Business Context and Reporting Period
Nordic American Tanker Shipping Ltd (NAT) filed a Form 6-K on July 10, 2001, reporting results for the period ended June 30, 2001. The company operates three Suezmax tankers under long-term contracts with BP Shipping, which commenced in 1997 and include options extending up to 14 years. These contracts guarantee income 365 days a year with no off-hire periods and a minimum rate of $22,000 per day.
Key Financial Metrics
| Metric | YTD 2001 | YTD 2000 | Q2 2001 | Q2 2000 |
|---|---|---|---|---|
| Revenue | $18,897,105 | $11,678,940 | $7,258,087 | $6,879,873 |
| Operating Profit | $15,205,963 | $7,993,523 | $5,409,723 | $5,056,215 |
| Net Profit | $14,463,780 | $7,212,174 | $5,021,417 | $4,670,435 |
| Earnings Per Share | $1.49 | $0.74 | $0.52 | $0.48 |
| Cash Flow Per Share | $1.84 | $1.09 | $0.69 | $0.66 |
Balance Sheet Highlights (as of June 30, 2001):
- Total Assets: $153,795,072
- Shareholders' Equity: $120,025,586
- Long-term Debt: $30,000,000
- Cash Deposits: $4,988,949
Dividends: The company declared a third-quarter 2001 dividend of $0.72 per share, payable on or about August 15, 2001. Total dividends paid in 2001 to date are $3.32 per share.
Material Changes
- Profitability Surge: Year-to-date net profit for 2001 ($14.5 million) is approximately double the same period in 2000 ($7.2 million).
- Rate Fluctuation: While the Suezmax market remained strong in Q2 2001, average time charter (T/C) rates declined to $35,088 per day from $51,607 per day in Q1 2001. However, this remains significantly higher than the $26,079 per day average in Q1 2000.
- Asset Base: Total assets decreased from $160.8 million at year-end 2000 to $153.8 million at mid-year 2001, primarily due to depreciation of vessels.
Outlook, Risks, and Management Commentary
Management notes that despite falling tanker markets compared to Q1 2001, the company's contractual structure with BP Shipping secures income and protects against spot market volatility. The contracts ensure rates correspond to the spot market for modern Suezmax tankers but are floored at $22,000 per day. The next dividend declaration is expected in October 2001. The filing does not explicitly detail specific new risks beyond the general market condition of falling rates, though the long-term contract structure is highlighted as a mitigating factor.
Investor Verification Checklist
- Verify the exact terms and remaining duration of the BP Shipping contracts, specifically the exercise of extension options.
- Confirm the payment date and record date for the $0.72 Q3 2001 dividend.
- Monitor spot market rates for Suezmax tankers to assess the likelihood of rates falling below the $22,000/day contractual floor.
- Review the company's cash flow utilization given the increase in cash deposits to nearly $5 million.