million related to the acquisition of
the five newbuildings delivered to Capital Maritime in this period that were
then transferred to us at the time of our Offering (the M/T Atlantas, the M/T
Aktoras, the M/T Agisilaos, the M/T Assos and the M/T Arionas). The remaining
$19.2 million related to advances toward the other three initial vessels:
the M/T Aiolos, the M/T Avax and the M/T Axios. For the year ended
December 31, 2006, there was no restricted cash.
Net
Cash Provided by Financing Activities
Net cash
provided by financing activities amounted to $300.7 million for the year ended
December 31, 2007, up from $153.0 million for the year ended
December 31, 2006.
During
the second and the third quarters of 2007 we acquired five additional vessels
from Capital Maritime: the M/T Atrotos, the M/T Akeraios, the M/T Apostolos, the
M/T Attikos and the M/T Anemos I, for a total purchase price of
$247.0 million. The excess of purchase price over book value of the
acquired vessels, $80.9 million, is presented in our cash flow statement under
net cash provided by financing activities as we recognize transfers of net
assets between entities under common control at Capital Maritime’s basis in the
net assets contributed.
Proceeds
from the issuance of long-term debt amounted to $305.1 million for the year
ended December 31, 2007, up from $77.4 million for the year ended December 31,
2006. The proceeds for the year ended December 31, 2007 consisted of $274.5
million from our credit facility entered into on March 22, 2007 and $30.6
million from a credit facility entered into by the vessel-owning company prior
to our Offering in order to finance the construction of the M/T
Axios.
9
Proceeds
from long-term debt due to related parties for the year ended December 31, 2007
were $109.7 million from credit facilities entered into by Capital Maritime in
order to finance the construction of the M/T Aiolos and the M/T Avax and the
acquisition of the M/T Amore Mio II in July 2007, as compared to
$82.3 million for the year ended December 31, 2006.
Repayment
of debt amounted to $16.7 million for the year ended December 31, 2007,
down from $22.2 million for the year ended December 31, 2006, and comprised
of installment payments made prior to the Offering for vessels in our fleet,
including the M/T Aristofanis, and the repayment of M/T Attikos’ loan on
September 9, 2007 by Capital Maritime. Repayment of related party debt for the
year ended December 31, 2007 amounted to $2.4 million, as compared to the
repayment of $2.3 million for the year ended December 31, 2006. Relevant
debt and related party debt in the amount of $79.9 and $134.0 million
respectively for the year ended December 31, 2007, was repaid by Capital
Maritime from the proceeds from our Offering.
Capital
contributions by Capital Maritime amounted to $31.3 million for the year ended
December 31, 2007 of which $13.7 million relate to contributions made prior to
the Offering in connection with the acquisition of three initial vessels (the
M/T Aiolos, M/T Avax and M/T Axios) and $17.6 million relate to contribution
made by Capital Maritime in connection with its acquisition of the M/T Amore Mio
II in July 2007. Capital contributions for the year ended December 31, 2006 were
$17.9 million.
Following
completion of our Offering on April 4, 2007, we paid a $25.0 million cash
dividend to Capital Maritime and also made distributions to unitholders in an
aggregate amount of $17.0 million for the second and third quarters of
2007.
Borrowings
Our
long-term third party borrowings are reflected in our balance sheet as
“Long-term debt” and as current liabilities in “Current portion of long-term
debt.” As of December 31, 2007, long-term debt was $281.8 million and the
current portion of long-term debt was $0.8 million as compared to
$67.3 million and $6.8 million, respectively, for the period ended December 31,
2006. Related party debt is reflected in our combined balance sheet as
“Long-term related party debt” and as “Current portion of related party debt.”
As of December 31, 2007, long-term related party debt and the current
portion of related party debt was $63.0 and $5.9 million, respectively, as
compared to $87.5 million and $8.0 million, respectively, for the year
ended December 31, 2006.
Revolving Credit
Facilities
The
financing arrangements in place prior to our Offering are not indicative of our
current or future financing arrangements. The financing arrangements in
existence at December 31, 2006 represent loans with four separate banks in which
Capital Maritime acted as the borrower and the respective vessel-owning
companies as the guarantors or, in one instance, the vessel-owning company acted
as the borrower and Capital Maritime as the guarantor, for the financing of the
construction of the eight vessels which comprised our fleet at the time of our
Offering. These loans were repaid in their entirety by Capital Maritime with a
portion of the proceeds from our Offering and the vessels were transferred to us
debt free.
On March
22, 2007, we entered into a non-amortizing revolving credit facility with a
syndicate of financial institutions, including HSH Nordbank AG, Hamburg, for up
to $370.0 million for the financing of the acquisition cost, or part thereof, of
up to seven medium-range product tankers (the “existing credit facility”). This
facility provided us with sufficient funds to purchase the four newbuildings
delivered in 2007, the newbuilding delivered in January 2008 and to partly fund
the purchase price of the remaining two newbuildings we agreed to purchase from
Capital Maritime at the time of our Offering and which were delivered in June
and August of 2008. The loan agreement was amended on September 19, 2007 to
include the financing of the acquisition cost of the M/T Attikos and was further
supplemented on June 11, 2008 to, amongst others, amend the provisions relating
to security offered under the facility. As of December 31, 2007, we had drawn
down $274.5 under our revolving credit facility. We drew down $48.0 million in
connection with the acquisition of the M/T Alexandros II in January 2008 and
$44.0 in connection
with the deliveries in June and August of 2008 of the M/T Aristotelis II and the
M/T Aris II, our final two contracted vessels. Please see Note 5
(Long-Term Debt) to our Supplemental Financial Statements included herein for
more information.
10
On March
19, 2008, we entered into a new 10-year revolving credit facility of up to
$350.0 million, which is non-amortizing until March 2013, with HSH Nordbank (the
“new credit facility”). We may use this facility to finance a portion of the
acquisition price of certain identified vessels currently in Capital Maritime’s
fleet, which we may elect to acquire in the future. We may also use this
facility to finance up to 50% of the purchase price of any potential future
purchases of modern tanker vessels from Capital Maritime or any third parties.
To date, we have used $107.5 million of this facility
to fund part of the acquisition price of the M/T Amore Mio II, the M/T
Aristofanis, the M/T Aristotelis II and the M/T Aris II from Capital Maritime.
The new credit facility is subject to similar covenants and restrictions as
those in our existing facility described below. Our obligations under
both our credit facilities are secured by first-priority mortgages covering each
of our financed vessels and are guaranteed by each vessel-owning
subsidiary.
Borrowings
under our $370.0 million existing credit facility bear interest at a rate of
0.75% over US$ LIBOR. We may continue to draw down amounts under this facility
until June 2012, at which date any amounts available for borrowing will
automatically terminate and the outstanding amount will automatically convert
into a five-year term loan. In addition, we are not required to make any
repayments of the principal amounts outstanding under the facility until June
2012 provided that we maintain an aggregate market value of our financed vessels
equal to 125% of the aggregate amount outstanding under the facility. The final
maturity date of this facility is June 2017.
Borrowings
under our $350.0 million new credit facility bear interest at a rate of 1.1% per
annum over US$ LIBOR. We may continue to draw amounts under this facility until
March 2013, at
which date any amounts available for borrowing will automatically terminate and
the outstanding amount will automatically convert into a five-year term loan. In
addition, we are not required to make any repayments of the principal amounts
outstanding under the facility until March 2013, provided that we maintain an
aggregate market value of our financed vessels equal to 125% of the aggregate
amount outstanding under the facility. The final maturity date of this facility
is March 2018.
Our
credit facilities contain restrictive covenants that, subject to the approval of
our lenders, prohibit us from, among other things: incurring or guaranteeing
indebtedness; charging, pledging or encumbering the vessels; changing the flag,
class, management or ownership of our vessels; changing the commercial and
technical management of our vessels; selling or changing the beneficial
ownership or control of our vessels; and subordinating the obligations under our
existing credit facility to any general and administrative costs relating to the
vessels, including the fixed daily fee payable under the management
agreement.
Under the
terms of our credit facilities, we may not be able to pay distributions to our
unitholders if we are not in compliance with certain financial covenants or upon
the occurrence of an event of default or if the fair market value of our
financed vessels is less than 125% of the aggregate amount outstanding under
each credit facility. As of December 31, 2007 we were in compliance
with all debt covenants.
In
addition, our credit facilities require us to maintain minimum free consolidated
liquidity (50% of which may be in the form of undrawn commitments under the
credit facility) of at least $500,000 per financed vessel, maintain a ratio of
EBITDA to net interest expense of at least 2.00 to 1.00 on a trailing
four-quarter basis and maintain a ratio of total indebtedness to the aggregate
market value of our total fleet of no more than 0.725 to 1.00. We are also
required to maintain an aggregate market value of our financed vessels equal to
125% of the aggregate amount outstanding under each credit
facility.
In
connection with our revolving credit facilities and in order to hedge our
exposure to interest rate changes, we have entered into the following interest
rate swap agreements to fix the LIBOR portion of our interest rate.
|
Currency
|
Notional
Amount
(millions)
|
Fixed
rate
|
Trade
date
|
Value
date
|
Maturity
date
|
|
|
$370.0
million credit facility
|
USD
|
30,000
|
5.1325%
|
02.20.2007
|
04.04.2007
|
06.29.2012
|
|
USD
|
56,000
|
5.1325%
|
02.20.2007
|
05.08.2007
|
06.29.2012
|
|
|
USD
|
56,000
|
5.1325%
|
02.20.2007
|
07.13.2007
|
06.29.2012
|
|
|
USD
|
56,000
|
5.1325%
|
02.20.2007
|
09.28.2007
|
06.29.2012
|
|
|
USD
|
56,000
|
5.1325%
|
02.20.2007
|
09.20.2007
|
06.29.2012
|
|
|
USD
|
24,000
|
5.1325%
|
02.20.2007
|
01.15.2008
|
06.29.2012
|
|
|
USD
|
24,000
|
5.1325%
|
02.20.2007
|
01.15.2008
|
06.29.2012
|
|
|
USD
|
24,000
|
5.1325%
|
02.20.2007
|
08.20.2008
|
06.29.2012
|
|
|
USD
|
20,500
|
4.9250%
|
09.20.2007
|
09.24.2007
|
06.29.2012
|
|
|
USD
|
20,000
|
4.520%
|
06.13.2008
|
06.17.2008
|
06.28.2012
|
|
|
$350.0
million credit facility
|
USD
|
46,000
|
3.525%
|
03.25.2008
|
03.27.2008
|
03.27.2013
|
|
USD
|
11,500
|
3.895%
|
04.24.2008
|
04.30.2008
|
03.28.2013
|
|
|
USD
|
28,000
|
4.610%
|
06.13.2008
|
06.17.2008
|
03.28.2013
|
|
|
USD
|
22,000
|
4.099%
|
08.14.2008
|
08.20.2008
|
03.28.2013
|
11
Purchase
of Vessels Following the Offering
The table
below summarizes certain information with respect to the vessels we have
purchased from Capital Maritime in 2007 and 2008, including their purchase
prices and the date they were delivered to us.
|
Name of Vessel
|
Delivery Date/(Expected Delivery
Date)
|
Expiration of Charter
|
Daily Charter Rate (Net)
|
OPEX
(per day)
|
Charterer (1)
|
Purchase Price
|
||||||
|
Atrotos
|
May
2007
|
April
2010
|
$20,000(2)
|
$5,500
|
MS
|
$56,000,000
|
||||||
|
Akeraios
|
July
2007
|
June
2010
|
$20,000(2)
|
$5,500
|
MS
|
$56,000,000
|
||||||
|
Anemos
I
|
September
2007
|
August
2010
|
$20,000(2)
|
$5,500
|
MS
|
$56,000,000
|
||||||
|
Apostolos
|
September
2007
|
August
2010
|
$20,000(2)
|
$5,500
|
MS
|
$56,000,000
|
||||||
|
Attikos
|
September
2007
|
September
2009
|
$13,504(3)
|
$5,500
|
Trafigura
|
$23,000,000
|
||||||
|
Alexandros
II
|
January
2008
|
December
2017
|
$13,000(4)
|
$250
|
OSG
|
$48,000,000
|
||||||
|
Amore
Mio II
|
March
2008
|
January
2011
|
$36,000(2)(3)
|
$8,500
|
BP
|
$85,739,320
(5)
|
||||||
|
Aristofanis
|
April2008
|
March
2010
|
$12,952(3)
|
$5,500
|
Shell
|
$21,566,265
(5)
|
||||||
|
Aristotelis
II
|
June
2008
|
May
2018
|
$13,000(4)
|
$250
|
OSG
|
$48,000,000
|
||||||
|
Aris
II
|
August
2008
|
July
2018
|
$13,000(4)
|
$250
|
OSG
|
$48,000,000
|
___________
|
(1)
|
BP:
BP Shipping Limited. Morgan Stanley: Morgan Stanley Capital
Group Inc., OSG: certain subsidiaries of Overseas Shipholding
Group Inc. Trafigura: Trafigura Beheer B.V. Shell: Shell
International Trading & Shipping Company
Ltd.
|
|
(2)
|
Subject
to 50/50 profit sharing arrangement. Please read “Item 4: Business —Time
Charters—Profit Sharing” and “Item 4: Business —Our Fleet” in our Annual
Report for more information on our profit sharing arrangements and
relevant commissions.
|
|
(3)
|
The
rates quoted above are the net rates after we have paid commissions on the
base rates. The rates for the M/T Attikos, the M/T Amore Mio II and the
M/T Aristofanis are subject to 2.5%, 1.25% and 2.25% commissions,
respectively.
|
|
(4)
|
Under
the charters with Overseas Shipholding Group Inc. for the three STX
vessels delivered in 2008, Overseas Shipholding Group Inc. has an
option to purchase each vessel at the end of the eighth, ninth or tenth
year of the charter, for $38.0 million, $35.5 million and
$33.0 million respectively, which option is exercisable six months
before the date of completion of the eighth, ninth or tenth year of the
respective charter. The expiration date above may therefore change
depending on whether the charterer exercises its purchase
option.
|
|
(5)
|
The
M/T Amore Mio II was acquired on March 27, 2008 and the M/T Aristofanis
was acquired on April 30, 2008. Please see Note 14 (Subsequent Events) to
our Supplemental Financial Statements included herein for more information
regarding these acquisitions, including a breakdown of the way such
acquisitions were funded.
|
C.
Off-Balance Sheet Arrangements
As of the
date of this Current Report on Form 6-K, we have not entered into any
off-balance sheet arrangements.
12
D.
Contractual Obligations and Contingencies
The
following table summarizes our long-term contractual obligations as of
December 31, 2007 (thousands of U.S. Dollars).
|
December 31,
|
||||||||||||||||||||||||||||
|
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
Total
|
||||||||||||||||||||||
|
Long-term
Debt Obligations
|
$ | 6,701 | $ | 6,701 | $ | 6,701 | $ | 6,453 | $ | 19,436 | $ | 305,505 | $ | 351,497 | ||||||||||||||
|
Interest
Obligations (1)
|
$ | 20,670 | $ | 20,228 | $ | 19,843 | $ | 19,457 | $ | 19,014 | $ | 62,686 | $ | 161,898 | ||||||||||||||
|
Vessel
Purchase Commitments (2)(3)
|
$ | 144,000 | – | – | – | – | – | $ | 144,000 | |||||||||||||||||||
|
Total
|
$ | 171,371 | $ | 26,929 | $ | 26,544 | $ | 25,910 | $ | 38,450 | $ | 368,191 | $ | 657,395 | ||||||||||||||
___________
|
(1)
|
Interest
expense has been calculated based on the fixed interest rate of 5.1325%
plus a margin of 0.75% for the amount of $254.0 million and 4.925% plus a
margin of 0.75% for the amount of $20.5 million. For M/T Amore Mio II and
M/T Aristofanis, interest expense calculations have been based on December
2007 LIBOR fixations. The interest rate fixation resulted from the nine
interest rate swap agreements that we entered into in order to reduce our
exposure to cash flow risks from fluctuating interest rates and fully
cover our debt.
|
|
(2)
|
Purchase
commitments represent outstanding purchase commitments relating to the
acquisition of the final three MR product tankers (M/T Alexandros II, M/T
Aristotelis II and M/T Aris II) to be delivered to us pursuant to the
share purchase agreement we entered into with Capital Maritime. The vessels were
delivered to us in January, June and August 2008,
respectively.
|
|
(3)
|
On
March 27, 2008, we acquired the M/T Amore Mio II from Capital Maritime,
pursuant to a share purchase agreement of the same date, for an aggregate
purchase price of $85.7 million and on April 30, 2008 we acquired the M/T
Aristofanis from Capital Maritime, pursuant to a share purchase agreement
entered into on the same date, for an aggregate purchase price of $21.6
million. Please see Note 14 (Subsequent Events) to our Supplemental
Financial Statements included herein for more information regarding these
acquisitions.
|
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations is
based upon our Financial Statements, which have been prepared in accordance with
U.S. GAAP. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or
conditions.
Critical
accounting policies are those that reflect significant judgments or
uncertainties, and potentially result in materially different results under
different assumptions and conditions. We have described below what we believe
are our most critical accounting policies that involve a higher degree of
judgment and the methods of their application. For a description of all of our
significant accounting policies, see Note 2 (Significant Accounting
Policies) to our Supplemental Financial Statements included herein for more
information. Please also refer to Note 2 (Significant Accounting Policies –
Recent Accounting Pronouncements) for a description of the most recent
pronouncements issued by the Financial Accounting Standards Board which apply to
us.
13
|
|
Vessel
Lives and Impairment
|
The
carrying value of each of our vessels represents its original cost (contract
price plus initial expenditures) at the time of delivery or purchase less
accumulated depreciation or impairment charges. Depreciation is calculated based
on the vessel’s capitalized costs using the straight line method over an
estimated useful life of 25 years from the date the vessel was originally
delivered from the shipyard, after considering the estimated residual value.
However, the actual life of a vessel may be different, with a shorter life
potentially resulting in an impairment loss. Vessels transferred from Capital
Maritime to us are transferred at their net book values because such transfers
are accounted for as transfers of assets between entities under common control.
We are not aware of any regulatory changes or environmental liabilities that we
anticipate will have a material impact on the vessel lives of our current fleet.
The carrying values of our vessels may not represent their fair market value at
any point in time since the market prices of second-hand vessels tend to
fluctuate with changes in charter rates and the cost of newbuildings. Both
charter rates and newbuilding costs tend to be cyclical in nature. We review
vessels and equipment for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. If impairment
indicators are present, we measure the recoverability of an asset by comparing
its carrying amount to future undiscounted cash flows that the asset is expected
to generate over its remaining useful life. If we consider a vessel or equipment
to be impaired, we recognize impairment in an amount equal to the excess of the
carrying value of the asset over its fair market value. No impairment loss was
recorded for any of the periods presented in our Supplemental Financial
Statements.
|
|
Revenue
Recognition
|
We
generate revenues from charterers for the charterhire of our vessels which are
chartered either under time or bareboat charters. All of our time charters and
bareboat charters are classified as operating leases. Revenues under operating
lease arrangements are recognized when a charter agreement exists, the charter
rate is fixed and determinable, the vessel is made available to the lessee, and
collection of the related revenue is reasonably assured. Revenues are recognized
ratably on a straight line basis as the average revenue over the period of the
respective time or bareboat charter agreement in accordance with FASB 13
“Accounting for Leases”, paragraph 19b. We currently do not enter into spot
voyage arrangements with respect to any of our vessels but may do so in the
future. Although our charter revenues are fixed, and, accordingly, little
judgment is required to be applied to the amount of revenue recognition, there
is no certainty as to the daily charter rates or other terms that will be
available upon the expiration of our existing charters.
Revenues
from profit sharing arrangements in time charters represent the portion of time
charter equivalent (voyage income less direct expenses divided by operating
days), that exceeds the agreed base rate and are recognized in the period
earned.
|
|
Interest
Rate Swap Agreements
|
We
designate our derivatives based upon the criteria established by SFAS No. 133
“Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”),
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS 133, as amended by SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities—An amendment of
SFAS 133 (“SFAS 138”) and SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (“SFAS 149”), requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The accounting for the changes in the fair value of the
derivative depends on the intended use of the derivative and the resulting
designation. For a derivative that does not qualify as a cash flow
hedge, the change in fair value is recognized at the end of each accounting
period on the income statement. For a derivative that qualifies as a
cash flow hedge, the change in fair value is recognized at the end of each
reporting period in accumulated other comprehensive income/ (loss) (effective
portion) until the hedged item is recognized in income. The ineffective portion
of a derivative’s change in fair value is immediately recognized in the income
statement.
As of
December 31, 2007 all our interest rate swaps qualified as a cash flow hedge and
the changes in their fair value were recognized in accumulated other
comprehensive income/(loss). Please see Note 2 (Significant
Accounting Policies – Interest Rate Swap Agreements) to our Supplemental
Financial Statements included in this Current Report on Form 6-K for more
detailed information.
14
Exhibit II
Index
to Financial Statements
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Supplemental
Consolidated and Predecessor Combined Balance Sheets as of December 31,
2007 and 2006.
|
F-3
|
|
Supplemental
Consolidated and Predecessor Combined Statements of Income for the years
ended December 31, 2007, 2006 and 2005.
|
F-4
|
|
Supplemental
Consolidated and Predecessor Combined Statements of Changes in Partners’
Capital / Stockholders’ Equity for the years ended December 31, 2007, 2006
and 2005.
|
F-5
|
|
Supplemental
Consolidated and Predecessor Combined Statements of Cash Flows for the
years ended December 31, 2007, 2006 and 2005.
|
F-7
|
|
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements.
|
F-8
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Unitholders of
Capital
Product Partners L.P.
Majuro,
Republic of the Marshall Islands
We have
audited the accompanying supplemental consolidated and predecessor combined
balance sheets of Capital Product Partners L.P. (the “Partnership”) as of
December 31, 2007 and 2006, and the related supplemental consolidated and
predecessor combined statements of income, changes in partners’ capital /
stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2007. These supplemental financial statements are
the responsibility of the Partnership’s management. Our
responsibility is to express an opinion on the supplemental financial statements
based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Partnership is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the
Partnership’s internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, such supplemental financial statements present fairly, in all material
respects, the financial position of Capital Product Partners L.P. as of December
31, 2007 and 2006, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2007, after giving
retroactive effect to the combination of entities under common control in 2008
as described in Note 1 to the supplemental consolidated and predecessor combined
financial statements, in conformity with accounting principles generally
accepted in the United States of America.
As
discussed in Note 1 to the supplemental consolidated and predecessor combined
financial statements, on January 16, 2007, Capital Product Partners L.P. was
formed for the purpose of acquiring interests in eight wholly owned subsidiaries
of Capital Maritime & Trading Corp. On April 4, 2007 the acquisition was
completed and Capital Product Partners L.P. began operating as a separate
company. Through April 4, 2007 the accompanying supplemental predecessor
combined financial statements have been prepared from the separate records
maintained by Capital Maritime & Trading Corp. and may not necessarily be
indicative of the conditions that would have existed or the results of
operations if the Partnership had been operated as an unaffiliated
entity.
As
described in Note 1 to the supplemental consolidated and predecessor combined
financial statements, the supplemental financial statements give retroactive
effect to the September 24, 2007 acquisition by Capital Product Partners L.P. of
Ross Shipmanagement Co., the owner of M/T Attikos, the March 27, 2008
acquisition of Baymont Enterprise Incorporated, the owner of M/T
Amore Mio II, and the April 30, 2008 acquisition of Forbes Maritime Co., the
owner of M/T Aristofanis, which, as combination of entities under common
control, have been accounted for similar to a pooling of interests . These
supplemental financial statements do not extend through the date of transactions
between entities under common control relating to the 2008 acquisitions.
However, they will become the historical consolidated and predecessor combined
financial statements of Capital Product Partners, L.P. after financial
statements covering the date of these transactions between entities under common
control are issued. Also as described in Note 1 to the supplemental
consolidated and predecessor combined financial statements, through September
24, 2007, March 27, 2008, and April 30 2008 the portion of the accompanying
supplemental financial statements attributable to Ross Shipmanagement Co.,
Baymont Enterprises Incorporated, and Forbes Maritime Co., respectively, have
been prepared from the separate records maintained by Capital Maritime &
Trading Corp. and may not necessarily be indicative of the conditions that would
have existed or the results of operations if Ross Shipmanagement Co., Baymont
Enterprise Incorporated, and Forbes Maritime Co. had been operated as
unaffiliated entities.
/s/
Deloitte
Hadjipavlou,
Sofianos & Cambanis S.A.
Athens,
Greece
August 28,
2008
F-2
Capital
Product Partners L.P.
Supplemental Consolidated and Predecessor
Combined Balance Sheets
(Note
1)
(In
thousands of United States dollars, except number of shares)
|
December
31, 2007
|
December
31, 2006
|
|||||||
|
Assets
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 19,919 | $ | 1,239 | ||||
|
Trade
accounts receivable
|
2,600 | 799 | ||||||
|
Insurance
claims
|
– | 76 | ||||||
|
Due
from related parties (Note 3)
|
4,262 | 7,018 | ||||||
|
Prepayments
and other assets
|
410 | 220 | ||||||
|
Inventories
|
320 | 304 | ||||||
|
Total
current assets
|
27,511 | 9,656 | ||||||
|
Fixed
assets
|
||||||||
|
Vessels
under construction (Note 4)
|
– | 29,225 | ||||||
|
Vessels,
net (Note 4)
|
525,199 | 188,975 | ||||||
|
Total
fixed assets
|
525,199 | 218,200 | ||||||
|
Other
non-current assets
|
||||||||
|
Deferred
finance charges, net (Note 7)
|
1,031 | 655 | ||||||
|
Restricted
cash (Note 2, 5)
|
3,250 | – | ||||||
|
Total
non-current assets
|
529,480 | 218,855 | ||||||
|
Total
assets
|
$ | 556,991 | $ | 228,511 | ||||
|
Liabilities
and Partners’ Capital / Stockholders’ Equity
|
||||||||
|
Current
liabilities
|
||||||||
|
Current
portion of long-term debt (Note 5)
|
$ | 768 | $ | 6,797 | ||||
|
Current
portion of related party debt (Note 3)
|
5,933 | 8,042 | ||||||
|
Trade
accounts payable
|
1,271 | 1,879 | ||||||
|
Due
to related parties (Note 3)
|
65 | 1,929 | ||||||
|
Accrued
loan interest
|
70 | 1,674 | ||||||
|
Accrued
other liabilities (Note 6)
|
693 | 627 | ||||||
|
Deferred
revenue
|
3,473 | 824 | ||||||
|
Total
current liabilities
|
12,273 | 21,772 | ||||||
|
Long-term
liabilities
|
||||||||
|
Long-term
debt (Note 5)
|
281,812 | 67,334 | ||||||
|
Long-term
related party debt (Note 3)
|
62,984 | 87,498 | ||||||
|
Deferred
revenue
|
690 | – | ||||||
|
Derivative
instruments (Note 2)
|
14,051 | – | ||||||
|
Total
long-term liabilities
|
359,537 | 154,832 | ||||||
|
Total
liabilities
|
371,810 | 176,604 | ||||||
|
Commitments
and contingencies (Note 13)
|
– | – | ||||||
|
Stockholders’
Equity
|
||||||||
|
Common
stock (par value $0; 4,200 shares issued and outstanding at
December 31, 2006)
|
– | – | ||||||
|
Additional
paid in capital - Predecessor
|
18,060 | 42,317 | ||||||
|
Retained
earnings - Predecessor
|
5,182 | 9,590 | ||||||
|
Partners’
Capital
|
||||||||
|
General
Partner interest
|
3,444 | – | ||||||
|
Limited
Partners
|
||||||||
|
- Common
(13,512,500 units issued and outstanding at December 31,
2007)
|
102,130 | – | ||||||
|
- Subordinated
(8,805,522 units issued and outstanding at December 31,
2007)
|
66,653 | – | ||||||
|
Accumulated
other comprehensive loss (Note 2)
|
(10,288 | ) | – | |||||
|
Total
partners’ capital / stockholders’ equity
|
185,181 | 51,907 | ||||||
|
Total
liabilities and partners’ capital / stockholders’ equity
|
$ | 556,991 | $ | 228,511 | ||||
The
accompanying notes are an integral part of these supplemental
consolidated and predecessor combined financial statements.
F-3
Capital
Product Partners L.P.
Supplemental
Consolidated and Predecessor Combined Statements of Income (Note 1)
(In
thousands of United States dollars, except number of units and earnings per
unit)
|
For
the year ended December 31,
|
||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||
|
Revenues
|
86,545 | 24,605 | 6,671 | |||||||||||
|
Expenses:
|
||||||||||||||
|
Voyage
expenses (Note 8)
|
3,553 | 427 | 555 | |||||||||||
|
Vessel
operating expenses - related party (Note 3, 8)
|
12,688 | 1,124 | 360 | |||||||||||
|
Vessel
operating expenses (Note 8)
|
6,287 | 5,721 | 3,285 | |||||||||||
|
General
and administrative expenses
|
1,477 | – | – | |||||||||||
|
Depreciation
and amortization (Note 4, 7)
|
15,363 | 3,772 | 595 | |||||||||||
|
Operating
income
|
47,177 | 13,561 | 1,876 | |||||||||||
|
Other
income (expense), net:
|
||||||||||||||
|
Interest
expense and finance cost
|
(13,121 | ) | (5,117 | ) | (653 | ) | ||||||||
|
Loss
on interest rate agreements
|
(3,763 | ) | – | – | ||||||||||
|
Interest
income
|
711 | 13 | 6 | |||||||||||
|
Foreign
currency gain/(loss), net
|
(45 | ) | (63 | ) | 18 | |||||||||
|
Total
other expense, net
|
(16,218 | ) | (5,167 | ) | (629 | ) | ||||||||
|
Net
income
|
$ | 30,959 | $ | 8,394 | $ | 1,247 | ||||||||
|
Less:
|
||||||||||||||
|
Net
income attributable to predecessor operations
|
(9,388 | ) | ||||||||||||
|
Partnership’s
net income
|
21,571 | |||||||||||||
|
General
Partner’s interest in Partnership’s net income
|
$ | 431 | ||||||||||||
|
Limited
Partners’ interest in Partnership’s net income
|
21,140 | |||||||||||||
|
Net
income allocable to limited partner per:
|
||||||||||||||
|
–
|
Common
unit (basic and diluted)
|
1.11 | ||||||||||||
|
–
|
Subordinated
unit (basic and diluted)
|
0.70 | ||||||||||||
|
–
|
Total
unit (basic and diluted)
|
0.95 | ||||||||||||
|
Weighted-average
units outstanding:
|
||||||||||||||
|
–
|
Common
units (basic and diluted)
|
13,512,500 | ||||||||||||
|
–
|
Subordinated
units (basic and diluted)
|
8,805,522 | ||||||||||||
|
–
|
Total
units (basic and diluted)
|
22,318,022 | ||||||||||||
The
accompanying notes are an integral part of these supplemental
consolidated and predecessor combined financial statements.
F-4
Capital
Product Partners L.P.
Supplemental
Consolidated and Predecessor Combined Statements of Changes in Partners’ Capital
/ Stockholders Equity
(In
thousands of United States dollars)
|
Partners’
Capital
|
||||||||||||||||||||||||||||||||
|
Comprehensive
Income
|
Common
Stockholders’
Equity
|
Common
|
Subordinated
|
General Partner
|
Total
|
Accumulated
Other Comprehensive
Loss
|
Total
|
|||||||||||||||||||||||||
|
Balance
at December 31, 2004
|
$ | – | $ | 20,107 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 20,107 | ||||||||||||||||
|
Additional
paid in capital
|
– | 4,212 | – | – | – | – | – | 4,212 | ||||||||||||||||||||||||
|
Net
Income
|
1,247 | 1,247 | – | – | – | – | – | 1,247 | ||||||||||||||||||||||||
|
Comprehensive
income
|
1,247 | |||||||||||||||||||||||||||||||
|
Balance
at December 31, 2005
|
25,566 | – | – | – | – | – | 25,566 | |||||||||||||||||||||||||
|
Additional
paid in capital
|
– | 17,947 | – | – | – | – | – | 17,947 | ||||||||||||||||||||||||
|
Net
Income
|
8,394 | 8,394 | – | – | – | – | – | 8,394 | ||||||||||||||||||||||||
|
Comprehensive
income
|
8,394 | |||||||||||||||||||||||||||||||
|
Balance
at December 31, 2006
|
51,907 | – | – | – | – | – | 51,907 | |||||||||||||||||||||||||
|
Additional
paid in capital “Initial Vessels” up to April 3, 2007
|
– | 13,679 | – | – | – | – | – | 13,679 | ||||||||||||||||||||||||
|
Net
income “Initial Vessels” predecessor operations
|
5,328 | 5,328 | – | – | – | – | – | 5,328 | ||||||||||||||||||||||||
|
Comprehensive
income
|
5,328 | |||||||||||||||||||||||||||||||
|
Balance
at April 3, 2007
|
70,914 | 70,914 | ||||||||||||||||||||||||||||||
|
Distribution
of “Initial Vessels” retained earnings as of April 3, 2007, to previous
owners
|
(9,919 | ) | (9,919 | ) | ||||||||||||||||||||||||||||
|
Allocation
of predecessor’s “Initial Vessels” equity to unit holders
|
– | (55,073 | ) | 32,658 | 21,313 | 1,102 | 55,073 | – | – | |||||||||||||||||||||||
|
Contributions
to the Partnership
|
– | – | 129,556 | 84,550 | 4,369 | 218,475 | – | 218,475 | ||||||||||||||||||||||||
|
Excess
of purchase price over book value of vessels acquired from entity under
common control (Note 4)
|
– | – | (47,954 | ) | (31,295 | ) | (1,617 | ) | (80,866 | ) | – | (80,866 | ) | |||||||||||||||||||
F-5
Capital
Product Partners L.P.
Supplemental
Consolidated and Predecessor Combined Statements of Changes in Partners’ Capital
/ Stockholders Equity
(In
thousands of United States dollars)
|
Partners’
Capital
|
||||||||||||||||||||||||||||||||
|
Comprehensive
Income
|
Common
Stockholders’
Equity
|
Common
|
Subordinated
|
General Partner
|
Total
|
Accumulated
Other Comprehensive
Loss
|
Total
|
|||||||||||||||||||||||||
|
Dividend
to CMTC
|
– | – | (14,825 | ) | (9,675 | ) | (500 | ) | (25,000 | ) |
–
|
(25,000 | ) | |||||||||||||||||||
|
Dividends
paid (Note 11)
|
– | – | (10,096 | ) | (6,589 | ) | (341 | ) | (17,026 | ) | – | (17,026 | ) | |||||||||||||||||||
|
Attikos
net income January 1, 2007 through September 23, 2007 – predecessor
operations
|
928 | 928 | 928 | |||||||||||||||||||||||||||||
|
Distribution
of retained earnings as of September 23, 2007, “M/T Attikos”, to previous
owners
|
– | (3,877 | ) | – | – | – | – | – | (3,877 | ) | ||||||||||||||||||||||
|
Distribution
of paid in capital of “M/T Attikos” to previous owners
|
– | (463 | ) | – | – | – | – | – | (463 | ) | ||||||||||||||||||||||
|
Amore
Mio II net income July 31, 2007 through December 31, 2007- predecessor
operations
|
1,611 | 1,611 | 1,611 | |||||||||||||||||||||||||||||
|
Amore
Mio II additional paid in capital
|
17,600 | 17,600 | ||||||||||||||||||||||||||||||
|
Aristofanis
net income January 1, 2007 to December 31, 2007 - predecessor
operations
|
1,521 | 1,521 | 1,521 | |||||||||||||||||||||||||||||
|
Net
Partnership income April 4, 2007 through December 31, 2007
|
21,571 | – | 12,791 | 8,349 | 431 | 21,571 | – | 21,571 | ||||||||||||||||||||||||
|
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||
|
● Unrealized loss on
derivative instruments
|
(10,288 | ) | – | – | – | – | – | (10,288 | ) | (10,288 | ) | |||||||||||||||||||||
|
Comprehensive
income
|
15,343 | |||||||||||||||||||||||||||||||
|
Balance
at December 31, 2007
|
$ | 23,242 | $ | 102,130 | $ | 66,653 | $ | 3,444 | $ | 172,227 | $ | (10,288 | ) | $ | 185,181 | |||||||||||||||||
The
accompanying notes are an integral part of these supplemental consolidated and
predecessor combined financial statements.
F-6
Capital
Product Partners L.P.
Supplemental
Consolidated and Predecessor Combined Statements of Cash Flows (Note 1)
(In
thousands of United States dollars)
|
For
the Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income
|
$ | 30,959 | $ | 8,394 | $ | 1,247 | ||||||
|
Adjustments to reconcile net
income to net cash provided by operating
activities:
|
||||||||||||
|
Vessel
depreciation
|
15,271 | 3,772 | 595 | |||||||||
|
Amortization
of deferred charges
|
214 | 46 | 9 | |||||||||
|
Loss
on interest rate swap agreement
|
3,763 | – | – | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Trade
accounts receivable
|
(3,841 | ) | (760 | ) | (39 | ) | ||||||
|
Insurance
claims
|
5 | (72 | ) | (3 | ) | |||||||
|
Due
from related parties
|
(4,842 | ) | (5,819 | ) | (1,198 | ) | ||||||
|
Prepayments
and other assets
|
(547 | ) | (161 | ) | (56 | ) | ||||||
|
Inventories
|
(344 | ) | (259 | ) | (44 | ) | ||||||
|
Trade
accounts payable
|
1,787 | 1,493 | 381 | |||||||||
|
Due
to related parties
|
3,653 | 1,165 | 668 | |||||||||
|
Accrued
loan interest
|
(1,567 | ) | 1,452 | 222 | ||||||||
|
Accrued
other liabilities
|
872 | 554 | 73 | |||||||||
|
Deferred
revenue
|
8,552 | 460 | 364 | |||||||||
|
Dry
docking expenses paid
|
(921 | ) | – | – | ||||||||
|
Net
cash provided by operating activities
|
53,014 | 10,265 | 2,219 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Vessel
acquisitions
|
(331,797 | ) | (142,795 | ) | (19,286 | ) | ||||||
|
Vessel
advances – new buildings
|
– | (19,252 | ) | (15,036 | ) | |||||||
|
Increase
of restricted cash
|
(3,250 | ) | – | – | ||||||||
|
Net
cash used in investing activities
|
(335,047 | ) | (162,047 | ) | (34,322 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from issuance of long-term debt
|
305,050 | 77,426 | 20,000 | |||||||||
|
Proceeds
from related party debt/financing
|
109,711 | 82,341 | 15,453 | |||||||||
|
Payments
of long-term debt
|
(16,716 | ) | (22,161 | ) | (1,134 | ) | ||||||
|
Payments
of related party debt/financing
|
(2,376 | ) | (2,254 | ) | (6,011 | ) | ||||||
|
Loan
issuance costs
|
(1,092 | ) | (285 | ) | (425 | ) | ||||||
|
Excess
of purchase price over book value of vessels acquired from entity under
common control (Note 4)
|
(80,866 | ) | – | – | ||||||||
|
Dividends
paid
|
(42,026 | ) | – | – | ||||||||
|
Cash
balance as of April 3, 2007 that was distributed to the previous
owner
|
(2,251 | ) | – | – | ||||||||
|
Capital
contributions by predecessor
|
31,279 | 17,947 | 4,212 | |||||||||
|
Net
cash provided by financing activities
|
300,713 | 153,014 | 32,095 | |||||||||
|
Net
increase/(decrease) in cash and cash equivalents
|
18,680 | 1,232 | (8 | ) | ||||||||
|
Cash
and cash equivalents at beginning of period
|
1,239 | 7 | 15 | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 19,919 | $ | 1,239 | $ | 7 | ||||||
|
Supplemental
Cash Flow information
|
||||||||||||
|
Cash
paid for interest
|
$ | 14,640 | $ | 5,220 | $ | 341 | ||||||
The
accompanying notes are an integral part of these supplemental
consolidated and predecessor combined financial statements.
F-7
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
1.
|
Basis
of Presentation and General
Information
|
On March
27 and April 30, 2008, respectively, Capital Product Partners
L.P. (the “Partnership” or “CPP”) acquired the shares of the vessel
owning companies of the Motor Tanker (“M/T”) Amore Mio II and the M/T
Aristofanis from Capital Maritime and Trading Corp (“CMTC”). In
accordance with SFAS No. 141 “Business Combinations”, these transactions are
accounted for as a combination of entities under common control, in a manner
similar to a pooling of interests.
In
accordance with SEC Staff Interpretations of APB 16 “Business Combinations”,
where a transaction has occurred that will be accounted for as a pooling of
interests and post-consummation period results have not been published,
financial statements giving effect to the pooling should be presented in
transactional filings or in voluntary supplemental filings as “supplemental
financial statements.” Accordingly, these supplemental consolidated and
predecessor combined financial statements for the fiscal years ended December
31, 2007, 2006 and 2005 reflect the retroactive adjustment of the financial
statements included in the Company’s Form 20-F for the year ended December 31,
2007 to reflect the operations of M/T Amore Mio II and the M/T Aristofanis as
though the acquisition of shares had occurred on the dates such vessels were
acquired by CMTC.
The
Partnership was formed on January 16, 2007 under the laws of the Marshall
Islands for the purpose of acquiring interests in eight wholly owned
subsidiaries of CMTC, each of which owned a newly built, double-hull
medium-range product tanker (the “Initial Vessels”).
The
Partnership is engaged in the seaborne transportation services of crude oil and
refined petroleum products, edible oils and soft chemicals, by chartering its
vessels under medium to long-term time and bareboat charters.
On April
3, 2007 the Initial Public Offering (the “IPO”or the “Offering”) of CPP on the
NASDAQ Global Market was completed successfully. Upon completion of the IPO,
CMTC contributed the shares of the Initial Vessel owning companies to the
Partnership which we refer to as Capital Product Partners Predecessor. In
exchange for the vessels, CMTC received 11,750,000 common units and 8,805,522
subordinated units of the Partnership. Capital GP L.L.C. (“CGP”), a wholly owned
subsidiary of CMTC that acts as the Partnership’s general partner, received
419,500 general partner units. The net proceeds of the IPO were $236,330 (after
underwriters’ discount) and were used by CMTC in order to repay the existing
debt of the Initial Vessels’ of $213,917 (including interest of $74) and all the
expenses relating to the IPO. The Partnership issued an additional 1,762,500
common units to the underwriters in connection with the exercise of their
over-allotment option. CMTC sold these units to the public (through the
underwriters) receiving an additional amount of $34,143. In connection with the
exercise of the over-allotment option the Partnership issued an additional
35,970 general partner units to CGP in order to maintain its 2% ownership.
Following the Offering, the Partnership remitted a cash dividend of $25,000 to
CMTC.
F-8
Upon
completion of the IPO, the Partnership entered into several new agreements,
including:
|
●
|
An
omnibus agreement with CMTC, CGP and others governing, among other things,
the circumstances under which the Partnership and CMTC can compete with
each other and certain rights of first offer on medium range product
tankers;
|
|
●
|
A
management agreement with Capital Shipmanagement Corp. (the “Manager” or
“CSM”), a wholly owned subsidiary of CMTC, pursuant to which the Manager
agreed to provide commercial and technical management services to the
Partnership;
|
|
●
|
An
administrative services agreement with the Manager pursuant to which the
Manager agreed to provide administrative management services to the
Partnership;
|
F-9
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
1.
|
Basis
of Presentation and General Information -
Continued
|
|
●
|
A
share purchase agreement with CMTC to purchase for a total consideration
of $368,000 its interests in seven wholly owned subsidiaries each of which
owns a newly built, double-hull medium-range product tanker (the
“Committed Vessels”). The Committed Vessels have been or will be
transferred to the Partnership at historical cost and all assets and
liabilities of vessel owning subsidiaries other than vessels at the
transfer date were or will be assumed by CMTC. On
May 8, July 13, September 20, and September 28, 2007 the Partnership
remitted to CMTC the amount of $224,000 in exchange for the acquisition of
the shares in the vessel-owning companies of the vessels: M/T Atrotos, M/T
Akeraios, M/T Apostolos and M/T Anemos I, (four of the seven Committed
Vessels) respectively. On September 24, 2007 the Partnership remitted to
CMTC the amount of $23,000 in exchange for the acquisition of the shares
in the vessel owning company of M/T Attikos, (this vessel was not part of
the Committed Vessels) a 2005-built double hull product tanker which has a
capacity of 12,000 DWT. On March 27, 2008 and April 30, 2008 the
Partnership acquired the shares of the vessel owning companies of the M/T
Amore Mio II and M/T Aristofanis for a total consideration of $85,739 and
$21,566 respectively. M/T Amore Mio II and M/T Aristofanis were not part
of the Committed Vessels; and
|
|
●
|
Revolving
credit facility of up to $370,000 and swapped the interest portion for
$346,500 in order to reduce the exposure of interest rates fluctuations
(Note 2).
|
Since
April 4, 2007, CMTC, the Partnership’s ultimate parent as determined by the
provision of Emerging Issues Task Force Issue (“EITF”) No. 04-5, “Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights” was deemed to have control over the Partnership and included the
Partnership’s accounts, balances results of operations in its consolidated
financial statements.
Following
the guidance provided by the provision of EITF No. 87-21 “Change of Accounting
Basis in Master Limited Partnerships” the “Initial Vessels” were transferred to
the Partnership at historical cost at the date of transfer and accounted for as
a combination of entities under common control. All assets,
liabilities and equity other than the relevant vessel, related charter agreement
and related permits, of these vessels’ ship-owning companies were retained by
CMTC.
As
required by the provision of SFAS No. 141, the Partnership accounted for the
acquisition of the vessel owning companies of M/T Attikos, M/T Amore Mio II and
M/T Aristofanis as a transfer of net assets between entities under common
control. For combinations of entities under common control, the purchase cost
provisions (as they relate to purchase business combinations involving unrelated
entities) of SFAS No. 141 explicitly do not apply; instead the method of
accounting prescribed by SFAS No. 141 for such transfers is similar to
pooling-of-interests method of accounting. Under this method, the carrying
amount of net assets recognized in the balance sheets of each combining entity
are carried forward to the balance sheet of the combined entity, and no other
assets or liabilities are recognized as a result of the combination (that is, no
recognition is made for a purchase premium or discount representing any
difference between the cash consideration paid and the book value of the net
assets acquired).
Following
the acquisition of the shipowning company of M/T Attikos, M/T Amore Mio II and
M/T Aristofanis from CMTC the Partnership recognized the vessels acquired at
their carrying amounts (historical cost) in the accounts of CMTC (the
transferring entities) at the date of transfer. In addition, transfers of net
assets between entities under common control are accounted for as if the
transfers occurred at the beginning of the period, and prior years are
retroactively adjusted to furnish comparative information similar to the pooling
method. The amount of the purchase price in excess of CMTC’s basis in the net
assets is recognized as a reduction to partners’ capital.
F-10
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
1.
|
Basis
of Presentation and General Information -
Continued
|
The
acquisition of the Committed Vessels through the acquisition of the shares of
the vessel owning companies represents acquisition of assets (“vessels”), as the
vessels were built by an unrelated party. The vessels were delivered to CMTC
from the shipyard and on the same date the Partnership acquired the shares of
the vessel owning companies. These vessel owning companies did not have an
operating history, as such, there is no information to retroactively adjust that
should be considered. Accordingly the four Committed Vessels (M/T Atrotos, M/T
Akeraios, M/T Apostolos, and M/T Anemos I) were transferred to the Partnership
at historical cost of CMTC at the date of transfer. All assets, other than the
vessels, liabilities and equity that the shipowning companies of the Committed
Vessels had at the time of the transfer were retained by CMTC.
As of
December 31, 2007, CMTC owned 8,805,522 subordinated units directly and 455,470
subordinated units indirectly, through CGP, which represent a 40.7% interest in
the Partnership including 2% participation through CGP.
We refer
to Capital Product Partners Predecessor, and the assets, liabilities and
operations of M/T Attikos, M/T Amore Mio II and M/T Aristofanis prior to CPP
acquisition from CMTC, collectively as our “predecessors.” The consolidated
financial statements of our predecessors have been prepared from the separate
records maintained by CMTC and may not necessarily be indicative of the
conditions that would have existed or the results of operations if our
predecessors had been operated as an unaffiliated entity.
The
supplemental consolidated and predecessor combined financial statements include
the following vessel owning companies and management company which were all
incorporated under the laws of the Marshall Islands CGP.
|
Subsidiary
|
Date
of
Incorporation
|
Name
of Vessel
Owned
by
Subsidiary
|
DWT
|
Date
acquired
by
the Partnership
|
Date
acquired
by
CMTC
|
|
Capital
Product Operating GP LLC
|
01/16/2007
|
–
|
–
|
–
|
|
|
Shipping
Rider Co.
|
09/16/2003
|
M/T
Atlantas
|
36,760
|
04/04/2007
|
04/26/2006
|
|
Canvey
Shipmanagement Co.
|
03/18/2004
|
M/T
Assos
|
47,872
|
04/04/2007
|
05/17/2006
|
|
Centurion
Navigation Limited
|
08/27/2003
|
M/T
Aktoras
|
36,759
|
04/04/2007
|
07/12/2006
|
|
Polarwind
Maritime S.A.
|
10/10/2003
|
M/T
Agisilaos
|
36,760
|
04/04/2007
|
08/16/2006
|
|
Carnation
Shipping Company
|
11/10/2003
|
M/T
Arionas
|
36,725
|
04/04/2007
|
11/02/2006
|
|
Apollonas
Shipping Company
|
02/10/2004
|
M/T
Avax
|
47,834
|
04/04/2007
|
01/12/2007
|
|
Tempest
Maritime Inc.
|
09/12/2003
|
M/T
Aiolos
|
36,725
|
04/04/2007
|
03/02/2007
|
|
Iraklitos
Shipping Company
|
02/10/2004
|
M/T
Axios
|
47,872
|
04/04/2007
|
02/28/2007
|
|
Epicurus
Shipping Company
|
02/11/2004
|
M/T Atrotos
|
47,786
|
05/08/2007
|
05/08/2007
|
|
Laredo
Maritime Inc.
|
02/03/2004
|
M/T
Akeraios
|
47,781
|
07/13/2007
|
07/13/2007
|
|
Lorenzo
Shipmanagement Inc.
|
05/26/2004
|
M/T
Apostolos
|
47,782
|
09/20/2007
|
09/20/2007
|
|
Splendor
Shipholding S.A.
|
07/08/2004
|
M/T
Anemos I
|
47,782
|
09/28/2007
|
09/28/2007
|
|
Ross
Shipmanagement Co.
|
12/29/2003
|
M/T
Attikos
|
12,000
|
09/24/2007
|
01/20/2005
|
|
Baymont
Enterprises Incorporated
|
05/29/2007
|
M/T
Amore Mio II
|
159,982
|
03/27/2008
|
07/31/2007
|
|
Forbes
Maritime Co.
|
02/03/2004
|
M/T
Aristofanis
|
12,000
|
04/30/2008
|
06/02/2005
|
F-11
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
2.
|
Significant
Accounting Policies
|
|
(a)
|
Principles
of Consolidation and Combination: The accompanying supplemental
consolidated and predecessor combined financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”), after giving retroactive
effect to the combination of entities under common control in 2008 as
described in Note 1 to the supplemental consolidated and predecessor
combined financial statements, and include the accounts of the legal
entities comprising the Partnership as discussed in Note 1. Intra-group
balances and transactions have been eliminated upon consolidation and
combination. Intercompany balances and transactions with CMTC
and its affiliates have not been eliminated, but are presented as balances
and transactions with related
parties.
|
|
(b)
|
Use of
Estimates: The preparation of supplemental consolidated and
predecessor combined financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
amounts of revenues and expenses recognized during the reporting period.
Actual results could differ from those estimates. Additionally, these
supplemental consolidated financial statements include allocations for
certain expenses, including corporate overhead expenses that are normally
incurred by a listed company, such expenses have not incurred in the
periods covered by the supplemental predecessor combined financial
statements.
|
|
(c)
|
Other
Comprehensive Income (Loss): The Partnership follows the provisions
of Statement of Financial Accounting Standards (“SFAS”) No. 130 “Statement
of Comprehensive Income” (SFAS 130) which requires separate presentation
of certain transactions, which are recorded directly as components of
partners’ capital / stockholders’ equity. For the year ended December 31,
2007 the Partnership had accumulated other Comprehensive Loss of $10,288,
related to the change of the fair value of derivatives that qualify for
cash flow hedge accounting.
|
|
(d)
|
Accounting
for Revenue, Voyage and Operating Expenses: The Partnership
generates its revenues from charterers for the charterhire of its
vessels. Vessels are chartered using either time charters or
bareboat charters. A time charter is a contract for the use of
a vessel for a specific period of time and a specified daily charterhire
rate, which is generally payable monthly in advance. Some of
the Partnership’s time charters also include profit sharing provisions,
under which the Partnership can realize additional revenues in the event
that spot rates are higher than the base rates in these time charters. A
bareboat charter is a contract in which the vessel owner provides the
vessel to the charterer for a fixed period of time at a specified daily
rate, which is generally payable monthly in advance, and the customer
generally assumes all risk and costs of operation during the lease
term.
|
|
|
All
of the Partnership’s time charters and bareboat charters are classified as
operating leases. Revenues under operating lease arrangements are
recognized when a charter agreement exists, charter rate is fixed and
determinable, the vessel is made available to the lessee, and collection
of the related revenue is reasonably assured. Revenues are recognized
ratably on a straight line basis over the period of the respective time or
bareboat charter agreement in accordance with SFAS No. 13 “Accounting for
Leases”, paragraph 19b. Revenues from profit sharing arrangements in time
charters represent 50% portion of time charter equivalent (voyage income
less direct expenses divided by operating days), that exceeds the agreed
base rate and are recognized in the period earned. Deferred revenue
represents cash received in advance of being earned. The portion of the
deferred revenue that will be earned within the next twelve months is
classified as current liability and the rest as long term
liability.
|
F-12
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
2.
|
Significant
Accounting Policies - Continued
|
|
(d)
|
Accounting
for Revenue, Voyage and Operating Expenses -
Continued
|
Vessel
voyage expenses are direct expenses to voyage revenues and primarily consist of
commissions, port expenses, canal dues and bunkers. Commissions are expensed
over the related charter period and all the other voyage expenses are expensed
as incurred. Under the Partnership’s time and bareboat charter agreements, all
voyages expenses, except commissions, are assumed by the charterer. With the
exception of Morgan Stanley Capital Group Inc. time charter agreements where the
charterer is responsible for the commissions, we are liable for commissions on
all of our time and bareboat charter agreements.
Vessel
operating expenses presented in the supplemental consolidated financial
statements consist of management fees payable to the Manager. The Manager
provides commercial and technical services such as crewing, repairs and
maintenance, insurance, stores, spares, lubricants through a management
agreement for a fixed daily fee of $5.5 per vessel for the time chartered
vessels. The fee also includes expenses related to the next scheduled special or
intermediate survey as applicable and related drydocking for each
vessel.
For
bareboat chartered vessels, the bareboat charterer is responsible for operating
expenses such as crewing, repairs and maintenance, insurance, stores, spares,
lubricants and the Partnership pays a fixed daily fee of $0.3 to the Manager for
expenses mainly to cover compliance costs.
Vessel
operating expenses presented in the supplemental predecessor combined financial
statements consist of all expenses relating to the operation of the vessels
including crewing, repairs and maintenance, insurances, stores and lubricants,
management fees and miscellaneous expenses. Vessel operating expenses are
expensed as incurred.
|
(e)
|
Foreign
Currency Transactions: The functional currency of the Partnership
is the U.S. dollar because the Partnership’s vessels operate in
international shipping markets that utilize the U.S. dollar as the
functional currency. The accounting records of the Partnership are
maintained in U.S. dollars. Transactions involving other
currencies during the year are converted into U.S. dollars using the
exchange rates in effect at the time of the transactions. At
the balance sheet dates, monetary assets and liabilities, which are
denominated in currencies other than the U.S. dollar, are translated into
the functional currency using the exchange rate at that
date. Gains or losses resulting from foreign currency
transactions and translations are included in foreign currency gains and
losses, net in the accompanying supplemental consolidated and predecessor
combined statements of income.
|
|
(f)
|
Cash and
Cash Equivalents: The Partnership considers highly liquid
investments such as time deposits and certificates of deposit with an
original maturity of three months or less to be cash
equivalents.
|
|
(g)
|
Restricted
Cash: In order for the Partnership to comply with the
debt covenants under its credit facility it must maintain minimum cash at
bank available at all times. Such amount is considered by the Partnership
as restricted cash. As of December 31, 2007, restricted cash amounted to
$3,250 and is presented under other non current
assets.
|
F-13
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
2.
|
Significant
Accounting Policies - Continued
|
|
(h)
|
Trade
Accounts Receivable: The amount shown as trade accounts receivable
primarily consists of profit share earned but not yet collected. At each
balance sheet date all potentially uncollectible accounts are assessed
individually for purposes of determining the appropriate provision for
doubtful accounts. No allowance for doubtful accounts was established at
December 31, 2007 and 2006.
|
|
|
(i)
|
Inventories:
Inventories consist of consumable bunkers, lubricants, spares and stores
and are stated at the lower of cost or market value. The cost is
determined by the first-in, first-out
method.
|
|
(j)
|
Fixed
Assets: Fixed assets consist of vessels and vessels under
construction. The vessels are stated at cost, less accumulated
depreciation. Vessel cost consists of the contract price for
the vessel and any material expenses incurred upon their construction
(improvements and delivery expenses, on-site supervision costs incurred
during the construction periods, as well as capitalized interest expense
during the construction period). The cost of each of the Partnership’s
vessels is depreciated beginning when the vessel is ready for its intended
use, on a straight-line basis over the vessels’ remaining economic useful
life, after considering the estimated residual value. Management estimates
the useful life to be 25 years.
|
|
(k)
|
Impairment
of Long-lived Assets: The Partnership applies SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS
144”) which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 requires that
long-lived assets and certain identifiable intangibles held and used or
disposed of by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets
may not be recoverable. An impairment loss for an asset held for use is
recognized when the estimate of undiscounted cash flows expected to be
generated by the use and eventual disposition of the asset is less than
its carrying amount. Measurement of the impairment loss is based on the
fair value of the asset. The Partnership regularly assesses whether
impairment indicators are present. No impairment loss was recorded for any
of the periods presented.
|
|
(l)
|
Deferred
Finance Charges: Fees paid to lenders for obtaining new loans or
refinancing existing loans are capitalized as deferred finance charges and
amortized to interest expense over the term of the respective loan using
the effective interest rate method.
|
|
(m)
|
Pension and
Retirement Benefit Obligations: The vessel-owning companies
included in the supplemental consolidated and predecessor combined
financial statements employ the crew on board under short-term contracts
(usually up to seven months) and accordingly, they are not liable for any
pension or post retirement
benefits.
|
|
(n)
|
Concentration
of Credit Risk: Financial instruments, which potentially subject
the Partnership to significant concentrations of credit risk, consist
principally of cash and cash equivalents and trade accounts receivable.
The Partnership places its cash and cash equivalents, consisting mostly of
deposits, with financial institutions with high credit ratings. The
Partnership performs periodic evaluations of the relative credit standing
of those financial institutions. Most of the Partnerships’ and
Predecessors’ revenues were derived from a few
charterers.
|
|
|
For
the year ended December 31, 2007 British Petroleum Shipping Limited and
Morgan Stanley Capital Group Inc. accounted for 58% and 24% of
Partnership’s and Predecessors’ revenues, respectively. For the year ended
December 31, 2006, British Petroleum Shipping Limited, Morgan Stanley
Capital Group Inc., Canterbury Tankers Inc., and Shell international
Trading & Shipping Company Ltd. accounted for 42%, 18%, 20% and 20% of
the Predecessors’ revenue, respectively. For the year ended December 31,
2005, the charterers Canterbury Tankers Inc., Shell International Trading
& Shipping Company Ltd. and Pacific Interlink accounted for 45% 35%
and 10% of the Predecessors’ revenues, respectively. The Partnership does
not obtain rights of collateral from its charterers to reduce its credit
risk.
|
F-14
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
2.
|
Significant
Accounting Policies - Continued
|
|
(o)
|
Fair Value
of Financial Instruments: The carrying value
of trade receivables, accounts payable, current accrued liabilities and
interest rates swaps approximates fair value. The fair values of long-term
variable rate bank loans approximate the recorded values, due to their
variable interest rates.
|
|
(p)
|
Interest
Rate Swap Agreements: The Partnership designates its
derivatives based upon the criteria established by SFAS No. 133 Accounting
for derivative instruments and hedging activities which establish
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS 133, as amended by Statement of Financial
Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities—An amendment of SFAS 133, (SFAS
138) and Statement of Financial Accounting Standards No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, (SFAS 149), requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The accounting for the
changes in the fair value of the derivative depends on the intended use of
the derivative and the resulting designation. For a derivative
that does not qualify as a hedge, the change in fair value is recognized
at the end of each accounting period in the income
statement. For a derivative that qualifies as a cash flow
hedge, the change in fair value is recognized at the end of each reporting
period in other comprehensive income/ (loss) (effective portion) until the
hedged item is recognized in income. The ineffective portion of a
derivative’s change in fair value is immediately recognized in the income
statement.
The Partnership entered into eight
interest rate swap agreements that were transferred from CMTC through
novation agreements on April 4, 2007, (“Novation Date”) in order to reduce
its exposure to cash flow risks from fluctuating interest rates for an
amount of $326,000 arising from the revolving credit facility that the
Partnership entered into on March 22, 2007. These swap agreements fix the
LIBOR portion of interest rate at 5.1325% for a period up to June 29,
2012. The Partnership at the Novation Date recognized a loss of $3,763 in
its income statement which resulted from the valuation of the eight
interest rate swap agreements.
On September 20, 2007 the Partnership
entered into an additional interest rate swap agreement in order to reduce
its exposure to cash flow risks from fluctuating interest rates for an
amount of $20,500 arising from the drawn-down under the existing revolving
credit facility for the purchase of “M/T Attikos”. The swap
agreement fixes the LIBOR portion of interest rate at 4.925% for a period
up to June 29, 2012.
As of December 31, 2007 the Partnership’s
nine interest rate swaps qualify as a cash flow hedge and the changes in
their fair value are recognized in accumulated other comprehensive
(loss).
|
|
Bank
|
Currency
|
Notional
Amount
|
Fixed
rate
|
Trade
date
|
Value
date
|
Maturity
date
|
Fair
market
value
as of
December
31, 2007
|
|
HSH
Nordbank AG
|
USD
|
30,000
|
5.1325%
|
02.20.2007
|
04.04.2007
|
06.29.2012
|
$(1,246)
|
|
HSH
Nordbank AG
|
USD
|
56,000
|
5.1325%
|
02.20.2007
|
05.08.2007
|
06.29.2012
|
(2,326)
|
|
HSH
Nordbank AG
|
USD
|
56.000
|
5.1325%
|
02.20.2007
|
07.13.2007
|
06.29.2012
|
(2,326)
|
|
HSH
Nordbank AG
|
USD
|
56,000
|
5.1325%
|
02.20.2007
|
09.28.2007
|
06.29.2012
|
(2,326)
|
|
HSH
Nordbank AG
|
USD
|
56,000
|
5.1325%
|
02.20.2007
|
09.20.2007
|
06.29.2012
|
(2,266)
|
|
HSH
Nordbank AG
|
USD
|
24,000
|
5.1325%
|
02.20.2007
|
01.15.2008
|
06.29.2012
|
(1,004)
|
|
HSH
Nordbank AG
|
USD
|
24,000
|
5.1325%
|
02.20.2007
|
01.15.2008
|
06.29.2012
|
(1,004)
|
|
HSH
Nordbank AG
|
USD
|
24,000
|
5.1325%
|
02.20.2007
|
08.15.2008
|
06.29.2012
|
(891)
|
|
HSH
Nordbank AG
|
USD
|
20,500
|
4.9250%
|
09.20.2007
|
09.24.2007
|
06.29.2012
|
(662)
|
|
Total
derivative instruments fair value
|
$(14,051)
|
||||||
F-15
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
2.
|
Significant
Accounting Policies - Continued
|
|
(q)
|
Net Income
(loss) Per Limited Partner Unit: Basic and diluted net income per
limited partner unit is calculated by dividing limited partners’ interest
in net income, less pro forma general partner incentive distributions
under EITF Issue No. 03-6, “Participating Securities and the Two — Class
Method Under FASB Statement No. 128”, or EITF 03-6, by the
weighted-average number of outstanding limited partner units during the
period (Note 12). Diluted net income per limited partner unit reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised. The Partnership had no dilutive
securities outstanding during the year ended December 31, 2007.
Limited partners’ interest in net income excludes results of operations of
Initial vessels and of the vessel owning companies of M/T Attikos, M/T
Amore Mio II and M/T Aristofanis prior to vessel contribution to the
Partnership.
|
|
(r)
|
Income
Taxes: The Partnership is
not subject to the payment of any income tax on its income. Instead, a tax
is levied based on the tonnage of the vessels, which is included in
operating expenses (Note 9).
|
|
(s)
|
Segment
Reporting: The Partnership
reports financial information and evaluates its operations by charter
revenues and not by the length or type of ship employment for its
customers, i.e. time or bareboat charters. The Partnership does not use
discrete financial information to evaluate the operating results for each
such type of charter. Although revenue can be identified for these types
of charters, management cannot and does not identify expenses,
profitability or other financial information for these charters. As a
result, management, including the chief operating decision maker, reviews
operating results solely by revenue per day and operating results of the
fleet and thus the Partnership has determined that it operates in only one
reportable segment. Furthermore, when
the Partnership charters a vessel to a charterer, the charterer is free to
trade the vessel worldwide and, as a result, the disclosure of geographic
information is impracticable.
|
|
(t)
|
Recent
Accounting Pronouncements:
In
September 2006 the FASB issued SFAS No. 157, “Fair Value Measurement”
(“SFAS 157”). SFAS 157 addresses standardizing the measurement
of fair value for companies that are required to use a fair value measure
of recognition for recognition or disclosure purposes. The FASB defines
fair value as “the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measure date.” SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007. The Partnership is currently evaluating the impact, if
any, of SFAS 157 on its financial position, results of operations and
cash flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No.
159”). SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value, with changes
in fair value recognized in earnings. SFAS No. 159 is effective
as of the beginning of the first fiscal year that begins after November
15, 2007. On January 1, 2008 the Partnership did not make any fair value
elections.
|
F-16
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
2.
|
Significant
Accounting Policies - Continued
|
|
(t)
|
Recent
Accounting Pronouncements -
Continued:
|
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
No. 141(R)”). SFAS No. 141(R) supersedes SFAS No. 141 and establishes
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquired. The
Statement also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This Statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. An entity may not apply it before that date. The effective
date of this Statement is the same as that of the related FASB Statement No.
160, Non controlling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51” (“SFAS No. 160”). The Partnership is
currently evaluating the effect, if any; this statement may have on future
financial statements.
In
December 2007, the FASB issued SFAS No. 160. This Statement establishes
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. The guidance will become
effective as of the beginning of a company’s fiscal year beginning after
December 15, 2008. The Partnership is currently evaluating the effect that this
statement may have on future financial statements.
In March
2008, the FASB issued SFAS Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Partnership is currently evaluating the effect that this
statement may have on future financial statements.
F-17
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
3.
|
Transactions
with Related Parties
|
Since
April 4, 2007, the Partnership and its subsidiaries, have related party
transactions only with the Manager, a wholly-owned subsidiary of CMTC, which
provides management services to the Partnership for a total daily fixed fee of
$5.5 and $0.3 for the time and bare boat chartered vessels respectively. The
daily fixed fee for the time chartered vessels also includes expenses related to
the next scheduled special or intermediate survey as applicable and related
drydocking for each vessel. Total management fees charged by the
Manager for the period from April 4, to December 31, 2007 were $11,573 and are
included in “Vessel operating expenses – related party” in the supplemental
consolidated income statement.
On April
4, 2007, the Partnership entered into an administrative services agreement with
the Manager, pursuant to which the Manager will provide certain administrative
management services to the Partnership such as accounting, auditing, legal,
insurance, clerical, and other administrative services. The Partnership
reimburses the Manager for reasonable costs and expenses incurred in connection
with the provision of these services within 15 days after the Manager
submits to the Partnership an invoice for such costs and expenses, together with
any supporting detail that may be reasonably required. The Manager did not
charge any fees in connection with this agreement for the year ended December
31, 2007.
However,
the Manager invoiced the Partnership for payments that it made on the
Partnership’s behalf. As of December 31, 2007, the total outstanding amount due
to Manager was $28.
The
vessel owning companies of the Initial Vessels and the vessel owning company of
M/T Attikos had related party transactions with CMTC and its subsidiaries before
their acquisition by CPP as well as the vessel owning companies of M/T
Aristofanis and M/T Amore Mio II mainly for the following reasons:
| ● | Loan agreements that CMTC entered into, acting as the borrower, for the financing of the construction of five of the Initial Vessels, | |
|
●
|
Manager
payments on behalf of the vessel owning companies and hire receipts from
charterers,
|
|
|
●
|
Manager
fixed monthly fees, (which were based on agreements with different terms
and conditions than those in the Partnership’s administrative and
management agreements) for providing services such as chartering,
technical support and maintenance, insurance, consulting, financial and
accounting services, (Note 8),
|
|
|
●
|
Funds
advanced/received to/from entities with common ownership,
and
|
|
|
●
|
Loan
draw downs in excess of the advances made to the shipyard by the Manager
for the funding of vessels’ extra
costs.
|
F-18
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
3.
|
Transactions
with Related Parties - Continued
|
Balances
with related parties consisted of the following:
|
As
of
December
31, 2007
|
Predecessor
Combined
Balances
as
of
December
31, 2006
|
|||||||
|
I. Due
From:
|
||||||||
|
Vessels’
operation (a)
|
$ | 4,262 | $ | 6,493 | ||||
|
Manager
- loan surplus (b)
|
– | 500 | ||||||
|
Other
affiliated companies (c)
|
– | 25 | ||||||
|
Total
due from
|
$ | 4,262 | $ | 7,018 | ||||
|
II. Due
To:
|
||||||||
|
CMTC
- loans current portion (d)
|
$ | 5,933 | $ | 8,042 | ||||
|
CMTC
- loans long-term portion (d)
|
62,984 | 87,498 | ||||||
|
Manager
- payments on behalf of vessel-owning companies (e)
|
– | 1,867 | ||||||
|
Manager
– payments on behalf of Capital Product Partners
L.P. (f)
|
28 | – | ||||||
|
Other
affiliated companies (c)
|
37 | 62 | ||||||
|
Total
due to
|
$ | 68,982 | $ | 97,469 | ||||
|
(a)
|
Vessels’ Operation: The
balance in this line-item relates to funds that are received from
charterers less disbursements made by the Manager on behalf of the
vessel-owning subsidiaries with operations. As of December 31,
2007 and December 31, 2006, this line item balance amounted to $4,262 and
$6,493 respectively.
|
|
(b)
|
Manager -
Loan Surplus: The balance in this line-item related to the loan
proceeds of M/T Axios in excess of advances made to the shipyard by the
Manager. This excess was used in 2007 for the vessel’s extra costs in
accordance with the loan agreement.
|
|
(c)
|
Other
Affiliated Companies: The balance in this line-item related to
funds advanced/received to/from entities with common
ownership.
|
|
(d)
|
CMTC
Loans: For the financing of the construction of the M/T Atlantas,
M/T Aktoras, M/T Aiolos, M/T Avax M/T Assos, and the acquisition of M/T
Amore Mio II CMTC was the borrower under loan agreements with four
separate banks and the vessel-owning companies acted as guarantors under
these loans (related party loans).
|
F-19
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
3.
|
Transactions
with Related Parties - Continued
|
As of
December 31, 2007, and 2006 the balance on these loans was $68,917 and $95,540
respectively.
A summary
of the CMTC loans is shown below:
|
|
|
Vessel
|
As
of
December
31, 2007
|
Predecessor
Combined Balances
as
of
December
31, 2006
|
||||||
|
|
|
|
|
|||||||
|
(i)
|
Issued
on November 25,
2005,
maturing in
April,
2017
|
M/T
Atlantas
|
– | $ | 25,190 | |||||
|
(ii)
|
Issued
on December 23,
2005,
maturing in
July,
2016
|
M/T
Aktoras
|
– | 25,283 | ||||||
|
(iii)
|
Issued
on October 18,
2005,
maturing in
February,
2017
|
M/T
Aiolos
|
– | 6,920 | ||||||
|
(iv)
|
Issued
on December 23,
2005,
maturing in
May,
2016
|
M/T
Assos
|
– | 30,477 | ||||||
|
(v)
|
Issued
on October 18,
2005,
maturing in
January,
2017
|
M/T
Avax
|
– | 7,670 | ||||||
|
(vi)
|
Issued
on July 31,
2007,
maturing on
September,
2017
|
M/T
Amore
Mio
II
|
68,917 | – | ||||||
|
|
Total
|
|
68,917 | $ | 95,540 | |||||
|
|
Less:
Current portion
|
|
5,933 | 8,042 | ||||||
|
|
Long-term
portion
|
|
62,984 | $ | 87,498 | |||||
F-20
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
3.
|
Transactions
with Related Parties - Continued
|
|
|
(d)
|
CMTC
Loans: - continued
|
|
|
All
of the above bank loans bore interest at LIBOR plus a margin between 90
and 95 basis points payable quarterly or semi-annually. Each bank
loan is secured by a first preferred mortgage on the respective vessel or
vessels and a general assignment of the earnings, insurances, mortgage
interest insurance, and requisition compensation of the respective vessel
or vessels. The weighted average interest rate for the years ended
December 31, 2007 and 2006 was 5.81% and 6.18% respectively. Interest
expense for related party loans amounted to $3,594, $3,144 and $81 for the
years ended December 31, 2007, 2006 and 2005
respectively.
|
The loan
agreements contained other customary ship finance covenants, including
restrictions as to: changes in management and ownership of the mortgaged
vessels, the incurrence of additional indebtedness, the mortgaging of vessels,
the minimum cash requirement, as well as minimum requirements as to the
applicable vessels’ market value and insured value in relation to the
outstanding balance of the applicable loan. Also the borrower may pay dividends
or make distributions when no event of default has occurred and the payment of
such dividend or distribution has not resulted in a breach of any of the
financial covenants. As of December 31, 2007 and 2006, we were in compliance
with all debt covenants.
On April
4, 2007, following completion of the IPO, CMTC settled all outstanding loan
balances on the M/T Atlantas, M/T Aktoras, M/T Aiolos, M/T Avax and M/T Assos,
amounting to $133,958, with the proceeds of the IPO. These vessels were
contributed debt-free to the Partnership.
The
required annual loan payments to be made by CMTC for M/T Amore Mio II as of
December 31, 2007 are as follows:
|
Year
ending December 31
|
Bank
Loan Repayment Schedule
|
|||
|
2008
|
$ | 5,933 | ||
|
2009
|
5,933 | |||
|
2010
|
5,932 | |||
|
2011
|
5,685 | |||
|
2012
|
4,944 | |||
|
Thereafter
|
40,490 | |||
|
Total
|
$ | 68,917 | ||
|
(e)
|
Manager -
Payments on Behalf of Vessel-owning Companies: This payable
includes the settlement of vessel obligations related to pre-delivery
expenses and amounted to $1,867 as of December 31,
2006.
|
|
(f)
|
Manager -
Payments on Behalf of Capital Product Partners L.P.: Following the
IPO, the Manager is invoicing the Partnership for payments that it makes
on behalf of the Partnership and its subsidiaries. The Partnership’s total
outstanding balance due to Manager as of December 31, 2007 amounted to
$28.
|
F-21
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
4.
|
Vessels
and Vessels under Construction
|
An
analysis of vessels and vessels under construction is as follows:
|
|
As
of
December
31, 2007
|
Predecessor
Combined
Balances
as
of
December
31, 2006
|
||||||
|
|
|
|
||||||
|
Cost:
|
|
|||||||
|
Vessels
|
$ | 544,836 | $ | 193,342 | ||||
|
Advances
for vessels under construction
|
29,225 | |||||||
|
Total
cost
|
544,836 | 222,567 | ||||||
|
Accumulated
depreciation
|
(19,637 | ) | (4,367 | ) | ||||
|
Vessels,
net
|
525,199 | $ | 188,975 | |||||
|
Vessels
under construction
|
$ | – | $ | 29,225 | ||||
The
Partnership’s vessels (M/T Atlantas, M/T Aktoras, M/T Agisilaos, M/T Arionas,
M/T Aiolos, M/T Avax, M/T Axios, M/T Attikos, M/T Atrotos
M/T Akeraios, M/T Assos, M/T Apostolos, and M/T Anemos I), having total net book
value of $429,171 as of December 31, 2007 have been provided as collateral to
secure the revolving credit facility of up to $370,000.
In
addition M/T Aristofanis and M/T Amore Mio II having net book value of $96,028
as of December 31, 2007 have been provided as collateral to secure their
loans.
Capitalized
interest for the years ended December 31, 2007, 2006 and 2005 amounted to $223,
$1,455 and $81, respectively.
On May 8,
July 13, September 20, September 24, and September 28, 2007, the Partnership
acquired from CMTC the shares of vessel owning companies of M/T Atrotos, M/T
Akeraios, M/T Apostolos, M/T Attikos, and M/T Anemos I, respectively, for a
total purchase price of $247,000. The vessels have been recorded in the
Partnership’s financial statements at the amount of $166,134 which represents
net book value of vessels reflected in CMTC consolidated financial statements at
the time of transfer to the Partnership. The amount of the purchase price in
excess of CMTC’s basis of the assets of $80,866 was recognized as a reduction of
partners’ capital and is presented as a financing activity in the statement of
cash flows.
F-22
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
5.
|
Long-Term
Debt
|
Long-term
debt consists of the following:
|
Bank
Loans
|
Vessel/Entity
|
As
of
December
31, 2007
|
Predecessor
Combined
Balances
as
of
December
31, 2006
|
|||||||
|
(i)
|
Issued
on October 31, 2006
maturing
in October 2016
|
M/T
Arionas
|
$ | – | $ | 26,180 | ||||
|
(ii)
|
Issued
on August 14, 2006
maturing
in August 2016
|
M/T
Agisilaos
|
– | 25,740 | ||||||
|
(iii)
|
Pre-delivery
facility issued on July 18, 2006 and refinanced on February 28, 2007
(Vessel’s delivery date)
|
M/T
Axios
|
– | 5,613 | ||||||
|
(iv)
|
Issued
on March 4, 2005
maturing
March 4, 2015
|
M/T
Attikos
|
– | 7,750 | ||||||
|
(v)
|
Issued
on April 4, 2007
maturing
on June 30, 2017
|
Capital
Product Partners L.P.
|
274,500 | – | ||||||
|
(vi)
|
Issued
on June 21, 2005 maturing on June 21, 2015.
|
M/T
Aristofanis
|
8,080 | 8,848 | ||||||
|
Total
|
$ | 282,580 | $ | 74,131 | ||||||
|
Less:
Current portion
|
768 | 6,797 | ||||||||
|
Long-term
portion
|
$ | 281,812 | $ | 67,334 | ||||||
On April
4, 2007, the M/T Arionas’, M/T Agisilaos’ and M/T Axios’ outstanding loan
balances, which amounted to $79,885, were settled in full by the offering
proceeds (Note 1). Furthermore, on September 6, 2007, the M/T Attikos
outstanding loan balance, which amounted to $7,000, was fully paid by CMTC.
Interest expense for the M/T Agisilaos, M/T Axios, M/T Arionas, M/T Attikos and
M/T Aristofanis amounted to $1,856, $1,915 and $640 for the years ended December
31, 2007, 2006 and 2005 respectively.
In June
2005 CMTC entered into a loan agreement for the financing of the acquisition of
the M/T Aristofanis for a total amount of $10,000. The loan is payable in twenty
consecutive semi-annual installments plus a balloon payment due in June
2015.
On March
22, 2007, the Partnership entered into a loan agreement with a syndicate of
financial institutions including HSH Nordbank AG, Hamburg for a revolving credit
facility, of up to $370 million for the financing of the acquisition cost, or
part thereof, up to fifteen medium range product tankers. The loan
agreement was amended on September 19, 2007 to include the financing of the
acquisition cost of “M/T Attikos”. The credit facility (as amended) is divided
into four tranches. Tranche A amounting to $30,000 was drawn on April 4,
2007. Tranche B amounting to $224,000 was drawn in four installments
of $56,000 each on May 8, July 13, September 20, and September 28 2007. Tranche
C amounting to $86,000 will be utilized to partly finance the acquisition of the
last three “Committed Vessels” during 2008, and Tranche D amounting to $30,000
of which $20,500 have been drawn-down on September 24, 2007 was utilized to
partly finance the acquisition of M/T Attikos.
As of
December 31, 2007, the Partnership recorded interest expense of $7,400 relating
to its revolving credit facility. As of December 31, 2007 $86,000 from Tranche C
and $9,500 from Tranche D of the revolving credit facility had not been drawn
down. Loan commitment fees are calculated at 0.20% p.a. on any amount not
drawn-down and are paid quarterly.
F-23
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
5.
|
Long-Term
Debt - Continued
|
Borrowings
under this credit facility are jointly and severally secured by the owning
companies of the fifteen vessels (Initial and Committed Vessels) and the M/T
Attikos and bear interest at a rate of 0.75% per annum over US$
LIBOR. The loan will be repaid in twenty equal consecutive three
month installments commencing on September 30, 2012 plus a balloon payment due
in June, 2017.
The
credit facility has a general assignment of the earnings, insurances and
requisition compensation of the respective vessel or vessels. Each also requires
additional security, including: pledge and charge on current account; corporate
guaranteed from each of the sixteen vessel owning companies, and mortgage
interest insurance. Following the swap agreements that the Partnership entered
into upon the offering completion (Note 2) the interest rate for period from
April 4, 2007 to December 31, 2007 was fixed at 5.1325% plus a margin of 0.75%
for tranches A and B and 4.9250% plus a margin of 0.75% for tranche D. The fixed
interest rate of 5.8825% and 5.6750% will be valid up to June 29,
2012.
As of
December 31, 2007 the weighted average interest rate for the M/T Aristofanis
loan was 6.25%. As of December 31, 2006 the weighted average interest rate was
5.96%.
The loan
agreement also contains other customary ship finance covenants, including
restrictions as to: changes in management and ownership of the mortgaged
vessels, the incurrence of additional indebtedness, the mortgaging of vessels,
the ratio of EBITDA to Net Interest Expenses shall be no less than 2:1, minimum
cash requirement of $500 per vessel of which 50% may be constituted by undrawn
commitments under the revolving facility as well as minimum requirements as to
the applicable vessels’ market value and insured value in relation to the
outstanding balance of the applicable loan. Also the vessel owning companies may
pay dividends or make distributions when no event of default has occurred and
the payment of such dividend or distribution has not resulted in a breach of any
of the financial covenants. As of December 31, 2007, the Partnership was in
compliance with all debt covenants.
The
required annual loan payments to be made subsequent to December 31, 2007 are as
follows:
|
Year
ending December 31
|
Bank
Loan Repayment Schedule
|
|||
|
2008
|
$ | 768 | ||
|
2009
|
768 | |||
|
2010
|
768 | |||
|
2011
|
768 | |||
|
2012
|
14,493 | |||
|
Thereafter
|
265,015 | |||
|
Total
|
$ | 282,580 | ||
F-24
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
6.
|
Accrued
Other Liabilities
|
Accrued
liabilities consist of the following:
|
As
of
December
31, 2007
|
Predecessor
Combined
Balances
as
of
December
31, 2006
|
|||||||
|
Accrued
wages and crew expenses
|
96 | 296 | ||||||
|
Accrued
other operating expenses
|
39 | 220 | ||||||
|
Accrued
voyage expenses and commission
|
471 | 81 | ||||||
|
Accrued
insurance
|
24 | 30 | ||||||
|
Accrued
general and administrative
|
63 | – | ||||||
|
Total
|
$ | 693 | $ | 627 | ||||
|
7.
|
Deferred
Charges
|
Deferred
finance charges are analyzed as follows:
|
Deferred
Finance
Charges
|
||||
|
Predecessor
Combined Balance as of January 1, 2005
|
– | |||
|
Additions
|
425 | |||
|
Amortization
|
(9 | ) | ||
|
Predecessor
Combined Balance as of December 31, 2005
|
$ | 416 | ||
|
Additions
|
285 | |||
|
Amortization
|
(46 | ) | ||
|
Predecessor
Combined Balance as of December 31, 2006
|
655 | |||
|
Amortization
for the period from January 1, 2007 to April 3, 2007 for Initial
Vessels
|
(20 | ) | ||
|
Amortization
for the period from January 1, 2007 to September 23, 2007 for M/T
Attikos
|
(18 | ) | ||
|
Deferred
loan fees assumed by CMTC on April 03, 2007
|
(594 | ) | ||
|
Additions
M/T Amore Mio II loan fees
|
70 | |||
|
Amortization
M/T Amore Mio II and M/T Aristofanis loan fees
|
(10 | ) | ||
|
Additions
(new credit facility of up to $370 million)
|
1,022 | |||
|
Amortization
of new credit facility loan fees
|
(74 | ) | ||
|
Supplemental
Consolidated Balance as of December 31, 2007
|
$ | 1,031 | ||
F-25
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
7.
|
Deferred
Charges - Continued
|
Deferred
dry – docking charges are analyzed as follows:
|
Deferred
Dry
Docking
|
||||
|
Predecessor
Combined Balance as of December 31, 2006
|
– | |||
|
Addition
Dry Docking of M/T Attikos
|
921 | |||
|
Amortization
for the period from July to September 23, 2007
|
(92 | ) | ||
|
Deferred
Dry Docking assumed by CMTC on September 23, 2007
|
(829 | ) | ||
|
Balance
as of December 31, 2007
|
$ | – | ||
|
8.
|
Voyage
Expenses and Vessel Operating
Expenses
|
Voyage
expenses and vessel operating expenses consist of the following:
|
For
the year ended December 31,
|
||||||||||||
|
2007
(Note
1)
|
2006
(Note
1)
|
2005
(Note
1)
|
||||||||||
|
Voyage
expenses
|
$ | 3,553 | $ | 427 | $ | 555 | ||||||
|
Voyage
expenses consist of:
|
||||||||||||
|
Commissions
|
1,010 | 392 | 140 | |||||||||
|
Port
expenses
|
1,192 | – | 218 | |||||||||
|
Bunkers
|
1,276 | – | 191 | |||||||||
|
Other
|
75 | 35 | 6 | |||||||||
|
Total
|
3,553 | 427 | 555 | |||||||||
|
Vessel
operating expenses
|
6,287 | 5,721 | 3,285 | |||||||||
|
Vessel
operating expenses – related parties (Note 3)
|
12,688 | 1,124 | 360 | |||||||||
|
Total
|
18,975 | 6,845 | 3,645 | |||||||||
|
Vessel
operating expenses consist of:
|
||||||||||||
|
Crew
costs and related costs
|
3,408 | 2,962 | 1,191 | |||||||||
|
Insurance
|
423 | 510 | 162 | |||||||||
|
Spares,
repairs, maintenance and other
|
1,305 | 988 | 1,239 | |||||||||
|
Stores
and lubricants
|
883 | 1,009 | 578 | |||||||||
|
Management
fees (Note 3)
|
12,688 | 1,124 | 360 | |||||||||
|
Other
operating expenses
|
268 | 252 | 115 | |||||||||
|
Total
|
$ | 18,975 | $ | 6,845 | $ | 3,645 | ||||||
F-26
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
9.
|
Income
Taxes
|
Under the
laws of the countries of the vessel-owning subsidiaries’ incorporation and/or
vessels’ registration, these companies are not subject to tax on international
shipping income. However, they are subject to registration and tonnage taxes,
which have been included in vessel operating expenses in the accompanying
supplemental consolidated and predecessor combined statements of
income.
Based on
its current operations, the Partnership does not expect to have U.S. source
domestic transportation income. However, certain of the Partnership’s
activities give rise to U.S. Source International Transportation Income, and
future expansion of the Partnership’s operations could result in an increase in
the amount of U.S. source international transportation income, as well as give
rise to U.S. Source Domestic Transportation Income, all of which could be
subject to U.S. federal income taxation, unless the exemption from U.S. taxation
under Section 883 of the Code applies.
|
10.
|
Cash
Flow
|
The
following assets, liabilities and equity accounts were retained by CMTC on April
3, 2007 and September 23, 2007, when the shares of the initial vessels’ owning
companies and M/T Attikos owning company were transferred from CMTC to the
Partnership respectively (Note 1). The cash flow for the year ended December 31,
2007 is adjusted accordingly to exclude the following assets, liabilities and
equity accounts as they did not result in cash inflows or outflows in
supplemental consolidated and predecessor combined financial
statements:
|
Balances
assumed
by
CMTC on September 23, 2007
|
Balances
assumed
by
CMTC on
April
03, 2007
|
|||||||
|
Cash
and cash equivalents
|
$ | 2,251 | ||||||
|
Trade
receivables
|
$ | 118 | 1,922 | |||||
|
Insurance
claims
|
1 | 70 | ||||||
|
Due
from related parties
|
- | 7,598 | ||||||
|
Prepayments
and other
|
116 | 241 | ||||||
|
Inventories
|
54 | 274 | ||||||
|
Deferred
charges
|
829 | 594 | ||||||
|
Total
assets
|
1,118 | 12,950 | ||||||
|
Trade
accounts payable
|
651 | 1,744 | ||||||
|
Accrued
interest and other liabilities
|
273 | 570 | ||||||
|
Due
to related parties
|
5,153 | 364 | ||||||
|
Deferred
revenue
|
228 | 4,985 | ||||||
|
Long
term debt
|
- | 213,843 | ||||||
|
Total
liabilities
|
6,305 | 221,506 | ||||||
|
Net
liabilities assumed by CMTC
|
5,187 | 208,556 | ||||||
|
Contribution
to the Partnership
|
(9,064 | ) | (218,475 | ) | ||||
|
Retained
earnings assumed by CMTC
|
3,877 | 9,919 | ||||||
|
Net Partners’
Capital / Stockholders’ Equity contributed by CMTC
|
$ | (5,187 | ) | $ | (208,556 | ) | ||
F-27
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
10.
|
Cash
Flow - Continued
|
The cash
and cash equivalents of $2,251 as of April 3, 2007 is presented as cash dividend
in the accompanying supplemental consolidated and predecessor combined statement
of cash flows for the year ended December 31, 2007.
|
11.
|
Partnership
Capital and Distributions
|
General:
The partnership agreement requires that within approximately 45 days after the
end of each quarter, beginning with the quarter ending June 30, 2007, all of the
Partnership’s available cash will be distributed to unitholders of record on the
applicable record date.
Definition of
Available Cash: Available Cash, for each fiscal quarter,
consists of all cash on hand at the end of the quarter:
|
●
|
less
the amount of cash reserves established by our board of directors
to:
|
||
|
●
|
provide
for the proper conduct of Partnership’ s business (including reserves for
future capital expenditures and for our anticipated credit
needs);
|
||
|
●
|
comply
with applicable law, any of Partnership’s debt instruments, or
other agreements; or
|
||
|
●
|
provide
funds for distributions to Partnership’s unitholders and to general
partner for any one or more of the next four quarters;
|
||
|
●
|
plus
all cash on hand on the date of determination of available cash for the
quarter resulting from working capital borrowings made after the end of
the quarter. Working capital borrowings
are generally borrowings that are made under our credit agreement and in
all cases
are used solely for working capital purposes or to pay distributions to
partners.
|
||
General Partner
Interest and Incentive Distribution Rights: The General Partner has a 2%
interest in the Partnership as well as the incentive distribution
rights.
Incentive
distribution rights represent the right to receive an increasing percentage of
quarterly distributions of available cash from operating surplus after the
minimum quarterly distribution and the target distribution levels have been
achieved. The Partnership’s general partner as of December 31, 2007, holds the
incentive distribution rights.
The
following table illustrates the percentage allocations of the additional
available cash from operating surplus among the unitholders and general partner
up to the various target distribution levels. The amounts set forth under
‘‘Marginal Percentage Interest in Distributions’’ are the percentage interests
of the unitholders and general partner in any available cash from operating
surplus that is being distributed up to and including the corresponding amount
in the column ‘‘Total Quarterly Distribution Target Amount,’’ until available
cash from operating surplus we distribute reaches the next target distribution
level, if any. The percentage interests shown for the unitholders and general
partner for the minimum quarterly distribution are also applicable to quarterly
distribution amounts that are less than the minimum quarterly
distribution.
|
Marginal
Percentage Interest
in
Distributions
|
||||
|
Total
Quarterly
Distribution
Target Amount
|
Unitholders
|
General
Partner
|
||
|
Minimum
Quarterly Distribution
|
$0.3750
|
98%
|
2%
|
|
|
First
Target Distribution
|
up to |
$0.4313
|
98%
|
2%
|
|
Second
Target Distribution
|
above |
$0.4313 up
to $0.4688
|
85%
|
15%
|
|
Third
Target Distribution
|
above |
$0.4688 up
to $0.5625
|
75%
|
25%
|
|
Thereafter
|
above |
$0.5625
|
50%
|
50%
|
F-28
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
11.
|
Partnership
Capital and Distributions -
Continued
|
Subordinated
Units: All of the Partnership’s subordinated units are held by CMTC. The
Partnership agreement provides that, during the subordination period, the common
units will have the right to receive distributions of available cash from
operating surplus in an amount equal to the minimum quarterly distribution of
$0.3750 per quarter, plus any arrearages in the payment of the minimum quarterly
distribution on the common units from prior quarters, before any distributions
of available cash from operating surplus may be made on the subordinated units.
Distribution arrearages do not accrue on the subordinated units. The purpose of
the subordinated units is to increase the likelihood that during the
subordination period there will be available cash to be distributed on the
common units.
Distributions of Available Cash From
Operating Surplus During the Subordination Period: The Partnership agreement requires
that we will make distributions of available cash from operating
surplus for any quarter during the subordination period in the following
manner:
|
●
|
first,
98% to the common unitholders, pro rata, and 2.0% to our general partner,
until we distribute for each outstanding common unit an amount equal to
the minimum quarterly distribution for that quarter;
|
|
|
●
|
second,
98% to the common unitholders, pro rata, and 2.0% to our general partner,
until we distribute for each outstanding common unit an amount equal to
any arrearages in payment of the minimum quarterly distribution on the
common units for any prior quarters during the subordination
period;
|
|
|
●
|
third,
98% to the subordinated unitholders, pro rata, and 2.0% to our general
partner, until we distribute for each subordinated unit an amount equal to
the minimum quarterly distribution for that quarter;
and
|
Thereafter,
in the manner described in the above table under section “General Partner
Interest and Incentive Distribution Rights”.
Distributions of Available Cash From
Operating Surplus After the Subordination Period: Our Partnership agreement requires that we we will
make distributions of available cash from operating surplus for any quarter
after the subordination period in the following manner:
|
●
|
first,
98% to all unitholders, pro rata, and 2.0% to our general partner, until
we distribute for each outstanding unit an amount equal to the minimum
quarterly distribution for that quarter;
and
|
Thereafter,
in the manner described in the above table under section “General Partner
Interest and Incentive Distribution Rights”.
F-29
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
11.
|
Partnership
Capital and Distributions -
Continued
|
As of
December 31, 2007 our partners’ capital included the following
units:
|
As
of
December
31, 2007 |
||||
|
Common
units
|
13,512,500 | |||
|
Subordinated
units
|
8,805,522 | |||
|
Number
of limited partners’ units outstanding
|
22,318,022 | |||
|
General
Partners units
|
455,470 | |||
|
Total
partnership’s units
|
22,773,492 | |||
As of
December 31, 2007, the Partnership’s common units consisted of 13,512,500 units
held by third parties, 8,805,522 subordinated units held by CMTC and 455,470
general partner units held by CGP a wholly owned subsidiary of
CMTC.
On August
14, 2007, the Partnership paid a cash distribution of $0.3626 per unit to all
unitholders of record on August 6, 2007 which amounted to $8,258. That
distribution presented the pro-rata portion of our minimum quarterly
distribution of $0.3750 per unit for the period from April 4, 2007 to June 30,
2007 (88 days).
On
November 15, 2007, the partnership paid a cash distribution of $0.385 per unit
to all unitholders of record on November 7, 2007 which amounted to
$8,768.
|
12.
|
Net
Income (loss) Per Unit
|
As
required by EITF Issue No. 03-6, “Participating Securities and Two-Class Method
under FASB Statement No. 128”, “Earnings Per Share”, the general partner’s,
common unit holders’ and subordinated unitholders’ interests in net income are
calculated as if all net income for periods subsequent to April 4, 2007 were
distributed according to the terms of the Partnership’s 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 (Note 11), which is a contractually defined term
that generally means all cash on hand at the end of each quarter after
establishment of cash reserves established by the Capital Product Partners L.P.
board of directors to provide for the proper resources for the Partnership’s
business. Unlike available cash, net income is affected by non-cash items.
Limited partners’ interest in net income excludes results of operations of
Initial vessels and of the vessel owning companies of M/T Attikos, M/T Amore Mio
II and M/T Aristofanis prior to vessel contribution to the
Partnership.
Net
income for the period from April 4, 2007 to December 31, 2007 was $21,571. The
limited partners’ interest in net income for this period was
$21,140.
Under the
Partnership Agreement, the holder of the incentive distribution rights in the
Partnership, which is currently the CGP, assuming that there are no cumulative
arrearages on common unit distributions, has the right to receive an increasing
percentage of cash distributions after the minimum quarterly distribution (Note
11). During the period from April 4, 2007 to December 31, 2007 the Partnership’s
net income did not exceed the First Target Distribution level, and as a result,
the assumed distribution of net income did not result in the use of increasing
percentages to calculate the CGP’s interest in net income.
F-30
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
12.
|
Net
Income (loss) Per Limited Partner Unit -
Continued
|
Furthermore
the Partnership’s net income did not exceed the minimum required quarterly
distribution of $0.375 per common unit ($0.3626 prorated for the period from
April 4, 2007 to June 30, 2007) and consequently, the assumed distribution of
net income resulted in an unequal distribution of net income between the
subordinated unitholders and common unitholders.
The
amount of historical earnings per unit for the years ended December 31,
2005 and 2006 and for the periods from January 1, 2007 to April 3, 2007 for the
Initial vessels amounted to $5,328, January 1, 2007 to September 23, 2007 for
the M/T Attikos amounted to $928, and January 1, 2007 to December 31, 2007 for
the M/T Amore Mio II and the M/T Aristofanis amounted to $1,611 and 1,521
respectively, giving retroactive impact to the number of common and subordinated
units (and the 2% general partner interest) that were issued upon the completion
of the initial public offering on April 3, 2007 is not presented in the
Supplemental Predecessor Combined Statements of Income. A presentation of such
earnings per unit for the above periods would not be meaningful to investors as
the vessels comprising the initial fleet were under construction and only M/T
Attikos and M/T Aristofanis, which were delivered in January 2005 and in June
2005 respectively, were under operation for the year ended December 31, 2005. In
addition, during the year ended December 31, 2006 only seven of the fifteen
vessels presented in these supplemental consolidated and predecessor combined
financial statements as of December 31, 2007 were in operation.
M/T
Attikos and M/T Aristofanis were in operation for the full year ended December
31, 2006, while the other five vessels were in operation for only part of the
period (the vessels were delivered in April, May, July, August and November
2006, respectively) and a portion of the revenues generated during 2006 was
derived from charters with different terms and conditions from those in the
charters in place during 2007.
13. Commitments
and Contingencies
Commitments:
The
Partnership is party to legal proceedings, claims and complaints in the
ordinary course of its business but does not expect the outcome of any
proceedings, claims or complaints individually or in the aggregate, to have
a material adverse effect on the Partnership’s financial position, results of
operations or liquidity.
|
(a)
|
Vessel
Purchase Commitments: As of December 31, 2007 the Partnership had
outstanding purchase commitments relating to the acquisition of the three
remaining Committed Vessels amounting to $144,000. An analysis of the
purchase commitments is as follows:
|
|
Shipowning
Company
|
Date
of
Incorp.
|
DWT
|
Expected
Delivery
Date
|
Name
of
Vessel
Owned
by
Subsidiary
|
Vessel
Purchase
Price
|
|
Sorrel
Shipmanagement Inc.
|
02/07/2006
|
51,000
|
01/2008
|
M/T
Alexandros II
|
$48,000
|
|
Wind
Dancer Shipping Inc.
|
02/07/2006
|
51,000
|
06/2008
|
M/T
Aristotelis II
|
$48,000
|
|
Belerion
Maritime Co.
|
01/24/2006
|
51,000
|
08/2008
|
M/T
Aris II
|
$48,000
|
F-31
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
13. Commitments
and Contingencies - Continued
Commitments
- - Continued
|
(b)
|
Lease
Commitments: The vessel-owning subsidiaries owning the Initial and
Committed Vessels have entered into time and bareboat charter agreements,
which are summarized below:
|
|
Vessel
Name
|
Time
Charter
(T.C.)/
Bare
Boat
Charter
(B.C.)
(Years)
|
Commencement
of Charter
|
Charterer
|
Profit
Sharing(1)
|
Gross
Daily Hire Rate
(Without
Profit Sharing)
|
|
M/T
Atlantas
(British
Ensign)
|
5+3
B.C.
|
04/2006
|
B.P.
Shipping Ltd
|
–
|
$15.2
(5y)
&
$13.5
(3y)
|
|
M/T
Aktoras
(British
Envoy)
|
5+3
B.C.
|
07/2006
|
B.P.
Shipping Ltd
|
–
|
$15.2
(5y)
&
$13.5
(3y)
|
|
M/T
Agisilaos
|
2.5
T.C.
|
08/2006
|
B.P.
Shipping Ltd
|
50/50
|
$17.7
|
|
M/T
Arionas
|
2+0.5
T.C.
|
11/2006
|
B.P.
Shipping Ltd
|
50/50
|
$21.3
(2y)
&
$19.2
(0.5y)
|
|
M/T
Aiolos
(British
Emissary)
|
5+3
B.C.
|
03/2007
|
B.P.
Shipping Ltd
|
–
|
$15.2
(5y)
&
$13.5
(3y)
|
|
M/T
Avax
|
3
T.C.
|
06/2007
|
B.P.
Shipping Ltd
|
50/50
|
$20.8
|
|
M/T
Axios
|
3
T.C.
|
03/2007
|
B.P.
Shipping Ltd
|
50/50
|
$20.8
|
|
M/T
Assos
|
3
T.C.
|
11/2006
|
Morgan
Stanley
|
50/50
|
$20.0
|
|
M/T
Atrotos
|
3
T.C.
|
05/2007
|
Morgan
Stanley
|
50/50
|
$20.0
|
|
M/T
Akeraios
|
3
T.C.
|
07/2007
|
Morgan
Stanley
|
50/50
|
$20.0
|
|
M/T
Anemos I
|
3
T.C.
|
09/2007
|
Morgan
Stanley
|
50/50
|
$20.0
|
|
M/T
Apostolos
|
3
T.C.
|
09/2007
|
Morgan
Stanley
|
50/50
|
$20.0
|
|
M/T
Alexandros II
|
10
B.C.
|
01/2008
|
O.S.G.(2)
|
–
|
$13.0
|
|
M/T
Aristotelis II
|
10
B.C.
|
06/2008
|
O.S.G.(2)
|
–
|
$13.0
|
|
M/T
Aris II
|
10
B.C.
|
08/2008
|
O.S.G.(2)
|
–
|
$13.0
|
|
M/T
Attikos
|
2.2
to 2.3 T.C.
|
07/2007
|
Trafigura
Beheer B.V.
|
–
|
$13.9
|
|
M/T
Amore Mio II
|
3
T.C.
|
10/2007
|
B.P.
Shipping Ltd
|
50/50
|
$36.5
|
|
M/T
Aristofanis
|
4.8
T.C.
|
06/2005
|
Shell
International
|
–
|
$13.5
|
|
(1)
|
Profit
sharing refers to an arrangement between vessel-owning companies and
charterers to share a predetermined percentage voyage profit in excess of
the basic rate.
|
|
(2)
|
OSG
has an option to purchase each of the three STX vessels delivered or to be
delivered in 2008 at the end of the eighth, ninth or tenth year of the
charter, for $38.0 million, $35.5 million and
$33.0 million, respectively, which option is exercisable six months
before the date of completion of the eighth, ninth or tenth year of the
charter. The expiration date above may therefore change depending on
whether the charterer exercises its purchase
option.
|
F-32
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
13. Commitments
and Contingencies - Continued
Commitments
- - Continued
Future
minimum rental receipts, excluding any profit share revenue that may arise,
based on vessels committed to non-cancelable long-term time and bareboat charter
contracts, as of December 31, 2007 will be:
|
Year
ending December 31
|
Amount
|
|||
|
2008
|
$ | 113,453 | ||
|
2009
|
105,152 | |||
|
2010
|
63,583 | |||
|
2011
|
30,813 | |||
|
2012
|
29,202 | |||
|
Thereafter
|
71,842 | |||
|
Total
|
$ | 414,044 | ||
14. Subsequent
Events
|
(a)
|
Dividends:
On January 28, 2008 the Partnership declared a dividend of $0.395 per unit
to all unitholders of record on February 5, 2008, which amounted to
$8,996. The dividend was paid on February 15,
2008.
|
On April
30, 2008 CPP declared a dividend of $0.40 per unit to all unitholders of record
on May 7, 2008 which amounted to $10,129. The dividend was paid on May 15,
2008.
On July
31, 2008 CPP declared a dividend of $0.41 per unit to all unitholders of record
on August 6, 2008 which amounted to $10,383. The dividend was paid on August 15,
2008.
|
(b)
|
Delivery of
new buildings: On January 29, 2008 M/T Alexandros II (M/T Overseas
Serifos), the fifth Committed Vessel was delivered to the Partnership
through CMTC for a total consideration of $48,000. The acquisition of M/T
Alexandros II was financed in full by a draw down on tranche C of the
revolving credit facility of
$370,000.
|
On June
17, 2008 M/T Aristotelis II (M/T Overseas Sifnos), the sixth Committed Vessel
was delivered to the Partnership through CMTC for a total consideration of
$48,000. The acquisition of M/T Aristotelis II was financed in full by a draw
down amounted to $20,000 of the revolving credit facility of $370,000 and
$28,000 of the revolving credit facility of $350,000.
On August
20, 2008 M/T Aris II (M/T Overseas Kimolos), the final Committed Vessel was
delivered to the Partnership through CMTC for a total consideration of $48,000.
The acquisition of M/T Aris II was financed by $2,000 from available cash,
$24,000 through a draw down from the credit facility of $370,000 and
$22,000 through a drawn down from the credit facility of $350,000.
F-33
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
|
|
14.
|
Subsequent
Events – Continued
|
|
(c)
|
Commitment
for a new credit facility: On March 19, 2008 the Partnership
entered into a loan agreement with a syndicate of financial institutions
including HSH Nordbank AG (the “Agent”), for a non amortizing credit
facility, of up to $350,000 for the financing
of:
|
|
●
|
Partial
acquisition cost of up to $57,500 for Amore Mio II, and Aristofanis
(Tranche A)
|
|
|
●
|
50%
of the acquisition cost of up to $52,500 for M/T Alkiviadis and M/T
Aristidis (Tranche B)
|
|
|
●
|
50%
of the acquisition cost of up to $240,000 for any further modern tanker
(Tranche C)
|
Borrowings
under this credit facility will be jointly and severally secured by the owning
companies of the Collateral vessels and will bear interest at a rate
of 1.10% per annum over US$ LIBOR. The credit facility will be repaid
by twenty equal consecutive three month installments commencing on June 30, 2013
plus a balloon payment due in March, 2018.
The
credit facility will have a general assignment of the earnings, insurances and
requisition compensation of the respective vessel or vessels and will include
the following financial covenants:
|
●
|
The
ratio of EBITDA to Net Interest Expenses shall be no less than
2:1,
|
|
|
●
|
Minimum
cash requirements of $500 per vessel,
|
|
|
●
|
The
total indebtedness shall not be greater than 0.725 to 1 of the aggregate
fair market value of the vessels.
|
During
2008 the Partnership drew down $107,500 under its new credit facility in order
to partially fund the acquisition of the shares of the vessel owning companies
of M/T Amore Mio II, M/T Aristofanis, M/T Aristotelis II, and M/T Aris
II.
|
(d)
|
Interest
rate swap agreements: The Partnership
in order to reduce its exposure to cash flow risk entered into four
interest rate swap agreements for a total amount of $107,500 in connection
with the drawndowns, of the credit facility of $350,000.
|
In
addition the Partnership following the drawndown of $20,000 which was used to
partly finance the acquisition of the shares of vessel owning company
of the M/T Aristotelis II, from its credit facility of $370,000 entered into an
additional interest rate swap agreement to fix the LIBOR portion of
interest.
|
(e)
|
Vessel
acquisitions: On March 27, 2008 the Partnership entered into share
purchase agreement with CMTC for the acquisition of the shares of the
vessel owning company (Baymont Enterprises Incorporated) of M/T Amore Mio
II, a 159,982 dwt, 2001 built, double hull tanker from CMTC and took
delivery of the vessel on the same date. The total purchase price for the
shares of the vessel owning company of M/T Amore Mio II is $85,739. All
assets, liabilities and equity other than the vessel, related charter
agreement and related permits, at the date of the acquisition were assumed
by CMTC. The acquisition of the shares of the vessel owning company was
funded by $2,000 from available cash, $46,000 through a drawn down from
the revolving credit facility of $350,000, and the remaining amount
through the issuance of 2,048,823 Partnership’s common units to CMTC at a
price of $18.42 per unit which equals the closing price of the
Partnership’s common units on March 26, 2008 on the Nasdaq stock exchange.
M/T Amore Mio II is chartered to BP Shipping Limited under a charter with
an earliest scheduled expiration date of January 2011 at a base gross rate
of $36.5 per day (net rate $36), and is subject to profit sharing. The
combination of the vessel owning company of M/T Amore Mio II with the
Partnership was accounted for as a combination of entities under common
control in accordance with guidance provided in SFAS 141 which prescribes
the method of accounting for such transfers is similar to the
pooling-of-interest method of
accounting.
|
F-34
Capital
Product Partners L.P.
Notes
to the Supplemental Consolidated and Predecessor Combined Financial
Statements
(In
thousands of United States dollars, except number of shares and
units)
14. Subsequent
Events - Continued
|
(e)
|
Vessel
acquisitions - continued
|
On April
30, 2008 CPP entered into share purchase agreement with CMTC for the acquisition
of the shares of the vessel owning company (Forbes Maritime Co.) of M/T
Aristofanis, a 12,000 dwt, 2005 built, double hull tanker from CMTC and took
delivery of the vessel on the same date. The total purchase price for the shares
of the vessel owning company of M/T Aristofanis was $21,566. All assets,
liabilities and equity other than the vessel, related charter agreement and
related permits, at the date of the acquisition were assumed by CMTC. The
purchase of the shares of the vessel owning company was funded by $11,500 cash
obtained from a drawn down from the revolving credit facility of $350,000, and
the remaining amount by the issuance of 501,308 Partnership’s common units to
CMTC at a price of $20.08 per unit which equals the closing price of the
Partnership’s common units on April 29 on the Nasdaq stock exchange. M/T
Aristofanis is chartered to Shell International Trading & Shipping Company
Ltd. under a charter with an earliest scheduled expiration date of March 2010 at
a gross rate of $13.2 per day (net rate $13). The combination of the vessel
owning company of M/T Aristofanis with the CPP was accounted for as a
combination of entities under common control in accordance with guidance
provided in SFAS 141 which prescribes the method of accounting for such
transfers is similar to the pooling-of-interest method of
accounting.
|
(f)
|
Loan
Repayments: On March 20, 2008 and April 29, 2008 M/T Amore Mio II
and M/T Aristofanis predecessor loans were fully repaid by
CMTC.
|
F-35
Exhibit
III
Selected
Financial Data
We have
derived the following selected historical financial and other data for the three
years ending December 31, 2007 from our audited supplemental
consolidated and predecessor combined financial statements (the “Supplemental
Financial Statements”) for the years ended December 31, 2007, 2006 and 2005
respectively, appearing elsewhere in this Current Report on Form 6-K. The
historical audited Supplemental Financial Statements and other data presented
for the period from August 27, 2003 (inception) to December 31, 2004 have been
derived from audited financial statements not required to be included herein and
are provided for comparison purposes only. August 27, 2003 refers to the
incorporation date of the vessel-owning subsidiary of the M/T Aktoras and is the
earliest incorporation date of any of our vessel-owning
subsidiaries.
We refer
to Capital Product Partners Predecessor (as defined in Note 1 of our
Supplemental Financial Statements), and the assets, liabilities and operations
of the M/T Attikos, the M/T Amore Mio II and the M/T Aristofanis prior to their
acquisition by us from Capital Maritime & Trading Corp. (“Capital
Maritime”), collectively as our “predecessors.” The consolidated financial
statements of our predecessors have been prepared from the separate records
maintained by Capital Maritime and may not necessarily be indicative
of the conditions that would have existed or the results of operations if our
predecessors had been operated as an unaffiliated entity.
Our
historical results are not necessarily indicative of the results that may be
expected in the future. Specifically, our audited Supplemental Financial
Statements are not comparable, as our initial public offering and certain other
transactions that occurred during 2007, have affected our results of operations.
This table should be read together with: “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included elsewhere in
this Current Report on Form 6-K.
Our
Supplemental Financial Statements are prepared in accordance with United States
generally accepted accounting principles after giving retroactive effect to the
combination of entities under common control in 2008 as described in Note 1 to
the Supplemental Financial Statements included herein. All numbers are in
thousands of U.S. Dollars, except numbers of units and earnings per
unit.
1
|
Period
from Aug. 27, 2003 (inception) to Dec. 31,
2004(3)
|
Year
Ended
Dec. 31, 2005(3)
|
Year
Ended
Dec. 31, 2006(3)
|
Year
Ended
Dec. 31, 2007(3)
|
|||||||||||||
|
Income
Statement Data:
|
||||||||||||||||
|
Revenues
|
$ | – | $ | 6,671 | $ | 24,605 | $ | 86,545 | ||||||||
|
Expenses:
|
||||||||||||||||
|
Voyage
expenses(1)
|
– | 555 | 427 | 3,553 | ||||||||||||
|
Vessel
operating expenses—related party (2)
|
– | 360 | 1,124 | 12,688 | ||||||||||||
|
Vessel
operating expenses (2)
|
51 | 3,285 | 5,721 | 6,287 | ||||||||||||
|
General
and administrative expenses
|
– | – | – | 1,477 | ||||||||||||
|
Depreciation
and amortization
|
– | 595 | 3,772 | 15,363 | ||||||||||||
|
Total
operating expenses
|
51 | 4,795 | 11,044 | 39,368 | ||||||||||||
|
Operating
income (expense)
|
(51 | ) | 1,876 | 13,561 | 47,177 | |||||||||||
|
Interest
expense and finance costs
|
– | (653 | ) | (5,117 | ) | (13,121 | ) | |||||||||
|
Loss
on interest rate swap agreement
|
– | – | – | (3,763 | ) | |||||||||||
|
Interest
income
|
– | 6 | 13 | 711 | ||||||||||||
|
Foreign
currency gain/(loss), net
|
– | 18 | (63 | ) | (45 | ) | ||||||||||
|
Net
income (loss)
|
(51 | ) | $ | 1,247 | $ | 8,394 | $ | 30,959 | ||||||||
|
Less:
|
||||||||||||||||
|
Net
income attributable to predecessor operations:
|
(9,388 | ) | ||||||||||||||
|
Partnership’s
net income
|
21,571 | |||||||||||||||
|
General
partner’s interest in our net income
|
– | – | – | 431 | ||||||||||||
|
Limited
partners’ interest in our net income
|
– | – | – | 21,140 | ||||||||||||
|
Net
income allocable to limited partner per:
|
||||||||||||||||
|
Common unit (basic and
diluted)
|
– | – | – | 1.11 | ||||||||||||
|
Subordinated unit (basic and
diluted)
|
– | – | – | 0.70 | ||||||||||||
|
Total unit (basic and
diluted)
|
– | – | – | 0.95 | ||||||||||||
|
Weighted-average
units outstanding (basic and diluted):
|
||||||||||||||||
|
Common units
|
– | – | – | 13,512,500 | ||||||||||||
|
Subordinated
units
|
– | – | – | 8,805,522 | ||||||||||||
|
Total units
|
– | – | – | 22,318,022 | ||||||||||||
|
Balance Sheet Data (at
end of period):
|
||||||||||||||||
|
Vessels,
net and under construction
|
$ | 26,199 | $ | 59,926 | $ | 218,200 | $ | 525,199 | ||||||||
|
Total
assets
|
26,217 | 61,692 | 228,511 | 556,991 | ||||||||||||
|
Total
partners’ capital / stockholders’ equity
|
20,107 | 25,566 | 51,907 | 185,181 | ||||||||||||
|
Number
of shares/units
|
4,200 | 4,200 | 4,200 | 22,773,492 | ||||||||||||
|
Common units
|
– | – | – | 13,512,500 | ||||||||||||
|
Subordinated
units
|
– | – | – | 8,805,522 | ||||||||||||
|
General Partner
units
|
– | – | – | 455,470 | ||||||||||||
|
Dividends
declared per unit
|
– | – | – | $ | 0.75 | |||||||||||
|
Cash
Flow Data:
|
||||||||||||||||
|
Net
cash provided by operating activities
|
45 | 2,219 | 10,265 | 53,014 | ||||||||||||
|
Net
cash used in investing activities
|
(26,199 | ) | (34,322 | ) | (162,047 | ) | (335,047 | ) | ||||||||
|
Net
cash provided by financing activities
|
26,169 | 32,095 | 153,014 | 300,713 | ||||||||||||
___________
|
(1)
|
Vessel
voyage expenses primarily consist of commissions, port expenses, canal
dues and bunkers.
|
2
|
(2)
|
For
the year ended December 31, 2007 our vessel operating expenses have
consisted primarily of management fees payable to our manager, who
provides commercial and technical services such as crewing, repairs and
maintenance, insurance, stores, spares and lubricants, as well as
administrative services pursuant to management and administrative services
agreements.
|
|
(3)
|
The
amount of historical earnings per unit
for:
|
|
|
a) the
period from August 27, 2003 (inception) to December 31,
2004,
|
|
|
b)
the years ended December 31, 2005 and
2006,
|
|
|
c)
the period from January 1, 2007 to April 3, 2007 for the vessels in our
fleet at the time of our initial public
offering,
|
|
|
d) the
period from January 1, 2007 to September 23, 2007 for the M/T Attikos,
and
|
|
|
e)
the period from January 1, 2007 to December 31, 2007 for the M/T Amore Mio
II and the M/T Aristofanis,
respectively,
|
|
|
giving
retroactive impact to the number of common and subordinated units (and the
2% general partner interest) that were issued upon the completion of our
initial public offering on April 3, 2007 is not presented
in our selected historical financial data. We do not believe that a
presentation of earnings per unit for these periods would be meaningful to
our investors (A) as the vessels comprising our initial fleet, as well as
the M/T Attikos and M/T Aristofanis, were under construction
during the period from August 27, 2003 (inception) to December 31, 2004
and during the year ended December 31, 2005, and (B)
the vessel-owning subsidiaries included herein, with the
exception of the owners of the M/T Attikos and M/T Aristofanis
which were delivered in January 2005 and June 2005, respectively, to
Capital Maritime, were in the start-up phase. In addition, during the year
ended December 31, 2006 only seven of the fifteen vessels included in the
Financial Statements as of December 31, 2007 had been delivered to us and
only the M/T Attikos and M/T Aristofanis were in operation for the full
year ended December 31, 2006, while the other five vessels were in
operation for only part of the period (the vessels were delivered in
April, May, July, August and November 2006, respectively) and a portion of
the revenues generated during 2006 was derived from charters with
different terms and conditions from those in the charters in place during
2007.
|