Business context and reporting period
Nordic American Tankers Limited’s Form 20-F reports the fiscal year ended December 31, 2011, with audited U.S. GAAP financial statements. It is an annual filing, not a standalone Q4 report; the filing does not provide clear standalone fourth-quarter financial results. The company owned 20 double-hull Suezmax tankers, all employed in the spot market through cooperative arrangements. Its fleet grew by three vessels during 2011.
Key financial metrics
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Voyage revenue | $94.8 million | $126.4 million |
| Net voyage revenue | $79.9 million | $126.4 million |
| Average TCE rate per day | $12,777 | $22,841 |
| Vessel operating expense | $54.9 million | $47.1 million |
| General and administrative expense | $15.4 million | $16.0 million |
| Depreciation | $64.6 million | $62.5 million |
| Operating income (loss) | ($71.2 million) | $0.8 million |
| Net income (loss) | ($72.3 million) | ($0.8 million) |
| Basic loss per share | ($1.53) | ($0.02) |
| Cash from operating activities | ($12.2 million) | $57.8 million |
At year-end, cash was $24.0 million, total assets $1.125 billion, long-term debt $230.0 million and shareholders’ equity $867.6 million. The company had a $500 million revolving credit facility, with $270 million undrawn; the facility matured in 2013 and was secured by vessel mortgages and assigned earnings and insurance. The company reported compliance with its covenants, including a minimum book-equity requirement of $150 million. Dividends paid during 2011 totaled $54.3 million, or $1.15 per share.
Material changes versus the prior comparable period
- Net voyage revenue fell 36.8% and average TCE rates declined 44.1%, primarily because of weaker spot rates. Higher revenue days, reflecting fleet growth, partly offset the rate decline.
- Operating cash flow swung from $57.8 million provided in 2010 to $12.2 million used in 2011. Investing cash outflow was $81.8 million, mainly for vessel deliveries and drydocking; financing provided $100.7 million, including $155 million of credit-facility drawdowns and $54.3 million of dividends paid.
- Debt increased from $75 million to $230 million. Cash increased from $17.2 million to $24.0 million.
- The company moved its vessels from the Gemini Tankers arrangement to the Orion Tankers pool in November 2011. Orion is owned equally by NAT and Frontline, making it a related party.
Outlook, risks, contingencies and unusual items
- Management reported a stronger tanker market in early 2012, followed by a weaker and volatile environment; the company did not predict future spot rates. Industry commentary described 2011 as an exceptionally weak tanker year.
- Eight vessels were scheduled for class-renewal drydocking in 2012. Management estimated 160 off-hire days and $16 million of drydocking costs, to be funded from company resources, and said working capital was sufficient for current requirements.
- The company recorded a $16.2 million loss related to the Nordic Galaxy arbitration after the tribunal found the undelivered vessel was in deliverable condition. The loss did not affect net cash flow. A final award also required NAT to bear approximately $1.2 million of the seller’s legal costs; the filing says this was recognized in 2011. NAT received the $9 million contract deposit in February 2012.
- NAT was pursuing arbitration over repair and drydocking costs for Nordic Harrier following its return from a bareboat charter in poor condition; proceedings were expected to conclude in 2013.
- Management estimated that the fleet’s aggregate carrying value exceeded broker-estimated market value by approximately $325 million. No vessel impairment was recorded because management estimated undiscounted future cash flows would exceed carrying values; the estimates depend on uncertain freight rates and other assumptions.
- Principal risks include spot-rate and vessel-value volatility, tanker oversupply, fuel and operating costs, variable-rate debt, refinancing and covenant risks, regulatory and pollution liabilities, piracy, and the company’s ability to sustain dividends. The filing cautions that dividends are discretionary and may be reduced or suspended.
- In January 2012, the company completed an offering of 5.5 million shares at $15.57 per share, strengthening equity by $75.9 million. The board declared a $0.30-per-share fourth-quarter 2011 dividend, paid in March 2012.
- The manager is controlled by the CEO and his family; related-party management and administrative costs were $3.8 million in 2011. Management reported effective disclosure controls and internal control over financial reporting; the independent auditor gave an unqualified opinion.
Most important facts an investor should verify
- Whether spot-market rates and TCE earnings recovered after year-end, and how much of any improvement flowed through to cash generation.
- The sustainability of the dividend given negative 2011 operating cash flow, dividend payments, and upcoming drydocking expenditures.
- Current debt, undrawn facility availability, maturity and covenant headroom after the January 2012 equity offering and subsequent activity.
- The basis and sensitivity of the approximately $325 million vessel market-value gap and management’s no-impairment conclusion.
- The outcomes and financial effects of the Nordic Galaxy and Nordic Harrier disputes, including recovery of the Harrier repair costs.
- The terms, performance, and related-party safeguards for the Orion pool and the manager controlled by the CEO’s family.