Nordic American Tankers Limited — 2013 Form 20-F
Reporting period: Fiscal year ended December 31, 2013. This is an annual report, not a standalone fourth-quarter filing; fourth-quarter information is discussed where disclosed. Figures are in U.S. dollars unless noted. The company owns 20 Suezmax tankers, all employed in the spot market through its Orion Tankers pool.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Voyage revenue | $243.7 million | $130.7 million |
| Net voyage revenue | $70.2 million | $92.0 million |
| Operating loss | $93.6 million | $67.9 million |
| Net loss | $105.4 million; $1.64 per share | $73.2 million; $1.39 per share |
| Cash used in operating activities | $47.3 million | $0.6 million |
| Cash and cash equivalents at year-end | $65.7 million | $55.5 million |
| Long-term debt at year-end | $250.0 million | $250.0 million |
Gross voyage revenue rose 86.5%, but comparisons are affected by the shift to gross revenue and expense presentation after the Orion pool became wholly owned. On a net voyage revenue basis, revenue fell 23.7%; the average TCE rate declined 18.4% to $11,099 per day, and TCE days fell 6.4%. Off-hire days rose to 971, including 757 planned drydocking days. Vessel operating expenses were $64.9 million, roughly $8,700 per vessel day.
The net loss widened amid lower spot-market earnings, higher interest expense ($11.5 million versus $5.9 million), depreciation of $74.4 million, and one-time costs. General and administrative expense increased 33% to $19.6 million, including acquisition and arbitration-related charges; a separate $5.0 million settlement loss related to the Scandic acquisition was recorded. No vessel impairment was recorded in 2013, compared with $12.0 million in 2012.
Year-end current assets were $131.4 million and current liabilities $19.3 million, implying working capital of approximately $112.1 million. The $430 million revolving credit facility had $250 million drawn and $180 million available, matures in October 2017, is secured by vessel mortgages and related assignments, and carries variable LIBOR-based interest. NAT reported covenant compliance at year-end. A 100-basis-point LIBOR increase would have added approximately $1.8 million to 2013 interest expense. Net debt, using reported cash, was approximately $184.3 million.
Financing cash flow was $130.9 million, principally reflecting $172.6 million of net proceeds from two share offerings, offset in part by $41.8 million of dividends paid. Investing cash use was $73.3 million, including the $65 million investment in Nordic American Offshore (NAO). Year-end total assets were $1.136 billion and shareholders’ equity $855.0 million.
Material changes and unusual items
- NAT acquired the remaining 50% of Orion in January 2013 and acquired Scandic American Shipping, its manager, in January 2013. Consolidation began on the respective acquisition dates, so 2013 results are not fully comparable with 2012; the filing identifies $2.2 million of 2013 G&A as arising from consolidation.
- NAT invested $65 million for a 26% interest in NAO, a platform-supply-vessel company, accounted for under the equity method. It also received 833,333 performance-based warrants, valued at $0.9 million at year-end.
- Two 2013 offerings issued 20.6 million shares in total; the company also issued 1.9 million shares as part of the Scandic purchase consideration. Shares outstanding were 75.4 million at December 31, 2013.
- The company declared $0.64 per share in dividends for 2013, down from $1.20 in 2012. A $0.12-per-share fourth-quarter 2013 dividend was declared in January 2014 and paid in March 2014.
- Broker estimates cited in the filing put the fleet’s aggregate market value about $436 million below its carrying value at year-end. Management’s impairment tests nevertheless identified no impairment in 2013, using forecast cash flows and historical market-rate assumptions.
Outlook, commentary, and risks
NAT provides no specific earnings or dividend guidance. Management describes tanker demand and spot rates as cyclical and volatile, and says it believes spot-market employment can yield higher earnings over time than longer-term charters. The filing cites an industry forecast for a strengthening tanker market in 2014 and a stronger recovery in 2015–2016, while noting excess capacity and uncertainty. Early 2014 Suezmax rates fell sharply from January highs before recovering somewhat by late March; these are post-year-end conditions, not 2013 results.
Key risks include dependence on spot rates, fuel and operating-cost variability, off-hire and drydocking, vessel-value declines and possible covenant pressure, variable-rate debt, financing availability, environmental and pollution liabilities, and the ability to sustain dividends. Dividend payments are discretionary, subject to Bermuda law and credit-facility restrictions; 2013 dividends exceeded operating cash flow. The company also notes that its estimated vessel values and impairment forecasts rely on uncertain assumptions.
A London arbitration panel ruled for NAT in January 2014, awarding $10.2 million plus direct costs and interest in its Nordic Harrier dispute with Gulf Navigation. NAT stated that any award would be recorded when received. The filing reports no other claims expected by management to materially affect financial position, while acknowledging litigation could affect results in a given year. Management and the auditor reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- How much of the reported revenue increase reflects gross-versus-net presentation rather than improved underlying charter economics; review net voyage revenue, TCE rates, and off-hire days.
- Whether operating cash generation and liquidity can support debt service, planned vessel needs, and dividends if spot rates remain weak; confirm facility covenants and available borrowing capacity.
- The assumptions behind the $436 million estimated vessel market-value shortfall and the no-impairment conclusion, especially forecast charter rates, utilization, and vessel lives.
- Whether the Nordic Harrier arbitration award and announced post-year-end dividends were received or paid as described, and whether the NAO investment delivers the expected shareholder benefit.
- The effects of share issuance and dilution, acquisition-related costs, and the non-comparable consolidated reporting base on per-share results.