Business Context and Reporting Period
This Form 6-K filing by Nordic American Tanker Shipping Limited (NAT) covers the fourth quarter of 2009, with the report dated February 12, 2010. NAT operates a fleet of Suezmax tankers primarily in the spot market. The company reported a strengthening spot market in 4Q09 compared to 3Q09 and announced a dividend for the 50th consecutive quarter. The fleet size expanded to 16 trading vessels by the end of 2009, with two newbuildings expected in 2010 to bring the total to 18 units.
Key Financial Metrics
- Revenue: Net voyage revenue for 4Q09 was $23.6 million, compared to $17.7 million in 3Q09.
- Profitability: Net income for 4Q09 was a loss of $4.3 million ($-0.10 per share), an improvement from the $11.8 million loss ($-0.28 per share) in 3Q09. Adjusted income from ongoing operations was $-0.06 per share after excluding $1.7 million in one-time charges.
- Cash Flow: Operating cash flow (non-GAAP) for 4Q09 was $10.5 million, significantly higher than the $3.8 million recorded in 3Q09.
- Dividends: A dividend of $0.25 per share was declared for 4Q09, up from $0.10 per share in 3Q09. The total dividend payment for the quarter was approximately $10.6 million.
- Debt and Liquidity: The company reported no net debt as of December 31, 2009. Cash and cash equivalents totaled $30.5 million. NAT maintains an undrawn revolving credit facility of $500 million maturing in September 2013.
- Capital Structure: A follow-on equity offering in January 2010 raised $137 million before costs, increasing the share count from approximately 42.2 million to 46.9 million shares.
Material Changes vs. Prior Period
- Market Rates: The average daily rate for NAT's spot vessels increased to $18,700 in 4Q09 from $14,075 in 3Q09. Industry benchmark rates (Imarex) rose to $23,682 per day in 4Q09 from $13,012 in 3Q09.
- Fleet Expansion: NAT acquired two additional vessels in late 2009 (Nordic Mistral delivered November 2009; Nordic Passat expected by end of February 2010), increasing the active fleet from 13 vessels in 2Q09 to 16 vessels by year-end.
- Financial Performance: The company narrowed its net loss significantly quarter-over-quarter due to higher spot rates and improved utilization, despite increased depreciation from the larger fleet.
Guidance, Outlook, and Risks
Outlook: Management expects the spot Suezmax market to fluctuate unpredictably but notes that rates in 1Q10 started well above 4Q09 levels. The company's strategy relies on a full dividend payout policy tied to spot market performance. Management believes the company is positioned to acquire vessels accretively in weaker markets due to its lack of net debt.
Risks and Contingencies:
- Market Volatility: Freight rates are highly volatile and dependent on global economic conditions and OPEC production levels.
- Operational Risks: Risks include vessel breakdowns, off-hire time, bunker price fluctuations, and potential disruptions to shipping routes.
- Financial Risks: While NAT has no net debt, competitors with high leverage may face distress, potentially impacting the broader market. The company does not use derivatives to hedge against market movements.
Unusual Items: The 4Q09 results included $1.7 million in one-time charges. Additionally, the company incurred $1.7 million in non-cash charges related to share-based compensation and pension costs included in G&A expenses.
Investor Verification Checklist
- Verify the delivery date and condition of the Nordic Passat (expected end of February 2010) and the two newbuildings (Nordic Galaxy and Nordic Vega) scheduled for mid-to-late 2010.
- Confirm the utilization of the $137 million raised in the January 2010 follow-on offering for vessel acquisitions.
- Monitor the average daily spot rates for Suezmax tankers to assess the sustainability of the $0.25 per share dividend level.
- Review the company's cash breakeven level (estimated below $10,000 per day per vessel) against current market rates to gauge dividend safety.
- Track the status of the $500 million revolving credit facility and any potential drawdowns for future acquisitions.