Business Context and Reporting Period
This Form 6-K filing by Nordic American Tankers Ltd (NAT) covers the third quarter of 2011, with financial results reported for the three and nine months ended September 30, 2011. The press release was issued on November 7, 2011. NAT operates a homogeneous fleet of double-hull Suezmax tankers, which expanded to 19 trading vessels during the period, with a 20th vessel (Nordic Zenith) expected for delivery shortly after the report date.
Key Financial Metrics
- Revenue: Net voyage revenue for 3Q2011 was $11.24 million, a significant decrease from $23.84 million in 2Q2011.
- Profitability: The Company reported a net loss of $21.72 million for 3Q2011, resulting in a loss per share of -$0.46. This compares to a net loss of $10.00 million (-$0.21 per share) in 2Q2011.
- Cash Flow: Operating cash flow for 3Q2011 was negative $5.46 million, compared to positive $7.66 million in 2Q2011. Net cash used in operating activities for the nine months ended September 30, 2011, was $0.71 million.
- Debt and Liquidity: Net debt stood at $122 million ($6.1 million per vessel). The Company maintains a $500 million revolving credit facility maturing in September 2013, with $210 million drawn as of the report date. Cash and cash equivalents were $10.95 million as of September 30, 2011.
- Dividends: A dividend of $0.30 per share was declared for 3Q2011, maintaining the rate from the first two quarters of the year.
Material Changes vs. Prior Period
- Market Rates: Average daily gross rates for spot vessels dropped to approximately $8,000 in 3Q2011 from $16,600 in 2Q2011 due to a weak tanker market.
- Fleet Expansion: The fleet grew by 27% in less than a year, increasing from 15 vessels in late 2010 to 19 trading vessels, plus one newbuilding pending delivery.
- Off-Hire Days: Total off-hire days for the trading fleet in 3Q2011 were 46 days, largely attributed to the installation of fuel efficiency equipment.
- Acquisitions: The Company acquired the Nordic Aurora in September 2011 and received the Nordic Breeze newbuilding in August 2011.
Outlook, Risks, and Management Commentary
Management maintains a strong balance sheet strategy to support shareholders during soft market periods, paying dividends even when operating cash flow is negative. The Company expects 4Q2011 to show improvement over 3Q2011 as market rates have shown signs of recovery in October. NAT does not engage in derivatives and focuses on cost efficiency, noting that average daily operating costs per vessel were lower in 3Q2011 than in 2010.
Risks and Contingencies:
- Arbitration: NAT is involved in arbitration regarding the redelivery condition of the Nordic Harrier from charterer Gulf Navigation and regarding the newbuilding Nordic Galaxy. The Company expects to receive a minimum of $15 million from the Nordic Galaxy seller regardless of the arbitration outcome.
- Market Volatility: The Company highlights the uncertainty of the global economy, particularly in Europe and the US, and the impact of newbuilding supply on tanker rates.
- Pool Transition: NAT is transitioning from the Gemini pool to the Orion Tankers pool (a 50/50 joint venture with Frontline) by the end of 2011.
Investor Verification Checklist
- Verify the status and potential financial impact of the arbitration cases involving the Nordic Harrier and Nordic Galaxy.
- Confirm the delivery date and operational status of the Nordic Zenith newbuilding.
- Monitor the utilization of the $500 million credit facility and the Company's ability to service debt if spot rates remain low.
- Assess the impact of the transition to the Orion Tankers pool on operational costs and revenue stability.
- Review the reconciliation of non-GAAP operating cash flow to GAAP net income to understand the cash burn rate relative to reported losses.