UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13944
NORDIC AMERICAN TANKER SHIPPING LIMITED
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(Exact name of Registrant as specified in its charter)
ISLANDS OF BERMUDA
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(Jurisdiction of incorporation or organization)
Reid House
31 Church Street
Hamilton HM FX
Bermuda
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Shares New York Stock Exchange
------------------------- -------------------------
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Common Shares, par value $0.01 13,067,838
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark which financial statement item the Registrant has elected
to follow.
Item 17[_] Item 18 [X]
TABLE OF CONTENTS
PAGE
Item 1. Identity of Directors, Senior Management and Advisers..................6
Item 2. Offer Statistics And Expected Timetable................................6
Item 3. Key Information........................................................6
A. SELECTED FINANCIAL DATA............................................6
B. CAPITALIZATION AND INDEBTEDNESS....................................8
C. REASONS FOR THE OFFER AND USE OF PROCEEDS..........................8
D. RISK FACTORS.......................................................8
Item 4. Information On The Company............................................15
A. HISTORY AND DEVELOPMENT OF THE COMPANY............................15
B. BUSINESS OVERVIEW.................................................15
C. ORGANIZATIONAL STRUCTURE..........................................25
D. PROPERTY, PLANT AND EQUIPMENT.....................................25
Item 5. Operating And Financial Review And Prospects..........................25
A. OPERATING RESULTS.................................................25
B. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC...............27
C. TREND INFORMATION.................................................27
D. OFF BALANCE SHEET ARRANGEMENTS....................................28
E. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS.....................28
Item 6. Directors, Senior Management And Employees............................29
A. DIRECTORS AND SENIOR MANAGEMENT...................................29
B. COMPENSATION......................................................32
C. BOARD PRACTICES...................................................33
D. EMPLOYEES.........................................................33
E. SHARE OWNERSHIP...................................................33
Item 7. Major Shareholders And Related Party Transactions.....................34
A. MAJOR SHAREHOLDERS................................................34
B. RELATED PARTY TRANSACTIONS........................................34
C. INTERESTS OF EXPERTS AND COUNSEL..................................34
Item 8. Financial Information.................................................34
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION...........34
B. SIGNIFICANT CHANGES...............................................34
Item 9. The Offer And Listing.................................................35
B. MARKETS.......................................................... 35
Item 10. Additional Information............................................36
A. SHARE CAPITAL.....................................................36
B. MEMORANDUM AND ARTICLES OF ASSOCIATION............................36
C. MATERIAL CONTRACTS................................................37
D. EXCHANGE CONTROLS.................................................37
E. TAXATION..........................................................38
F. DIVIDENDS AND PAYING AGENTS.......................................38
G. STATEMENT BY EXPERTS..............................................38
H. DOCUMENTS ON DISPLAY..............................................38
I. SUBSIDIARY INFORMATION............................................39
Item 11. Quantitative And Qualitative Disclosures About Market Risk........39
Item 12. Description Of Securities Other Than Equity Securities............39
Item 13. Defaults, Dividend Arrearages And Delinquencies...................39
Item 14. Material Modifications To The Rights Of Security Holders
And Use Of Proceeds...............................................39
Item 15. Controls And Procedures...........................................39
Item 16. Reserved..........................................................40
ITEM 16A. AUdit Committee Financial Expert..................................40
ITEM 16B. Code of Ethics....................................................40
ITEM 16C. Principal Accountant Fees and Services............................40
ITEM 16D. Exemptions From the Listing Standards
For Audit Committees..............................................40
ITEM 16E. Purchases of Equity Securities by the Issuer
and Affiliated Persons............................................41
Item 17. Financial Statements..................................Not applicable
Item 18. Financial Statements..............................................41
This Annual Report on Form 20-F is incorporated by reference into the
Registrant's Registration Statement No. 333-118128 on Form F-3.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein may constitute forward-looking statements. The
Private Securities Litigation Reform Act of 1995 provides safe harbor
protections for forward-looking statements in order to encourage companies to
provide prospective information about their business. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other statements, which
are other than statements of historical facts.
The Company desires to take advantage of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 and is including this
cautionary statement in connection with this safe harbor legislation. The words
"believe," "anticipate," "intend," "estimate," "forecast," "project," "plan,"
"potential," "will," "may," "should," "expect," "pending" and similar
expressions identify forward-looking statements.
The forward-looking statements are based upon various assumptions, many of which
are based, in turn, upon further assumptions, including without limitation, our
management's examination of historical operating trends, data contained in our
records and other data available from third parties. Although we believe that
these assumptions were reasonable when made, because these assumptions are
inherently subject to significant uncertainties and contingencies which are
difficult or impossible to predict and are beyond our control, we cannot assure
you that we will achieve or accomplish these expectations, beliefs or
projections. We undertake no obligation to update any forward-looking statement,
whether as a result of new information, future events or otherwise.
Important factors that, in our view, could cause actual results to differ
materially from those discussed in the forward-looking statements include the
strength of world economies and currencies, general market conditions, including
fluctuations in charter rates and vessel values, changes in demand in the tanker
market, as a result of changes in OPEC's petroleum production levels and world
wide oil consumption and storage, changes in our operating expenses, including
bunker prices, drydocking and insurance costs, the market for our vessels,
availability of financing and refinancing, changes in governmental rules and
regulations or actions taken by regulatory authorities, potential liability from
pending or future litigation, general domestic and international political
conditions, potential disruption of shipping routes due to accidents or
political events, vessels breakdowns and instances of off-hires and other
important factors described from time to time in the reports filed by the
Company with the Securities and Exchange Commission.
Please note in this annual report, "we", "us", "our", "The Company", all refer
to Nordic American Tanker Shipping Limited and its subsidiaries. ITEM 1.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
The following historical financial information should be read in
conjunction with our audited consolidated financial statements and related notes
all of which are included elsewhere in this document and "Operating and
Financial Review and Prospects". The statement of operations data for each of
the three years ended December 31, 2002, 2003, and 2004 and selected balance
sheet data as of December 31, 2003 and 2004 are derived from our audited
financial statements included elsewhere in this document. The statements of
operations data for the years ended December 31, 2000 and 2001 and selected
balance sheet data as of December 31, 2000, 2001 and 2002 are derived from our
audited financial statements not included in this document.
SELECTED FINANCIAL DATA
December 31,
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All figures in USD 2004 2003 2002 2001 2000
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Voyage revenue 67,451,598 37,370,756 18,057,989 28,359,568 36,577,262
Voyage expenses (4,925,353) (184,781) (184,781) (184,781) (185,288)
Vessel operating expense (1,976,766) - - - -
Administrative expenses (10,851,688) (468,087) (427,048) (353,739) (373,291)
Depreciation (6,918,164) (6,831,040) (6,831,040) (6,831,040) (6,831,040)
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Net operating income 42,779,627 29,886,848 10,615,120 20,990,008 29,187,643
Interest income 143,231 26,462 21,409 189,244 277,552
Interest expense (1,971,304) (1,797,981) (1,764,424) (1,769,000) (1,770,808)
Other financial charges (135,621) (15,040) (24,837) (24,776) (25,423)
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Net financial items (1,963,694) (1,786,559) (1,767,852) (1,604,532) (1,518,679)
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Net profit 40,815,932 28,100,289 8,847,268 19,385,476 27,668,964
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Basic and diluted earnings per share 4.05 2.89 0.91 2.00 2.85
Cash dividends declared per share 4.84 3.05 1.35 3.87 2.56
Weighted average shares outstanding basic and
diluted 10,078,391 9,706,606 9,706,606 9,706,606 9,706,606
Other financial data:
Net cash from operating activities 62,817,267 29,893,551 12,750,908 36,272,601 24,264,865
Dividend paid 47,195,842 29,605,410 13,103,993 37,564,658 24,848,957
Selected Balance Sheet Data (at period end):
Cash and cash deposit 30,732,516 565,924 277,783 630,868 1,922,925
Total assets 224,203,411 136,896,298 138,579,559 142,658,488 160,842,504
Total debt 0 30,000,000 30,000,000 30,000,000 30,000,000
Shareholder's equity 221,868,393 105,707,976 106,347,097 111,841,822 130,799,004
B. CAPITALIZATION AND INDEBTEDNESS
Not Applicable
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not Applicable
D. RISK FACTORS
Investing in our common shares involves risks. You should carefully
consider the following risk factors relating to our common shares and our
business in addition to the other information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus in
deciding whether to invest in our common shares.
Industry Specific Risk Factors
The cyclical nature of the tanker industry may lead to volatile changes
in charter rates and vessel values which may adversely affect our earnings.
If the tanker market, which has been cyclical, is depressed in the
future, our earnings and available cash flow may decrease. Our ability to
recharter our vessels or to sell them on the expiration or termination of their
charters and the charter rates payable under our two spot market related time
charters, the spot charters we expect to enter into, or any renewal or
replacement charters, will depend upon, among other things, economic conditions
in the tanker market. Fluctuations in charter rates and tanker values result
from changes in the supply and demand for tanker capacity and changes in the
supply and demand for oil and oil products.
The factors affecting the supply and demand for tankers are outside of
our control, and the nature, timing and degree of changes in industry conditions
are unpredictable.
The factors that influence demand for tanker capacity include,
o demand for oil and oil products,
o supply of oil and oil products,
o global and regional economic conditions,
o the distance oil and oil products are to be moved by sea, and
o changes in seaborne and other transportation patterns.
o The factors that influence the supply of tanker capacity
include:
o the number of newbuilding deliveries,
o the scrapping rate of older vessels,
o conversion of tankers to other uses,
o the number of vessels that are out of service, and
o environmental concerns and regulations.
Historically, the tanker markets have been volatile as a result of the
many conditions and factors that can affect the price, supply and demand for
tanker capacity. Changes in demand for transportation of oil over longer
distances and supply of tankers to carry that oil may materially affect our
revenues, profitability and cash flows. Two of our vessels are currently
operated under time charters to BP Shipping Ltd., or BP Shipping, on market
related rates and three of our vessels are currently operated in the spot
market. We cannot assure you that we will receive any minimum level of
charterhire for the vessels operated in the spot market or on spot market
related time charters.
Any decrease in spot charter rates in the future may adversely affect our
earnings and our ability to pay dividends.
Of our fleet of six vessels, one is on a long term fixed-rate charter,
while the other five are currently expected to be operated in the spot market or
on time charters with spot market related rates.
We may enter into spot charters for any additional vessels that the we
may acquire in the future. Although spot chartering is common in the tanker
industry, the spot charter market may fluctuate significantly based upon tanker
and oil supply and demand. The successful operation of our vessels in the spot
charter market depends upon, among other things, obtaining profitable spot
charters and minimizing, to the extent possible, time spent waiting for charters
and time spent traveling unladen to pick up cargo. While the tanker spot market
is currently high, that market is very volatile, and, in the past, there have
been periods when spot rates have declined below the operating cost of vessels.
We cannot assure you that future spot charters will be available at rates
sufficient to enable our vessels trading in the spot market to operate
profitably and to pay dividends.
Normally, tanker markets are stronger in the fall and winter months
(the fourth and first quarters of the calendar year) in anticipation of
increased oil consumption in the northern hemisphere during the winter months.
Unpredictable weather patterns and variations in oil reserves disrupt tanker
scheduling. Seasonal variations in tanker demand and, as a result, in charter
rates will affect any spot market related rates that we may receive.
Compliance with safety, environmental and other governmental and other
requirements may adversely affect our business.
The shipping industry is affected by numerous regulations in the form
of international conventions, national, state and local laws and national and
international regulations in force in the jurisdictions in which such tankers
operate, as well as in the country or countries in which such tankers are
registered. These regulations include the U.S. Oil Pollution Act of 1990, or
OPA, the International Convention on Civil Liability for Oil Pollution Damage of
1969, International Convention for the Prevention of Pollution from Ships, the
IMO International Convention for the Safety of Life at Sea of 1974, or SOLAS,
the International Convention on Load Lines of 1966 and the U.S. Marine
Transportation Security Act of 2002, each of which imposes environmental,
technical, safety, operational or financial requirements on us. In addition,
vessel classification societies also impose significant safety and other
requirements on our vessels. Regulation of vessels, particularly in the areas of
safety and environmental impact may change in the future and may limit our
ability to operate our business or require significant capital expenditures be
incurred on our vessels to keep them in compliance.
The value of our vessels may fluctuate and could result in a lower price of our
common shares.
Tanker values have generally experienced high volatility. You should
expect the market value of our oil tankers to fluctuate, depending on general
economic and market conditions affecting the tanker industry and competition
from other shipping companies, types and sizes of vessels, and other modes of
transportation. In addition, as vessels grow older, they generally decline in
value. These factors will affect the value of our vessels. Declining tanker
values could affect our ability to raise cash by limiting our ability to
refinance our vessels, thereby adversely impacting our liquidity, or result in a
breach of our loan covenants, which could result in defaults under our credit
facility. If we determine at any time that a vessel's future limited useful life
and earnings require us to impair its value on our financial statements, that
could result in a charge against our earnings and the reduction of our
shareholders' equity. Due to the cyclical nature of the tanker market, if for
any reason we sell vessels at a time when tanker prices have fallen, the sale
may be at less than the vessel's carrying amount on our financial statements,
with the result that we would also incur a loss and a reduction in earnings. Any
such reduction could result in a lower share price.
Shipping is an inherently risky business involving global operations and our
vessels are exposed to international risks which could reduce revenue or
increase expenses.
Shipping companies conduct global operations. Our vessels are at risk
of damage or loss because of events such as mechanical failure, collision, human
error, war, terrorism, piracy, cargo loss and bad weather. In addition, changing
economic, regulatory and political conditions in some countries, including
political and military conflicts, have from time to time resulted in attacks on
vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts.
These sorts of events could interfere with shipping lanes and result in market
disruptions.
Terrorist attacks, such as the attacks on the United States on September 11,
2001, and other acts of violence or war may affect the financial markets and our
business, results of operations and financial condition.
Terrorist attacks such as the attacks on the United States on September
11, 2001 and the United States' continuing response to these attacks, as well as
the threat of future terrorist attacks, continues to cause uncertainty in the
world financial markets, including the energy markets. The continuing conflict
in Iraq may lead to additional acts of terrorism, armed conflict and civil
disturbance around the world, which may contribute to further, instability,
including in the oil markets. Terrorist attacks, such as the attack on the M.T.
Limburg in Yemen in October 2002, may also negatively affect our trade patterns
or other operations and directly impact our vessels or our customers. Future
terrorist attacks could result in increased volatility of the financial markets
in the United States and globally and could result in an economic recession in
the United States or the world. Any of these occurrences could have a material
adverse impact on our operating results, revenue and costs.
Arrests of our vessels by maritime claimants could cause a significant loss of
earnings for the related off hire period.
Crew members, suppliers of goods and services to a vessel, shippers of
cargo and other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a maritime
lienholder may enforce its lien by "arresting" or "attaching" a vessel through
foreclosure proceedings. The arrest or attachment of one or more of our vessels
could result in a significant loss of earnings for the related off-hire period.
In addition, in jurisdictions where the "sister ship" theory of liability
applies, a claimant may arrest the vessel which is subject to the claimant's
maritime lien and any "associated" vessel, which is any vessel owned or
controlled by the same owner. In countries with "sister ship" liability laws,
claims might be asserted against us or any of our vessels for liabilities of
other vessels that we own.
Governments could requisition our vessels during a period of war or emergency,
resulting in a loss of earnings.
A government could requisition for title or seize our vessels.
Requisition for title occurs when a government takes control of a vessel and
becomes its owner. Also, a government could requisition our vessels for hire.
Requisition for hire occurs when a government takes control of a vessel and
effectively becomes its charterer at dictated charter rates. Although we, as
owner, would be entitled to compensation in the event of a requisition, the
amount and timing of payment would be uncertain.
Company Specific Risk Factors
We cannot guarantee that we will continue to make cash distributions.
We have made distributions quarterly since September 1997. It is
possible that we could incur other expenses or contingent liabilities that would
reduce or eliminate the cash available for distribution as dividends. Our credit
facility prohibits the declaration and payment of dividends if we are in default
under it. In addition, the declaration and payment of dividends is subject at
all times to the discretion of our Board of Directors and compliance with
Bermuda law, and may be dependent upon the adoption at the annual meeting of
shareholders of a resolution effectuating a reduction in our share premium in an
amount equal to the estimated amount of dividends to be paid in the next
succeeding year. We cannot assure you that we will pay dividends at rates
previously paid or at all.
We may not be able to grow or to effectively manage our growth.
One of our principal strategies is to continue to grow by expanding our
operations and adding to our fleet. Our future growth will depend upon a number
of factors, some of which may not be within our control. These factors include
our ability to:
o identify suitable tankers and/or shipping companies for
acquisitions,
o identify businesses engaged in managing, operating or owning
tankers for acquisitions or joint ventures,
o integrate any acquired tankers or businesses successfully with
our existing operations,
o hire, train and retain qualified personnel and crew to manage
and operate our growing business and fleet,
o identify additional new markets,
o improve our operating and financial systems and controls, and
o obtain required financing for our existing and new operations.
Our failure to effectively identify, purchase, develop and integrate
any tankers or businesses could adversely affect our business, financial
condition and results of operations. The number of employees of Scandic American
Shipping Ltd., or Scandic or the Manager that perform services for us and our
current operating and financial systems may not be adequate as we implement our
plan to expand the size of our fleet, and we may not be able to require the
Manager to hire more employees or adequately improve those systems. In addition,
acquisitions may require additional equity issuances or debt issuances (with
amortization payments), both of which could lower dividends per share. If we are
unable to execute the points noted above, our financial condition and dividend
rates may be adversely affected.
We are dependent on the Manager and there may be conflicts of interest arising
from the relationship between our Chairman and the Manager.
Our success depends to a significant extent upon the abilities and
efforts of the Manager and our management team. Our success will depend upon our
and the Manager's ability to hire and retain key members of our management team.
The loss of any of these individuals could adversely affect our business
prospects and financial condition. Difficulty in hiring and retaining personnel
could adversely affect our results of operations. We do not maintain "key man"
life insurance on any of our officers.
Herbj0rn Hansson, our Chairman, President and Chief Executive Officer,
is also an owner of the Manager. In addition, one of our directors is also an
owner of the Manager. The Manager may engage in business activities other than
with respect to the Company. The fiduciary duty of a director may compete with
or be different from the interests of the Manager and may create conflicts of
interest in relation to that director's duties to the Company.
An increase in operating costs could adversely affect our cash flow and
financial condition.
Under the original bareboat charters to BP Shipping, BP Shipping was
responsible for operating and voyage costs. Under the time and spot charters of
five of our six vessels, we are responsible for many of such costs. Our vessel
operating expenses include the costs of crew, fuel (for spot chartered vessels),
provisions, deck and engine stores, insurance and maintenance and repairs, which
depend on a variety of factors, many of which are beyond our control. Some of
these costs, primarily relating to insurance and enhanced security measures
implemented after September 11, 2001 and fuel, have been increasing. In
addition, if our vessels suffer damage, they may need to be repaired at a
drydocking facility. The costs of drydock repairs are unpredictable and can be
substantial. Increases in any of these costs would decrease earnings and
dividends per share.
Our vessels operate in the highly competitive international tanker market.
The operation of tanker vessels and transportation of crude and
petroleum products and the other businesses in which we operate are extremely
competitive. Competition arises primarily from other tanker owners, including
major oil companies as well as independent tanker companies, some of whom have
substantially greater resources. Competition for the transportation of oil and
oil products can be intense and depends on price, location, size, age, condition
and the acceptability of the tanker and its operators to the charterers. We will
have to compete with other tanker owners, including major oil companies as well
as independent tanker companies.
Our market share may decrease in the future. We may not be able to
compete profitably as we expand our business into new geographic regions or
provide new services. New markets may require different skills, knowledge or
strategies than we use in our current markets, and the competitors in those new
markets may have greater financial strength and capital resources than we do.
Purchasing and operating secondhand vessels may result in increased operating
costs which could adversely affect our earnings and as our fleet ages, the risks
associated with older vessels could adversely affect our operations.
Our current business strategy includes additional growth through the
acquisition of additional new and secondhand vessels. While we normally inspect
secondhand vessels prior to purchase, this does not normally provide us with the
same knowledge about their condition that we would have had if these vessels had
been built for and operated exclusively by us. Also, we may not receive the
benefit of warranties from the builders if the vessels we buy are older than one
year. We will receive a builder's warranty in connection with the newbuilding
that we have agreed to acquire, however, we will not receive the benefit of a
warranty for the secondhand vessel that we have agreed to acquire.
In general, the costs to maintain a vessel in good operating condition
increase with the age of the vessel. Older vessels are typically less
fuel-efficient than more recently constructed vessels due to improvements in
engine technology. Cargo insurance rates increase with the age of a vessel,
making older vessels less desirable to charterers.
Governmental regulations, safety or other equipment standards related
to the age of vessels may require expenditures for alterations, or the addition
of new equipment, to our vessels and may restrict the type of activities in
which the vessels may engage. We cannot assure you that as our vessels age
market conditions will justify those expenditures or enable us to operate our
vessels profitably during the remainder of their useful lives.
Servicing debt which we may incur in the future would limit funds available for
other purposes and if we cannot service our debt, we may lose our vessels.
Borrowing under our credit facility would require us to dedicate a part
of our cash flow from operations to paying interest on our indebtedness. These
payments would limit funds available for working capital, capital expenditures
and other purposes, including making distributions to shareholders and further
equity or debt financing in the future. Amounts borrowed under our credit
facility bear interest at variable rates. Increases in prevailing rates could
increase the amounts that we would have to pay to our lenders, even though the
outstanding principal amount remains the same, and our net income and cash flows
would decrease. In addition, if we elect to convert amounts drawn under our $250
million facility into a term loan we will be required to repay principal of such
loans in semi-annual installments. We expect our earnings and cash flow to vary
from year to year due to the cyclical nature of the tanker industry. In
addition, our current policy is not to accumulate cash, but rather to distribute
our available cash to shareholders. If we do not generate or reserve enough cash
flow from operations to satisfy our debt obligations, we may have to undertake
alternative financing plans, such as:
o seeking to raise additional capital,
o refinancing or restructuring our debt,
o selling tankers or other assets, or
o reducing or delaying capital investments.
However, these alternative financing plans, if necessary, may not be
sufficient to allow us to meet our debt obligations. If we are unable to meet
our debt obligations or if some other default occurs under our credit facility,
the lenders could elect to declare that debt, together with accrued interest and
fees, to be immediately due and payable and proceed against the collateral
securing that debt, which constitutes our entire fleet and substantially all of
our assets.
Our credit facility contains restrictive covenants which may limit our liquidity
and corporate activities.
Our credit facility imposes operating and financial restrictions on us.
These restrictions may limit our ability to:
o pay dividends and make capital expenditures if we do not repay
amounts drawn under our credit facility or if there is another
default under our credit facility,
o incur additional indebtedness, including the issuance of
guarantees,
o create liens on our assets,
o change the flag, class or management of our vessels or terminate
or materially amend the management agreement relating to each
vessel,
o sell our vessels,
o merge or consolidate with, or transfer all or substantially all
our assets to, another person, and
o enter into a new line of business.
Therefore, we may need to seek permission from our lenders in order to
engage in some corporate actions. Our lenders' interests may be different from
ours and we cannot guarantee that we will be able to obtain our lenders'
permission when needed. This may limit our ability to pay dividends to you,
finance our future operations or capital requirements, make acquisitions or
pursue business opportunities.
Shipping is an inherently risky business and our insurance may not be adequate
to cover all our losses.
There are a number of risks associated with the operation of
ocean-going vessels, including mechanical failure, collision, human error, war,
terrorism, property loss, cargo loss or damage and business interruption due to
political circumstances in foreign countries, hostilities and labor strikes. Any
of these events may result in loss of revenues, increased costs and decreased
cash flows. In addition, the operation of any vessel is subject to the inherent
possibility of marine disaster, including oil spills and other environmental
mishaps, and the liabilities arising from owning and operating vessels in
international trade. We cannot assure investors that our insurance will protect
us against all risks. We may not be able to maintain adequate insurance coverage
at reasonable rates for our fleet in the future and the insurers may not pay
particular claims. For example, a catastrophic spill could exceed our insurance
coverage and have a material adverse effect on our financial condition. In the
past, new and stricter environmental regulations have led to higher costs for
insurance covering environmental damage or pollution, and new regulations could
lead to similar increases or even make this type of insurance unavailable.
Furthermore, even if insurance coverage is adequate to cover our losses, we may
not be able to timely obtain a replacement ship in the event of a loss. We may
also be subject to calls, or premiums, in amounts based not only on our own
claim records but also the claim records of all other members of the protection
and indemnity associations through which we receive indemnity insurance coverage
for tort liability. Our payment of these calls could result in significant
expenses to us which could reduce our cash flows and place strains on our
liquidity and capital resources.
Because some of our expenses are incurred in foreign currencies, we are exposed
to exchange rate risks.
The charterers of our vessels pay us in U.S. dollars. While we incur
most of our expenses in U.S. dollars, we have in the past incurred expenses in
other currencies, most notably the Norwegian Kroner. Declines in the value of
the U.S. dollar relative to the Norwegian Kroner, or the other currencies in
which we incur expenses, would increase the U.S. dollar cost of paying these
expenses and thus would adversely affect our results of operations.
We may have to pay tax on United States source income, which would reduce our
earnings.
Under the United States Internal Revenue Code of 1986, or the Code, 50%
of the gross shipping income of a vessel owning or chartering corporation, such
as ourselves, attributable to transportation that begins or ends, but that does
not both begin and end, in the U.S. will be characterized as U.S. source
shipping income and such income will be subject to a 4% United States federal
income tax unless that corporation is entitled to a special tax exemption under
the Code which applies to the international shipping income derived by certain
non-United States corporations. We expect that we qualify for this statutory tax
exemption and we will take this position for U.S. tax return reporting purposes.
However, there are several risks that could cause us to become taxed on our U.S.
source shipping income. Due to the factual nature of the issues involved, we can
give no assurances on our tax-exempt status.
If we are not entitled to this statutory tax exemption for any taxable
year, we could be subject for any such year to a 4% United States federal income
tax on our U.S. source shipping income. The imposition of this tax could have a
negative effect on our business and would result in decreased earnings available
for distribution to our shareholders.
If U.S. tax authorities were to treat us as a "passive foreign investment
company," that could have adverse consequences on U.S. holders.
A foreign corporation will be treated as a "passive foreign investment
company" for U.S. Federal income tax purposes if either (1) at least 75% of its
gross income for any taxable year consists of certain types of "passive income,"
or (2) at least 50% of the average value of the corporation's assets produce, or
are held for the production of, such types of "passive income." For purposes of
these tests, "passive income" includes dividends, interest, and gains from the
sale or exchange of investment property and rents and royalties other than rents
and royalties which are received from unrelated parties in connection with the
active conduct of trade or business. For purposes of these tests, income derived
from the performance of services does not constitute "passive income." Those
holders of a passive foreign investment company who are citizens or residents of
the United States or domestic entities would alternatively be subject to a
special adverse U.S. Federal income tax regime with respect to the income
derived by the passive foreign investment company, the distributions they
receive from the passive foreign investment company and the gain, if any, they
derive from the sale or other disposition of their shares in the passive foreign
investment company. In particular, dividends paid by us would not be treated as
"qualified dividend income" eligible for preferential tax rates in the hands of
noncorporate U.S. shareholders.
Based on our current operations and future projections, we believe that
we will no longer be a passive foreign investment company with respect to the
taxable year 2005 and thereafter. As a result, noncorporate U.S. shareholders
should be eligible to treat dividends paid by us after 2005 as "qualified
dividend income" which is subject to preferential tax rates (through 2008).
Since we expect to derive more than 25% of our income each year from our time
chartering and voyage chartering activities, we believe that such income will be
treated for relevant U.S. Federal income tax purposes as services income, rather
than rental income. Correspondingly, such income should not constitute "passive
income," and the assets that we own and operate in connection with the
production of that income (which should constitute more than 50% of our assets
each year), in particular our vessels, should not constitute passive assets for
purposes of determining whether we are a passive foreign investment company in
any taxable year. However, no assurance can be given that the Internal Revenue
Service will accept this position or that we would not constitute a passive
foreign investment company for any future taxable year if there were to be
changes in the nature and extent of our operations.
Risks Relating to Our Common Shares
Our common share price may be highly volatile and future sales of our common
shares could cause the market price of our common shares to decline.
The market price of our common shares has historically fluctuated over
a wide range and may continue to fluctuate significantly in response to many
factors, such as actual or anticipated fluctuations in our operating results,
changes in financial estimates by securities analysts, economic and regulatory
trends, general market conditions, rumors and other factors, many of which are
beyond our control. Investors in our common shares may not be able to resell
their shares at or above their purchase price due to those factors, which
include the risks and uncertainties set forth in this report.
Because we are a foreign corporation, you may not have the same rights that a
shareholder in a U.S. corporation may have.
We are a Bermuda exempted company. Our memorandum of association and
by-laws and The Companies Act, 1981 of Bermuda, or the Companies Act, govern our
affairs. The Companies Act does not as clearly establish your rights and the
fiduciary responsibilities of our directors as do statutes and judicial
precedent in some U.S. jurisdictions. Therefore, you may have more difficulty in
protecting your interests as a shareholder in the face of actions by the
management, directors or controlling shareholders than would shareholders of a
corporation incorporated in a United States jurisdiction. There is a statutory
remedy under Section 111 of The Companies Act which provides that a shareholder
may seek redress in the courts as long as such shareholder can establish that
our affairs are being conducted, or have been conducted, in a manner oppressive
or prejudicial to the interests of some part of the shareholders, including such
shareholder. However, the principles governing Section 111 have not been well
developed.
It may not be possible for our investors to enforce U.S. judgments against us.
We are incorporated in the Islands of Bermuda. Substantially all of our
assets and those of our subsidiaries are located outside the United States. As a
result, it may be difficult or impossible for U.S. investors to serve process
within the United States upon us or to enforce judgment upon us for civil
liabilities in U.S. courts. In addition, you should not assume that courts in
the countries in which we are incorporated or where our assets are located (1)
would enforce judgments of U.S. courts obtained in actions against based upon
the civil liability provisions of applicable U.S. federal and state securities
laws or (2) would enforce, in original actions, liabilities against us based
upon these laws.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Nordic American Tanker Shipping Limited, or the Company, was founded on
June 12, 1995 under the laws of the Islands of Bermuda and maintain our
principal offices at Reid House, 31 Church Street, Hamilton HM 12, Bermuda. Our
telephone number at such address is (441) 292 7202.
The Company was formed for the purpose of acquiring and chartering
three Suezmax tankers that were built in 1997. These three vessels were bareboat
chartered to BP Shipping Ltd., or BP Shipping, for a period of seven years. BP
Shipping redelivered these three vessels to us in September 2004, October 2004
and November 2004, respectively. We have continued contracts with BP Shipping by
time chartering to it two of our original vessels at spot market related rates
for three-year terms up to the autumn of 2007. We have bareboat chartered the
third of our original three vessels to Gulf Navigation Company LLC, or Gulf
Navigation, of Dubai, U.A.E. for a term of five years at a fixed rate of
charterhire, subject to two one-year extensions at Gulf Navigation's option. In
November 2004, we acquired our fourth vessel, and acquired our fifth and sixth
vessels in March 2005. We are currently operating these vessels in the spot
market.
B. BUSINESS OVERVIEW
Our Fleet
Our fleet, including the two additional vessels we have acquired in
2005, consists of six modern double-hull Suezmax tankers. The following chart
provides information regarding each vessel, including its employment status.
Year Dead- Employment Status
Vessel Yard Built weight tons (Expiration Date) Flag
-------------------------------------------------------------------------------------------------------------------
Gulf Scandic (ex. British Harrier) Samsung 1997 151,459 Bareboat (Nov. 2009) Isle of Man
Nordic Hawk (ex. British Hawk) Samsung 1997 151,459 TC/spot(1) (Oct. 2007) Bahamas
Nordic Hunter (ex. British Hunter) Samsung 1997 151,459 TC/spot(1) (Oct. 2007) Bahamas
Nordic Voyager (ex. Wilma Yangtze) Dalian New 1997 149,591 Spot Norway
Nordic Fighter (ex. Front Fighter) Hyundai 1998 153,181 Spot(2) Norway
Nordic Freedom (newbuilding) Daewoo 2005 159,500 Spot(2) Bahamas
(1) TC/Spot = Time Charter on spot market related terms.
(2) The vessels were delivered to us in late March 2005.
Our Charters
We operate our vessels on bareboat charter, spot related time charters
and in the spot market. Our goal is to manage our cash flows through the use of
fixed-rate bareboat for part of our fleet, while taking advantage of potentially
higher market rates through time charters with spot market related rates and
voyage charters.
Bareboat Charters
We have chartered one of our vessels, the Gulf Scandic, under a
bareboat charter to Gulf Navigation, for a period of five years, terminating in
the fourth quarter of 2009, subject to two one-year extensions at Gulf
Navigation's option. Under the terms of the bareboat charter, Gulf Navigation is
obligated to pay a fixed charterhire of $17,325 per day for the entire charter
period. During the charter period, Gulf Navigation will be responsible for
operating and maintaining the vessel and will bear all costs and expenses with
respect to the vessel.
Time Charters
We have chartered two of our vessels, the Nordic Hawk and the Nordic
Hunter, under spot market related time charters to BP Shipping for a period of
three years each, terminating between September 1 and October 31, 2007. The
amount of charterhire payable under the charters to BP Shipping is based on a
formula designed to generate earnings to us as if we had operated the vessels in
the spot market on two routes used for the calculation, less 5%. The charterhire
is payable to us monthly. Under the time charters, BP Shipping is responsible
for all voyage related costs while the Company is responsible for providing the
crew and paying other operating costs.
Spot Charters
We currently operate one of our four vessels, the Nordic Voyager, and
have deployed the two additional vessels that we have recently purchased in 2005
(the Nordic Fighter and the Nordic Freedom), in the spot market. Tankers
operating in the spot market typically are chartered for a single voyage which
may last up to several weeks. Tankers operating in the spot market may generate
increased profit margins during improvements in tanker rates, while tankers
operating fixed-rate time charters generally provide more predictable cash
flows.
Under a typical voyage charter in the spot market, we will be paid
freight on the basis of moving cargo from a loading port to a discharge port. We
are responsible for paying both operating costs and voyage costs and the
charterer is responsible for any delay at the loading or discharging ports.
Our Credit Facility
In October 2004, we entered into the Credit Facility, which consists of
a $50 million revolving credit facility and a $250 million revolving credit
facility. The $50 million facility will mature in October 2007 and the $250
million facility will mature in October 2005, unless we exercise our one-year
extension option or our option to convert any drawn amounts to a five-year term
loan. Amounts borrowed under the Credit Facility bear interest at a rate equal
to LIBOR plus a margin of 0.80% to 1.20% per year (depending on the loan to
vessel value ratio).
We may draw unborrowed amounts under the Credit Facility in connection
with any future vessel acquisitions or for working capital purposes.
Borrowings under the Credit Facility are secured by mortgages over our
existing and new vessels and assignments of earnings and insurances, and
drawings will be available subject to loan to vessel value ratios. The terms and
conditions of the Credit Facility require compliance with certain restrictive
covenants, which we feel are consistent with loan facilities incurred by other
shipping companies. Under the Credit Facility, we are, among other things,
required to
o maintain certain loan to vessel value ratios,
o maintain a book equity of no less than $75 million,
o remain listed on a recognized stock exchange, and
o obtain the consent of the lenders prior to creating liens on our
vessels.
The Credit Facility provides that we may not pay dividends if there is
a default under the Credit Facility. We will be able to pay dividends in
accordance with our dividend policy as long as we repay any amounts drawn under
the $250 million facility within one year from the closing of the Credit
Facility and are not otherwise in default of the Credit Facility.
The International Tanker Market
International seaborne oil and petroleum products transportation
services are mainly provided by two types of operators: major oil company
captive fleets (both private and state-owned) and independent shipowner fleets.
Both types of operators transport oil under short-term contracts (including
single-voyage "spot charters") and long-term time charters with oil companies,
oil traders, large oil consumers, petroleum product producers and government
agencies. The oil companies own, or control through long-term time charters,
approximately one third of the current world tanker capacity, while independent
companies own or control the balance of the fleet. The oil companies use their
fleets not only to transport their own oil, but also to transport oil for
third-party charterers in direct competition with independent owners and
operators in the tanker charter market.
The oil transportation industry has historically been subject to
regulation by national authorities and through international conventions. Over
recent years, however, an environmental protection regime has evolved which has
a significant impact on the operations of participants in the industry in the
form of increasingly more stringent inspection requirements, closer monitoring
of pollution-related events, and generally higher costs and potential
liabilities for the owners and operators of tankers.
In order to benefit from economies of scale, tanker charterers will
typically charter the largest possible vessel to transport oil or products,
consistent with port and canal dimensional restrictions and optimal cargo lot
sizes. The oil tanker fleet is generally divided into the following five major
types of vessels, based on vessel carrying capacity: (i) ULCC-size range of
approximately 320,000 to 450,000 dwt; (ii) VLCC-size range of approximately
200,000 to 320,000 dwt; (iii) Suezmax-size range of approximately 120,000 to
200,000 dwt; (iv) Aframax-size range of approximately 80,000 to 120,000 dwt; (v)
Panamax-size range of approximately 60,000 to 70,000 dwt; and (v) small tankers
of less than approximately 60,000 dwt. ULCCs and VLCCs typically transport crude
oil in long-haul trades, such as from the Arabian Gulf to Rotterdam via the Cape
of Good Hope. Suezmax tankers also engage in long-haul crude oil trades as well
as in medium-haul crude oil trades, such as from West Africa to the East Coast
of the United States. Aframax-size vessels generally engage in both medium-and
short-haul trades of less than 1,500 miles and carry crude oil or petroleum
products. Smaller tankers mostly transport petroleum products in short-haul to
medium-haul trades.
The Tanker Market 2004
Tanker freight rates in 2004 were significantly higher than in the
previous high periods in 2000 and 2003. In the single voyage market, VLCCs
achieved an average of close to $90,000 per day compared to the $50,000 per day
level in the two previous peak years. For the year as a whole Suezmax tankers
reached an average of $65,000 per day, significantly higher than the $40,000 per
day obtained in 2000 and in 2003.
Based on export volume data, estimates indicate an increase in seaborne
oil trade of 6% from 2003 to 2004. Average transport distance rose by 1%. There
seems to have been a small improvement in productivity due to the modernization
of the tanker fleet and a reduction in waiting days in the Bosphorus from 2003
to 2004. Accordingly, tonnage demand increased by 6.5%.
The active tanker fleet rose by 3.7% from 2003 to 2004, calculated on
an annual average basis, resulting in an increase in the utilization rate from
89% in 2003 to 91.5% in 2004, the highest level recorded in the last three
decades. Freight rates in 2004 fluctuated wildly, a logical consequence of such
a record high utilization rate level.
The active VLCC fleet increased by 2%, while the Suezmax fleet rose by
5%. Deliveries of new tankers reached 27 million dwt in 2004, down from 30
million dwt in 2003. Removals amounted to 10 million dwt in 2004 compared to an
average of 19 million dwt in the previous four years. Removals are based on the
point in time vessels are actually removed from the market and not when reported
sold for scrapping or for conversions.
Some 8 million dwt were sold for scrapping in 2004 and 2 million dwt
were sold for conversion. The average age for all tankers sold for scrapping was
27.3 years in 2004, compared to 26.6 years in 2003.
As a result of the extremely strong dry bulk market, 2 million dwt of
combined carriers moved from oil trades to dry trades from 2003 to 2004 and
limited the fleet growth in oil transportation.
The highest global economic growth since 1976 stimulated world oil
consumption, which rose by 3.4% in 2004. This is the highest oil consumption
growth rate since the 1970s. Global oil production climbed an exceptional 4.5%
resulting in a moderate building of oil inventories. OPEC raised its crude oil
production by more than 7% and reached a peak of more than 30 mbd in the fourth
quarter of the year. This was very close to its production capacity, leading to
a 35% surge in crude oil prices from 2003 to 2004. The strong growth in oil
consumption despite the sharp rise in oil prices may be attributed, in parts, to
heavy subsidization of end-user prices in many of the countries with strong
consumption growth.
The main driver behind these strong freight market conditions was
China, with its strong growth in oil consumption and imports. In the first half
of 2004, Chinese oil consumption was 22% higher than in the same period the year
before. Oil imports rose by more than 30% for the second year in a row.
2004 was also a record-breaking year in the vessel sale and purchase
market with regard to transaction volumes as well as ship market values. During
2004, tankers monitored by R.S. Platou Shipbrokers increased in market value by
some 45% (20% in 2003). Double hull tankers rose by 40% (25%), whereas single
hull tankers were up between 35% and 75%.
Environmental and Other Regulation
Government regulation significantly affects the ownership and operation
of our tankers. They are subject to international conventions, national, state
and local laws and regulations in force in the countries in which our vessels
may operate or are registered.
A variety of governmental and private entities subject our vessels to
both scheduled and unscheduled inspections. These entities include the local
port authorities (U.S. Coast Guard, harbor master or equivalent), classification
societies, flag state administration (country of registry) and charterers,
particularly terminal operators and oil companies. Certain of these entities
require us to obtain permits, licenses and certificates for the operation of our
tankers. Failure to maintain necessary permits or approvals could require us to
incur substantial costs or temporarily suspend operation of one or more of our
vessels.
We believe that the heightened level of environmental and quality
concerns among insurance underwriters, regulators and charterers is leading to
greater inspection and safety requirements on all vessels and may accelerate the
scrapping of older vessels throughout the industry. Increasing environmental
concerns have created a demand for vessels that conform to the stricter
environmental standards. We are required to maintain operating standards for all
of our vessels that will emphasize operational safety, quality maintenance,
continuous training of our officers and crews and compliance with U.S. and
international regulations. We believe that the operation of our vessels is in
substantial compliance with applicable environmental laws and regulations;
however, because such laws and regulations are frequently changed and may impose
increasingly stricter requirements, such future requirements may limit our
ability to do business, increase our operating costs, force the early retirement
of our vessels, and/or affect their resale value, all of which could have a
material adverse effect on our financial condition and results of operations.
Environmental Regulation--IMO
In 1992, the International Maritime Organization, or IMO (the United
Nations agency for maritime safety and the prevention of marine pollution by
ships), adopted regulations that set forth pollution prevention requirements
applicable to tankers. These regulations, which have been adopted by more than
150 nations, including many of the jurisdictions in which our tankers operate,
provide, in part, that:
o tankers between 25 and 30 years old must be of double-hull
construction or of a mid-deck design with double sided
construction, unless (1) they have wing tanks or double-bottom
spaces not used for the carriage of oil, which cover at least
30% of the length of the cargo tank section of the hull or
bottom; or (2) they are capable of hydrostatically balanced
loading (loading less cargo into a tanker so that in the event
of a breach of the hull, water flows into the tanker, displacing
oil upwards instead of into the sea);
o tankers 30 years old or older must be of double-hull
construction or mid-deck design with double sided construction;
and
o all tankers are subject to enhanced inspections.
Also, under IMO regulations, a tanker must be of double-hull
construction or a mid-deck design with double sided construction or be of
another approved design ensuring the same level of protection against oil
pollution if the tanker:
o is the subject of a contract for a major conversion or original
construction on or after July 6, 1993;
o commences a major conversion or has its keel laid on or after
January 6, 1994; or
o completes a major conversion or is a newbuilding delivered on or
after July 6, 1996.
Effective September 2002, the IMO accelerated its existing timetable
for the phase-out of single-hull oil tankers. These regulations require the
phase-out of most single-hull oil tankers by 2015 or earlier, depending on the
age of the tanker and whether it has segregated ballast tanks. After 2007, the
maximum permissible age for single-hull tankers will be 26 years. Compliance
with the new regulations regarding inspections of all tankers, however, could
adversely affect our operations. Under current regulations, retrofitting will
enable a tanker to operate until the earlier of 25 years of age and the
anniversary date of its delivery in 2017. However, as a result of the oil spill
in November 2002 relating to the loss of the M/T Prestige, which was owned by a
company not affiliated with us, in December 2003 the Marine Environmental
Protection Committee of the IMO adopted a proposed amendment to the
International Convention for the Prevention of Pollution from Ships to
accelerate the phase out of single-hull tankers from 2015 to 2010 unless the
relevant flag state, in a particular case, extends the date to 2015. This
amendment came into effect in April 2005.
The IMO has also negotiated international conventions that impose
liability for oil pollution in international waters and a signatory's
territorial waters. In September 1997, the IMO adopted Annex VI to the
International Convention for the Prevention of Pollution from Ships to address
air pollution from ships. Annex VI was ratified in May 2004 and became effective
in May 2005. Annex VI sets limits on sulfur oxide and nitrogen oxide emissions
from ship exhausts and prohibit deliberate emissions of ozone depleting
substances, such as chlorofluorocarbons. Annex VI also includes a global cap on
the sulfur content of fuel oil and allows for special areas to be established
with more stringent controls on sulfur emissions. We believe that compliance
with the Annex VI regulations will have no material effect on our results of
operations. Additional or new conventions, laws and regulations may be adopted
that could adversely affect our ability to manage our ships.
Under the International Safety Management Code, or ISM Code,
promulgated by the IMO, the party with operational control of a vessel is
required to develop an extensive safety management system that includes, among
other things, the adoption of a safety and environmental protection policy
setting forth instructions and procedures for operating its vessels safely and
describing procedures for responding to emergencies. We will rely upon the
safety management system that we and our third party technical managers have
developed.
The ISM Code requires that vessel operators obtain a safety management
certificate for each vessel they operate. This certificate evidences compliance
by a vessel's management with code requirements for a safety management system.
No vessel can obtain a certificate unless its manager has been awarded a
document of compliance, issued by each flag state, under the ISM Code. We have
the requisite documents of compliance for our offices and safety management
certificates for all of our tankers for which the certificates are required by
the IMO. We are required to renew these documents of compliance and safety
management certificates annually.
Noncompliance with the ISM Code and other IMO regulations may subject
the shipowner or bareboat charterer to increased liability, may lead to
decreases in available insurance coverage for affected vessels and may result in
the denial of access to, or detention in, some ports. For example, the U.S.
Coast Guard and European Union authorities have indicated that vessels not in
compliance with the ISM Code will be prohibited from trading in U.S. and
European Union ports.
Although the United States is not a party to these conventions, many
countries have ratified and follow the liability plan adopted by the IMO and set
out in the International Convention on Civil Liability for Oil Pollution Damage
of 1969. Under this convention, if the country in which the damage results is a
party to the 1992 Protocol to the International Convention on Civil Liability
for Oil Pollution Damage, a vessel's registered owner is strictly liable for
pollution damage caused in the territorial waters of a contracting state by
discharge of persistent oil, subject to certain complete defenses. Under an
amendment to the Protocol that became effective on November 1, 2003, for vessels
of 5,000 to 140,000 gross tons (a unit of measurement for the total enclosed
spaces within a vessel), liability is limited to approximately $6.5 million plus
$909 for each additional gross ton over 5,000. For vessels of over 140,000 gross
tons, liability is limited to approximately $129.3 million. As the convention
calculates liability in terms of a basket of currencies, these figures are based
on currency exchange rates on May 10, 2004. The right to limit liability is
forfeited under the International Convention on Civil Liability for Oil
Pollution Damage where the spill is caused by the owner's actual fault and under
the 1992 Protocol where the spill is caused by the owner's intentional or
reckless conduct. Vessels trading to states that are parties to these
conventions must provide evidence of insurance covering the liability of the
owner. In jurisdictions where the International Convention on Civil Liability
for Oil Pollution Damage has not been adopted, various legislative schemes or
common law govern, and liability is imposed either on the basis of fault or in a
manner similar to that convention. We believe that our P&I insurance will cover
the liability under the plan adopted by the IMO.
U.S. Oil Pollution Act of 1990 and Comprehensive Environmental Response,
Compensation and Liability Act
The United States regulates the tanker industry with an extensive
regulatory and liability regime for environmental protection and cleanup of oil
spills, consisting primarily of the U.S. Oil Pollution Act of 1990, or OPA, and
the Comprehensive Environmental Response, Compensation and Liability Act, or
CERCLA. OPA affects all owners and operators whose vessels trade with the United
States or its territories or possessions, or whose vessels operate in the waters
of the United States, which include the U.S. territorial sea and the 200
nautical mile exclusive economic zone around the United States. CERCLA applies
to the discharge of hazardous substances (other than oil) whether on land or at
sea. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners, operators and bareboat charterers are
"responsible parties" who are jointly, severally and strictly liable (unless the
spill results solely from the act or omission of a third party, an act of God or
an act of war) for all containment and clean-up costs and other damages arising
from oil spills from their vessels. These other damages are defined broadly to
include:
o natural resource damages and related assessment costs;
o real and personal property damages;
o net loss of taxes, royalties, rents, profits or earnings
capacity;
o net cost of public services necessitated by a spill response,
such as protection from fire, safety or health hazards; and
o loss of subsistence use of natural resources.
OPA limits the liability of responsible parties to the greater of
$1,200 per gross ton or $10 million per tanker that is over 3,000 gross tons
(subject to possible adjustment for inflation). The act specifically permits
individual states to impose their own liability regimes with regard to oil
pollution incidents occurring within their boundaries, and some states have
enacted legislation providing for unlimited liability for discharge of
pollutants within their waters. In some cases, states that have enacted this
type of legislation have not yet issued implementing regulations defining tanker
owners' responsibilities under these laws. CERCLA, which applies to owners and
operators of tankers, contains a similar liability regime and provides for
cleanup and removal of hazardous substances and for natural resource damages.
Liability under CERCLA is limited to the greater of $300 per gross ton or $5
million.
These limits of liability do not apply, however, where the incident is
caused by violation of applicable U.S. federal safety, construction or operating
regulations, or by the responsible party's gross negligence or willful
misconduct. These limits do not apply if the responsible party fails or refuses
to report the incident or to cooperate and assist in connection with the
substance removal activities. OPA and CERCLA each preserve the right to recover
damages under existing law, including maritime tort law.
OPA also requires owners and operators of vessels to establish and
maintain with the U.S. Coast Guard evidence of financial responsibility
sufficient to meet the limit of their potential strict liability under the act.
The U.S. Coast Guard has enacted regulations requiring evidence of financial
responsibility in the amount of $1,500 per gross ton for tankers, coupling the
OPA limitation on liability of $1,200 per gross ton with the CERCLA liability
limit of $300 per gross ton. Under these regulations, an owner or operator of
more than one tanker is required to obtain a certificate of responsibility for
each vessel in the fleet in an amount equal only to the financial responsibility
requirement of the tanker having the greatest maximum strict liability under OPA
and CERCLA. We have provided evidence of financial responsibility in the form of
guarantees issued by a guarantor approved by the U.S. Coast Guard and received
certificates of financial responsibility from the U.S. Coast Guard for each of
our vessels that calls in U.S. waters.
We insure each of our vessels with pollution liability insurance in the
maximum commercially available amount of $1.0 billion per incident per vessel. A
catastrophic spill could exceed the insurance coverage available, in which event
there could be a material adverse effect on our business.
OPA also amended the Federal Water Pollution Control Act to require
owners or operators of tankers operating in the waters of the United States to
file vessel response plans with the U.S. Coast Guard, and their tankers are
required to operate in compliance with their U.S. Coast Guard approved plans.
These response plans must, among other things:
o address a "worst case" scenario and identify and ensure, through
contract or other approved means, the availability of necessary
private response resources to respond to a "worst case
discharge";
o describe crew training and drills; and
o identify a qualified individual with full authority to implement
removal actions.
Vessel response plans for our tankers operating in the waters of the
United States have been approved by the U.S. Coast Guard. In addition, the U.S.
Coast Guard has announced it intends to propose similar regulations requiring
certain vessels to prepare response plans for the release of hazardous
substances. We are responsible for ensuring our vessels comply with any
additional regulations.
OPA does not prevent individual states from imposing their own
liability regimes with respect to oil pollution incidents occurring within their
boundaries. In fact, most U.S. states that border a navigable waterway have
enacted environmental pollution laws that impose strict liability on a person
for removal costs and damages resulting from a discharge of oil or a release of
a hazardous substance. These laws may be more stringent than U.S. federal law.
European Union Tanker Restrictions
In July 2003, in response to the M/T Prestige oil spill in November
2002, the European Union adopted legislation that prohibits all single-hull
tankers from entering into its ports or offshore terminals by 2010. The European
Union has also banned all single-hull tankers carrying heavy grades of oil from
entering or leaving its ports or offshore terminals or anchoring in areas under
its jurisdiction. Commencing in 2005, certain single-hull tankers above 15 years
of age will also be restricted from entering or leaving European Union ports or
offshore terminals and anchoring in areas under European Union jurisdiction. The
European Union is also considering legislation that would: (1) ban manifestly
sub-standard vessels (defined as those more than 15 years old that have been
detained by port authorities at least twice in a six month period) from European
waters and create an obligation of port states to inspect vessels posing a high
risk to maritime safety or the marine environment; and (2) provide the European
Union with greater authority and control over classification societies,
including the ability to seek to suspend or revoke the authority of negligent
societies. The sinking of the M/T Prestige and resulting oil spill in November
2002 has led to the adoption of other environmental regulations by certain
European Union nations, which could adversely affect the remaining useful lives
of all of our tankers and our ability to generate income from them. For example,
Italy announced a ban of single-hull crude oil tankers over 5,000 dwt from most
Italian ports, effective April 2001. Spain has announced a similar prohibition.
It is impossible to predict what legislation or additional regulations, if any,
may be promulgated by the European Union or any other country or authority.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a
variety of initiatives intended to enhance vessel security. On November 25,
2002, the Maritime Transportation Security Act of 2002 (MTSA) came into effect.
To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United
States. Similarly, in December 2002, amendments to the International Convention
for the Safety of Life at Sea (SOLAS) created a new chapter of the convention
dealing specifically with maritime security. The new chapter went into effect in
July 2004 and imposes various detailed security obligations on vessels and port
authorities, most of which are contained in the newly created International Ship
and Port Facilities Security (ISPS) Code. We are in compliance with the ISPS
Code. Among the various requirements are:
o on-board installation of automatic information systems, or AIS,
to enhance vessel-to-vessel and vessel-to-shore communications;
o on-board installation of ship security alert systems;
o the development of vessel security plans; and
o compliance with flag state security certification requirements.
The U.S. Coast Guard regulations, intended to align with international
maritime security standards, exempt non-U.S. tankers from MTSA vessel security
measures provided such vessels have on board, by July 1, 2004, a valid
International Ship Security Certificate (ISSC) that attests to the vessel's
compliance with SOLAS security requirements and the ISPS Code. We will implement
the various security measures addressed by the MTSA, SOLAS and the ISPS Code and
ensure that our tankers attain compliance with all applicable security
requirements within the prescribed time periods. We do not believe these
additional requirements will have a material financial impact on our operations.
Inspection by Classification Societies
Every seagoing vessel must be "classed" by a classification society.
The classification society certifies that the vessel is "in class," signifying
that the vessel has been built and maintained in accordance with the rules of
the classification society and complies with applicable rules and regulations of
the vessel's country of registry and the international conventions of which that
country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order,
acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveys and
checks that are required by regulations and requirements of the flag state.
These surveys are subject to agreements made in each individual case and/or to
the regulations of the country concerned.
For maintenance of the class, regular and extraordinary surveys of
hull, machinery, including the electrical plant, and any special equipment
classed are required to be performed as follows:
Annual Surveys: For seagoing ships, annual surveys are conducted for
the hull and the machinery, including the electrical plant, and where applicable
for special equipment classed, at intervals of 12 months from the date of
commencement of the class period indicated in the certificate.
Intermediate Surveys: Extended annual surveys are referred to as
intermediate surveys and typically are conducted two and one-half years after
commissioning and each class renewal. Intermediate surveys may be carried out on
the occasion of the second or third annual survey.
Class Renewal Surveys: Class renewal surveys, also known as special
surveys, are carried out for the ship's hull, machinery, including the
electrical plant, and for any special equipment classed, at the intervals
indicated by the character of classification for the hull. At the special
survey, the vessel is thoroughly examined, including audio-gauging to determine
the thickness of the steel structures. Should the thickness be found to be less
than class requirements, the classification society would prescribe steel
renewals. The classification society may grant a one-year grace period for
completion of the special survey. Substantial amounts of money may have to be
spent for steel renewals to pass a special survey if the vessel experiences
excessive wear and tear. In lieu of the special survey every four or five years,
depending on whether a grace period was granted, a shipowner has the option of
arranging with the classification society for the vessel's hull or machinery to
be on a continuous survey cycle, in which every part of the vessel would be
surveyed within a five-year cycle.
At an owner's application, the surveys required for class renewal may
be split according to an agreed schedule to extend over the entire period of
class. This process is referred to as continuous class renewal.
All areas subject to survey as defined by the classification society
are required to be surveyed at least once per class period, unless shorter
intervals between surveys are prescribed elsewhere. The period between two
subsequent surveys of each area must not exceed five years.
Most vessels are also dry-docked every 30 to 36 months for inspection
of the underwater parts and for repairs related to inspections. If any defects
are found, the classification surveyor will issue a "recommendation" which must
be rectified by the ship owner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage
that a vessel be certified as "in class" by a classification society which is a
member of the International Association of Classification Societies. All our
vessels are certified as being "in class" by Lloyd's Register of Shipping (three
vessels) and Det norske Veritas (three vessels). All new and secondhand vessels
that we purchase must be certified prior to their delivery under our standard
contracts and memorandum of agreement. If the vessel is not certified on the
date of closing, we have no obligation to take delivery of the vessel.
Risk of Loss and Liability Insurance
The operation of any cargo vessel includes risks such as mechanical
failure, collision, property loss, cargo loss or damage and business
interruption due to political circumstances in foreign countries, hostilities
and labor strikes. In addition, there is always an inherent possibility of
marine disaster, including oil spills and other environmental mishaps, and the
liabilities arising from owning and operating vessels in international trade.
OPA, which imposes virtually unlimited liability upon owners, operators and
demise charterers of any vessel trading in the United States exclusive economic
zone for certain oil pollution accidents in the United States, has made
liability insurance more expensive for ship owners and operators trading in the
United States market. While we carry loss of hire insurance to cover 100% of our
fleet, we may not be able to maintain this level of coverage. Furthermore, while
we believe that our present insurance coverage is adequate, not all risks can be
insured, and there can be no guarantee that any specific claim will be paid, or
that we will always be able to obtain adequate insurance coverage at reasonable
rates.
Hull and Machinery Insurance
We have obtained marine hull and machinery and war risk insurance,
which includes the risk of actual or constructive total loss, for all of the
vessels in our fleet. The vessels in our fleet are each covered up to at least
fair market value, with deductibles of $350,000 per vessel per incident. We also
arranged increased value coverage for each vessel. Under this increased value
coverage, in the event of total loss of a vessel, we will be able recover for
amounts not recoverable under the hull and machinery policy by reason of any
under-insurance.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and
indemnity associations, or P&I Associations, which covers our third party
liabilities in connection with our shipping activities. This includes third
party liability and other related expenses of injury or death of crew,
passengers and other third parties, loss or damage to cargo, claims arising from
collisions with other vessels, damage to other third party property, pollution
arising from oil or other substances, and salvage, towing and other related
costs, including wreck removal. Protection and indemnity insurance is a form of
mutual indemnity insurance, extended by protection and indemnity mutual
associations, or "clubs." Subject to the "capping" discussed below, our
coverage, except for pollution, is unlimited.
Our current protection and indemnity insurance coverage for pollution
is $1 billion per vessel per incident. The fourteen P&I Associations that
comprise the International Group insure approximately 90% of the world's
commercial tonnage and have entered into a pooling agreement to reinsure each
association's liabilities. Each P&I Association has capped its exposure to this
pooling agreement at $4.25 billion. As a member of a P&I Association, which is a
member of the International Group, we are subject to calls payable to the
associations based on its claim records as well as the claim records of all
other members of the individual associations, and members of the pool of P&I
Associations comprising the International Group.
Competition
We operate in markets that are highly competitive and based primarily
on supply and demand. We compete for charters on the basis of price, vessel
location, size, age and condition of the vessel, as well as on our reputation as
an operator. We arrange our time charters and voyage charters in the spot market
through the use of brokers, who negotiate the terms of the charters based on
market conditions. We compete primarily with owners of tankers in the Suezmax
and Handymax class sizes. Ownership of tankers is highly fragmented and is
divided among major oil companies and independent vessel owners.
Legal Proceedings Against Us
We are not involved in any legal proceedings which may have, or have
had a significant effect on our financial position, nor are we aware of any
proceedings that are pending or threatened which may have a significant effect
on our financial position.
C. ORGANIZATIONAL STRUCTURE
Prior to September 30, 1997, the Company was a wholly owned subsidiary of Ugland
Nordic Shipping ASA, or UNS, a Norwegian shipping company whose shares were
listed on the Oslo Stock Exchange. On September 30, 1997, 11,731,613 warrants
for the purchase of the Company's common shares, which had been sold to the
public in 1995, were exercised. Until May 30, 2003, UNS acted as the Manager,
and provided managerial, administrative and advisory services to the Company
pursuant to the Management Agreement. Since May 30, 2003, Scandic has acted as
the Company's Manager, and provides such services pursuant to the Management
Agreement, as novated The Management Agreement was amended on October 12, 2004
to further align the Manager's interests with those of the Company as a
shareholder of the Company.. See Item 7.
D. PROPERTY, PLANT AND EQUIPMENT
Other than the Vessels described elsewhere in this filing, the Company
does not own or lease any tangible fixed property.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
We present our income statement using voyage revenues and voyage expenses. The
Company's vessels are operated under bareboat charters, spot related time
charters and spot charters. Under a bareboat charter the charterer pays
substantially all of the vessel voyage and operating costs. Under a spot related
time charter, the charterer pays substantially all of the vessel voyage costs.
Under a spot charter, the vessel owner pays all such costs. Vessel voyage costs
consist primarily of fuel, port charges and commissions.
Since the amount of voyage expenses that we incur for a charter depends on the
type of the charter, we use net voyage revenues to provide comparability among
the different types of charters. Net voyage revenue, a non-GAAP financial
measure, provides more meaningful disclosure than voyage revenues, the most
directly comparable financial measure under accounting principles generally
accepted in the United States ("GAAP"). Net voyage revenues divided by the
number of days on the charter provides the Time Charter Equivalent (TCE) Rate.
For bareboat charters operating costs must be added in order to calculate TCE
rates. Net voyage revenues and TCE rates are widely used by investors and
analysts in the tanker shipping industry for comparing the financial performance
of companies and for preparing industry averages. The following table reconciles
our net voyage revenues to voyage revenues. Note: in 2004, our calculation
methodology for net voyage revenues was adjusted to better reflect the various
commission schemes under which we operate. Prior period TCE amounts have been
adjusted to conform with the 2004 reconciliation.
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2004 2003 2002
---------------------------------------------------------------------------------------------
Voyage Revenue 67,451,598 37,370,756 18,057,989
Voyage Expenses (4,925,353) (184,781) (184,781)
---------------------------------------------------------------------------------------------
Net Voyage Revenue 62,526,245 37,185,975 17,873,208
---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2004 VERSUS YEAR ENDED DECEMBER 31, 2003
Voyage revenues increased by 80.5% to $67,451,598 in 2004, from
$37,370,756 in 2003. Net voyage revenues increased by 68.1% to $62,526,245 in
2004, from $37,185,975 in 2003. The increase in net voyage revenue was due to
higher tanker spot market rates in the twelve month period in 2004 and the
addition of one vessel on November 23, 2004. The tanker spot market rates are
determined by the demand for the carriage of oil and the distance the oil is to
be carried, measured in tonne miles, and the supply of vessels to transport that
oil. As a result of the strong spot market rates during 2004, our TCE rates
increased 46.6% to $62,231 for 2004, from $42,460 for 2003.
Vessel operating expenses were $1,976,766 for 2004. There are no
comparable figures for 2003. The Company did not have vessel operating expenses
for the comparable period of 2003 since all the vessels were chartered to BP
Shipping under bareboat charter agreements. Under bareboat charter agreements
all vessels operating expenses are paid by the charterer.
Administrative expenses increased by 2,218% to $10,851,688 in 2004,
from $468,087 in 2003. The increase is primarily due to share-based expense of
$9,252,365, which results from a change in the compensation scheme for our
Manager, Scandic American Shipping Ltd. The management agreement was amended in
2004 from a cash commission structure based on charter revenue to a share-based
structure that provides 2% of the Company's outstanding shares to the Manager.
Other administrative costs have increased as a result of the transition to an
operating company. In 2004, the Company engaged the Manager to assume the
commercial and operational responsibility of our vessels and to manage our
day-to-day business. This agreement is based on cost incurred plus a fixed fee
of $100,000. Until June 30, 2004, the Company paid an annual fixed fee of
$250,000 for these services. Furthermore, the Company hired a Chief Executive
Officer, Herbj0rn Hansson in 2004.
Net operating income for 2004 increased 43.1% from the comparable
period in 2003 from $29,886,849 to $42,779,627 primarily due to increased
revenue offset by increased costs as described above.
YEAR ENDED DECEMBER 31, 2003 VERSUS YEAR ENDED DECEMBER 31, 2002
Voyage revenues increased by 106.9% to $37,370,756 in 2003, from
$18,057,989 in 2002. Net voyage revenues increased by 108.1% to $37,185,975 in
2003, from $17,873,208 in 2002. The increase in net voyage revenue was due to
higher tanker spot market rates in 2004 than in 2003. The tanker spot market
rates are determined by the demand for the carriage of oil and the distance the
oil is to be carried, measured in tonne miles, and the supply of vessels to
transport that oil. The TCE rates increased by 71.0% to $42,460 in 2003, from
$24,823 in 2002.
Market rates which are used to determine additional hire increased
significantly in 2003. The strong tanker market was driven by very cold weather
at start of the year combined with very high natural gas prices in North
America. Strong demand increases in China alongside economic recovery in the
United States supported the growth in oil demand throughout the year. Additional
hire by quarter, as determined by the Brokers Panel was $22,588,256 for the
first through the fourth quarters of 2003 respectively.
Management, insurance and administrative costs ("MI&A") for 2003, 2002
and 2001 were $652,868, $611,829 and $538,520 respectively. The Company's MI&A
for all three years consisted of ship brokers commissions of approximately
$185,000 and management fees of $250,000 which are fixed. The increase in costs
of $41,039 from 2002 to 2003 is mainly due to higher insurance costs and
attorney fees. Depreciation expense approximated $6,831,040 for each of the
three years.
A. LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $62,817,261,
$29,893,551 and $12,750,908 in 2004, 2003 and 2002, respectively. The majority
of the increases resulted from higher cash flows related to net voyage revenues.
The cash flows from customers less payments for voyage expenses were
$67,415,268, $32,320,191 and 14,766,865 in 2004, 2003 and 2002, respectively.
The increase in cash flows were offset by an increase in cash paid for vessel
operations of $1,925,508 in 2004.
Cash flows provided by financing activities for 2004 was $33,486,608
compared to cash flows used of $29,605,410 for the same period in 2003. The
increase was due to (i) proceeds from a follow-on offering of $112.1 million
offset by (ii) increased dividends paid from 2003 to 2004 of $17.6 million,
(iii) repayment of $30 million in bank debt and (iv) payment of loan facility
costs of $1.5 million in respect of our $300 million credit facility.
Cash flow used by investing activities was $66,137,277 which represents
the acquisition cost of the vessel acquired in November 2004. There were no
investing activities for the comparable period of 2003.
In March 2005, the Company sold 3,500,000 shares in a public offering
in the US to fund the $149.2 million acquisition costs of two vessels and to
repay outstanding amount on the credit facility. The offering was priced at
$49.50 per share, and net proceeds (after offering costs of $ 11.1 million) to
the Company were $162.1 million.
In June 2005, the Company agreed to acquire a double hull suezmax
tanker built in 1998 for $71.4 million. The vessel is expected to be delivered
from the seller to the Company no later than end August 2005. The Company has an
unused credit facility of $300 million at June 30, 2005.
The Company believes that its borrowing capacity under the credit
facility, together with its working capital are sufficient to fund its ongoing
operations and commitments for capital expenditures.
Dividend payment
Total dividends paid in 2004 were $47,195,842 or $4.84 per share.
Dividend payments per share in 2002, 2003 and 2004 have been as follows:
Period 2002 2003 2004
-------------------------------------------------------------
1st Quarter $0.36 $0.36 $1.15
2nd Quarter 0.34 1.27 1.70
3rd Quarter 0.33 0.78 0.88
4th Quarter 0.32 0.37 1.11
-------------------------------------------------------------
Total USD $1.35 $3.05 $4.84
-------------------------------------------------------------
The Company declared a dividend of $1.62 per share for the first
quarter of 2005 which was paid to shareholders in February 2005. In addition,
the Company declared a dividend of $1.15 per share for the second quarter of
2005, which was paid to shareholders in May 2005.
B. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
Not applicable
C. TREND INFORMATION
The oil tanker industry has been highly cyclical, experiencing
volatility in charterhire rates and vessel values resulting from changes in the
supply of and demand for crude oil and tanker capacity. See Item 4. Information
on the Company - Business Overview - The Tanker Market 2004.
D. OFF BALANCE SHEET ARRANGEMENTS
Not applicable
E. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The Company does not have contractual obligations or commercial
commitments.
CRITICAL ACCOUNTING POLICIES
Long-lived assets
A significant part of the Company's total assets consists of the Vessels. The
oil tanker market is highly cyclical and the useful lives of the Vessels are
dependent on factors, such as future market demand for oil and future market
supply of tanker capacity.
Depreciable lives
Management uses considerable judgment when establishing the depreciable lives
of the Vessels. In order to estimate useful lives of the Vessels, Management
must make assumptions about future market conditions in the oil tanker market.
The Company considers the establishment of depreciable lives to be a critical
accounting estimate.
Impairment
The Vessels are evaluated for impairment whenever indicators of impairment
exist. When an impairment indicator is present, the Company must evaluate
whether the carrying amounts of the Vessels are recoverable. If an impairment
test is warranted, we assess whether the undiscounted cash flows expected to be
generated by our long-lived assets exceed their carrying value. If this
assessment indicates that the long-lived assets are impaired, the assets are
written down to their fair value. These assessments are based on our judgment,
which includes the estimate of future cash flows from long-lived assets.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), which replaces SFAS No. 123 and supercedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values
beginning with the first annual period after June 15, 2005, with early adoption
encouraged. Under SFAS 123R, the Company must determine the appropriate fair
value model to be used for valuing share-based payments, the amortization method
for compensation cost and the transition method to be used at date of adoption.
The Company is currently evaluating the effect that the adoption of SFAS 123R
will have on its results of operations and financial condition but does not
expect it to have a material impact.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets--An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and
replaces it with an exception for exchanges that do not have commercial
substance. SFAS 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for the fiscal
periods beginning after June 15, 2005. The Company is currently evaluating the
effect that the adoption of SFAS 153 will have on its results of operations and
financial condition but does not expect it to have a material impact.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
Directors and Senior Management of the Company and the Manager
Pursuant to the Management Agreement, with Scandic American Shipping
Ltd., or the Manager, the Manager provides management, administrative and
advisory services to us. The Manager is owned by Herbj0rn Hansson, our Chairman,
and Andreas Ove Ugland, one of our directors, and may engage in business
activities other than with respect to the Company.
Set forth below are the names and positions of the directors of the
Company and executive officers of the Company and the Manager. The directors of
the Company are elected annually, and each director elected holds office until a
successor is elected. Officers of both the Company and the Manager are elected
from time to time by vote of the respective board of directors and hold office
until a successor is elected.
The Company
Name Age Position
-------------------------------------------------------------------------------
Herbj0rn Hansson 56 Chairman, Chief Executive
Officer and President
Rolf Amundsen 60 Chief Financial Officer
Hon. Sir David Gibbons 77 Director
George C. Lodge 77 Director
Andreas Ove Ugland 49 Director
Torbj0rn Glads0 57 Director
Peter Bubenzer 49 Secretary
The Manager
Name Age Position
-------------------------------------------------------------------------------
Herbj0rn Hansson 56 Director, President and Chief
Executive Officer
Rolf Amundsen 60 Chief Financial Officer
Jan Erik Langangen 54 Executive Vice President--
Business Development and Legal
Turid M. S0rensen 44 Treasurer and Controller
Certain biographical information with respect to each director and
executive officer of the Company and the Manager listed above is set forth
below.
Herbj0rn Hansson earned his M.B.A. at the Norwegian School of Economics
and Business Administration and Harvard Business School. In 1974 he was employed
by the Norwegian Shipowners' Association. In the period from 1975 to 1980, he
was Chief Economist and Research Manager of INTERTANKO, an industry association
whose members control about 75% of the world's independently owned tanker fleet,
excluding state owned and oil company fleets. During the 1980s, he was Chief
Financial Officer of Kosmos/Andres Jahre, at the time one of the largest
Norwegian based shipping and industry groups. In 1989, Mr. Hansson founded
Ugland Nordic Shipping AS, or UNS, which became one of the world's largest
owners of specialized shuttle tankers. He served as Chairman in the first phase
and as Chief Executive Officer as from 1993 to 2001 when UNS, under his
management, was sold to Teekay Shipping Corporation, or Teekay, for $780
million. He continued to work with Teekay, most recently as Vice Chairman of
Teekay Norway AS, until he started working full-time for the Company on
September 1, 2004. Mr. Hansson is the founder and has been Chairman and Chief
Executive Officer of the Company since its establishment in 1995. He also is a
member of various governing bodies of companies within shipping, insurance,
banking, manufacturing, national/international shipping agencies including
classification societies and protection and indemnity associations. Mr. Hansson
is fluent in Norwegian and English, and has a command of German and French for
conversational purposes.
Rolf Amundsen was appointed Chief Financial Officer by the Board of
Directors on June 10, 2004, and has served as the Investor Relations Officer
since the beginning of 2004. He has an M.B.A. in economics and business
administration, and his entire career has been in international banking.
Previously, Mr. Amundsen has served as the president of the financial analysts
society in Norway. Mr. Amundsen served as the chief executive officer of a
Nordic investment bank for many years, where he established a large operation
for the syndication of international shipping investments.
Sir David Gibbons has been a director of the Company since September
1995. Sir David served as the Premier of Bermuda from August 1977 to January
1982. Sir David has served as Chairman of The Bank of N.T. Butterfield and Son
Limited from 1986 to 1997, Chairman of Colonial Insurance Co. Ltd. since 1986
and as Chief Executive Officer of Edmund Gibbons Ltd. since 1954.
George C. Lodge has been a director of the Company since September
1995. Professor Lodge has been a member of the Harvard Business School faculty
since 1963. He was named associate professor of business administration at
Harvard in 1968 and received tenure in 1972.
Andreas Ove Ugland has been a director of the Company since February
1997. Mr. Ugland has also served as director and Chairman of Ugland
International Holding plc, a shipping/transport company listed on the London
Stock Exchange, Andreas Ugland & Sons AS, Grimstad, Norway, H0egh Ugland
Autoliners AS, Oslo and Buld Associates Inc., Bermuda. Mr. Ugland has had his
whole career in shipping in the Ugland family owned shipping group. Mr. Ugland
is a shareholder and the Chairman of the Manager.
Torbj0rn Glads0 has been a director of the Company since October 2003.
Mr. Gladso is a partner in Saga Corporate Finance AS. He has extensive
experience within investment banking since 1978. He has been the Chairman of the
Board of the Norwegian Register of Securities and Vice Chairman of the Board of
Directors of the Oslo Stock Exchange.
Jan Erik Langangen is the Executive Vice President, Business
Development and Legal, of the Manager. Mr. Langangen previously served as the
Chief Financial Officer from 1979 to 1983, and as Chairman of the Board from
1987 to 1992, of Statoil, an oil and gas company that is controlled by the
Norwegian government and that is the largest company in Norway. He also served
as Chief Executive Officer of UNI Storebrand from 1985 to 1992. Mr. Langangen
was also Chairman of the Board of the Norwegian Governmental Value Commission
from 1998 to 2001. Mr. Langangen is a partner of Langangen & Helset, a Norwegian
law firm and previously was a partner of the law firm Langangen & Engesaeth from
1996 to 2000 and of the law firm Thune & Co. from 1994 to 1996. Mr. Langangen
received a Masters of Economics from The Norwegian School of Business
Administration and his law degree from the University of Oslo.
Turid M. S0rensen has a bachelor degree in Business Administration from
the Norwegian School of Management. Ms. S0rensen has 20 years of experience in
the shipping industry. During the period from 1984 to 1987, she worked for
Anders Jahre AS and Kosmos AS in Norway and held various positions within
accounting and information technology. In the period from 1987 to 1995, Ms.
S0rensen was Manager of Accounting and IT for Skaugen PertroTrans Inc., in
Houston, Texas. After returning to Norway she was employed by Ugland Nordic
Shipping ASA and Teekay Norway AS as Vice President, Accounting. Ms. S0rensen is
fluent in Norwegian and English.
The Management Agreement
Under the Management Agreement the Manager assumes commercial and
operational responsibility of our vessels and is required to manage our
day-to-day business subject, always, to our objectives and policies as
established from time to time by the Board of Directors. The Manager
sub-contracts certain of these duties to IUM Shipmanagement AS, or IUM, a
third-party technical manager affiliated with Teekay Shipping Corporation, a
publicly traded shipping company. All decisions of a material nature concerning
our business are reserved to the Board of Directors. The Management Agreement
will terminate on June 30, 2014, unless earlier terminated pursuant to its
terms, as discussed below, or extended by the parties following mutual
agreement.
For its services under the Management Agreement, the Manager is
entitled to a management fee equal to $100,000 per annum. The management fee is
payable to the Manager quarterly in advance. The Management Agreement formerly
provided that the Manager would receive 1.25% of any gross charterhire paid to
us. In order to further align the Manager's interests with those of the Company,
the Manager agreed with us to amend the Management Agreement to eliminate this
payment, and we issued to the Manager restricted common shares equal to 2% of
our outstanding common shares. any time additional common shares are issued, the
Manager will receive additional restricted common shares to maintain the number
of common shares issued to the Manager at 2% of our total outstanding common
shares. These restricted shares are nontransferable for three years from
issuance.
Under the Management Agreement, the Manager pays, and receives
reimbursement from us, for our administrative expenses including such items as:
o all costs and expenses incurred on our behalf, including
operating expenses and other costs for vessels that are
chartered out on time charters or traded in the spot market and
for monitoring the condition of our vessel that is operating
under bareboat charter,
o executive officer and staff salaries,
o administrative expenses, including, among others, for third
party public relations, insurance, franchise fees, registrars'
fees,
o all premiums for insurance of any nature, including directors'
and officers' liability insurance and general liability
insurance,
o brokerage commissions payable by us on the gross charter hire
received in connection with the charters,
o directors' fees and meeting expenses,
o audit fees,
o other expenses approved by the Board of the Directors and
o attorneys' fees and expenses, incurred on our behalf in
connection with (A) any litigation commenced by or against us,
(B) any claim or investigation by any governmental, regulatory
or self-regulatory authority involving us.
We have agreed to defend, indemnify and save the Manager and its
affiliates (other than us and our subsidiaries), officers, directors, employees
and agents harmless from and against any and all loss, claim, damage, liability,
cost or expense, including reasonable attorneys' fees, incurred by the Manager
or any such affiliates based upon a claim by or liability to a third party
arising out of the operation of our business, unless due to the Manager's or
such affiliates' negligence or willful misconduct.
We may terminate the Management Agreement in the event that:
o the Manager commits any material breach or omission of its
material obligations or undertakings thereunder that is not
remedied within thirty days of our notice to the Manager of such
breach or omission,
o the failure of the Manager to maintain adequate authorization to
perform its duties thereunder that are not remedied within
thirty days,
o certain events of the Manager's bankruptcy, or
o it becomes unlawful for the Manager to perform its duties under
the Management Agreement.
Commercial and Technical Management Agreements
We have entered into a commercial agreement with Teekay Chartering
Limited, or Teekay, an affiliate of Teekay Shipping Corporation for the
newbuilding Nordic Freedom. Under the supervision of the Manager, Teekay's
duties will include seeking and negotiating charters for this vessel. As with
the Nordic Hunter and the Nordic Hawk, the technical management of the Nordic
Freedom will be performed by IUM under the supervision of the Manager.
For its services under the commercial management agreement, Teekay will
be entitled to a 1.75% commission on freight, demurrage and deadfreight, plus
the reimbursement of voyage related expenses. However, if the vessel is
committed on a term charter, Teekay will instead receive a commercial management
fee of $400 per day. The initial term of this commercial management agreement is
twenty-four months.
We have entered into a commercial management agreement, commencing in
the second quarter of 2005, with the Swedish based Stena Bulk AS, or Stena, for
the Nordic Voyager. Under the supervision of the Manager, Stena's duties will
include seeking and negotiating charters for this vessel. For its services under
the commercial management agreement, Stena will be entitled to a 1.75%
commission on freight, demurrage and deadfreight, plus the reimbursement of
voyage related expenses. However, if the vessel is committed on a term charter,
the commission will be reduced to 1.25%. The initial term of this commercial
management agreement is twelve months.
The commercial and technical management for the Nordic Voyager is being
temporarily performed by affiliates of the previous owner. Following the
commencement of the commercial management agreement with Stena, Wilhelmsen
Marine Services AS, an affiliate of the previous owner will, in the near term,
continue to perform the technical management for the vessel.
We have entered into a technical management agreement for the Nordic
Fighter with V.Ships Norway AS, or V.Ships. V.Ships is a marine service group
that provides ship management and related services to a managed fleet of some
650 vessels worldwide. V.Ships has been the technical manager for the vessel
since delivery from the shipyard in 1998. We have not yet appointed a commercial
manager for this vessel.
We have entered into chartering agreement, commencing in the second
quarter of 2005, with Frontline Ltd., or Frontline, under the supervision of the
Manager for the Nordic Fighter. Frontline's duties will, under the supervision
of the Manager, include seeking and negotiating charters for this vessel. We
have entered into a technical management agreement for the Nordic Fighter with
V.Ships under the supervision of the Manager.
B. COMPENSATION
Compensation of Directors and Officers
During 2004, the five non-employee directors received, in the
aggregate, approximately $106,000 in cash fees for their services as directors.
For the period from October 1, 2004 through December 31, 2004 and for each
fiscal year thereafter, each of our non-employee directors receives a fee at the
annual rate of $45,000. We do not pay director fees to employee directors. We
do, however, reimburse our directors for all reasonable expenses incurred by
them incurred in connection with serving on our board of directors. Directors
may receive restricted shares or other grants under our 2004 Stock Incentive
Plan described below.
2004 Stock Incentive Plan
Under the terms of the Company's 2004 Stock Incentive Plan, the
directors, officers and certain key employees of the Company and the Manager are
eligible to receive awards which include incentive stock, restricted stock units
and performance shares. A total of $400,000 common shares is reserved for
issuance upon exercise of options, as restricted share grants or otherwise under
the plan. Included under the 2004 Stock Incentive Plan are options to purchase
common shares at an exercise price equal to $38.75, the offering price of the
shares offered in the follow-on offering in November 2004, subject to annual
downward adjustment if the payment of dividends in the related fiscal year
exceed a 3% yield calculated based on the initial strike price. In February 2005
the Company granted, under the terms of the Company's 2004 Stock Incentive Plan,
a total of 270,000 stock options that the Board of Directors had agreed to issue
during 2004. These options will vest in equal installments on each of the first
four anniversaries of the closing of the follow-on offering in November 2004.
C. BOARD PRACTICES
The members of the Company's board of directors serves until the next
annual general meeting following his or her election to the board. The members
of the current board of directors were elected at the annual general meeting
held in 2004. The Company's Board of Directors has established an Audit
Committee, consisting of two independent directors, Messrs. Glads0 and Ugland.
Mr. Glads0 serves as the audit committee financial expert. The members of the
Audit Committee do not receive remuneration in this capacity. Under the Audit
Committee Charter, the audit committee provides assistance to the Company's
board of directors in fulfilling their responsibility to shareholders, and
investment community relating to corporate accounting, reporting practices of
the Company, and the quality and integrity of the financial reports of the
Company. The Audit Committee is required under its Charter to, among other
duties, recommend to the Company's board of directors the independent auditors
to be selected to audit the financial statements of the Company; meet with the
independent auditors and financial management of the Company to review the scope
of the proposed audit for the current year and the audit procedures to be
utilized; review with the independent auditors, and financial and accounting
personnel, the adequacy and effectiveness of the accounting and financial
controls of the Company; and review the financial statements contained in the
annual report to shareholders with management and the independent auditors.
D. EMPLOYEES
We have employment agreement with Herbjorn Hansson, our Chairman,
President and Chief Executive Officer and Mr. Rolf Amundsen, our Chief Financial
Officer. Mr. Hansson does not receive any additional compensation for serving as
a director or the Chairman of the Board. The aggregate compensation of our
executive officer during 2004 was $133,333. The aggregate compensation of our
executive officers is expected to be approximately $560,000 during 2005. On
certain terms the employment agreement may be terminated by us or Mr. Hansson
upon six months' written notice to the other party.
E. SHARE OWNERSHIP
The following table sets forth information regarding the share
ownership of the Company as of June 10, 2005 by its directors and officers. All
of the shareholders are entitled to one vote for each share of common stock
held.
Title Identity of Person No. of Shares % of Class
Common Herbj0rn Hansson(1) 357,890 2%
Peter Bubenzer * <1%
Hon. Sir David Gibbons * <1%
Thorbj0rn Glads0 * <1%
George C. Lodge * <1%
Andreas Ove Ugland(1) * 2%
Rolf Amundsen * <1%
(1) Includes 332,890 shares held by the Manager, of which Messrs. Hansson and
Ugland are sole shareholders.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The Company is not directly or indirectly controlled by another
corporation, by a foreign government or by any other natural or legal person.
According to a Schedule 13G filed on March 31, 2005, Gilder, Gagnon,
Howe & Co. LLC owns 748,559 or 5.9%, as reported in that Schedule 13G, of the
Company's common shares.
B. RELATED PARTY TRANSACTIONS
Since May 30, 2003, Scandic, which is owned by Messrs. Ugland and
Hansson, has been party to the Management Agreement with the Company.
C. INTERESTS OF EXPERTS AND COUNSEL
Not Applicable
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See Item 17
Legal Proceedings
To the best of the Company's knowledge, it is not currently involved in
any legal or arbitration proceedings that would have a significant effect on the
Company's financial position or profitability and no such proceedings are
pending or known to be contemplated by governmental authorities.
Dividend Policy
Total dividend paid out in 2004 was $47,195,842 or $4.84 per Share. The
dividend payments per share in 2000, 2001, 2002, 2003 and 2004 have been as
follows:
Period 2000 2001 2002 2003 2004
---------------------------------------------------------------------------
1st Quarter $0.34 $1.41 $0.36 $0.63 $1.15
2nd Quarter 0.45 1.19 0.34 1.27 1.70
3rd Quarter 0.67 0.72 0.33 0.78 0.88
4th Quarter 1.10 0.55 0.32 0.37 1.11
---------------------------------------------------------------------------
Total $2.56 $3.87 $1.35 $3.05 $4.84
---------------------------------------------------------------------------
B. SIGNIFICANT CHANGES
Not applicable
ITEM 9. THE OFFER AND LISTING
Not applicable except for Item 9.A.4. and Item 9.C
PRICE RANGE OF COMMON SHARES
Since November 16, 2004, the primary trading market for our common
shares has been the New York Stock Exchange, or the NYSE, on which our shares
are listed under the symbol "NAT." The primary trading market for our common
shares was the American Stock Exchange, or the AMEX, until November 15, 2005, at
which time trading of our common shares on the AMEX ceased. The secondary
trading market for our common shares was the Oslo Stock Exchange, or the OSE,
until January 14, 2005, at which time trading of our common share on the OSE
ceased.
The annual high and low market prices for our common shares in 2004
were $41.59 and $15.00, respectively, as reported by the
AMEX.
The high and low market prices for our common shares by quarter in 2004
were as follows:
AMEX AMEX NYSE NYSE OSE OSE
For the quarter ended: HIGH LOW HIGH LOW HIGH LOW
----------------------------------------------------------------------------------------------------
March 31, 2004 $27.10 $15.00 N/A N/A NOK 179.00 NOK 115.00
June 30, 2004 $34.59 $21.25 N/A N/A NOK 225.00 NOK 160.00
September 30, 2004 $37.75 $25.00 N/A N/A NOK 249.00 NOK 210.00
December 31, 2004 (1) $41.59 $31.15 $41.30 $35.26 NOK 300.00 NOK 214.00
----------------------------------------
(1) The AMEX figures are based on trading from the beginning of the quarter
through November 15, 2004 and the NYSE figures are based on trading from
November 16, 2004 through the end of the quarter.
The high and low market prices for our common shares by month since
January 2005 were as follows:
AMEX AMEX NYSE NYSE OSE OSE
For the month: HIGH LOW HIGH LOW HIGH LOW
----------------------------------------------------------------------------------------------------
January 2005 (2) N/A N/A $48.75 $35.95 NOK 225.00 NOK 205.00
February 2005 N/A N/A $56.68 $45.39 N/A N/A
March 2005 N/A N/A $56.15 $43.80 N/A N/A
April 2005 N/A N/A $49.79 $41.25 N/A N/A
May 2005 N/A N/A $47.69 $38.00 N/A N/A
(1) The AMEX figures are based on trading from the beginning of the mohrough
November 15, 2004 and the NYSE figures are based on trading from November
16, 2004 through the end of the month.
(2) The OSE figures are based on trading from the beginning of the month through
January 14, 2004.
B. MARKETS
The primary trading market for the Shares is the New York Stock
Exchange, on which the Shares are listed under the symbol "NAT".
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not Applicable
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
The Company's Memorandum of Association provides that the Company's
objects are as set forth in paragraphs (b) through (n) and (p) to (u),
inclusive, of the Second Schedule to The Companies Act 1981 of Bermuda. The
Company's Bye-laws limited the Company's business activities to:
(i) entering into, or becoming a party to the Shipbuilding
Contracts between the Company and the Builder providing for the construction of
the Vessels;
(ii) supervision of the construction of the Vessels;
(iii) entering into, or becoming a party to, the Participation
Agreement among the Company, the Manager, the Charterer, British Petroleum,
Rabobank and Silver Island and the BP Letter Agreement among the Company,
British Petroleum, the Charterer, the Manager, Lazard Freres & Co. LLC which
sets forth certain continuing obligations of each of the parties thereto;
(iv) entering into, or becoming a party to the Original Charters
with the Charterer and subsequent Charters with any subsequent charterer of the
Vessels;
(v) entering into, or becoming a party to, the U.K. Finance
Leases between the Company and any U.K. financial institution relating to the
lease of the Vessels;
(vi) entering into, or becoming a party to, the Underwriting
Agreement relating to the public sale and offering of the Company warrants by
Lazard Freres & Co. LLC, the Warrant Agreement relating to the exercise of the
Company's warrants, the Management Agreement, and the Registration Rights
Agreement between the Company and Silver Island;
(vii) entering into, or becoming a party to any agreement and
performing all acts necessary for the conduct of an offering by the Company of
the Warrants, and the listing of the Common Shares on any stock exchange or
their inclusion in any securities market;
(viii) enforcing its rights and performing its obligations in
respect of any and all of the foregoing;
(ix) entering into agreements to charter, lease, sell or
otherwise dispose of a Vessel upon the termination of its Original Charter;
(x) entering into, or becoming a party to, and taking all actions
including amending the Management Agreement and any other Agreements to which
the Company is a party and furnishing such security over the Company's assets as
may be necessary or desirable in connection with the incurrence of debt for
borrowed money in the amount of up to US$30,000,000 to purchase its Common
Shares, and authorizing the Company to pay from the proceeds of such debt and
from its income any costs, fees and expenses in connection with such incurrence,
or refinancing or replacement thereof, costs related to any current or future
proposals submitted by the Board of Directors to amend these Bye-Laws including
any related proxy solicitation and regulatory filings and costs related to the
purchase by the Company of its Common Shares including the costs and fees
related to the preparation and conduct of a "Dutch Auction" self-tender offer;
and
(xi) engaging in those activities, including the entering into
additional or supplementary agreements, documents and instruments necessary,
suitable or convenient to accomplish the foregoing or incidental thereto or
connected therewith.
Upon expiration of the BP Charters, the abovementioned limitations were
automatically removed.
The following section of the Company's Report on Form F-6, filed with
the Securities and Exchange Commission on February 15, 2005, is hereby
incorporated by reference:
1. Description of Capital Stock (Exhibit 99.1).
The following section of the Company's Prospectus Supplement filed with
the Securities Exchange Commission under Rule 424(b)(2) on March 3, 2005
(Registration No. 333-118128), is hereby incorporated by reference:
1. Our Dividend Policy (p.21)
C. MATERIAL CONTRACTS
On May 30, 2003, the Company's shareholders approved a novation
agreement by which the Management Agreement was novated from UNS to Scandic.
Otherwise, the Company has not entered into any material contracts outside the
ordinary course of business during the past three years.
D. EXCHANGE CONTROLS
The Company has been designated as a non-resident of Bermuda for
exchange control purposes by the Bermuda Monetary Authority, whose permission
for the issue of the Common Shares was obtained prior to the offering thereof.
The transfer of shares between persons regarded as resident outside
Bermuda for exchange control purposes and the issuance of Common Shares to or by
such persons may be effected without specific consent under the Bermuda Exchange
Control Act of 1972 and regulations thereunder. Issues and transfers of Common
Shares involving any person regarded as resident in Bermuda for exchange control
purposes require specific prior approval under the Bermuda Exchange Control Act
1972.
Subject to the foregoing, there are no limitations on the rights of
owners of the Common Shares to hold or vote their shares. Because the Company
has been designated as non-resident for Bermuda exchange control purposes, there
are no restrictions on its ability to transfer funds in and out of Bermuda or to
pay dividends to United States residents who are holders of the Common Shares,
other than in respect of local Bermuda currency.
In accordance with Bermuda law, share certificates may be issued only
in the names of corporations or individuals. In the case of an applicant acting
in a special capacity (for example, as an executor or trustee), certificates
may, at the request of the applicant, record the capacity in which the applicant
is acting. Notwithstanding the recording of any such special capacity, the
Company is not bound to investigate or incur any responsibility in respect of
the proper administration of any such estate or trust.
The Company will take no notice of any trust applicable to any of its
shares or other securities whether or not it had notice of such trust.
As an "exempted company", the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians, but
as an exempted company, the Company may not participate in certain business
transactions including: (i) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years) without the express authorization of the
Bermuda legislature; (ii) the taking of mortgages on land in Bermuda to secure
an amount in excess of $50,000 without the consent of the Minister of Finance of
Bermuda; (iii) the acquisition of securities created or issued by, or any
interest in, any local company or business, other than certain types of Bermuda
government securities or securities of another "exempted company, exempted
partnership or other corporation or partnership resident in Bermuda but
incorporated abroad; or (iv) the carrying on of business of any kind in Bermuda,
except in so far as may be necessary for the carrying on of its business outside
Bermuda or under a license granted by the Minister of Finance of Bermuda.
There is a statutory remedy under Section 111 of the Companies Act 1981
which provides that a shareholder may seek redress in the Bermuda courts as long
as such shareholder can establish that the Company's affairs are being
conducted, or have been conducted, in a manner oppressive or prejudicial to the
interests of some part of the shareholders, including such shareholder. However,
this remedy has not yet been interpreted by the Bermuda courts.
The Bermuda government actively encourages foreign investment in
"exempted" entities like the Company that are based in Bermuda but do not
operate in competition with local business. In addition to having no
restrictions on the degree of foreign ownership, the Company is subject neither
to taxes on its income or dividends nor to any exchange controls in Bermuda. In
addition, there is no capital gains tax in Bermuda, and profits can be
accumulated by the Company, as required, without limitation. There is no income
tax treaty between the United States and Bermuda pertaining to the taxation of
income other than applicable to insurance enterprises.
E. TAXATION
The Company is incorporated in Bermuda. Under current Bermuda law, the
Company is not subject to tax on income or capital gains, and no Bermuda
withholding tax will be imposed upon payments of dividends by the Company to its
shareholders. No Bermuda tax is imposed on holders with respect to the sale or
exchange of Shares. Furthermore, the Company has received from the Minister of
Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966, as
amended, an assurance that, in the event that Bermuda enacts any legislation
imposing any tax computed on profits or income, including any dividend or
capital gains withholding tax, or computed on any capital asset, appreciation,
or any tax in the nature of an estate, duty or inheritance tax, then the
imposition of any such tax shall not be applicable. The assurance further
provides that such taxes, and any tax in the nature of estate duty or
inheritance tax, shall not be applicable to the Company or any of its
operations, nor to the shares, debentures or other obligations of the Company,
until March 2016.
F. DIVIDENDS AND PAYING AGENTS
Not Applicable
G. STATEMENT BY EXPERTS
Not Applicable
H. DOCUMENTS ON DISPLAY
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. In accordance with these
requirements we file reports and other information with the Securities and
Exchange Commission. These materials, including this annual report and the
accompanying exhibits may be inspected and copied at the public reference
facilities maintained by the Commission at100 F Street, NE, Room 1580,
Washington, D.C. 20549. You may obtain information on the operation of the
public reference room by calling 1 (800) SEC-0330, and you may obtain copies at
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. 20549. The SEC maintains a website
(http://www.sec.gov.) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC. In addition, documents referred to in this annual report may be inspected
at the Company's headquarters at Reid House 31 Church Street, Hamilton HM F
Bermuda.
We furnish holders of our ordinary shares with annual reports
containing audited financial statements and a report by our independent public
accountants, and intend to make available quarterly reports containing selected
unaudited financial data for the first three quarters of each fiscal year. The
audited financial statements will be prepared in accordance with United States
generally accepted accounting principles. As a "foreign private issuer," we are
exempt from the rules under the Securities Exchange Act prescribing the
furnishing and content of proxy statements to shareholders. While we intend to
furnish proxy statements to shareholders in accordance with the rules of the New
York Stock Exchange, those proxy statements do not conform to Schedule 14A of
the proxy rules promulgated under the Exchange Act. All reports, proxy
statements and other information filed by us with the New York Stock Exchange
may be inspected at the New York Stock Exchange's offices at 20 Broad Street,
New York, New York 10005. In addition, as a "foreign private issuer," we are
exempt from the rules under the Exchange Act relating to short swing profit
reporting and liability.
I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates
related to the variable rate of the Company's borrowings, or the Loan under our
credit facility
Amounts borrowed under the credit facility will bear interest at a rate
equal to LIBOR plus a margin between 0.80% to 1.20% per year (depending on the
loan to vessel value ratio).
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not Applicable
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not Applicable
ITEM 15. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures.
As of December 31, 2004, the Company carried out an evaluation, under
the supervision and with the participation of the Company's management,
including Mr. Herbj0rn Hansson, acting as of that date as the Company's Chief
Executive Officer and Rolf Amundsen, the Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in alerting them
timely to material information relating to the Company required to be included
in the Company's periodic SEC filings.
(b) N/A
(c) N/A
(d) Changes in internal control over financial reporting
There have been no significant changes in our internal controls or in
other factors that could have significantly affected those controls subsequent
to the date of our most recent evaluation of internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
ITEM 16. RESERVED.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that Mr. Torbj0rn Glads0 is an
audit committee financial expert.
ITEM 16B. CODE OF ETHICS.
The Company is currently considering whether to adopt a code of ethics
described under this Item 16B.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The following table sets forth, for the two most recent fiscal years,
the aggregate fees billed for professional services rendered by the principal
accountant for the audit of the Company's annual financial statements and
services provided by the principal accountant in connection with statutory and
regulatory filings or engagements for the two most recent fiscal years.
FISCAL YEAR ENDED DECEMBER 31, 2004 $49,700
FISCAL YEAR ENDED DECEMBER 31, 2003 $13,500
(b) Audit-Related Fees
FISCAL YEAR ENDED DECEMBER 31, 2004 $90,400
FISCAL YEAR ENDED DECEMBER 31, 2003 $0
(c) Tax Fees
FISCAL YEAR ENDED DECEMBER 31, 2004 $0
FISCAL YEAR ENDED DECEMBER 31, 2003 $21,950
(d) All Other Fees
Not applicable.
(e) Audit Committee's Pre-Approval Policies and Procedures
Our audit committee pre-approves all audit, audit-related and non-audit
services not prohibited by law to be performed by our independent auditors and
associated fees prior to the engagement of the independent auditor with respect
to such services.
(1) Not applicable.
(f) Not applicable.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS.
Not Applicable
PART III
ITEM 17. FINANCIAL STATEMENTS
Not Applicable
ITEM 18. FINANCIAL STATEMENTS
See pages F-1 through F-11
NORDIC AMERICAN TANKER SHIPPING LIMITED
TABLE OF CONTENTS
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Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS F-3
Balance Sheets F-3
Statements of Operations F-4
Statements of Cash Flows F-5
Statements of Shareholders' Equity F-6
Notes to Financial Statements F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of
Directors and Stockholders of Nordic American Tanker Shipping Limited Bermuda
We have audited the balance sheets of Nordic American Tanker Shipping Ltd. (the
"Company") as of December 31, 2004 and 2003, and the related statements of
operations, cash flows, and shareholders' equity for each of the three years in
the period ended December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Nordic American Tanker Shipping as of
December 31, 2004 and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2004 in
conformity with accounting principles generally accepted in the United States of
America.
Oslo, Norway, 18 May, 2005
Deloitte Statsautoriserte Revisorer AS
BALANCE SHEET Notes Dec. 31 Dec. 31
All figures in USD 2004 2003
------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and Cash Equivalents 1 30,732,516 565,924
Accounts and Receivable 1 4,539,354 8,142,307
Prepaid Finance Charges 1,206,348 14,475
Prepaid Insurance 273,362 91,667
------------------------------------------------------------------------------------------
Total Current Assets 36,751,580 8,814,373
------------------------------------------------------------------------------------------
Long-term Assets
Vessels 4 187,301,038 128,081,925
Prepaid Finance Charges 150,793 -
------------------------------------------------------------------------------------------
Total Assets 224,203,411 136,896,298
------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable 411,366 -
Deferred Revenue 1,286,070 -
Accrued Liabilities 637,582 38,322
Derivative Contract - 1,150,000
Current Portion of Long-term Debt - 30,000,000
-----------------------------------------------------------------------------------------
Total Current liabilities 2,335,018 31,188,322
-----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common Shares, par value $.01 per share,
(51,200,000 shares authorized; 13,067,838
Issued and outstanding, (9,706,606 in 2003) 6 130,678 97,066
Additional Paid-in Capital 265,752,581 144,395,866
Accumulated Other Comprehensive Loss - (1,150,000)
Accumulated Deficit (44,014,866) (37,634,956)
------------------------------------------------------------------------------------------
Total Shareholders' Equity 221,868,393 105,707,976
------------------------------------------------------------------------------------------
Total liabilities & Shareholders' equity 224,203,411 136,896,298
------------------------------------------------------------------------------------------
The footnotes are an integral part of these financial statements
STATEMENT OF OPERATIONS
(all figures in USD) Year Ended December 31,
--------------------------------------------------
Notes 2004 2003 2002
----- ---- ---- ----
Voyage Revenue 1, 3 67,451,598 37,370,756 18,057,989
Voyage Expenses (4,925,353) (184,781) (184,781)
Vessel Operating Expenses (1,976,766) - -
Administrative Expenses 2, 5 (10,851,688) (468,087) (427,048)
Depreciation 4 (6,918,164) (6,831,040) (6,831,040)
--------------------------------------------------
Net Operating Income 42,779,627 29,886,848 10,615,120
--------------------------------------------------
Interest Income 143,230 26,462 21,409
Interest Expense (1,971,304) (1,797,981) (1,764,424)
Other Financial Charges (135,621) (15,040) (24,837)
--------------------------------------------------
Net Financial Items (1,963,695) (1,786,559) (1,767,852)
--------------------------------------------------
Net Profit before tax 40,815,932 28,100,289 8,847,268
--------------------------------------------------
Tax Expense - - -
--------------------------------------------------
Net Profit for the Year 40,815,932 28,100,289 8,847,268
--------------------------------------------------
Basic and Diluted Earnings per Share 4.05 2.89 0.91
Weighted Average Number of
Shares Outstanding 10,078,391 9,706,606 9,706,606
The footnotes are an integral part of these financial statements
STATEMENT OF CASH FLOWS
(all figures in USD) Year Ended December 31,
-----------------------------------------------
2004 2003 2002
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit 40,815,932 28,100,289 8,847,268
Reconcilation of Net Profit to Net Cash From
Operating Activities
Depreciation 6,918,164 6,831,040 6,831,040
Amortization of Prepaid Finance Costs 112,838 14,480 14,480
Share-based Compensation 9,252,365 - -
Increase (decrease) in:
Accounts Receivable 3,602,956 (4,865,784) (3,106,343)
Accounts Payable and Accrued Liabilities 1,010,626 (178,140) 176,800
Deferred Revenue 1,286,075 - -
Other Assets (181,695) (8,334) (12,337)
------------- ----------- -----------
Net Cash Provided By Operating Activities 62,817,261 29,893,551 12,750,908
------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Vessels (66,137,277) -
Net Cash Used In Investing Activities (66,137,277) - -
CASH FLOWS FROM FINANCING ACTIVITIES - -
Proceeds from Sale of Common Stock 112,137,953 - -
Proceeds from Use of the Credit Facility 96,000,000 - -
Repayment of Debt (126,000,000) - -
Loan Facility Costs (1,455,503) - -
Dividends Paid (47,195,842) (29,605,410) (13,103,993)
------------- ----------- -----------
Net Cash Provided By (Used In) Financing Activities 33,486,608 (29,605,410) (13,103,993)
------------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 30,166,592 288,141 (353,085)
------------- ----------- -----------
Beginning Cash and Cash Equivalents 565,924 277,783 630,868
Ending Cash and Cash Equivalents 30,732 516 565,924 277,783
------------- ----------- -----------
Cash Paid for Interest 1,774,264 1,975,125 1,587,622
The footnotes are an integral part of these financial statements
STATEMENTS OF SHAREHOLDERS' EQUITY
(all figures in USD)
Accumulated
Additional Other Total Total
Common Paid-in Accumulated Comprehensive Shareholders' Comprehensive
Shares Capital Deficit Loss Equity Income
-----------------------------------------------------------------------------------------------------------------------------
Balance at 01.01.02 97,066 144,395,866 (31,873,110) (778,000) 111,841,822
-----------------------------------------------------------------------------------------------------------------------------
Net Profit 8,847,268 8,847,268 8,847,268
Unrealized Loss on
Derivative Instruments (2,262,564) (2,262,564) (2,262,564)
Adjustment for Losses on
Derivatives Reclassified to
Earnings 1,024,564 1,024,564 1,024,564
Dividends Paid (13,103,993) (13,103,993)
Total Comprehensive
Income 7,609,268
-----------------------------------------------------------------------------------------------------------------------------
Balance at 12.31.02 97,066 144,395,866 (36,129,835) (2,016,000) 106,347,097
Net Profit 28,100,289 28,100,289 28,100,289
Unrealized Loss on
Derivative Instruments (365,723) (365,723) (365,723)
Adjustment for Losses on
Derivatives Reclassified to
Earnings 1,231,723 1,231,723 1,231,723
Dividends Paid (29,05,410) (29,605,410)
-----------------------------------------------------------------------------------------------------------------------------
Total Comprehensive
Income 28,966,289
-----------------------------------------------------------------------------------------------------------------------------
Balance at 12.31.03 97,066 144,395,866 (37,634,956) (1,150,000) 105,707,976
Net profit 40,815,932 40,815,932 40,815,932
Common Shares Issued 33,612 121,356,715 121,390,327
Unrealized Loss on
Derivative Instruments (20,710) (20,710) (20,710)
Adjustment for Losses on
Derivatives Reclassified to
Earnings 1,170,710 1,170,710 1,170,710
Dividends Paid (47,195,842) (47,195,842)
-----------------------------------------------------------------------------------------------------------------------------
Total Comprehensive
Income 41,965,932
-----------------------------------------------------------------------------------------------------------------------------
Balance at 12.31.04 130,678 265,752,581 (44,014,866) - 221,868,393
-----------------------------------------------------------------------------------------------------------------------------
The footnotes are an integral part of these financial statements
NORDIC AMERICAN TANKER SHIPPING LIMITED
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP).
Nature of Business: The principal business of Nordic American Tanker Shipping
Limited (the "Company") is to own and operate Suezmax crude oil tankers.
Use of Estimates: Preparation of financial statements in accordance with US GAAP
necessarily includes amounts based on estimates and assumptions made by
management. Actual results could differ from those amounts.
Concentration of Credit Risk: Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of cash and
accounts receivable. The Company maintains its cash with reputable financial
institutions. The terms of these deposits are on demand to minimize risk. The
Company has not experienced any losses related to these cash deposits and
believes it is not exposed to any significant credit risk.
Accounts receivable consist of uncollateralized receivables from international
customers primarily in the international shipping industry. To minimize risk
associated with international transactions, all sales are denominated in U.S.
currency. The Company routinely assesses the financial strength of its
customers. The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
Cash and Cash Equivalents: Cash and cash equivalents consist of deposits with
original maturities of three months or less.
Property and Equipment: Depreciation and amortization are provided on a
straight-line basis over the estimated useful lives of the assets. The Company's
property and equipment consist solely of vessels. The estimated useful life of
these vessels is 25 years from the date the vessel is delivered from the
shipyard. Repairs and maintenance are expensed as incurred.
Impairment of Long-Lived Assets: Long-lived assets are required to be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition is less than the carrying amount of the asset, the
asset is deemed impaired. The amount of the impairment is measured as the
difference between the carrying value and the fair value of the asset.
Revenue Recognition: Revenues are generated from freight billings, time charter
and bareboat charter hires. Time charter and bareboat charter revenues are
recorded over the term of the charter as the applicable vessel operates under
the charter. The Company uses a discharge-to-discharge basis in determining
percentage of completion for all spot voyages. The operating results of voyages
in progress at a reporting date are estimated and recognised pro-rata on a per
day basis.
Financial Instruments: The fair values of cash and cash equivalents, short-term
investments, accounts receivable, and accounts payable approximated carrying
value because of the short-term nature of these instruments
Finance costs: Finance costs, including fees, commissions and legal expenses,
which are presented as other assets are capitalized and amortized on a
straight-line basis over the term of the relevant Credit Facility. Amortization
of finance costs is included in interest expense.
Segment Information: The Company has identified only one operating segment under
Statement of Financial Accounting Standards ("SFAS") No. 131 "Segments of an
Enterprise and Related Information." The Company has only one type of vessel -
Suezmax crude oil tankers - operating on time charter contracts at market
related rates, in the spot market and on long-term bareboat contract.
Stock-Based Compensation: The Company follows No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which establishes a fair value-based
method of accounting for stock-based compensation plans
Derivative Instruments and Hedging Activities: The Company accounts for its
derivative instruments and hedging activities according to No. 133, "Accounting
for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137
and SFAS No. 138. This standard, as amended, requires derivative instruments to
be recorded in the balance sheet at their fair value. Changes in the fair value
of derivatives that do not qualify for hedge treatment, as well as ineffective
portions of any hedge, are recorded to earnings. Changes in fair value for
qualifying cash flow-hedges are recorded in equity and are realized in earnings
in conjunction with the gain or loss on the hedged item or transaction.
Changes in the fair value of qualifying hedges offset corresponding changes in
the fair value of the hedged item in the statement of operations.
Net Profit per Share: SFAS No. 128 "Earnings Per Share," (EPS) requires earnings
per share to be computed and reported as both basic EPS and diluted EPS. Basic
EPS is computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed by dividing net
income by the weighted average number of common shares and dilutive common stock
equivalents (ie. stock options, warrants) outstanding during the period. The
Company does not have any potentially dilutive or anti-dilutive securities
outstanding.
Income taxes: The Company is incorporated in Bermuda. Under current Bermuda law,
the Company is not subject to corporate income taxes.
New Pronouncements: In December 2004, the FASB issued SFAS No. 123 (revised
2004), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123 and
supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS
123R requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on
their fair values beginning with the first annual period after June 15, 2005,
with early adoption encouraged. Under SFAS 123R, the Company must determine the
appropriate fair value model to be used for valuing share-based payments, the
amortization method for compensation cost and the transition method to be used
at date of adoption. The Company is currently evaluating the effect that the
adoption of SFAS 123R will have on its results of operations and financial
condition but does not expect it to have a material impact.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets--An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets in paragraph
21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and
replaces it with an exception for exchanges that do not have commercial
substance. SFAS 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for the fiscal
periods beginning after June 15, 2005. The Company is currently evaluating the
effect that the adoption of SFAS 153 will have on its results of operations and
financial condition but does not expect it to have a material impact.
2. RELATED PARTY TRANSACTIONS
The Manager, Scandic American Shipping Ltd., is jointly owned by the Chairman
and CEO of the Company, Mr. Herbj0rn Hansson, and a Board Member, Mr. Andreas
Ove Ugland. The Manager, under the Management Agreement, assumes commercial and
operational responsibility of our vessels and is required to manage our
day-to-day business subject, always, to our objectives and policies as
established from time to time by the Board of Directors. For its services under
the Management Agreement, the Manager is entitled to cover the cost incurred
plus a management fee equal to $100,000 per annum. The Manager also has a right
to 2% of the Company's total outstanding shares (see Note 7 "Share-Based
Compensation"). The Company has recognized total costs of $653,799 for the
services provided under the Management Agreement for the year ended December 31,
2004, additionally the Company recognized $9,252,365 in non-cash share-based
compensation expense related to the issuance of shares to the Manager (see Note
7 "Share-Based Compensation"). Payable at year end was $105,080.
At the end of the year 2004 Mr. Ugland held a 25.7% ownership interest in IUM
Shipmanagement AS (IUM), a third-party technical manager to whom the Manager has
sub-contracted technical management for some of the vessels. The Company has
recognized costs of $1,863,552 for the services provided under the Technical
Management Agreements for the year ended December 31, 2004. Payable at year end
was $116,681.
Mr. Jan Erik Langangen, Executive Vice President of the Manager, is a partner of
Langangen & Helset Advokatfirma DA which in the past has also provided and may
continue to provide legal services to us. The Company has recognized costs of
$33,435 for the services provided by Langangen & Helset Advokatfirma DA. Payable
at year end was $38,157.
3. REVENUE
For the twelve months ending December 31, 2004, our only source of income was
from our four vessels of which two are on charter to BP Shipping, one vessel on
charter to Gulf Navigation and one on charter to the previous owner. All of the
Company's revenues are earned in international markets.
One customer accounted for 97% of Company's revenues during the year ended
December 31, 2004. One customer accounted for 100% of Company's revenues during
the year ended December 31, 2003 and December 31, 2002.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of four Suezmax crude oil tankers built in 1997.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the vessels. The estimated useful life of a new vessel is 25 years.
2004 2003
---------------------------------------------------------------------
Acquisition cost $236,913,247 $170,775,970
Accumulated depreciation (49,612,209) (42,694,045)
---------------------------------------------------------------------
$187,301,038 $128,081,925
=====================================================================
5. ADMINISTRATIVE EXPENSES
2004 2003 2002
----------------------------------------------------------------------------------
Management fee $175,000 $250,000 $250,000
Directors and officers insurance 112,500 101,666 86,667
Share-based compensation 9,252,365 0 0
Other fees and expenses 1,311,823 116,421 90,381
---------------------------------------------------------------------------------
Total administrative expenses $10,851,688 $468,087 $427,048
=================================================================================
6. STOCK HOLDERS' EQUITY
Authorized, and issued and outstanding common shares rollforward is as follows:
Authorized Shares Issued and
Outstanding Shares
-----------------------------------------------------------------------------
Balance at 01.01.03 51,200,000 9,706,606
Follow-on Offering - November 2004 - 3,105,000
Share-based Compensation - 256,232
---------------------------------------------------------------------------
Balance at 12.31.04 51,200,000 13,067,838
---------------------------------------------------------------------------
7. SHARE-BASED COMPENSATION
2004 Stock Incentive Plan
Under the terms of the Company's 2004 Stock Incentive Plan, the directors,
officers and certain key employees of the Company and the Manager will be
eligible to receive awards which include incentive stock options, non-qualified
stock options, stock appreciation rights, dividend equivalent rights, restricted
stock, restricted stock units and performance shares. A total of 400,000 common
shares are reserved for issuance upon exercise of options, as restricted share
grants or otherwise under the plan. No options have been issued or are
outstanding at December 31, 2004.
Restricted Shares
The Management Agreement formerly provided that the Manager would receive 1.25%
of any gross charterhire paid to us. In order to further align the Manager's
interests with those of the Company, the Manager agreed with us to amend the
Management Agreement, effective October 12, 2004, to eliminate this payment, and
we have issued to the Manager restricted common shares equal to 2% of our
outstanding common shares at par value of $0.01 per share. At the time when
additional common shares are issued, the Manager will receive additional
restricted common shares to maintain the number of common shares issued to the
Manager at 2% of our total outstanding common shares. These restricted shares
are non-transferable for three years from issuance. During 2004 the Company has
issued to the Manager an aggregate of 256,232 shares at an average fair value of
$36.11. The share-based compensation expense related to the issuance of
restricted shares to the Manager of $9,252,365 in 2004 was classified as
administrative expenses.
8. LONG-TERM DEBT
On September 29, 2004, the Company obtained an extension of the maturity of its
$30 million loan from December 2004 to October 2007. Interest on the loan, as
extended, was at a rate equal to LIBOR plus a margin of 0.70%.
In October 2004 the Company entered into the Credit Facility, which consists of
a $50 million revolving credit facility and a $250 million revolving credit
facility. The $50 million facility will mature in October 2007 and the $250
million facility will mature in October 2005, unless the Company exercises the
one-year extension option or the option to convert any drawn amounts to a
five-year term loan. Amounts borrowed under the Credit Facility will bear
interest at a rate equal to LIBOR plus a margin between 0.80% to 1.20% per year.
The Company pays a commitment fee, at a rate ranging from 0.24% to 0.36% per
year, on any undrawn amount.
On November 8, 2004, the Company repaid its $30 million loan with proceeds from
the Credit Facility. The drawn amount on the credit facility was subsequently
repaid with proceeds from the share issue on November 23, 2004. There were no
outstanding borrowings under the Credit Facility at December 31, 2004.
9. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
In 2003, the Company had outstanding a $ 30 million variable rate loan that was
repaid in November 2004. The Company had hedged the variable interest exposure
by an interest rate swap whereby the Company paid a fixed interest rate and
received a variable interest (LIBOR). The interest rate swap was designated as a
cash flow hedge of the interest payments on the loan. The interest rate swap
matured in 2004. The Company did not hold any derivative instruments at December
31, 2004.
The effective portion of gains and losses on the interest rate swap designated
as a cash flow hedge was deferred to accumulated other comprehensive income and
was reclassified to earnings as the hedged interest payments were recognized.
The Company reclassified $1,170,000 from accumulated other comprehensive income
to earnings in 2004. The reclassified loss was included in interest expense.
The fair value of the swap was recorded as a liability of $1,150,000 at December
31, 2003.
10. COMMITMENTS AND CONTINGENCIES
Litigation and Environmental Matters -The Company can be a party to various
legal proceedings generally incidental to its business and is subject to a
variety of environmental and pollution control laws and regulations. As is the
case with other companies in similar industries, the Company faces exposure from
actual or potential claims and legal proceedings. Although the ultimate
disposition of legal proceedings cannot be predicted with certainty, it is the
opinion of the Company's management that the outcome of any claim which might be
pending or threatened, either individually or on a combined basis, will not have
a materially adverse effect on the financial position of the Company, but could
materially affect the Company's results of operations in a given year.
11. SUBSEQUENT EVENTS
In January 2005 the Company entered into two separate agreements to acquire a
1998 built Suezmax vessel and a 2005 Suezmax newbuilding at an aggregate
purchase price of $149.25 million. The Company took delivery of the vessels in
March 2005.
In February 2005 the Company granted, under the terms of the Company's 2004
Stock Incentive Plan, a total of 270,000 stock options. The closing price of our
common shares on the date these options were granted was $48.95 per share as
reported on the New York Stock Exchange. These options will vest in equal
instalments on each of the first four anniversaries of the closing of the
Company's follow-on offering in November 2004.
In March 2005, the Company sold 3,500,000 shares in a public offering in the US
to fund the acquisition of the two vessels and to repay outstanding debt. The
offering was priced at $49.50 per share, and net proceeds (after offering costs
of $ 11.1 million) to the Company were $162.1 million. The Company issued 76,658
restricted shares to the Manager as a result of this offering (see Note 7
Share-based Compensation).
In May 2005 Mr. Andreas Ove Ugland has exercised a right to sell his shares in
IUM Shipmanagement AS (IUM) and does no longer hold any interests in IUM.
ITEM 19. EXHIBITS
1.0* Memorandum of Association and Bye-Laws of Nordic American Tanker Shipping
Limited, incorporated by reference to Exhibits 3.1 and 3.2 in the
Registration Statement of Nordic American Tanker Shipping Limited filed
August 28, 1995 on Form F-3, Registration No. 33-96268 (the "Registration
Statement").
4.1* Form of Bareboat Charter between Nordic American Tanker Shipping Limited
and BP Shipping Ltd, incorporated by reference to Exhibit 10.3 in the
Registration Statement filed on Form F-3, Registration No. 33-96268.
4.2* Form of Management Agreement between Nordic American Tanker Shipping
Limited and Ugland Nordic Shipping AS incorporated by reference to Exhibit
10.8 in the Registration Statement on Form F-3, Registration No. 33-96268.
4.3* Novation Agreement dated May 30, 2003, among Ugland Nordic Shipping AS,
Scandic American Shipping Ltd. and Nordic American Tanker Shipping Limited
incorporated by reference to Exhibit 4.3 in the Annual Report for the fiscal
year ended December 31, 2002 on Form 20-F, filed with the SEC on June 27,
2003.
4.4 Amended and Restated Management Agreement dated June 30, 2004 between
Scandic American Shipping Ltd. and Nordic American Tanker Shipping Limited,
as further amended on October 12, 2004.
4.5 2004 Equity Incentive Plan.
12.1 Rule 13a-14(a) Certification of the Chief Executive Officer.
12.2 Rule 13a-14(a) Certification of the Chief Financial Officer.
13.1 Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
13.2 Certification of the Chief Financial Officer pursuant to pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
23.1 Consent of Deloitte Statsautoriserte Revisorer AS
-------------
* Incorporated herein by reference.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
NORDIC AMERICAN TANKER
SHIPPING LIMITED
By: /s/ Herbj0rn Hansson
-----------------------------
Name: Herbj0rn Hansson
Title: President
DATED: June 30, 2005
01318.0002 #583523