Business Context and Reporting Period
This Form 6-K filing by Nordic American Tanker Shipping Ltd (NAT) covers the period ended September 30, 2002, with the report dated November 8, 2002. The Company operates three modern double-hull 150,000 dwt Suezmax tankers, all chartered to BP Shipping Ltd under long-term time charters. The contracts guarantee income 365 days a year with no off-hire periods, secured by a fixed minimum daily base rate of $13,500 per vessel, plus potential additional hire based on spot market rates.
Key Financial Metrics
| Metric | Q3 2002 | Q3 2001 | YTD 2002 | YTD 2001 |
|---|---|---|---|---|
| Revenue | $3,726,000 | $5,566,283 | $11,056,500 | $24,463,388 |
| Net Profit | $1,433,735 | $3,309,435 | $4,200,848 | $17,773,215 |
| Earnings Per Share | $0.15 | $0.34 | $0.43 | $1.83 |
| Cash Flow Per Share | $0.32 | $0.52 | $0.96 | $2.36 |
| Total Assets | $136,851,791 (Sep 30, 2002) | |||
| Cash on Hand | ||||
| Long-Term Debt | $30,000,000 | |||
| Dividend Declared (Q3) |
Dividend Details: The Board declared a dividend of $0.32 per share ($3,106,114 total) for the fourth quarter of 2002, payable in November 2002. This follows a trend of declining quarterly dividends due to the absence of Additional Hire payments.
Material Changes vs. Prior Period
- Revenue Decline: Q3 2002 revenue dropped 33% compared to Q3 2001 ($3.73M vs $5.57M). This decrease is attributed to the lack of "Additional Hire" payments in 2002, as spot charter rates did not exceed the threshold required to trigger them. In contrast, Q3 2001 included significant Additional Hire.
- Profitability: Net profit for Q3 2002 fell to $1.43M from $3.31M in the prior year, mirroring the revenue decline. Depreciation remained constant at $1.71M for the quarter.
- Liquidity: Cash and cash equivalents decreased from $630,868 at December 31, 2001, to $191,491 at September 30, 2002, reflecting dividend distributions and operating costs.
Outlook, Risks, and Contingencies
Outlook and Commentary: Management notes that the Company's income is secured by the BP Shipping charter contracts, which run for a minimum of seven years (with options to extend). The dividend policy aims to distribute amounts received under charters less fixed administrative and interest expenses. No Additional Hire was received for Q1, Q2, or Q3 2002.
Material Risk - Norwegian Tax Assessment: In September 2002, the Norwegian Tax Assessment Board determined that NAT is subject to Norwegian income taxation for the years 1995 through 2000. The Company contests this determination as erroneous and intends to appeal to the Norwegian Tax Assessment Appeal Board, with a decision expected in Q2 or Q3 2003. While the Company believes it had no taxable income for 1995-2000, it acknowledges potential tax liability for 2001 and 2002 if the claim is upheld. Any resulting tax payment would reduce cash available for shareholder distributions.
Controls: Management concluded that disclosure controls and procedures were adequate as of the evaluation date.
Investor Verification Checklist
- Verify the status of the Norwegian tax appeal and potential liability exposure for 2001-2002.
- Confirm the current spot market rates for Suezmax tankers to assess the likelihood of future "Additional Hire" payments.
- Review the cash burn rate relative to the $191,491 cash balance to ensure sufficient liquidity for upcoming dividend payments and debt service.
- Monitor the BP Shipping charter contract status and any potential for early termination or extension exercises.