Business Context and Reporting Period
Company: Nordic American Tanker Shipping Limited (NAT)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2008 (Unaudited)
Filing Date: January 7, 2009
NAT is an international tanker company owning a fleet of modern double-hull Suezmax tankers. As of September 30, 2008, the company owned 12 vessels. Eleven vessels operated in the spot market or on spot-related time charters, while one vessel was on a long-term bareboat charter. The company utilizes cooperative arrangements managed by third parties (Stena Bulk AB and Frontline Management Limited) for commercial operations of its spot market fleet.
Key Financial Metrics
| Metric (USD '000) | 9 Months Ended Sep 30, 2008 | 9 Months Ended Sep 30, 2007 |
|---|---|---|
| Voyage Revenue | 187,129 | 146,812 |
| Net Voyage Revenue (Non-GAAP) | 177,440 | 113,005 |
| Net Operating Income | 103,962 | 50,130 |
| Net Income | 101,646 | 42,531 |
| Cash Flow from Operations | 87,301 | 70,819 |
| Cash and Cash Equivalents (Sep 30, 2008) | 31,120 | 13,342 (Dec 31, 2007) |
| Long-Term Debt (Sep 30, 2008) | 0 | 105,500 (Dec 31, 2007) |
| Basic EPS | $3.16 | $1.54 |
Operational Metrics:
- Average Time Charter Equivalent (TCE) for spot market vessels: ~$59,900/day (2008) vs. ~$38,300/day (2007).
- Vessel Operating Days: 3,288 (2008) vs. 3,276 (2007).
- Off-hire Days: 130 (2008) vs. 175 (2007).
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenue increased 27.5% to $187.1 million, driven primarily by higher average TCE rates in the spot market.
- Expense Reduction: Voyage expenses decreased 71.3% to $9.7 million. This significant drop is attributed to more vessels being presented on a net basis under EITF 99-19, rather than a reduction in actual costs.
- Profitability: Net income more than doubled, increasing 139% to $101.6 million. Net operating income rose 107% to $104.0 million.
- Debt Elimination: The company repaid $115.5 million of its credit facility in May 2008 using proceeds from a follow-on equity offering. Consequently, long-term debt outstanding dropped from $105.5 million at year-end 2007 to zero as of September 30, 2008.
- Operating Costs: Vessel operating expenses (excluding depreciation) increased 10.7% to $26.9 million due to higher repair/maintenance activity and industry-wide price increases in crewing and lubricating oil. General and administrative expenses rose 44.0% to $10.8 million, partly due to a $3.5 million non-cash stock-based compensation charge.
Guidance, Outlook, and Risks
Recent Developments and Outlook:
- New Acquisition: On January 5, 2009, the company agreed to acquire a 1999-built Suezmax tanker for $56.7 million, with expected delivery by March 15, 2009. The vessel is intended for spot market employment.
- Charter Extension: Gulf Navigation exercised an option to extend the bareboat charter of the vessel Gulf Scandic for one additional year at a fixed rate of $17,325 per day.
- Dividends: A dividend of $1.61 per share was declared in November 2008 and paid in December 2008.
Risks and Contingencies:
- Market Volatility: The company's performance is heavily dependent on spot market rates, which fluctuate based on global oil demand, OPEC production levels, and vessel supply.
- Operating Costs: Exposure to rising bunker (fuel) prices, drydocking costs, and insurance premiums.
- Forward-Looking Statements: Management notes that actual results may differ materially from projections due to economic conditions, political events, and potential vessel breakdowns or off-hire instances.
Investor Verification Checklist
- Debt Status: Verify the current status of the $500 million revolving credit facility and confirm the $15.0 million debt mentioned as outstanding "at the time of filing" (Jan 2009) versus the zero balance on the Sep 30, 2008 balance sheet.
- Acquisition Funding: Confirm the funding source for the $56.7 million vessel acquisition announced in January 2009, given the company's cash balance of $31.1 million as of September 2008.
- Spot Market Exposure: Assess the risk profile of operating 11 of 12 vessels in the volatile spot market versus the stability of the single fixed-rate bareboat charter.
- Non-GAAP Reconciliation: Review the reconciliation of Net Voyage Revenue to GAAP Voyage Revenue to understand the impact of EITF 99-19 on reported expenses.
- Related Party Transactions: Review the management agreement with Scandic American Shipping Ltd., including the 2% equity ownership right and associated compensation costs.