Business Context and Reporting Period
This Form 6-K filing by Nordic American Tanker Shipping Ltd (NAT) covers the third quarter of 2009, with results announced on November 9, 2009. NAT operates a fleet of Suezmax tankers, primarily on the spot market, with a strategy focused on fleet expansion and a full dividend payout policy. The company reported a net loss for the quarter due to depressed freight rates but maintained its dividend policy for the 49th consecutive quarter.
Key Financial Metrics
- Revenue: Net voyage revenue for Q3 2009 was $17.7 million, down from $29.7 million in Q2 2009.
- Profitability: Net loss for Q3 2009 was $11.8 million ($-0.28 per share). Income from vessel operations was a loss of $11.4 million.
- Cash Flow: Operating cash flow (non-GAAP) for Q3 2009 was $3.8 million, compared to $17.0 million in Q2 2009.
- Dividends: A dividend of $0.10 per share was declared for Q3 2009, payable in December 2009. This is a reduction from the $0.50 per share paid in Q2 2009.
- Debt and Liquidity: The company reported no net debt as of the report date. It holds an undrawn revolving credit facility of $500 million maturing in September 2013. Cash and cash equivalents totaled $88.3 million as of September 30, 2009.
- Fleet Status: The fleet consisted of 16 vessels at the time of the report, with two additional vessels under acquisition and two newbuildings expected in 2010, targeting a total of 18 vessels.
Material Changes vs. Prior Period
- Freight Rates: Average daily spot rates for NAT's vessels dropped to $14,075 in Q3 2009 from $26,300 in Q2 2009. The Imarex index for Suezmax tankers averaged $13,000 per day in Q3 2009 versus $20,569 in Q2 2009.
- Operational Performance: The company experienced 40 days of total off-hire in Q3 2009 (25 days unplanned, 15 days planned), impacting revenue generation.
- Financial Results: The shift from a near-break-even result in Q2 2009 to a significant net loss in Q3 2009 reflects the sharp decline in the spot tanker market.
- Fleet Expansion: NAT acquired three vessels in 2009 and agreed to acquire a fourth (the 18th vessel) in November 2009, increasing the fleet size by one-third since the start of the year.
Guidance, Outlook, and Risks
- Outlook: Management expressed optimism for Q4 2009, noting that the freight market started on a positive note compared to Q3. Imarex rates were projected to average around $20,000 per day for November and December 2010.
- Strategy: The company maintains a policy of growing the fleet when accretive to dividends. It plans to finance upcoming vessel deliveries from cash on hand and does not intend to raise capital from the market for current or near-term acquisitions.
- Risks: Key risks include volatility in spot freight rates, global economic contraction reducing oil demand, and potential delays or cancellations of newbuilding deliveries by competitors. The company noted that financial instability poses serious issues for debt-laden competitors, whereas NAT's net-zero debt position provides a strategic advantage.
- Unusual Items: Q3 2009 included one-time charges and non-cash general and administrative items totaling $0.05 per share. The company does not engage in derivatives.
Investor Verification Checklist
- Verify the actual delivery dates and financing terms for the 18th vessel and the two newbuildings scheduled for 2010.
- Monitor the Imarex Suezmax spot rates to assess the accuracy of management's Q4 2009 revenue projections.
- Confirm the utilization of the $500 million credit facility and any changes to the company's net debt position following the acquisition of new vessels.
- Review the reconciliation of operating cash flow to net income to understand the impact of non-cash charges on reported losses.
- Assess the impact of the 40 days of off-hire in Q3 2009 on future operational efficiency and maintenance schedules.