Business Context and Reporting Period
Company: Nordic American Tankers Limited (NAT)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter 2011 (Ended June 30, 2011)
Filing Date: August 8, 2011
NAT is a tanker shipping company operating a homogeneous fleet of Suezmax vessels. The company reported results for a weak market environment, emphasizing its strong balance sheet and ability to maintain dividends despite negative net income.
Key Financial Metrics
| Metric | Q2 2011 | Q1 2011 | Q2 2010 |
|---|---|---|---|
| Net Voyage Revenue | $23.8 million | $25.5 million | $38.6 million |
| Net Operating Income | ($9.6) million | ($6.6) million | $8.2 million |
| Net Income (Loss) | ($10.0) million | ($7.0) million | $7.9 million |
| Earnings Per Share (Basic) | ($0.21) | ($0.15) | $0.17 |
| Operating Cash Flow (Non-GAAP) | $7.7 million | $10.6 million | $23.8 million |
| Dividend Per Share | $0.30 | $0.30 | $0.30 |
Liquidity and Debt:
- Cash and Equivalents: $12.4 million (as of June 30, 2011).
- Net Debt: $15.3 million total ($0.9 million per vessel).
- Credit Facility: $500 million revolving facility; $95 million drawn. Matures September 2013.
- Cash Break-even: Approximately $11,300 per day per vessel for a 20-vessel fleet.
Material Changes vs. Prior Period
- Revenue Decline: Net voyage revenue decreased 7% quarter-over-quarter (Q2 vs. Q1 2011) and 38% year-over-year (Q2 2011 vs. Q2 2010), reflecting a softened Suezmax spot market.
- Widening Losses: Net loss increased from $7.0 million in Q1 to $10.0 million in Q2. This was driven by lower revenue and higher depreciation expenses ($16.1 million in Q2 vs. $16.0 million in Q1).
- Cost Efficiency: Despite the loss, average daily operating costs per vessel were lower in Q2 2011 compared to the average in 2010.
- Fleet Expansion: The fleet grew from 15 vessels in late 2010 to 19 vessels by late 2011, including two newbuildings (Nordic Breeze and Nordic Zenith) expected in August and October 2011.
Outlook, Risks, and Management Commentary
Dividend Policy: Management reaffirmed its commitment to a full dividend payout policy. The $0.30 per share dividend marks the 56th consecutive quarter of payments. Management asserts the company is differentiated from leveraged competitors by its ability to maintain dividends in weak markets.
Market Outlook:
- Spot Rates: The average daily gross rate for spot vessels was $16,600 in Q2 2011, down from $18,000 in Q1 2010. Management does not predict future rates but notes that low rates may present acquisition opportunities.
- Geopolitical Risks: Piracy in the Gulf of Aden and Indian Ocean remains a concern. The Libyan conflict and the Japan tragedy are cited as factors that could alter oil trade routes and demand.
- Operational Strategy: The company is installing fuel-saving equipment and reducing ballast speeds to mitigate bunker costs in a low-rate environment.
Contingencies:
- Arbitration: NAT is in arbitration regarding the delayed delivery of the Nordic Galaxy (August 2010). The outcome is expected in autumn 2011 but is not anticipated to affect dividends.
- Charter Claim: NAT has a claim against a charterer for drydocking costs related to the Nordic Harrier, which was returned in poor condition. Arbitration may be required if compensation is not agreed upon.
Investor Verification Checklist
- Dividend Sustainability: Verify if the $0.30 dividend is fully covered by the $7.7 million operating cash flow given the negative net income.
- Debt Covenants: Confirm the specific financial covenants within the $500 million credit facility and the impact of the $95 million drawdown.
- Arbitration Outcomes: Monitor the resolution of the Nordic Galaxy delivery dispute and the Nordic Harrier charter claim for potential financial impacts.
- Spot Rate Sensitivity: Assess the impact of further declines in Suezmax spot rates on the company's cash break-even level of $11,300/day.
- Non-GAAP Reconciliation: Review the reconciliation of Operating Cash Flow to Net Income to understand the magnitude of non-cash charges (depreciation and share-based compensation).