Business Context and Reporting Period
This Form 6-K filing by Nordic American Tanker Shipping Limited (NAT) incorporates a press release dated August 6, 2010, reporting financial results for the second quarter of 2010 (ended June 30, 2010). NAT is a Bermuda-based tanker shipping company operating a homogeneous fleet of Suezmax vessels, primarily in the spot market. As of the reporting date, the company operated 16 vessels with plans to expand to a minimum of 20 vessels by the end of 2011.
Key Financial Metrics
- Revenue and Profit: Reported net income for 2Q10 was $7.9 million ($0.17 per share), down from $9.5 million ($0.21 per share) in 1Q10. Net income from continuing operations was $0.22 per share.
- Cash Flow: Operating cash flow (non-GAAP) was $24.0 million for 2Q10, compared to $28.4 million in 1Q10.
- Dividends: A quarterly dividend of $0.60 per share was declared, marking the 52nd consecutive quarter of dividend payments. This includes an extra $0.10 above the $0.50 warranted by operating cash flow.
- Debt and Liquidity: The company reported no net debt at the time of the report. It maintains a $500 million revolving credit facility maturing in September 2013. In June 2010, $200 million was drawn as a precautionary measure; $150 million of this was repaid by the report date.
- Market Rates: The average daily rate for spot vessels was $28,800 in 2Q10, a decrease from $32,400 in 1Q10.
- Market Capitalization: Stood at $1.37 billion as of August 5, 2010.
Material Changes vs. Prior Period
- Earnings Decline: Earnings per share decreased from $0.21 in 1Q10 to $0.17 in 2Q10. This was partially due to one-time charges totaling $0.05 per share, including loss of hire for the vessel Nordic Hunter and a $0.9 million employee bonus.
- Freight Rates: Spot market rates declined in 2Q10 compared to 1Q10, and the company noted that rates in 3Q10 were lower than in 2Q10.
- Fleet Status: The fleet grew to 16 vessels in operation by June 30, 2010, up from 15 at the end of 2009. However, one newbuilding contract was cancelled due to the seller's failure to deliver a compliant vessel, leading to a dispute for recovery of payments.
- Off-hire Days: Total off-hire days were 48, with 47 days attributed to the planned yard stay of the Nordic Hunter for upgrades.
Guidance, Outlook, and Risks
- Expansion Strategy: NAT plans to expand its fleet to at least 20 vessels by the end of 2011 and has the financial capacity to reach 24 vessels without issuing new equity. Two new Suezmax tankers were ordered from Samsung Heavy Industries for delivery in late 2011 at a total cost of $129.5 million.
- Dividend Policy: The company maintains a full dividend payout policy. Management expects dividends to correlate with Suezmax spot freight rates. In strong markets, dividends are expected to rise; in weak markets, the company aims to acquire vessels accretively.
- Financial Position: Management emphasizes a strong balance sheet with no net debt to navigate financial turmoil. The company is prepared to take on some debt in a weaker market environment to facilitate growth.
- Risks: Key risks include fluctuations in world economic conditions, OPEC production levels, bunker prices, vessel breakdowns, and the potential failure of sellers to complete vessel sales. The company explicitly states it does not attempt to predict future spot rates.
Investor Verification Checklist
- Verify the status of the legal dispute regarding the cancelled newbuilding contract and the recovery of payments.
- Confirm the actual delivery dates for the two new vessels ordered from Samsung Heavy Industries scheduled for 2011.
- Monitor spot Suezmax freight rates to assess the sustainability of the $0.60 per share dividend in upcoming quarters.
- Review the reconciliation of the non-GAAP operating cash flow figure ($24.0 million) to GAAP net income.
- Track the utilization of the $500 million credit facility and any changes in the company's net debt position.