NORDIC AMERICAN TANKERS LIMITED — FY 2014 Form 20-F
Reporting period: Fiscal year ended December 31, 2014; this is an annual report, not a standalone fourth-quarter filing. Financial statements are audited and prepared under U.S. GAAP. Unless noted, dollar amounts below are U.S. dollars.
Business context and financial results
NAT owns 24 Suezmax tankers, including two newbuildings under construction; 22 vessels were operating during 2014. All operating vessels traded in the spot market through the Orion Tankers pool, exposing results directly to volatile voyage rates. The company reported 89,182,001 common shares outstanding at year-end.
| Metric | FY 2014 | FY 2013 | Change / context |
|---|---|---|---|
| Voyage revenue | $351.0 million | $243.7 million | Up 44.1%; includes gross voyage revenue and expenses |
| Voyage expenses | $199.4 million | $173.4 million | Up 15.0% |
| Net voyage revenue | $151.6 million | $70.2 million | Up 115.8% |
| TCE rate per earning day | $20,517 | $11,099 | Up 84.8% |
| Vessel operating expenses | $62.5 million | $64.9 million | Down 3.7%; reported daily cost fell from $8,700 to $8,200 per vessel |
| General and administrative expenses | $14.9 million | $19.6 million | Lower mainly because 2013 included acquisition and legal costs |
| Operating loss | $4.8 million | $93.6 million | Improved substantially |
| Net loss | $12.8 million | $105.4 million | Loss per share was $0.15 versus $1.64 |
| Operating cash flow | $57.5 million | $(47.3) million | Improved with higher spot rates and fewer off-hire days |
| Investing cash flow | $(81.7) million | $(73.3) million | 2014 primarily reflected vessel purchases and NAO investment |
| Financing cash flow | $59.4 million | $130.9 million | 2014 included equity proceeds, offset by dividends |
Financial position, liquidity and capital returns
- Year-end cash was $100.7 million, up from $65.7 million; current assets were $176.5 million against current liabilities of $24.0 million.
- Long-term debt was $250.0 million, unchanged year over year, under a $430.0 million revolving facility due in October 2017. NAT reported $180.0 million of undrawn capacity and compliance with covenants at year-end. The facility is secured by vessel mortgages and related earnings and insurance assignments.
- Management said working capital was sufficient for present requirements. Cash plus undrawn facility capacity totaled $280.7 million, before considering contractual uses.
- Total shareholders’ equity was $882.1 million; total assets were $1.169 billion. Vessels, net, were carried at $910.0 million.
- Contractual obligations totaled $419.0 million, including $250.0 million of facility principal, estimated interest and commitment fees, $128.0 million for two newbuildings, and $12.5 million of deferred compensation. The newbuildings cost approximately $65 million each and were expected for delivery in 2016 and 2017.
- 2014 distributions totaled $66.7 million, or $0.77 per share: $54.1 million in cash and $12.6 million in NAO shares. The fourth-quarter dividend was $0.14 per share, declared January 9, 2015 and paid February 9, 2015.
- NAT issued 13.8 million shares in April 2014 for net proceeds of approximately $113.4 million, primarily to finance two secondhand vessel acquisitions and for general purposes.
Material changes and unusual items
- Results rebounded from 2013 as the TCE rate rose and off-hire days fell to 229 from 971. NAT attributed much of the prior-year off-hire to scheduled drydockings; two additional vessels were delivered in 2014.
- Despite the net loss, reported operating cash flow was positive. Cash flow is affected by voyage timing and working-capital movements, including voyages in progress and receivables.
- There was no vessel impairment charge in 2014 or 2013, compared with a $12.0 million impairment in 2012. However, management estimated that broker-indicated aggregate vessel market values were approximately $255.3 million below carrying value at year-end 2014. The impairment test relies on estimated future cash flows and long-term rate assumptions.
- NAT’s NAO holding was reclassified from equity-method accounting to available-for-sale after NAT concluded it no longer had significant influence. The year-end carrying value was $55.2 million. The filing reports a $7.2 million unrealized loss in other comprehensive income and describes an impairment considered other than temporary; it also notes a $2.6 million adjustment to net loss versus the fourth-quarter press release, offset in other comprehensive loss, with no effect on cash flow or total comprehensive loss.
- A London arbitration panel awarded NAT $10.2 million plus direct costs and calculated interest in January 2014 over the redelivery condition of Nordic Harrier. No amount had been received by year-end; the company said any recovery would be recorded upon receipt.
- Management reported no off-balance-sheet arrangements. The auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also assessed controls as effective.
Outlook, commentary and principal risks
- Management describes tanker conditions as cyclical and volatile and says NAT’s all-spot exposure means falling rates can reduce earnings, cash flow and distributions. Its stated cash break-even level was approximately $12,000 per vessel per day.
- The filing describes an improved tanker market in 2014 and cites third-party Fearnleys expectations for further market improvement in 2015. It also reports stronger first-quarter 2015 spot-rate indicators. These are industry commentary, not company earnings guidance; no quantified company forecast is provided.
- Key exposures include spot charter-rate and vessel-value declines, fuel and operating-cost changes, vessel off-hire or damage, regulatory and environmental compliance costs, piracy and geopolitical disruption, customer/counterparty risk, and access to financing.
- Debt bears interest at LIBOR plus a margin. NAT estimated that a 100-basis-point LIBOR increase would add approximately $2.5 million to 2014 interest expense. A $1,000-per-day decrease in spot rates was estimated to reduce 2014 voyage revenue by approximately $7.4 million.
- Dividends are discretionary and subject to Bermuda law and credit-facility restrictions; the company cautions it may reduce or stop distributions. Dividend distributions in 2014 exceeded cash dividends paid because part was distributed in NAO shares.
Most important facts for investors to verify
- Confirm the reported 2014 TCE improvement and whether current spot rates support cash generation above NAT’s stated break-even level.
- Review vessel valuations and impairment sensitivity, including the approximately $255.3 million estimated market-value shortfall versus carrying value and the assumptions used in impairment testing.
- Assess liquidity against the $250.0 million debt balance, facility covenants, maturity, and $128.0 million of newbuilding commitments.
- Verify the NAO investment’s fair value, impairment treatment, and the filing’s reconciliation of the $2.6 million adjustment to net loss and other comprehensive loss.
- Track collection of the Nordic Harrier arbitration award and distinguish declared cash dividends from in-kind distributions.