Business Context and Reporting Period
This Form 6-K filing by Nordic American Tanker Shipping Limited (NAT) reports on the third quarter of 2010, with financial data covering the three and nine months ended September 30, 2010. NAT is a Bermuda-based independent tanker owner operating a homogeneous fleet of Suezmax vessels. As of the reporting date, the company operated 16 trading vessels, with plans to expand the fleet to a minimum of 20 vessels by the end of 2011.
Key Financial Metrics
Revenue and Profitability (Three Months Ended Sept 30, 2010):
- Net Voyage Revenue: $25.54 million (down from $38.65 million in Q2 2010 and $17.74 million in Q3 2009).
- Net Operating Income: $(5.12) million (loss), compared to $8.15 million in Q2 2010 and $(11.40) million in Q3 2009.
- Net Income: $(5.42) million, resulting in a Basic Earnings Per Share (EPS) of $(0.12), an improvement from $(0.28) in Q3 2009.
- Operating Cash Flow (Non-GAAP): $11.24 million, a significant increase from $3.81 million in Q3 2009.
Liquidity and Balance Sheet (As of Sept 30, 2010):
- Cash and Cash Equivalents: $54.09 million.
- Total Assets: $1.08 billion.
- Long-term Debt: $50.00 million (drawn from a $500 million revolving credit facility).
- Shareholders' Equity: $1.02 billion.
- Dividend: Declared $0.25 per share for Q3 2010 (up from $0.10 in Q3 2009), payable December 3, 2010.
Material Changes vs. Prior Period
- Freight Rates: The average daily rate for spot vessels dropped to $17,525 in Q3 2010 from $28,800 in Q2 2010, reflecting a decrease in spot Suezmax rates.
- Profitability: Despite lower revenue compared to Q2, the company reduced its net loss significantly compared to Q3 2009, driven by improved operating cash flow and cost management.
- Dividend Policy: The dividend per share increased 150% year-over-year, maintaining the company's full payout policy despite the net loss on an accrual basis.
- Fleet Status: The company refused delivery of the newbuilding "Nordic Galaxy" in August 2010 due to major deficiencies, initiating arbitration. The vessel "Nordic Harrier" was redelivered from a 6-year charter and placed in drydock.
Guidance, Outlook, and Risks
Outlook and Strategy: Management expects the fleet to reach at least 20 vessels by the end of 2011, funded by internal resources without tapping equity markets. The company aims to acquire vessels when second-hand prices soften to ensure accretive growth. The dividend policy remains tied to spot market rates; while the company does not cut dividends in weak markets, payouts are adjusted based on freight levels.
Risks and Contingencies:
- Market Volatility: Spot Suezmax rates are expected to remain volatile and unpredictable.
- Arbitration: Ongoing arbitration regarding the rejected "Nordic Galaxy" vessel involves a $26.8 million receivable (including a loan guarantee) and $1.3 million in capitalized costs. The outcome is expected to extend into 2011.
- Delivery Delays: The "Nordic Vega" delivery was delayed from April 2010 to late November/early December 2010.
- Financial Risk: While currently maintaining little to no net debt, the company is prepared to incur debt in weaker market environments to facilitate acquisitions.
Investor Verification Checklist
- Verify the status and potential recovery amount of the $26.8 million receivable related to the "Nordic Galaxy" arbitration.
- Confirm the actual delivery date of the "Nordic Vega" and any associated cost overruns.
- Monitor spot Suezmax freight rates to assess the sustainability of the $0.25 per share dividend in Q4 2010.
- Review the utilization of the $500 million credit facility and the company's leverage ratio as new vessels are acquired.
- Assess the impact of the "Nordic Harrier" drydock period on fleet availability and revenue generation in Q4 2010.