NAT

Business Context and Reporting Period

Nordic American Tanker Shipping Limited (NAT) is a Bermuda-incorporated company owning and operating a fleet of twelve modern double-hull Suezmax crude oil tankers. This Form 20-F covers the fiscal year ended December 31, 2006. The company operates primarily in the spot market and on spot-market related time charters, with one vessel on a long-term bareboat charter. The company is a large accelerated filer and is listed on the New York Stock Exchange under the symbol "NAT."

Key Financial Metrics (Year Ended Dec 31, 2006)

Dividends: Total dividends paid in 2006 were $122.6 million ($5.85 per share). The company declared a dividend of $1.00 per share for Q4 2006 (paid March 2007) and $1.248 per share for Q1 2007 (paid May 2007).

Material Changes vs. Prior Period

• Revenue Growth: Voyage revenue increased 49.8% to $175.5 million, driven by a 48.8% increase in revenue days (from 2,193 to 3,264) due to the acquisition of four new vessels in 2006.
• Profitability: Net income rose 45.5% to $67.4 million. Net operating income increased 47.8% to $72.2 million.
• Expense Increases:
  • Voyage expenses increased 29.7% to $40.2 million due to fleet expansion.
  • Vessel operating expenses (excluding depreciation) rose to $21.1 million from $11.2 million, attributed to higher industry-wide costs for crewing, lubricating oil, and repairs.
  • General & administrative expenses increased to $12.8 million, largely due to a $6.3 million non-cash stock-based compensation charge related to follow-on offerings.
  • Depreciation expense increased to $29.3 million due to the addition of new assets.
• Debt and Liquidity: Total debt increased to $173.5 million (drawn from a $500 million credit facility) to finance fleet expansion. Net cash from operating activities more than doubled to $106.6 million.

Outlook, Risks, and Management Commentary

• Market Conditions: Management notes that 2006 was the third strongest tanker market since 1973. Suezmax spot rates averaged $48,000 per day, unchanged from 2005. The company expects earnings to vary due to the cyclical nature of the industry.
• Strategic Focus: The company continues to expand its fleet and relies heavily on spot market rates (11 of 12 vessels). It maintains a policy of distributing available cash to shareholders rather than accumulating cash reserves.
• Key Risks:
  • Cyclicality: Volatility in charter rates and vessel values could adversely affect earnings and dividend capacity.
  • Regulatory Compliance: Stricter environmental regulations (IMO, OPA) and safety standards may increase operating costs or require capital expenditures.
  • Debt Covenants: The $500 million credit facility requires maintaining book equity of at least $150 million and restricts dividends if covenants are breached.
  • Operational Risks: Exposure to piracy, terrorism, political instability, and vessel arrest.
• Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ due to economic conditions, oil supply/demand, and regulatory changes.

Investor Verification Checklist

• Fleet Utilization: Verify the current employment status of the 11 spot-market vessels and the impact of current spot rates on projected TCE (Time Charter Equivalent) earnings.
• Debt Covenants: Confirm compliance with the $150 million book equity covenant and loan-to-value ratios under the $500 million credit facility.
• Dividend Sustainability: Assess whether current cash flow from operations supports the historical dividend payout ratio, especially given the high payout rate relative to net income.
• Regulatory Costs: Monitor upcoming drydocking schedules and potential capital expenditures required for compliance with evolving environmental regulations (e.g., MARPOL, OPA).
• Related Party Transactions: Review the Management Agreement with Scandic American Shipping Ltd. (owned by the CEO) and the associated non-cash compensation expenses.