Business Context and Reporting Period
This Form 6-K filing, dated February 11, 2013, reports on Nordic American Tankers Limited's (NAT) financial results for the fourth quarter and full year ended December 31, 2012. NAT operates a homogenous fleet of 20 Suezmax tankers, primarily employed in the spot market through the Orion Tanker Pool. The company maintains a conservative risk profile, focusing on cost efficiency and a strong balance sheet to navigate weak market conditions while positioning for fleet expansion.
Key Financial Metrics
| Metric | 4Q 2012 | Full Year 2012 | 4Q 2011 |
|---|---|---|---|
| Net Voyage Revenue | $17.5 million | $92.0 million | $19.3 million |
| Net Loss | ($32.5 million) | ($73.2 million) | ($17.7 million) |
| Basic Loss Per Share | ($0.61) | ($1.39) | ($0.37) |
| Operating Cash Flow (Non-GAAP) | ($1.1 million) | $17.5 million | $0.0 million |
| Average Daily Rate | $10,700 | N/A | ~$12,000 |
| Cash and Equivalents | $55.5 million | $55.5 million | N/A |
| Long-term Debt | $250.0 million | $250.0 million | N/A |
| Net Debt per Vessel | ~$7.8 million | ~$7.8 million | N/A |
Liquidity and Capital Structure: As of December 31, 2012, the company held approximately $56 million in cash. It established a new non-amortizing credit facility of $430 million in November 2012, maturing in November 2017, with $250 million drawn at year-end. The company declared a quarterly dividend of $0.16 per share for 4Q2012.
Material Changes vs. Prior Period
- Impairment Charge: The 4Q2012 net loss includes a non-cash impairment charge of $12.0 million ($0.22 per share) related to one vessel. Excluding this charge, the loss per share was $0.39, compared to $0.44 in 3Q2012 and $0.37 in 4Q2011.
- Revenue Decline: Net voyage revenue decreased to $17.5 million in 4Q2012 from $19.3 million in 4Q2011, reflecting weaker spot rates ($10,700 vs. ~$12,000 per day).
- Operating Cash Flow: Full-year 2012 operating cash flow was $17.5 million, a significant improvement over the negative operating cash flow in 4Q2012 (-$1.1 million) and 3Q2012 (-$3.2 million).
- Debt Increase: Long-term debt increased from $230 million in 2011 to $250 million in 2012 due to the new credit facility.
Outlook, Risks, and Unusual Items
- Acquisitions: NAT agreed to acquire 100% of the Orion Tanker Pool effective January 1, 2013, for approximately $300,000. Additionally, the company acquired Scandic American Shipping Ltd. (the management company) for $25 million ($17 million in stock) to align management interests with shareholders.
- Market Outlook: Management expects market fundamentals to improve due to increased scrapping activity (21 Suezmaxes scrapped in 2012 vs. 8 in 2011) and low newbuilding orders. The company anticipates that a recovery in the global economy will increase vessel demand and rates.
- Dividend Policy: NAT has paid a quarterly dividend for 62 consecutive quarters. Management expects dividends to increase when market rates recover, as the company operates with a low cash break-even rate of approximately $12,000 per day per vessel.
- Risks and Contingencies:
- Regulatory: One vessel was detained in US waters in October 2012 for alleged maritime rule violations. The company expects the matter to be resolved with minor consequences, including 12 days of off-hire.
- Arbitration: NAT is in arbitration regarding a claim for drydocking costs against a former charterer of the vessel Nordic Harrier.
- Market Volatility: Earnings are sensitive to global economic conditions, bunker prices, and fluctuations in spot charter rates.
Investor Verification Checklist
- Verify the impact of the $12 million non-cash impairment charge on the reported net loss versus the underlying operating performance.
- Confirm the terms and utilization of the new $430 million credit facility maturing in 2017.
- Monitor the resolution of the US detention incident and the arbitration claim regarding the Nordic Harrier.
- Assess the integration of the Orion Tanker Pool and Scandic American Shipping Ltd. acquisitions.
- Track spot market rates for Suezmax vessels to gauge the sustainability of the $0.16 quarterly dividend.