Business Context and Reporting Period
Company: Nordic American Tankers Limited (NAT)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2013
Business Overview: NAT is an international tanker company owning and operating a fleet of 20 double-hull Suezmax tankers. All vessels are employed in the spot market. In 2013, the Company fully consolidated its management subsidiary, Scandic American Shipping Ltd., and its pool manager, Orion Tankers Ltd., resulting in a change in accounting presentation from net to gross basis for voyage revenues and expenses.
Key Financial Metrics
| Metric (USD '000) | 9 Months Ended Sep 30, 2013 | 9 Months Ended Sep 30, 2012 |
|---|---|---|
| Voyage Revenue | 178,229 | 86,011 |
| Voyage Expenses | (128,422) | (11,527) |
| Net Voyage Revenue | 49,807 | 74,484 |
| Net Operating Loss | (74,918) | (37,625) |
| Net Loss | (83,329) | (40,658) |
| Time Charter Equivalent (TCE) Rate | ~$10,800/day | ~$14,500/day |
| Cash and Cash Equivalents | 90,471 | 55,511 |
| Long-term Debt | 250,000 | 250,000 |
| Undrawn Credit Facility | 180,000 | N/A |
Note: Voyage revenue and expense figures are not directly comparable year-over-year due to a change in accounting presentation from net (2012) to gross (2013) basis following the consolidation of subsidiaries.
Material Changes vs. Prior Period
- Accounting Presentation: The shift to gross basis reporting significantly increased reported Voyage Revenue ($178.2M vs $86.0M) and Voyage Expenses ($128.4M vs $11.5M). However, Net Voyage Revenue decreased 33.1% to $49.8M due to lower market rates and increased off-hire days.
- Market Conditions: The Suezmax TCE rate declined 25.5% to approximately $10,800 per day. Off-hire days increased 138.4% to 832 days, primarily due to planned dry-docking.
- Acquisitions: NAT acquired 100% of Scandic American Shipping Ltd. (the Manager) and the remaining 50% of Orion Tankers Ltd. in early 2013. This resulted in a one-time settlement loss of $5.0 million and increased General and Administrative expenses by $1.8 million due to consolidation.
- Capital Structure: In April 2013, the Company issued 11.2 million shares at $9.60 per share, raising approximately $107.6 million. Total shareholders' equity increased to $817.9 million.
Outlook, Risks, and Unusual Items
- Dividends: The Company declared a quarterly dividend of $0.16 per share for the third quarter, payable to shareholders of record on November 29, 2013.
- Strategic Expansion (NAO): On November 1, 2013, NAT announced the establishment of Nordic American Offshore Ltd. (NAO) to acquire six Platform Supply Vessels (PSVs). NAT committed to purchasing approximately $65 million of NAO shares, expecting a 26% ownership stake. NAO plans to list on the NYSE in Q1 2014.
- Legal Contingency: An arbitration case regarding the redelivery condition of the vessel Nordic Harrier from a previous charterer (Gulf Navigation Company LLC) is pending. The Company seeks compensation for dry-docking expenses but has not reached an agreement.
- Market Risks: Management cites uncertainty regarding global economic conditions, specifically in Europe and the U.S., and the impact of increased U.S. domestic crude production on import demand. Fleet growth and soft freight rates remain key risks.
Investor Verification Checklist
- Net vs. Gross Reporting: Verify the impact of the accounting change on year-over-year comparisons; focus on Net Voyage Revenue and TCE rates rather than gross revenue.
- Off-Hire Impact: Assess the effect of 832 off-hire days (vs. 349 in 2012) on future earnings potential and dry-docking schedules.
- NAO Transaction: Monitor the closing of the Nordic American Offshore Ltd. acquisition and the subsequent listing on the NYSE.
- Arbitration Outcome: Track the resolution of the Nordic Harrier dispute for potential recovery of costs.
- Liquidity Position: Confirm the utilization of the $430 million credit facility and the sufficiency of cash reserves ($90.5M) to cover operating losses and debt service.