Business Context and Reporting Period
Company: Nordic American Tanker Shipping Limited (NAT)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2009
Jurisdiction: Bermuda (Incorporated); NYSE Listed (Symbol: NAT)
Business Overview: NAT owns and operates a fleet of modern double-hull Suezmax crude oil tankers. As of December 31, 2009, the fleet consisted of 16 operating vessels, with 14 employed in the spot market or spot-related charters via cooperative arrangements (Frontline Ltd. and Stena Bulk AB). The company operates under a management agreement with Scandic American Shipping Ltd., controlled by Chairman Herbjørn Hansson.
Key Financial Metrics (Year Ended Dec 31, 2009)
| Metric | 2009 (USD '000) | 2008 (USD '000) |
|---|---|---|
| Voyage Revenue | 124,370 | 228,000 |
| Net Operating Income | 2,418 | 121,288 |
| Net Income | 1,012 | 118,844 |
| Basic EPS | $0.03 | $3.63 |
| Net Cash from Operating Activities | 63,195 | 127,900 |
| Dividends Paid | 95,431 | 165,886 |
| Cash and Cash Equivalents (Period End) | 30,496 | 31,378 |
| Total Assets | 946,578 | 813,878 |
| Total Debt | 0 | 15,000 |
| Total Shareholders' Equity | 934,084 | 788,586 |
Note: All figures in thousands of USD unless otherwise noted. The company reported zero total debt at year-end 2009 after repaying borrowings under its Credit Facility.
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenue decreased 45.4% to $124.4 million, primarily due to a significant drop in spot market charter rates (average $24,600/day in 2009 vs. $54,900/day in 2008). This was partially offset by an increase in revenue days from fleet expansion.
- Profitability Collapse: Net operating income plummeted 98.0% to $2.4 million, and Net Income fell 99.2% to $1.0 million. The decline was driven by lower spot rates and increased vessel operating expenses ($43.1 million in 2009 vs. $35.6 million in 2008) due to fleet expansion and higher maintenance costs.
- Debt Elimination: The company repaid all outstanding debt under its $500 million Credit Facility during 2009, resulting in zero total debt on the balance sheet as of December 31, 2009.
- Equity Raise: The company completed two follow-on public offerings in January and May 2009, raising net proceeds of approximately $236.7 million. These proceeds were used to repay debt and fund vessel acquisitions.
- Dividend Reduction: Total dividends paid decreased to $95.4 million ($2.35 per share) from $165.9 million ($4.89 per share) in 2008, reflecting the lower cash flow generation.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Management Commentary
- Market Conditions: Management notes the tanker industry remains cyclical and volatile. While the Suezmax market showed resilience in early 2010, rates remain subject to volatility. The company does not predict future spot rates.
- Fleet Expansion: The company expects to take delivery of two newbuilding vessels in 2010 and two more in 2011. It also acquired two second-hand vessels (Nordic Mistral and Nordic Passat) in late 2009/early 2010.
- Cooperation Strategy: The company plans to place all vessels into the "Gemini Tankers LLC" cooperation in 2010, alongside Frontline Ltd. and Teekay Corporation, to leverage economies of scale.
Risks and Contingencies
- Spot Market Dependence: Approximately 87.5% of the operating fleet (14 of 16 vessels) is exposed to spot market rates. A decline in these rates could materially affect earnings and dividend capacity.
- Regulatory and Environmental: Compliance with IMO regulations (MARPOL Annex VI) regarding sulfur emissions and potential future greenhouse gas regulations could increase operating costs.
- Operational Risks: Risks include piracy (particularly in the Gulf of Aden), vessel damage, dry-docking costs, and potential impairment charges if vessel values decline further.
- Counterparty Risk: Reliance on cooperative arrangements and charterers for revenue; failure of counterparties to pay could impact cash flows.
Unusual Items
- Stock Option Cancellation: In August 2009, the company cancelled all outstanding stock options (320,000 options) under its 2004 Stock Incentive Plan. This resulted in a cash outlay of $2.3 million and a non-cash charge of $0.2 million, impacting General and Administrative expenses.
Key Facts for Investor Verification
- Debt-Free Status: Verify the sustainability of the zero-debt position and the company's reliance on equity markets for future capital needs given the cyclical nature of the industry.
- Spot Rate Sensitivity: Assess the impact of current and projected Suezmax spot rates on future earnings, given that 14 of 16 vessels are spot-exposed.
- Dividend Policy: Confirm the company's ability to maintain dividend payments, which are tied to net operating cash flow, in a low-rate environment.
- Newbuilding Deliveries: Monitor the delivery schedule and financing of the four newbuilding vessels (two in 2010, two in 2011) and the associated capital commitments ($182.6 million in obligations as of Dec 31, 2009).
- Related Party Transactions: Review the management agreement with Scandic American Shipping Ltd. (controlled by the CEO) and the associated fees and share-based compensation.