Nordic American Tankers Limited — FY2012 Form 20-F
Reporting period: Fiscal year ended December 31, 2012. This is an annual filing; it does not provide a clear standalone fourth-quarter income statement or cash-flow figures. Financial statements are prepared under U.S. GAAP and audited by Deloitte AS, which reported effective internal control over financial reporting.
Business context and financial performance
The Company owned 20 double-hull Suezmax tankers, averaging approximately 156,000 dwt, and employed all vessels in the spot market. The fleet’s dependence on spot rates makes results sensitive to tanker-market conditions.
| Metric (USD millions, except per-share data and rates) | 2012 | 2011 | Change / context |
|---|---|---|---|
| Voyage revenue | 130.7 | 94.8 | +37.9%; affected substantially by a change to gross presentation of pool activity from November 5, 2012 |
| Net voyage revenue | 92.0 | 79.9 | +15.2% |
| Average TCE per day | $13,601 | $12,777 | +6.4% as reported in the TCE table |
| Net operating loss | (67.9) | (71.2) | Loss narrowed 4.7% |
| Net loss | (73.2) | (72.3) | Loss widened 1.2%; basic and diluted loss per share were $1.39 |
| Operating cash flow | (0.6) | (12.2) | Cash used decreased |
| Dividends paid | 63.5 | 54.3 | $1.20 per share declared for 2012 |
| Cash and cash equivalents at year-end | 55.5 | 24.0 | Increased |
| Long-term debt at year-end | 250.0 | 230.0 | Increased |
| Total assets / shareholders’ equity | 1,085.6 / 809.4 | 1,125.4 / 867.6 | Both decreased |
Vessel operating expenses were $64.0 million, depreciation was $69.2 million, and interest expense was $5.9 million. The Company recorded a $12.0 million impairment on the Nordic Voyager; management said a fleet-wide assessment would not have produced an impairment charge. The 2011 comparison included a $16.2 million loss on the Nordic Galaxy contract arbitration.
Material changes, liquidity and capital
- Net voyage revenue rose with more revenue days—including full-year contribution from vessels delivered in 2011—and higher average TCE rates. Off-hire days increased to 555 from 116, mainly due to planned drydockings.
- Reported voyage revenue and voyage expenses both increased materially because pool revenue presentation changed from net to gross after Frontline withdrew its nine vessels on November 5, 2012. The Company reported $92.0 million of net voyage revenue, a more comparable operating measure.
- The Company refinanced its prior facility with a $430 million revolving credit facility entered into in October 2012, maturing in October 2017. At year-end, $250.0 million was drawn and $180.0 million remained available. The facility is secured by vessel mortgages and assignments of earnings and insurance; dividends are permitted only while the Company is not in default and it must meet financial covenants.
- Current assets were $78.6 million and current liabilities were $15.0 million. Management stated working capital was sufficient for present requirements. Related-party receivables included $37.0 million of Orion pool working capital and $12.9 million of net voyage receivables.
- Financing cash flow included $75.6 million net proceeds from a January 2012 share offering; dividends paid exceeded operating cash flow. The Company estimated 2013 drydock costs of approximately $18.0 million and 186 off-hire days for six vessels.
Outlook, commentary and risks
Management did not forecast future spot rates. It described the 2012 tanker market as weak, particularly in the second half. Industry estimates cited in the filing put 2012 Suezmax earnings at about $16,000 per day, versus $16,200 in 2011, and Suezmax vessel values down approximately 14% during 2012. Early-2013 market conditions were described as similar to the second half of 2012 and volatile. The Company noted expectations for global oil demand growth in 2013 but uncertainty from economic conditions, fleet growth and U.S. production.
- Spot-rate exposure is significant: management estimated a $1,000-per-day decrease in spot rates would reduce annual voyage revenue by approximately $6.8 million. A 100-basis-point LIBOR increase was estimated to raise 2012 interest expense by approximately $2.5 million.
- Key risks include tanker-market cyclicality, weak oil-transport demand, oversupply and lower vessel values, fuel and operating costs, drydock/off-hire, variable-rate debt and refinancing access, covenant restrictions, counterparty and pool exposure, and environmental, safety, piracy, sanctions and geopolitical risks.
- Management disclosed that a vessel was briefly detained at a U.S. port in late 2012, released in early December; it said counsel advised the Company would not be prosecuted and was not part of the case. Arbitration concerning compensation for Nordic Harrier drydock expenses was expected to be heard in 2013.
- After year-end, the Company acquired Frontline’s interest in Orion Tankers on January 2, 2013, making it wholly owned. It acquired the Manager from a company owned by the CEO and family on January 10 for $25.0 million—$17.0 million in shares and $8.0 million in cash. The filing states accounting treatment for that acquisition was not finalized. A $0.16-per-share fourth-quarter 2012 dividend was declared and paid in February 2013.
- Management identified related-party dealings with the Manager, historically owned by the CEO’s family, including $3.9 million of 2012 service costs and the subsequent acquisition. The 2012 Credit Facility also includes restrictive covenants and the fleet is pledged as collateral.
Most important facts for investors to verify
- How much of the reported revenue increase reflects the gross-versus-net presentation change, and what are comparable quarterly results and TCE rates?
- Whether spot-market earnings and operating cash generation can support the dividend, debt service and planned drydock expenditure.
- Facility covenant headroom, variable-rate exposure, refinancing terms and the availability of the undrawn $180 million.
- Recoverability of vessel carrying values, especially given the disclosed estimated $436 million excess of fleet carrying value over broker-estimated market value and the $12.0 million impairment.
- Collection and timing of the Orion-related receivables, and final accounting for the Manager acquisition and its related-party terms.
- Outcome of the Nordic Harrier arbitration and any developments concerning the U.S. vessel detention.