NAT

Business Context and Reporting Period

Company: Nordic American Tanker Shipping Limited (NAT)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2009 (Unaudited)
Filing Date: January 21, 2010
Business Overview: NAT is an international tanker company specializing in modern double-hull Suezmax tankers. As of September 30, 2009, the fleet consisted of 16 vessels (14 operating, 2 newbuildings pending delivery). The company primarily operates vessels in the spot market or spot-related time charters, with one vessel on a long-term bareboat charter.

Key Financial Metrics

Liquidity: The company reported no long-term debt outstanding as of September 30, 2009, and maintained a cash balance of $88.3 million. Management believes working capital is sufficient to fund ongoing operations and capital commitments.

Material Changes vs. Prior Period

• Revenue Decline: Voyage revenue decreased 47.9% to $97.5 million, and Net Voyage Revenue decreased 48.3% to $91.8 million. This was primarily driven by a significant drop in average TCE rates from $59,900 to $26,800 per day due to weak spot market conditions.
• Profitability: Net income plummeted 94.8% to $5.3 million from $101.6 million in the prior year period.
• Expense Increases: Vessel operating expenses (excluding depreciation) rose 18.6% to $31.9 million due to fleet expansion (two new vessels added in 2009) and higher crew, lubricating oil, and maintenance costs. General and administrative expenses increased 22.4% to $13.3 million, partly due to non-cash share-based compensation charges.
• Off-Hire Days: Total off-hire days decreased 50.7% to 64 days from 130 days, reflecting fewer planned drydockings.
• Capital Structure: The company repaid all long-term debt during the period. Financing activities turned positive ($130.5 million inflow) due to $236.7 million in proceeds from common stock issuance, offset by dividend payments and debt repayments.

Outlook, Risks, and Unusual Items

• Fleet Expansion: The company acquired two additional vessels in late 2009 (Nordic Mistral and Nordic Passat) for $51.5 million each, financed by cash on hand. Two newbuildings (Nordic Galaxy and Nordic Vega) are expected to be delivered in May and August 2010, with remaining installments of $136.2 million due.
• Dividends: A quarterly dividend of $0.10 per share was declared in November 2009 and paid in December 2009.
• Stock Options: In August 2009, the company cancelled all outstanding stock options under its 2004 Stock Incentive Plan, resulting in a $2.3 million cash outlay to settle the difference between strike prices and market value.
• Risks: Key risks include fluctuations in charter rates and vessel values, changes in global oil demand, bunker price volatility, potential disruption of shipping routes due to piracy or political events, and vessel breakdowns.

Investor Verification Checklist

• Debt Status: Verify the company remains debt-free and has sufficient cash reserves to cover the $136.2 million in remaining newbuilding installments due in 2010.
• Market Rates: Monitor current Suezmax spot market TCE rates to assess if the $26,800/day average from 2009 is sustainable or if rates have recovered.
• Delivery Schedule: Confirm the delivery dates for the two newbuildings (Nordic Galaxy and Nordic Vega) and the secondhand vessel (Nordic Passat) to ensure no further delays impact cash flow.
• Operating Costs: Review trends in bunker fuel prices and crew costs, which significantly impact net voyage revenue in the spot market.
• Dividend Policy: Assess the sustainability of the dividend policy given the sharp decline in net income and the capital requirements for fleet expansion.