Business Context and Reporting Period
This Form 6-K, filed on May 15, 2003, contains the 2002 Annual Report to Shareholders for Nordic American Tanker Shipping Limited (NAT). The Company, incorporated in Bermuda, owns and operates three double-hull Suezmax oil tankers. The vessels are chartered under "hell and high water" bareboat charters to BP Shipping Ltd., with obligations guaranteed by BP p.l.c. The reporting period covers the fiscal year ended December 31, 2002.
Key Financial Metrics (Year Ended Dec 31, 2002)
- Revenue: $18,057,989 (Composed of $14,782,500 Base Hire and $3,275,489 Additional Hire).
- Net Profit: $8,847,268.
- Earnings Per Share (Basic & Diluted): $0.91.
- Cash Flow from Operations: $12,750,908.
- Dividends Paid: $13,103,993 ($1.35 per share).
- Total Assets: $138,579,559.
- Long-Term Debt: $30,000,000 (Fixed interest rate of 5.80% via swap agreement; due Sept 2004).
- Cash and Equivalents: $277,783.
- Shareholders' Equity: $106,347,097.
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 36% from $28.36 million in 2001 to $18.06 million in 2002. This was driven by a significant drop in market rates, resulting in Additional Hire being awarded only for the 4th quarter of 2002, compared to multiple quarters in 2001.
- Profitability: Net profit fell 54% to $8.85 million from $19.39 million in 2001.
- Liquidity: Cash and cash equivalents decreased by approximately 56% to $277,783. Accounts receivable increased significantly to $3.28 million due to the timing of the 4th quarter Additional Hire payment.
- Dividends: Total dividends paid decreased 65% to $13.1 million, reflecting the lower net income and cash flow.
- Derivative Liability: The fair value liability for the interest rate swap increased from $778,000 in 2001 to $2,016,000 in 2002, recorded in accumulated other comprehensive loss.
Outlook, Risks, and Contingencies
- Outlook: Management expects base charter hire cash flows to be sufficient to meet operational requirements in 2003. No significant capital expenditures are planned. A dividend of $0.63 per share was declared for Q1 2003.
- Market Risk: Revenue is highly sensitive to spot market rates for Suezmax tankers. The 2002 decline was attributed to OPEC production cuts and a global economic slowdown.
- Concentration Risk: 100% of revenue and accounts receivable are derived from a single counterparty, BP Shipping Ltd.
- Material Contingency (Norwegian Tax Proceeding): The Norwegian Tax Assessment Board determined the Company is subject to Norwegian income tax for 1995-2000. The Company is vigorously contesting this. If the Board's view prevails, the Company estimates a potential tax liability of approximately $27.7 million (28% of $99 million "correction income") regarding past distributions, though the Company believes no tax is due. A decision from the Appeal Board is expected in Q2 or Q3 2003.
Investor Verification Checklist
- Verify the status and potential financial impact of the Norwegian tax proceeding, specifically the risk of retroactive taxation on past dividends.
- Confirm the renewal status of the bareboat charters with BP Shipping Ltd., which are critical to the Company's revenue model.
- Monitor the Company's cash balance ($277,783) relative to upcoming debt service obligations and dividend commitments.
- Review the terms of the $30 million loan due in September 2004 and the associated interest rate swap agreement.
- Assess the volatility of the "Additional Hire" component of revenue, which is dependent on external market rates.