\n(1) EBITDA and Adjusted EBITDA are non-GAAP financial measures used by management and external users of the Partnership\u2019s financial statements. Please see Appendix A for definitions of EBITDA and Adjusted EBITDA and a reconciliation to net income, the most directly comparable GAAP financial measure.\n<\/p>\n<\/td>\n<\/tr>\n<\/table>\n
Financial Results Overview<\/b><\/p>\n
\nTotal revenues were $71.6 million for the three months ended December 31, 2022 (the \u201cfourth quarter\u201d), compared to $67.8 million for the three months ended September 30, 2022 (the \u201cthird quarter\u201d). The increase is mainly due to earnings from spot voyages undertaken by the Windsor Knutsen<\/i> and the Torill Knutsen<\/i> in the fourth quarter and full fourth quarter earnings from the Tordis Knutsen<\/i> and the Lena Knutsen<\/i>, offset by lower earnings in the fourth quarter from the Hilda Knutsen<\/i>, the Synn\u00f8ve Knutsen<\/i> and the Tove Knutsen<\/i> and offhire from the Carmen Knutsen<\/i> as she commenced her journey to Europe in December 2022 for her planned ten-year special survey drydocking.\n<\/p>\n
\nVessel operating expenses for the fourth quarter of 2022 were $19.8 million, a decrease of $3.3 million from $23.1 million in the third quarter of 2022. The decrease is mainly related to higher bunker costs and other operating expenses in the third quarter for the Windsor Knut<\/i>sen and the Lena Knutsen<\/i> in connection with repairs and their voyages related to drydock in Europe, partially offset by higher bunker costs and other operating expenses in the fourth quarter from the Carmen Knutsen<\/i> as she commenced her journey to Europe in December 2022 for her planned ten-year special survey drydocking. Operating expenses and commission related to spot voyages is not included in vessel operating expenses and was $2.8 million in the fourth quarter.\n<\/p>\n
\nDepreciation was $27.8 million for the fourth quarter, an increase of $0.2 million from $27.6 million in the third quarter.\n<\/p>\n
\nGeneral and administrative expenses were $1.6 million for the fourth quarter compared to $1.4 million for the third quarter.\n<\/p>\n
\nAs a result, operating income for the fourth quarter was $19.6 million, compared to $15.7 million for the third quarter.\n<\/p>\n
\nInterest expense for the fourth quarter was $15.4 million, an increase of $3.2 million from $12.2 million for the third quarter. The increase is mainly due to an increase in the US dollar LIBOR rate and increased utilization of the Partnership\u2019s revolving credit facilities.\n<\/p>\n
\nThe realized and unrealized gain on derivative instruments was $1.7 million in the fourth quarter, compared to realized and unrealized gain of $12.4 million in the third quarter. The unrealized non-cash element of the mark-to-market gain was $0.9 million for the fourth quarter, compared to an unrealized gain of $12.7 million for the third quarter. The unrealized mark-to-market gain for the fourth quarter consisted of a loss related to interest rate swaps of $0.3 million and a gain related to foreign exchange forward contracts of $1.2 million.\n<\/p>\n
\nAs a result, net income for the fourth quarter of 2022 was $6.0 million compared to $16.0 million for the third quarter of 2022.\n<\/p>\n
\nNet income for the fourth quarter of 2022 decreased by $17.1 million from net income of $23.1 million for the fourth quarter of 2021 to $6.0 million for the fourth quarter of 2022.\n<\/p>\n
\nOperating income for the fourth quarter of 2022 decreased by $6.4 million to $19.6 million, compared to operating income of $26.0 million in the fourth quarter of 2021. The decrease is mainly due to lower utilization of the fleet due to offhire, lower average charter hire rates, spot voyage income and expenses, and the inclusion of the Synn\u00f8ve Knutsen <\/i>in the fourth quarter of 2022. Total finance expense for the fourth quarter of 2022 increased by $10.4 million to $13.2 million, compared to a finance expense of $2.8 million for the fourth quarter of 2021, mainly due to an increase in interest expense and lower realized and unrealized gains on derivative instruments.\n<\/p>\n
Operational Review<\/b><\/p>\n
\nThe Partnership\u2019s vessels operated throughout the fourth quarter of 2022 with 96.1% utilization for scheduled operations, and 94.9% utilization taking into account the scheduled drydocking of the Carmen Knutsen<\/i> which was offhire for 20 days in the fourth quarter of 2022.\n<\/p>\n
\nIn September 2022, a hydraulic leak from a bow thruster was identified on the Windsor Knutsen<\/i>, and the vessel was placed offhire from September 29, 2022 to October 31, 2022. However, except for deductible amounts under the policies, loss of hire insurance is expected to provide income potentially lost due to the incident, and hull and machinery insurance is expected to cover the majority of any costs incurred to repair the vessel. At December 31, 2022, an amount of $0.9 million representing a claim under the Partnership\u2019s hull and machinery insurance was recognized in the accounts.\n<\/p>\n
\nThe Tove Knutsen<\/i> was offhire from October 14, 2022 to October 25, 2022 for repairs related to the vessel\u2019s port crane. Although we believe that claims under loss of hire insurance and hull and machinery insurance are available in respect of this incident, because the costs to repair the vessel and associated loss of hire are estimated to be similar in value to the deductible amounts under the insurance policies, only $0.2 million is expected to be recovered from insurance.\n<\/p>\n
\nThe Synn\u00f8ve Knutsen<\/i> was offhire from October 14, 2022 to November 1, 2022 for repairs related to a leak from the vessel\u2019s controllable pitch propeller. Although we believe that claims under loss of hire insurance and hull and machinery insurance are available in respect of this incident, because the costs to repair the vessel and associated loss of hire are estimated to be similar in value to the deductible amounts under the insurance policies, only $0.3 million is expected to be recovered.\n<\/p>\n
\nThe Carmen Knutsen<\/i> commenced her journey to Europe in December 2022 for her planned ten-year special survey drydocking and installation of a ballast water treatment system, all of which was successfully concluded on February 24, 2023, when the vessel returned to Brazil and continued on her time charter with Repsol Sinopec. Total offhire days related to the drydock were 74.\n<\/p>\n
Financing and Liquidity<\/b><\/p>\n
\nAs of December 31, 2022, the Partnership had $47.6 million in available liquidity, which consisted of cash and cash equivalents of $47.6 million. The Partnership\u2019s revolving credit facilities are fully drawn and mature between August 2023 and November 2023. The Partnership\u2019s total interest-bearing obligations outstanding as of December 31, 2022 were $1,062.6 million ($1,056.4 million net of debt issuance costs). The average margin paid on the Partnership\u2019s outstanding debt during the fourth quarter of 2022 was approximately 2.02% over LIBOR.\n<\/p>\n
\nAs of December 31, 2022, the Partnership had entered into various interest rate swap agreements for a total notional amount of $451.2 million to hedge against the interest rate risks of its variable rate borrowings. As of December 31, 2022, the Partnership receives interest based on three or six-month LIBOR and pays a weighted average interest rate of 1.9% under its interest rate swap agreements, which have an average maturity of approximately 2.7 years. The Partnership does not apply hedge accounting for derivative instruments, and its financial results are impacted by changes in the market value of such financial instruments.\n<\/p>\n
\nAs of December 31, 2022, the Partnership\u2019s net exposure to floating interest rate fluctuations was approximately $372.5 million based on total interest-bearing contractual obligations of $1,062.6 million, less the Raquel Knutsen<\/i> and Torill Knutsen<\/i> sale and leaseback facilities of $191.3 million, less interest rate swaps of $451.2 million, and less cash and cash equivalents of $47.6 million. The Partnership\u2019s outstanding interest-bearing contractual obligations of $1,062.6 million as of December 31, 2022 are repayable as follows:\n<\/p>\n
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