Business Context and Reporting Period
Company: Nordic American Tanker Shipping Limited (Bermuda)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2001
Business Overview: The Company owns and operates three 1997-built, 151,459 dwt double-hull Suezmax oil tankers. All vessels are chartered to BP Shipping Ltd. under "hell and high water" bareboat charters. The charters include a fixed base rate and a variable additional hire component based on market rates. The initial charter terms expire approximately seven years after delivery (circa 2004), with extension options at the charterer's discretion.
Key Financial Metrics
| Metric | 2001 | 2000 | 1999 |
|---|---|---|---|
| Revenue | $28,359,568 | $36,577,262 | $14,782,500 |
| Net Profit | $19,385,476 | $27,668,966 | $5,774,678 |
| Net Operating Income | $20,990,008 | $29,187,643 | $7,355,176 |
| Cash Flow from Operations | $36,272,601 | $24,264,865 | $11,990,863 |
| Dividends Paid | $37,564,658 | $24,848,957 | $13,103,918 |
| Dividends Per Share | $3.87 | $2.56 | $1.35 |
| Basic EPS | $2.00 | $2.85 | $0.59 |
| Total Assets | $142,658,488 | $160,842,504 | $158,056,330 |
| Long-Term Debt | $30,000,000 | $30,000,000 | $30,000,000 |
| Cash and Equivalents | $630,868 | $1,922,925 | $2,507,017 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 22% to $28.4 million in 2001 compared to $36.6 million in 2000. This was driven by a significant drop in "Additional Hire" (variable market-based revenue), which fell from $21.8 million in 2000 to $13.6 million in 2001. Base Hire remained relatively stable at approximately $14.8 million.
- Profitability: Net profit decreased 30% to $19.4 million. Despite lower revenue, operating expenses decreased slightly due to lower insurance costs, while depreciation remained constant at approximately $6.8 million.
- Liquidity: Cash and cash equivalents declined by 67% to $630,868. This reduction was primarily due to increased dividend payouts ($37.6 million in 2001 vs. $24.8 million in 2000) and a decrease in charter hire revenue, partially offset by a large collection of accounts receivable from the prior year.
- Accounts Receivable: Accounts receivable dropped significantly from $10.2 million in 2000 to $170,180 in 2001, reflecting the collection of the 4th quarter 2000 additional hire payment in January 2001.
Outlook, Risks, and Management Commentary
- Market Conditions: Management notes that market rates used to determine additional hire decreased in 2001 due to OPEC production cuts and a global economic slowdown. Rates dropped sequentially throughout the year, with Q4 additional hire being minimal ($170,180).
- Charter Expiration Risk: The Company's charters with BP Shipping Ltd. are set to expire around 2004. The Company is highly dependent on BP Shipping Ltd. and its guarantor, BP p.l.c. If charters are not renewed, the Company may face lower rates, higher operating costs, and the need to compete in the spot market.
- Dividend Policy: The Company aims to distribute amounts substantially equal to charter hire received less expenses. A dividend of $0.36 per share was declared for Q1 2002. However, dividends are subject to board discretion and loan covenants.
- Debt and Hedging: The Company has a $30 million loan due in September 2004. An interest rate swap agreement fixes the interest rate at 5.80% annually. The fair value of this swap was recorded as a liability of $778,000 in 2001.
- Regulatory Risks: Future compliance with environmental regulations (e.g., IMO, OPA) could incur significant costs if the Company must operate vessels independently after charter expiration.
Investor Verification Checklist
- Charter Renewal Probability: Verify the likelihood of BP Shipping Ltd. exercising its extension options for the charters expiring circa 2004.
- Market Rate Sensitivity: Assess the impact of current Suezmax spot rates on the "Additional Hire" component of revenue, which is highly volatile.
- Debt Covenants: Confirm compliance with the $30 million loan covenants, specifically regarding minimum liquidity and equity value, especially given the cash balance decline.
- Dividend Sustainability: Evaluate whether future cash flows will support the high dividend payout ratio if market rates remain depressed or if charters are not renewed.
- Asset Valuation: Review the net book value of the vessels ($141.7 million) against current market values for similar Suezmax tankers, considering the potential for value fluctuation upon charter termination.