Business Context and Reporting Period
Company: Nordic American Tanker Shipping Limited (NAT)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2007 (Q1 2007)
Filing Date: July 19, 2007
NAT is an international tanker company owning a fleet of twelve modern double-hull Suezmax tankers (approx. 150,000 dwt each). As of March 31, 2007, the fleet composition included nine vessels operating in spot market pools, two on time charters with spot-related rates to BP Shipping, and one on a fixed-rate bareboat charter to Gulf Navigation.
Key Financial Metrics
| Metric (USD '000) | Q1 2007 | Q1 2006 |
|---|---|---|
| Voyage Revenue | 58,049 | 45,180 |
| Net Voyage Revenue (Non-GAAP) | 44,604 | 34,959 |
| Net Income | 22,808 | 19,084 |
| Operating Cash Flow | 32,095 | 35,885 |
| Depreciation Expense | 10,188 | 6,285 |
| Total Debt Outstanding | 176,500 | 20,900 |
| Cash and Equivalents | 19,896 | 17,994 |
| Earnings Per Share (Basic/Diluted) | $0.85 | $1.07 |
Liquidity: As of March 31, 2007, the company held $19.9 million in cash. The company maintains a $500 million revolving credit facility with $323.5 million undrawn as of March 31, 2007. Total indebtedness increased to $176.5 million as of March 31, 2007, and was reported at $185.5 million as of June 30, 2007.
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenue increased 28.5% to $58.0 million, driven primarily by fleet expansion (12 vessels in 2007 vs. 8 in 2006) and a 45.4% increase in vessel revenue days (1,047 vs. 720).
- Rate Decline: Despite revenue growth, the average Time Charter Equivalent (TCE) rate for spot market vessels decreased to $44,900 per day in Q1 2007 from $53,000 in Q1 2006.
- Expense Increases: Vessel operating expenses (excluding depreciation) rose 65.9% to $7.3 million due to fleet growth and industry-wide cost increases in crewing, lubricating oil, and maintenance. Depreciation increased 61.9% to $10.2 million due to the larger asset base.
- Administrative Costs: General and administrative expenses decreased 57.9% to $1.6 million. The prior year included a non-cash share-based compensation charge of approximately $2.5 million related to a follow-on offering.
- Debt Expansion: Total debt surged from $20.9 million in Q1 2006 to $176.5 million in Q1 2007, reflecting $270.6 million in draws to finance vessel acquisitions, partially offset by $115.0 million in repayments from a stock offering in October 2006.
Outlook, Risks, and Unusual Items
- Market Outlook: The company aims to capitalize on higher market rates through spot market operations, though it notes that spot rates are volatile and dependent on oil demand and vessel supply.
- Management Fee Adjustment: The annual fixed management fee payable to Scandic American Shipping Ltd. increased from $100,000 to $225,000 effective July 1, 2007.
- Dividends: A dividend of $1.24 per share was declared and paid in May 2007 for Q1 2007.
- Risks: The company is exposed to fluctuations in tanker spot rates and operating costs (fuel, crew, maintenance). Debt levels are significant, secured by mortgages on vessels, with interest rates tied to LIBOR plus a margin.
- Subsequent Events: In May 2007, the Board decided to implement a Pension Plan for the CEO, expected to be finalized in the second half of 2007.
Investor Verification Checklist
- Verify the current utilization rate of the $500 million credit facility and the specific interest margin applied based on the loan-to-vessel value ratio.
- Confirm the current spot market TCE rates for Suezmax tankers to assess the sustainability of the Q1 2007 rate decline.
- Review the specific terms of the bareboat charter with Gulf Navigation regarding the two one-year extension options.
- Monitor the impact of the increased management fee ($225,000) on future administrative expenses.
- Assess the company's ability to service $176.5 million+ in debt given the volatility of spot market revenues.