Nordic American Tankers Limited
Annual Report 2000

Plain-text annual report

2000 Annual Report to Shareholders NORDIC AMERICAN TANKER SHIPPING LIMITED 2000 ANNUAL REPORT TO SHAREHOLDERS Nordic American Tanker Shipping Ltd Page 1 of 17 2000 Annual Report to Shareholders BUSINESS General Nordic American Tanker Shipping Limited (the "Company") was incorporated on June 12, 1995, under the laws of the Islands of Bermuda ("Bermuda") for the purpose of acquiring, disposing, owning, leasing, and chartering three double hull Suezmax oil tankers (the "Vessels") and engaging in activities necessary, suitable or convenient to accomplish, or in connection with or incidental to, the foregoing. The principal executive offices of the Company are located at: Cedar House, 41 Cedar Avenue, Hamilton HM EX, Bermuda, telephone number (441) 295-2244. The Company now owns three modern double hull 150,000 dead-weight tonne (“dwt”) Suezmax tankers (the “Vessels”). The Vessels were built at Samsung Heavy Industries Co. Ltd. in South Korea (the “Builder”). Pursuant to an agreement (the "Management Agreement") between the Company and its Manager, Ugland Nordic Shipping ASA (the “Manager”), the Manager provides certain management, administrative and advisory services to the Company. Vessels owned by the Company Each Vessel acquired by the Company is a 1997 built, 151,459 dwt double hull Suezmax oil tanker. The purchase price of each Vessel was approximately $56.9 million (the "Original Contract Price”). The Vessels were delivered between August and December 1997 and have been designed according to the specifications set forth in the shipbuilding contracts between the Builder and the Company (the "Shipbuilding Contracts"). Each Vessel is registered in the Isle of Man and flies the British flag. Chartering Operations Commenced on September 30, 1997 Each Vessel is chartered to BP Shipping Ltd. (the “Charterer”) pursuant to separate "hell and high water" bareboat charters (the "Charters). The initial term of the Charters is from September 30, 1997 and will end approximately seven years after the such date, subject to extension at the option of the Charterer for up to seven successive one-year periods. Under each Charter, the Charterer is required to provide the Company with at least twelve months' prior notice of each such extension. The Company’s dividend policy is to pay dividends to the holders of the Company's Shares in amounts substantially equal to the amounts received by it under the Charters, less expenses. In 2000, a portion of these dividends was considered return of capital for United States federal income tax purposes. The daily charterhire rate payable under each Charter is comprised of two components: (i) a fixed minimum rate of charterhire of $13,500 per Vessel per day (the "Base Rate"), paid quarterly in advance, and (ii) additional charterhire (which will be determined and paid quarterly in arrears and may equal zero) which would equal the excess, if any, of a weighted average of the daily time charter rates for two round-trip trade routes traditionally served by Suezmax tankers (Bonny, Nigeria to/from the Louisiana Offshore Oil Port, and Hound Point, U.K. to/from Philadelphia, Pennsylvania (the "Reference Ports")), over the sum of (A) an agreed amount of $8,500 representing daily operating costs and (B) the Base Rate ("Additional Hire"). The amount of Additional Hire, if any, will be determined by the London Tanker Brokers Panel or Nordic American Tanker Shipping Ltd Page 2 of 17 2000 Annual Report to Shareholders another panel of ship brokers mutually acceptable to the Charterer and the Company (the "Brokers Panel"). In 2000, the Company received Additional Hire for all four quarters. Pursuant to the terms of the Charters, the Charterer's obligation to pay charterhire is absolute, regardless whether there is loss or damage to a Vessel of any kind or whether such Vessel or any part thereof is rendered unfit for use or is requisitioned for hire or for title, and regardless of any other reason whatsoever. The Charterer is also obligated to indemnify and hold the Company harmless from all liabilities arising from the operation, design and construction of the Vessels prior to and during the term of the Charters, including environmental liabilities, other than liabilities arising out of the gross negligence or willful misconduct of the Company. The obligations of the Charterer are guaranteed by BP Amoco p.l.c., the successor company to the merger between Amoco Corp and The British Petroleum Company p.l.c. The Charters will end approximately seven years after September 30, 1997, unless extended as noted above. At least six months prior to the end of the term (including any extension thereof) of a Charter, the holders of the Shares will be entitled to vote on a proposal to sell the related Vessels and to distribute the net proceeds of such sale to the holders of the Shares to the extent permitted under Bermuda law. The Board of Directors of the Company (the "Board") will make a recommendation as to that proposal, which recommendation may favor such sale or an alternative plan, such as the operation, rechartering or other disposition of the Vessels. The proposal to sell the Vessels and distribute the resulting net proceeds shall be adopted if approved by the holders of a majority of the Common Shares voting at the meeting called for such purpose. Nature of Trading Market The primary trading market for the Shares is the American Stock Exchange (the "AMEX"), on which the Shares are listed under the symbol NAT. The secondary trading market for the Shares is the Oslo Stock Exchange (the "OSE") also with the symbol NAT. The high and low bid prices for the Shares by quarter, in 1999 thru 2000 are as follows: For the quarter ended: March 31, 1999 June 30, 1999 September 30, 1999 December 31, 1999 March 31, 2000 June 30, 2000 September 30, 2000 December 31, 2000 AMEX Low $10 1/8 $10 7/8 $11 1/4 $10 1/8 $10 1/4 $12 1/2 $16 9/16 $17 7/8 AMEX High $11 5/8 $11 3/4 $12 3/4 $12 $12 3/4 $17 $22 5/8 $23 1/4 OSE Low OSE High NOK N/A NOK N/A NOK 95.00 NOK 94.00 NOK 90.00 NOK 95.00 NOK 140.00 NOK 170.00 NOK N/A NOK N/A NOK 95.00 NOK 95.00 NOK 100.00 NOK 130.00 NOK 212.00 NOK 210.00 These bid quotations represent interdealer quotations, without retail mark-ups, mark-downs or commissions, and do not necessarily represent actual transactions. On December 31, 2000, the closing price of the Shares as quoted on the AMEX was $20, and as quoted on the OSE was NOK 177.00. On such date, there were 9,706,606 Shares issued and outstanding. Nordic American Tanker Shipping Ltd Page 3 of 17 2000 Annual Report to Shareholders SELECTED FINANCIAL INFORMATION The following Balance Sheets and Income Statements have been derived from the Financial Statements of the Company which are included herein and which have been audited by Deloitte & Touche, independent auditors, whose report thereon is also included herein. The Balance Sheet information provided below should be read in conjunction with the accompanying Financial Statements and the related notes thereto, and the discussion under Management's Discussion and Analysis of Financial Condition and Results of Operations herein. BALANCE SHEETS FOR THE YEAR ENDING DECEMBER 31, Assets Cash and Cash Deposit Prepaid Finance Expenses Prepaid Insurance Account Receivables Vessels Total Assets 2000 1999 1998 1997 1996 1 922 925 57 915 58 333 10 228 286 148 575 045 160 842 504 2 507 017 72 395 70 833 0 155 406 085 158 056 330 3 637 758 86 875 83 333 0 162 237 124 166 045 090 19 499 0 95 836 1 499 380 169 068 163 170 682 878 83 275 0 180 000 111 644 51 224 760 51 599 679 Account Payables Accrued Interest Bank Loan Total Long-term Liabilities 0 43 500 30 000 000 30 043 500 0 77 333 30 000 000 30 077 333 675 384 43 781 30 000 000 30 719 165 1 181 385 0 0 1 181 385 0 0 0 0 Shareholders' Equity Share Capital Other Shareholders Equity Total Shareholders' Equity Total Liabilities and Shareholders Equity 97 066 130 701 938 130 799 004 97 066 127 881 931 127 978 997 97 066 135 228 859 135 325 925 118 138 169 383 355 169 501 493 12 822 51 586 857 51 599 679 160 842 504 158 056 330 166 045 090 170 682 878 51 599 679 INCOME STATEMENT FOR THE PERIOD 01.01. - 31.12., Revenue Ship Broker Commissions Mgmt. Fee & Admin. Exp. Directors Insurance Depreciation Net Operating Income Net Financial Items Net Profit for the Year 2000 36 577 262 (185 288) (290 791) (82 500) (6 831 040) 29 187 643 (1 518 679) 27 668 964 1999 14 782 500 (184 781) (314 004) (97 500) (6 831 039) 7 355 176 (1 580 500) 5 774 676 1998 16 006 199 (184 781) (412 779) 0 (6 831 039) 8 577 600 51 912 8 629 512 1997 5 265 880 (47 081) (461 674) 0 (1 707 807) 3 049 318 147 174 3 196 492 1996 0 0 (430 000) 0 0 (430 000) 0 (430 000) Nordic American Tanker Shipping Ltd Page 4 of 17 2000 Annual Report to Shareholders MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company owns three modern double hull 151,459 dead weight tonne Suezmax tankers (the Vessels), which were delivered in the last half of 1997. The Vessels were built at Samsung Heavy Industries Ltd. in South Korea. The Charterer has agreed to charter each Vessel for a period of seven years from September 30, 1997. Each Charter is subject to extension at the option of the Charterer for up to seven successive one-year periods. During the term of each Charter (including any extension thereof) the Charterer is obligated to pay (i) the Base Rate, which is charterhire at a fixed minimum daily rate of $13,500 per Vessel per day (time charter equivalent of $22,000 per day), payable quarterly in advance and (ii) Additional Hire, to the extent spot charter rates exceed certain levels, payable quarterly in arrears, from January 1998. The amount of Additional Hire for each quarter, if any, will be determined by the Brokers Panel. Results of Operations The Company’s revenues from the charterhire for 2000 were derived from Base Hire of $14,823,000 ($13,500 per day per Vessel) and Additional Hire of $21,754,262 ($19,813 per day per vessel). Total Charterhire for the period was $36,577,262 or $33,313 per day per vessel (T/C equivalent of $41,813 per day per vessel). In January 2001, the Brokers Panel in London determined that the Additional Hire for the period October 1 to December 31, 2000 was $10,228,286, i.e., $37,059 per day per Vessel. The total Charterhire for 2000 was thus $36,577,262. Charterhire (time charter equivalent) in each quarter of 2000 was $26,079, $33,701, $48,153 and $59,059 per day per Vessel, respectively. Comparatively, 1999 Base Hire was $14,782,500 ($13,500 per day per Vessel) and Additional Hire of $0, for a total of $14,782,500. Comparatively, 1998 Base Hire was $14,782,500 ($13,500 per day per Vessel) and Additional Hire of $1,223,699 ($4,532 per day per vessel) for a total of $16,006,199. Operating costs for 2000 and 1999 were $7,389,619 and $7,427,324 respectively. Depreciation of the Vessels represents $6,831,040, which in 2000 approximates the 1999 depreciation. Management Fee and administrative expenses decreased $23,213 mainly due to lower insurance cost. Operating costs for 1998 approximated the 1999 amounts. Nordic American Tanker Shipping Ltd Page 5 of 17 2000 Annual Report to Shareholders Liquidity and Capital Resources Dividend payment Total dividend paid out in 2000 was $24,848,956 or $2.56 per Share. The dividend payments in 1998, 1999 and 2000 have been as follows: Period 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total USD 1998 0.40 0.41 0.32 0.30 1.43 1999 0.32 0.32 0.35 0.36 1.35 2000 0.34 0.45 0.67 1.10 2.56 The Company declared a dividend of $1.41 for the first quarter of 2001. The dividend of $1,41 was paid to Shareholders in February 2001. 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. Repurchase of Common Stock On December 28, 1998, the Company repurchased 2,107,244 Shares through a “Dutch Auction” self-tender offer at a price of $12.50 per Share. After the repurchase, a total of 9,706,606 Shares are in issue, down from 11,813,850 Shares. Payment for the repurchased Shares was made at the end of December 1998. In 1998 the Company borrowed $30.0 million from Den norske Bank ASA, Oslo, Norway (DnB) to finance the repurchase of Shares. The total purchase price of the Shares including the costs associated with the transaction was $27.1 million. On May 12, 1999, the General Shareholders Meeting approved the remaining proceeds being utilized to increase the quarterly dividends. An important objective of the repurchase of Shares was to increase the Company’s cash distribution to shareholders while the Vessels are on charter to the Charterer. While the Vessels are on charter, the minimum cash distribution per Share (assuming receipt of Base Hire and no increase of expenses) has increased by $0.15, from $1.20 to $1.35 per year, an increase of 12.5%. Nordic American Tanker Shipping Ltd Page 6 of 17 2000 Annual Report to Shareholders The Company has entered into an interest swap agreement with DnB, as a result of which the Company pays a fixed interest on the Loan of 5.80% p.a. including the margin of 0.525% for the next 5 years. The swap agreement terminates on the final repayment date of the Loan, i.e., the fourth quarter of the year 2004. DIRECTORS AND OFFICERS Directors and Senior Management of the Company and the Manager Pursuant the Management Agreement, administrative and advisory services to the Company with respect to the Vessels. the Manager provides management, to Set forth below are the names and positions of the directors and executive officers of the Company and the Manager. 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. Name Herbjørn Hansson Peter Bubenzer Niels Erik Feilberg Tharald Brøvig Hon. Sir David Gibbons George C. Lodge Axel Stove Lorentzen Andreas Ove Ugland Name Tharald Brøvig Niels Erik Feilberg Herbjørn Hansson Njål Hansson Ulf G. Ryder Christian Rytter Jr Andreas Ove Ugland Johan Benad Ugland The Company Age Position 53 39 58 73 73 48 46 Director and President Secretary Vice President and Treasurer Director Director Director Director Director The Manager Age Position 58 39 53 58 49 45 46 47 Director Chief Financial Officer Director; President and Chief Executive Officer Director Director Director Director, Chairman Director Certain biographical information with respect to each director and executive officer of the Company and the Manager is set forth below. Nordic American Tanker Shipping Ltd Page 7 of 17 2000 Annual Report to Shareholders Herbjørn Hansson has been President and Chief Executive Officer of the Company and of the Manager since July 1995 and September 1993, respectively, and has served as a director of the Manager since its organization in June 1989 and as a director of the Company since July 1995. Mr. Hansson formerly served as the Chairman of the Board of the Manager from June 1989 to September 1993. Mr. Hansson has been involved in various aspects of the shipping industry and international finance since the early 1970s, including serving as Chief Economist of Intertanko, the International Association of Independent Tanker Owners ,from 1975-1980. He was an executive officer of the Anders Jahre/Kosmos Group from 1980 to 1989, serving as Chief Financial Officer from 1983 to 1988. Peter Bubenzer has been the Secretary of the Company since May 1999. Mr. Bubenzer has been a Partner of the law firm of Appleby, Spurling & Kempe, Bermuda since 1986. Niels Erik Feilberg has been Vice President and Treasurer of the Company since July 1995 and is Chief Financial Officer of the Manager, which he has been with since 1994. He was working in the Treasury Department of Anders Jahre/Kosmos Group from 1987 and in the same area in the Skaugen Group from 1989 to the end of 1993. Tharald Brøvig has been a director of the Company since July 1995 and has been a director of the Manager since its organization in June 1989. Sir David Gibbons has been a director of the Company since September 1995. Sir David served as the Prime Minister of Bermuda from August 1977 to January 1982. Sir David has served as Chairman of The Bank of N.T. Butterfield and Son Limited 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. Axel Stove Lorentzen has been a director of the Company since September 1995. Mr. Stove Lorentzen has also served as a director and Chairman of the Manager since May 1991 and September 1993 to June 1996, respectively, a director and Chairman of Lorentzen & Stemoco A/S since January 1981 and November 1994, respectively, and as a director of Skipskredittforeningen AS from March 1988 to May 1996. Mr. Stove Lorentzen formerly served as a director of Grand Hotel A/S from May 1986 to October 1993 and a director of Belships Company Ltd. Ships A/S from February 1984 to June 1993. Njål Hansson has been a director of the Manager since its organization in June 1989. Mr. Hansson is a private investor and owns the company Siving, Njål Hansson A/S is a company engaged in the importing and distribution of consumer electronics in Norway. Mr. Hansson is the brother of Herbjørn Hansson. 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, Høegh 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. Nordic American Tanker Shipping Ltd Page 8 of 17 2000 Annual Report to Shareholders Johan Benad Ugland has been a director of the Manager since May 1999. Mr Ugland is Chairman of JBO Holding AS. Ulf G. Ryder has been a Director of the Manager since June 1999. Mr. Ryder is Managing Director of Stena Bulk AB of Gothenburg, Sweden. Christian Rytter Jr has been a director of the Manager since May 1996. Mr. Rytter is Managing Director of L.Giil-Johannessen AS and is also Chairman of Seabulk a.s. COMPENSATION OF DIRECTORS AND OFFICERS Pursuant to the Management Agreement, the Manager will pay from the Management Fee the annual directors' fees of the Company, currently estimated at an aggregate amount of $95,000 per annum. Accordingly, from the inception of the Company through December 31, 2000, the Directors of the Company have not been paid by the Company any amount for services rendered by them to the Company in any capacity. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS The Manager owns 1,593,621 (16.42%) Shares in the Company as of April 2, 2001, and is party to the Management Agreement with the Company, pursuant to which the Manager is entitled to a management fee of $250,000 per annum. ADDITIONAL INFORMATION The Company will file with the Securities and Exchange Commission an Annual Report on Form 20-F. A copy of such report is available without cost to each shareholder. BP Amoco p.l.c., the successor company to the merger between Amoco Corp and The British Petroleum Company p.l.c., files annual reports on Form 20-F (File No. 005-42076) and periodic reports on Form 6-K with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. APRIL 5, 2001 NORDIC AMERICAN TANKER SHIPPING LIMITED Nordic American Tanker Shipping Ltd Page 9 of 17 NORDIC AMERICAN TANKER SHIPPING LIMITED 2000 Annual Report to Shareholders TABLE OF CONTENTS. ______________________________________________________________________________ INDEPENDENT AUDITORS’ REPORT FINANCIAL STATEMENTS Balance Sheets Statements of Operations Statements of Cash Flows Notes to Financial Statements Page 11 12 13 13 14-17 Nordic American Tanker Shipping Ltd Page 10 of 17 2000 Annual Report to Shareholders This page will be replaced by the Auditors’ Report. Nordic American Tanker Shipping Ltd Page 11 of 17 BALANCE SHEETS AT DECEMBER 31, (all figures are in USD) 2000 Annual Report to Shareholders ASSETS Current assets Cash and Cash Equivalents Accounts receivable Prepaid finance costs Prepaid insurance Total current assets Long term assets Note 1 Note 6 2000 1999 1,922,925 10,228,286 57,915 58,333 12,267,459 2,507,017 0 72,395 70,833 2,650,245 Vessels Note 4 148,575,045 155,406,085 TOTAL ASSETS 160,842,504 158,056,330 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities 2000 1999 Accrued interest Note 6 43,500 77,333 Long-term liabilities Long-term Debt Note 6 30,000,000 30,000,000 Commitments and Contingencies Note 10 0 0 Shareholders Equity Common Stock Additional Paid in Capital Total Shareholders Equity TOTAL LIABILITIES AND SHAREHOLDERS EQUITY Note 8 Note 8 97,066 130,701,938 97,066 127,881,931 130,799,004 127,978,997 160,842,504 158,056,330 The footnotes are an integral part of these financial statements Nordic American Tanker Shipping Ltd Page 12 of 17 2000 Annual Report to Shareholders STATEMENTS OF OPERATIONS (all figures in USD) Operating Revenue Ship Broker Commissions Administrative Expenses Depreciation Net Operating Income Interest Income Interest Expense Other Financial Charges Net Financial Items Net Profit before tax Tax Expense Net Profit for the Year Notes 1, 3 2, 5 4 6 6 2000 1999 1998 36 577 262 (185 288) (373 291) (6 831 040) 29 187 643 277 552 (1 770 808) (25 423) (1 518 679) 14 782 500 (184 781) (411 504) (6 831 039) 7 355 176 214 532 (1 767 449) (27 583) (1 580 500) 16 006 199 (184 781) (412 779) (6 831 039) 8 577 600 105 999 (43 781) (10 306) 51 912 27 668 964 5 774 676 8 629 512 0 0 0 27 668 964 5 774 676 8 629 512 Earnings per Share (EPS) 2.85 0.59 0.89 STATEMENTS OF CASH FLOW (all figures in USD) Reconciliation of Net Profit to Net Cash from Operating Activities Net Profit Depreciation Increase (decrease) in receivables and payables 2000 27 668 964 6 831 040 (10 235 140) 1999 5 774 676 6 831 039 (614 852) 1998 8 629 512 6 831 039 (2 682 212) Net Cash from Operating Activities 24 264 864 11 990 863 12 778 339 Financial Activities Additional Warrant Issue Cost Dividends paid Bank Loan Repurchasing of Common Stock 0 (24 848 956) 0 0 (17 686) (13 103 918) 0 0 (36 676) (15 712 421) 30 000 000 (27 055 933) Net Cash from Financing Activities (24 848 956) (13 121 604) (12 805 030) Net (decrease) in Cash and Cash Equivalents (584 092) (1 130 741) (26 691) Beginning Cash and Cash Equivalents 2 507 017 3 637 758 3 664 449 Ending Cash and Cash Equivalents 1 922 925 2 507 017 3 637 758 Cash Paid for Interest 1 770 808 1 767 449 43 781 The footnotes are an integral part of these financial statements Nordic American Tanker Shipping Ltd Page 13 of 17 2000 Annual Report to Shareholders 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. Nature of Business and Concentration of Risk: The Company’s principal business is the ownership of three suezmax tankers on charter to BP Shipping until September 2004, with a further seven one-year options in BP’s favour. Use of estimates: Preparation of financial statements in accordance with generally accepted accounting principles necessarily includes amounts based on estimates and assumptions made by management. Actual results could differ from those amounts. Cash and cash equivalents consists of deposits with original maturities of three months or less. Property and Equipment: Depreciation and amortization are provided on a straight-linebasis over the estimated useful lives of the assets. The Company’s sole of property consists of vessels. The estimated useful life of these vessels is 25 years. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the fair value is less than the carrying amount of the assets, a loss is recognized for the difference. Revenue recognition: Revenue from vessel charter is recognized on the basis of the number of days in the fiscal period. Revenue is due quarterly in advance. New Pronouncements: In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). This standard incorporating the amendments from SFAS 138 requires derivative instruments to be recorded in the balance sheet at their fair value. Changes in the fair value are recorded to earnings for each period unless specific hedge criteria are met. 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 for qualifying offset corresponding changes in the fair value of the hedged item in the income statement. The Company implemented SFAS 133 on January 1, 2001. The statement will not have significant impact on NATS’ consolidated statement. 2. RELATED PARTY TRANSACTION The Company has entered into a management agreement with Ugland Nordic Shipping ASA (UNS) under which UNS will provide certain administrative, management and advisory services to the Company for an amount of $250,000 per year. UNS is the Commercial Manager of the Company, and owns as of December 31, 2000 18.8% of the shares. Management fees expense was $250,000 for 2000, 1999 and 1998. Nordic American Tanker Shipping Ltd Page 14 of 17 3. REVENUE The table below illustrates the breakdown of the charter hire for the years ended December 31, 2000, 1999 and 1998: 2000 Annual Report to Shareholders Period Base Hire Additional Hire 2000 14,823,000 21,754,262 1999 14,782,500 0 Total 36,577,262 14,782,500 1998 14,782,500 1,223,699 16,006,199 4. VESSELS Depreciation is calculated on a straight-line basis over the estimated lifetime of 25 years. The basis for the depreciation is the actual cost price of the vessels in 1997, i.e. $170,775,970 in total for the three vessels. 5. ADMINISTRATIVE EXPENSES $ 250,000 Management fee, Ugland Nordic Shipping ASA Directors and officers insurance $ 82,500 Other fees and expenses $ 40,791 Total administrative expenses $ 373,291 6. LONG-TERM DEBT The Company has since 1998 had a loan of $30 million with Den norske Bank, Oslo (DnB). The loan falls due in full in September 2004. Interest is payable semi-annually at a variable rate of LIBOR plus 0.525% margin. Accrued interest at December 31, 2000 and 1999 was $43,500 and $77,333. The Company has pledged the vessels as collateral. In association with the loan the Company must meet certain financial covenants. The main covenants are associated with change in ownership, new contracts or change in existing contracts, minimum value adjusted equity and minimum liquidity. The Company satisfied the loan covenants at year end. The Company pays an annual agency fee of $10,000 to DnB in connection with the loan. The Company has entered into an interest swap agreement with DnB, enabling the Company to pay a fixed interest on the loan of 5.80% p.a. including the margin of 0.525% for the next 5 years. The swap agreement terminates on the final repayment date of the Loan, i.e. the 4th quarter of year 2004. Prepaid finance costs In connection with the loan in 1998, the Company paid $86,875 in an arrangement fee and commitment fee. The fees will be amortized over the term of the Loan, i.e. with 1/6 every year from January 1, 1999. Nordic American Tanker Shipping Ltd Page 15 of 17 7. EQUITY 2000 Annual Report to Shareholders BALANCE DECEMBER 31, 1996 Repurchase of B Stock Exercise of Warrants to Common Stock Net Profit Dividends paid BALANCE DECEMBER 31, 1997 Repurchase of Common Stock Net Profit Dividends paid BALANCE DECEMBER 31, 1998 Additional costs, Repurchase of Shares Net Profit Dividends paid BALANCE DECEMBER 31, 1999 Net Profit Dividends paid BALANCE DECEMBER 31, 2000 Common Stock Class B Stock Issued Shares 82 237 Amount 822 Issued Shares 12 000 -12 000 Amount 12 000 -12 000 11 731 613 117 316 11 813 850 -2 107 244 118 138 -21 072 9 706 606 97 066 9 706 606 97 066 9 706 606 97 066 0 0 0 0 0 0 0 0 Retained Earnings/ Add. paid- in Capital 51 586 857 119 325 546 3 196 492 -4 725 540 169 383 355 -27 071 537 8 629 512 -15 712 471 135 228 859 -17 686 5 774 676 -13 103 918 127 881 931 27 668 964 -24 848 957 130 701 938 The table below illustrates the historical development of the Dividend per Common Share. Period 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total USD 1997 0.30 0.30 1998 0.40 0.41 0.32 0.30 1.43 1999 0.32 0.32 0.35 0.36 1.35 2000 0.34 0.45 0.67 1.10 2.56 2001 1.41 1.41 In September 1995, the Company offered and sold to the public 11,731,613 warrants (“Warrants”) at the initial public offering price of $5.00 per Warrant. The exercise price of a Warrant was $10.21. Prior to September 30, 1997 (the “Exercise Date”), the Company did not have any operations other than certain limited operations related to the acquisition of the Vessels, of which all three were delivered in the last half of 1997. On September 30, 1997, all of the outstanding Warrants of the Company were exercised at an exercise price of $10.21 per Warrant. The Company received a total of $119,779,768.73 by issuing a total of 11,731,613 new Common Shares (the “Shares”). At that time there was a total of 11,813,850 Shares in issue. Expenses in the total amount of approximately $337,000 related to the exercise of the Warrants were deducted from the proceeds of the exercise. On October 6, 1997, the Company paid to the Charterer for payment to the Builder a total of $119,490,000 for final payment of the three Vessels. On November 30, 1998, the Company’s shareholders approved a proposal to allow the Company to borrow money for the purpose of repurchasing its Shares. On December 28, 1998, the Company purchased 2,107,244 Shares through a “Dutch Auction” self-tender offer at a price of $12.50 per Nordic American Tanker Shipping Ltd Page 16 of 17 Share. In addition, the Company paid $715,000 in transaction costs. After the repurchase, a total of 9,706,606 Shares are in issue, down from 11,813,850 Shares. 2000 Annual Report to Shareholders 8. FAIR VALUE OF FINANCIAL INSTRUMENTS Estimated fair values and carrying amounts of financial instruments are as follows: December 31, 2000 December 31, 1999 Carrying Amount Fair Value Carrying Amount Fair Value Long-term Debt 30,000,000 30,000,0000 30,000,000 30,000,000 Interest rate Swap - 618,094 - 1,689,105 The fair value of long-term debt was determined based on borrowing rates currently available for debt with similar terms. The fair value of interest rate swaps is based on the amount the Company would pay or receive to terminate the swaps. The carrying amounts of all other financial instruments reported in the financial statements approximate their fair value. 9. CONCENTRATIONS The Company’s charter revenues and accounts receivable are derived entirely from bareboat charters with one counterparty, BP Shipping Ltd. 10. COMMITMENTS AND CONTINGENCIES The Company is subject to claims and litigation in the normal course of business. In the view of the management, there were no such matters of significance at December 31, 2000 or 1999. Nordic American Tanker Shipping Ltd Page 17 of 17 

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