2002 Annual Report to Shareholders
NORDIC AMERICAN TANKER
SHIPPING LIMITED
2002 ANNUAL
REPORT TO
SHAREHOLDERS
Nordic American Tanker Shipping Ltd
2002 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").
The principal executive offices of the Company are located at Cedar House, 41 Cedar Avenue,
Hamilton HM EX, Bermuda, telephone number (441) 295-2244.
Pursuant to an agreement (the "Management Agreement") between the Company and its
Manager, Ugland Nordic Shipping AS (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 dead weight tonne 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"). The Vessels were built at Samsung
Heavy Industries Co. Ltd. in South Korea (the “Builder”).
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 from that 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 shareholders in
amounts substantially equal to the amounts received by it under the Charters, less expenses. In
2002, 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 another
panel of ship brokers mutually acceptable to the Charterer and the Company (the "Brokers
Panel"). In 2002, the Company received Additional Hire for the 4th quarter only.
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 or any other reason. The
Charterer is also obligated to indemnify and hold the Company harmless from all liabilities
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2002 Annual Report to Shareholders
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 p.l.c., the successor company to the merger between Amoco Corp and The
British Petroleum Company p.l.c.
At least six months prior to the end of the term (including any extension ) of one or more
Charters, the Company’s shareholders will be entitled to vote on a proposal to sell the related
Vessel(s) and to distribute the net proceeds to the shareholders to the extent permitted under
Bermuda law. The Board of Directors of the Company (the "Board") will make a
recommendation which may favor such sale or an alternative plan, such as the operation,
rechartering or other disposition of the Vessel(s). The proposal to sell the Vessel(s) and distribute
the resulting net proceeds shall be adopted if approved by a majority of the shareholders.
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 2001 thru 2002 are as
follows:
For the quarter ended:
March 31, 2001
June 30, 2001
September 30, 2001
December 31, 2001
March 31, 2002
June 30, 2002
September 30, 2002
December 31, 2002
AMEX
Low
$16.90
$16.00
$13.75
$13.00
$12.95
$13.50
$ 9.86
$10.11
AMEX
High
$22.25
$22.89
$19.52
$17.10
$15.50
$16.55
$14.25
$13.82
OSE
Low
OSE
High
NOK 215.00
NOK 180.00
NOK 190.00
NOK 170.00
NOK 127.00
NOK 122.00
NOK 90.00
NOK 90.00
NOK 155.00
NOK 172.00
NOK 140.00
NOK 125.00
NOK 140.00
NOK 140.00
NOK 135.00
NOK 100.00
These bid quotations represent interdealer quotations without retail mark-ups, mark-
downs or commissions, and do not necessarily represent actual transactions. On December 31,
2002, the closing price of the Shares as quoted on the AMEX was $13.54, and as quoted on the
OSE was NOK 99.00. On such date, there were 9,706,606 Shares issued and outstanding.
SELECTED FINANCIAL INFORMATION
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 statements of operations
data for each of the three years ended December 31, 2000, 2001, and 2002 and selected balance
sheet data as of December 31, 2001 and 2002 are derived from our audited consolidated financial
statements included elsewhere in this document. The statements of operations data for each of the
years ended December 31, 1998 and 1999 and selected balance sheet data as of December 31,
1998, 1999 and 2000 are derived from our audited financial statements not included in this
document.
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2002 Annual Report to Shareholders
SELECTED BALANCE SHEET DATA
Assets
Cash and Cash Deposit
Prepaid Finance Expenses
Prepaid Insurance
Accounts Receivable
Vessels
Total Assets
Accounts Payable
Accrued expenses
Accrued Interest
Bank Loan
Total Long-term Liabilities
Shareholders' Equity
Share Capital
Accumulated Other
Comprehensive Loss
Other Shareholders Equity
Total Shareholders' Equity
Total Liabilities
and Shareholders' Equity
2002
2001
December 31,
2000
1999
1998
277 783
28 955
83 333
3 276 523
134 912 965
138 579 559
996
2 016 000
215 466
30 000 000
32 232 462
630 868
43 435
70 000
170 180
141 744 005
142 658 488
0
778 000
38 666
30 000 000
30 816 666
1 922 925
57 915
58 333
10 228 286
148 575 045
160 842 504
0
0
43 500
30 000 000
30 043 500
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
0
0
77 333
30 000 000
30 077 333
675 384
0
43 781
30 000 000
30 719 165
97 066
97 066
97 066
97 066
97 066
(2 016 000)
108 266 031
106 347 097
(778 000)
112 522 756
111 841 822
0
130 701 938
130 799 004
0
127 881 931
127 978 997
0
135 228 859
135 325 925
138 579 559
142 658 488
160 842 504
158 056 330
166 045 090
SELECTED STATEMENT OF OPERATIONS DATA
Revenue
Ship Broker Commissions
Mgmt. Fee & Admin. Exp.
Directors Insurance
Depreciation
Net Operating Income
Net Financial Items
Net Profit for the Year
2002
18 057 989
(184 781)
(340 381)
(86 667)
(6 831 040)
10 615 120
(1 767 852)
8 847 268
Basic Earnings Per Share
Diluted Earnings Per Share
Cash Dividends
Declared Per Share
Weighted Average Shares Outstanding:
Basic
Diluted
0,91
0,91
1,35
Year Ended December 31,
2000
2001
28 359 568
(184 781)
(281 406)
(72 333)
(6 831 040)
20 990 008
(1 604 532)
19 385 476
2,00
2,00
3,87
36 577 262
(185 288)
(290 791)
(82 500)
(6 831 040)
29 187 643
(1 518 677)
27 668 966
2,85
2,85
2,56
1999
14 782 500
(184 781)
(314 004)
(97 500)
(6 831 039)
7 355 176
(1 580 498)
5 774 678
1998
16 006 199
(184 781)
(412 779)
0
(6 831 039)
8 577 600
51 912
8 629 512
0,59
0,59
1,35
0,73
0,73
1,33
9 706 606
9 706 606
9 706 606
9 706 606
9 706 606
9 706 606
9 706 606
9 706 606
11 796 530
11 796 530
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2002 Annual Report to Shareholders
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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.
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 charterhire for 2002 decreased 36% from 2001 to
$18,057,989 or $16,491 per day per vessel (time charter equivalent of $24,991 per day per
vessel). Charterhire revenue for 2002 was derived from Base Hire of $14,782,500 ($13,500 per
day per Vessel) and Additional Hire of $3,275,489 ($2,991 per day per vessel).
Market rates which are used to determine additional hire decreased significantly in 2002.
The decrease was driven by OPEC oil production decreases and a slow down in the world
economy. Additional hire, determined by the Brokers Panel, was awarded for 4th quarter 2002
only. The additional hire was $3,275,489. Charterhire per day per Vessel (time charter
equivalent) for each quarter of 2002 was $22,000 for the 1st, 2nd and 3rd quarter and $33,868 for
the 4th quarter.
Comparatively, Base Hire in 2001 and 2000 was $14,782,500 ($13,500 per day per
Vessel) for each year. Additional Hire was $13,577,068 in 2001 and $21,754,262 in 2000.
Management, insurance and administrative costs (“MI&A”) for 2002, 2001 and 2000
were $611,829, $538,520 and $558,759 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 $73,309 from 2001 to 2002 is mainly due to
higher insurance costs and attorney fees. Depreciation expense approximated $6,831,040 for
each of the three years.
Liquidity and Capital Resources
The Company’s cash flows are primarily from charter hire revenue.
Cash flows provided by operating activities decreased in 2002 to $12,750,908 due
primarily to the decrease in net profit and an increase in accounts receivable due to additional hire
awarded in 4th quarter.
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2002 Annual Report to Shareholders
Cash flow used in financing activities decreased 65% to $13,103,993 due to the decrease
in dividends paid during the year.
There were no cash flows from investing activities during the year.
Due to the nature of the business, cash flows are predictable with the exception of
additional charter hire to be awarded, if any. The Company expects that cash from base charter
hire will be sufficient to meet operational requirements in 2003. The Company does not have
plans for significant capital expenditures or other investments during 2003.
Dividend payment
Total dividend paid out in 2002 was $13,103,993 or $1.35 per Share. The dividend
payments per share in 1997, 1998, 1999, 2000, 2001 and 2002 have been as follows:
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
1.19
0.72
0.55
3.87
2002
0.36
0.34
0.33
0.32
1.35
The Company declared a dividend of $0.63 per share for the first quarter of 2003. The
dividend of $0.63 was paid to Shareholders in February 2003.
Long-Term Debt and Repurchase of Common Stock
In 1998 the Company borrowed $30.0 million from Den norske Bank ASA, Oslo,
Norway (“DnB”), to finance the repurchase of 2,107,244 shares through a “Dutch Auction” self-
tender offer at a price of $12.50 per Share. 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%.
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% per annum for the next 2 years. The
swap agreement terminates on the final repayment date of the Loan, i.e., the fourth quarter of the
year 2004.
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2002 Annual Report to Shareholders
Contractual Obligations
The Company does not have contractual obligations or commercial commitments except
long-term debt as described above.
Disclosure and Internal Controls
As of December 31, 2002, an evaluation was performed under the supervision and with
the participation of the Company’s Chairman, Chief Executive Officer and Chief Financial
Officer of the effectiveness of the design and operation of the Company’s disclosure controls and
procedures. Based on that evaluation, these officers have concluded that the Company’s
disclosure controls and procedures were effective as of December 31, 2002. No significant
changes in the Company’s internal controls or in other factors have occurred that could
significantly affect controls subsequent to December 31, 2002.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
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
Age
Position
The Company
Peter Bubenzer
Tharald Brøvig
Niels Erik Feilberg
Hon. Sir David Gibbons
Herbjørn Hansson
George C. Lodge
Andreas Ove Ugland
60
41
75
55
75
48
Secretary
Director
Vice President and Treasurer
Director
Director and President
Director
Director
Name
Peter Antturi
Niels Erik Feilberg
Herbjørn Hansson
Bjørn Møller
Paul Wogan
The Manager
Age
Position
44
41
55
45
40
Director
Chief Financial Officer
Director; President
Director
Director
Certain biographical information with respect to each director and executive officer of the
Company and the Manager is set forth below.
Herbjørn Hansson has been President and Chief Executive Officer of the Company and
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2002 Annual Report to Shareholders
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 Antturi has been a director of the Manager since December 2001. Mr Antturi is
Vice President and Chief Financial Officer of Teekay Shipping Corp. Mr Antturi joined Teekay
in 1991, as Manager, Accounting and Controller, before becoming CFO in 1997. Since 1985, Mr.
Antturi has held a number of accounting and finance roles in the shipping industry.
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.
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.
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.
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.
Bjørn Møller has been a director of the Manager since April 2001. Mr. Møller is the
President and CEO of Teekay Shipping Corp. and has been with Teekay since 1985, serving as
Head of Group Chartering and Strategic Development before heading up overall operations in
1997 with his promotion to Chief Operating Officer. In 1998 Mr. Møller assumed the role of
President and Chief Executive Officer. Mr. Møller has a multinational background in shipping
and commodities and is a graduate of the Copenhagen School of Business Economics.
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.
Paul Wogan has been a director of the Manager since April 2001. Mr Wogan is the
Managing Director of Teekay Shipping (UK). Mr Wogan, the former Chief Executive Officer of
Seachem Tankers, joined Teekay in November 2000. Mr. Wogan spent 10 years with Seachem,
the world's fourth largest chemical tanker company, serving as Vice President of Marketing
before becoming CEO in 1997. Prior to joining Seachem, he was involved in chartering for a
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2002 Annual Report to Shareholders
major crude oil and product carrier fleet controlled by the Ceres Hellenic Group (Livanos), the
company that subsequently founded Seachem. Mr. Wogan holds an MBA from Cranfield School
of Management.
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 $80,000
per annum. Accordingly, from the inception of the Company through December 31, 2002, 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 1,001,221 (10.31%) Shares in the Company as of February 1, 2003,
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.
NORWEGIAN TAX PROCEEDING
In September 2002, the Company received a letter from the Tax Assessment Board of the
Norwegian Central Tax Office for Large Corporations, (the "Tax Board”), stating that the Tax
Board had determined that the Company was subject to Norwegian income taxation for the years
1995 through 2000. The Company believes that the Tax Board's determination is without merit
and erroneous and is contesting the assessment vigorously.
Accordingly, the Company has appealed the decision of the Tax Board to the Norwegian
Tax Assessment Appeal Board (the "Appeal Board"). The Company has been advised that a
decision from the Appeal Board may be expected during the second or third quarter of 2003. If
the Appeal Board should decide in favor of the Tax Board, the Company may make further
appeals to the Norwegian Court of Justice, which has three levels. The Norwegian tax authorities
may appeal a decision in favor of the Company to the County Tax Appeal Board.
The decision of the Tax Board relates to the years 1995 through 2000. Applying
Norwegian tax principles, the Company did not have any taxable income for those years or for
2001. At year-end 2001, the deferred tax loss is NOK 41.6 mill (approx. USD 5.6 million). This
tax loss would be carried forward and used for the tax year 2002. After application of this loss
carry-forward, under Norwegian tax principles, the Company’s net income would total
approximately NOK 59.1 mill (approx. USD 8.5 milllion) for 2002. However, as previously
stated, the strong view of the Company is that the Company should not be taxed in Norway.
In accordance with its distribution policy, the Company has made cash distributions to
shareholders in amounts that exceed the net income of the Company. Under Norwegian tax
principles, if they applied, in the view of the Company, a portion of these distributions would be
considered as a repayment of paid up share capital.
Given this premise, there would be no tax for the Company during the period through
2002. However, if, Norwegian tax principles apply, there is a probability that the distributions
could be seen as a repayment of untaxed capital from the Company, and the Company would
incur so-called correction income, which for the period to and including 2001 would amount to
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2002 Annual Report to Shareholders
NOK 728.6 million (approx. USD 99 million). The tax would constitute 28% of that amount. In
the view of the Company, such a treatment of its cash distributions would be incorrect.
The Company's view is that the Tax Board's determination is without merit and is
erroneous. In part, the view of the Company is based on an opinion that the Company received
from Norwegian counsel in connection with the Company's warrants offering in 1995, as
described in the Company's offering prospectus. However, the Company cannot assure investors
of a successful appeal of the Tax Board's determination.
The Company is bearing legal costs in connection with the Norwegian tax proceeding
which would otherwise be available for distribution.
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 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.
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.
MARCH 31, 2003
NORDIC AMERICAN TANKER
SHIPPING LIMITED
Nordic American Tanker Shipping Ltd
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NORDIC AMERICAN TANKER SHIPPING LIMITED
2002 Annual Report to Shareholders
TABLE OF CONTENTS.
______________________________________________________________________________
INDEPENDENT AUDITORS’ REPORT
FINANCIAL STATEMENTS
Balance Sheets
Statements of Operations
Statements of Cash Flows
Statements of Shareholders’ Equity
Notes to Financial Statements
Page
11
12
13
13
14
15-19
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2002 Annual Report to Shareholders
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Stockholders of
Nordic American Tanker Shipping Ltd
Bermuda
We have audited the accompanying balance sheets of Nordic American
Tanker Shipping Ltd. ( the “company”) as of December 31, 2002 and 2001
and the related statements of operations, shareholders’ equity, and cash
flows for each of the three years in the period ended December 31 , 2002.
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 auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes 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 the Company as of December 31, 2002
and 2001, and the results of its operations and its cash flows for each of the
three years in the period ended December 31,2002 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE
Oslo, Norway
March 31, 2003
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2002 Annual Report to Shareholders
BALANCE SHEETS AT DECEMBER 31,
(all figures are in USD)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Prepaid finance costs
Prepaid insurance
Total current assets
Long term assets
Note 1
Note 6
2002
2001
277,783
3,276,523
28,955
83,333
3,666,594
630,868
170,180
43,435
70,000
914,483
Vessels
Note 4
134,912,965
141,744,005
TOTAL ASSETS
138,579,559
142,658,488
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
2002
2001
Accrued interest
Note 6
215,466
38,666
Long-term liabilities
Derivative contract
Long-term debt
Shareholders’ Equity
Common stock
Additional paid-in capital
Accumulated deficit
Accumulated other
comprehensive loss
Total Shareholders’ Equity
Note 7,8
Note 6,8
2,016,000 778,000
30,000,000
30,000,000
97,066
Note 7
Note 7
144,395,866
Note 7 (36,129,835) (31,873,110)
97,066
144,395,866
Note 7,8 (2,016,000) (778,000)
106,347,097
111,841,822
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
138,579,559
142,658,488
The footnotes are an integral part of these financial statements
Nordic American Tanker Shipping Ltd
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2002 Annual Report to Shareholders
STATEMENTS OF OPERATIONS
(all figures in USD)
Notes
1, 3
2, 5
4
6
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
Year Ended December 31,
2001
2002
2000
18 057 989
(184 781)
(427 048)
(6 831 040)
10 615 120
21 409
(1 764 424)
(24 837)
(1 767 852)
8 847 268
28 359 568
(184 781)
(353 739)
(6 831 040)
20 990 008
189 244
(1 769 000)
(24 776)
(1 604 532)
19 385 476
36 577 262
(185 288)
(373 291)
(6 831 040)
29 187 643
277 552
(1 770 808)
(25 423)
(1 518 679)
27 668 964
0
0
8 847 268
19 385 476
0
27 668 964
Basic and Diluted Earnings per Share
Weighted Average Number of
Shares Outstanding
0.91
2.00
2.85
9 706 606
9 706 606
9 706 606
STATEMENTS OF CASH FLOWS
(all figures in USD)
Year Ended December 31,
2002
2001
2000
Net Profit
8 847 268
19 385 476
27 668 964
Reconciliation of Net Profit to Net Cash from
Operating Activities
Depreciation
Amortization of prepaid finance costs
Increase (decrease) in receivables and payables
6 831 040
14 480
(2 941 880)
6 831 040
14 480
10 041 605
6 831 040
14 480
(10 249 619)
Net Cash from Operating Activities
12 750 908
36 272 601
24 264 865
Financing Activities
Dividends paid
(13 103 993)
(37 564 658)
(24 848 957)
Net Cash from Financing Activities
(13 103 993)
(37 564 658)
(24 848 957)
Net decrease in Cash and Cash Equivalents
(353 085)
(1 292 057)
(584 092)
Beginning Cash and Cash Equivalents
630 868
1 922 925
2 507 017
Ending Cash and Cash Equivalents
277 783
630 868
1 922 925
Cash Paid for Interest
1 587 622
1 773 834
1 804 641
The footnotes are an integral part of these financial statements
Nordic American Tanker Shipping Ltd
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STATEMENTS OF SHAREHOLDERS’ EQUITY
(all figures in USD)
Common
stock
Additional
paid-in
capital
97 066
144 395 866
97 066
144 395 866
Retained
earnings
(16 513 935)
27 668 964
(24 848 957)
(13 693 928)
19 385 476
97 066
144 395 866
(37 564 658)
(31 873 110)
8 847 268
2002 Annual Report to Shareholders
Accumulated
other
comprehensive
income
Total
Shareholders'
Equity
Total
comprehensive
income
-
-
127 978 997
27 668 964
(24 848 957)
130 799 004
27 668 964
27 668 964
19 385 476
19 385 476
618 094
618 094
618 094
(1 656 146)
(1 656 146)
(1 656 146)
260 052
260 052
260 052
18 607 476
(778 000)
(37 564 658)
111 841 822
8 847 268
8 847 268
(2 262 564)
(2 262 564)
(2 262 564)
1 024 564
1 024 564
1 024 564
97 066
144 395 866
(13 103 993)
(36 129 835)
(2 016 000)
(13 103 993)
106 347 097
7 609 268
Balance at 12.31.99
Net profit
Total comprehensive
income
Dividends paid
Balance at 12.31.00
Net profit
Cumulative effect of change
in accounting for derivative
instruments
Unrealized loss on
derivative instruments
Adjustment for losses on
derivatives reclassified to
earnings
Total comprehensive
income
Dividends paid
Balance at 12.31.01
Net profit
Unrealized loss on
derivative instruments
Adjustment for losses on
derivatives reclassified to
earnings
Total comprehensive
income
Dividends paid
Balance at 12.31.02
The footnotes are an integral part of these financial statements
Nordic American Tanker Shipping Ltd
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2002 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 principal business of Nordic American
Tanker Shipping Limited (the ”Company”) is the charter of three Suezmax tankers 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 accounting principles
generally accepted in the United States of America necessarily includes amounts based on
estimates and assumptions made by management. Actual results could differ from those amounts.
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 consists solely of vessels.
The estimated useful life of these vessels is 25 years.
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: 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 at the beginning of the quarter, 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 another panel of ship brokers mutually acceptable to the
Charterer and the Company.
Revenue from vessel charter is recognized on the basis of the number of days in the fiscal period.
Segment Information: The Company has only one type of vessels – oil tankers on bareboat
charters. As a result, management, including the chief operating decision makers, reviews
operating results solely by revenue per day and thus the Company has determined that it operates
under one reportable segment.
Interest Rate Swap: In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) 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
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2002 Annual Report to Shareholders
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.
Taxes: The company is incorporated in Bermuda. Under current Bermuda law, the Company is
not subject to corporate income taxes.
New Pronouncements: In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 provides guidance related to
accounting for costs associated with disposal activities covered by SFAS No. 144 or with exit or
restructuring activities previously covered by EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS No. 146 supercedes EITF Issue No. 94-3 in its entirety.
SFAS No. 146 requires that costs related to exiting an activity or to a restructuring not be
recognized until the liability is incurred. SFAS No. 146 will be applied prospectively to exit or
disposal activities that are initiated after December 31, 2002.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance
sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees
that an entity has issued. The company does not expect FIN 145 to have any material impact on its
results of operations or financial condition.
2.
RELATED PARTY TRANSACTIONS
The Company has entered into a management agreement with Ugland Nordic Shipping AS (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, 2002 10.31% of the shares.
Management fees expense was $250,000 for 2002, 2001 and 2000.
3.
REVENUE
The table below illustrates the breakdown of the charter hire for the years ended December 31,
2002, 2001 and 2000:
Year
2002
2001
2000
Base Hire
Additional Hire
14,782,500
3,275,489
14,782,500
13,577,068
14,823,000
21,754,262
Total
18,057,989
28,359,568
36,577,262
4.
VESSELS
The long term assets consist of three suezmax oil tankers built in 1997
All Vessel
2002
2001
Aquisition cost 1997
Accumulated depreciation as of December 31
170,775,970
35,863,005
170,775,970
29,031,965
Book value as of December 31
134,912,965
141,744,005
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2002 Annual Report to Shareholders
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
2002
2001
2000
Management fee, Ugland Nordic Shipping AS
Directors and officers insurance
Other fees and expenses
250,000
86,667
90,381
250,000
72,333
31,406
250,000
82,500
40,791
Total administrative expenses
427,048
353,739
373,291
6.
LONG-TERM DEBT
In 1998, the Company entered into a loan agreement for $30 million with Den norske Bank ASA,
Oslo (DnB). The loan falls due in full in September 2004. Interest payments are based on the
variable rate of LIBOR plus 0.525% margin, approximately 2.2825% at December 31, 2002.
Accrued interest at December 31, 2002 and 2001 was $215,466 and $38,666. 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 pays an annual agency fee of $10,000 to DnB in connection with the loan.
Interest on all long-term borrowings is variable, therefore the carrying amount of the debt
approximates its fair value.
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% annually for the next two years. The swap agreement
terminates on the final repayment date of the Loan, i.e. the 4th quarter of year 2004. Interest on all
long-term borrowings is variable, therefore the carrying amount of the debt approximates its fair
value.
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.
7.
SHAREHOLDERS’ EQUITY
Par value of the common shares is $.01. At December 31, 2002 and 2001 the number of shares
authorized, issued and outstanding was 9,706,606.
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8.
DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
2002 Annual Report to Shareholders
The company is exposed to interest rate risk from its variable rate loan of $30 million. The
company’s risk management objective has been to lock in the interest payments on the loan. The
company has entered into an interest rate swap where the company pays a fixed interest and
receives a variable interest and has designated this swap as a cash flow hedge of the interest
payments on the loan.
Gains or losses on the interest rate swap designated as a cash flow hedge will be deferred to
accumulated other comprehensive income and will be reclassified to earnings when the hedged
interest payments are recognized. The amount of ineffectiveness recorded in 2002 and 2001 was
immaterial. As of December 31, 2002 loss of $1,136,570 after tax is expected to be reclassified
from accumulated other comprehensive income to earnings during the next twelve months. The
maximum length of time that the company has hedged its exposure to variability in future interest
payments is approximately 24 months as of December 31, 2002.
The fair value of the swap of $ -2,016,000 is recorded as a liability as of December 31, 2002. The
fair value of the swap was $-778,000 at December 31, 2001.
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
NORWEGIAN TAX PROCEEDING
In September 2002, the Company received a letter from the Tax Assessment Board of the
Norwegian Central Tax Office for Large Corporations, (the "Tax Board”), stating that the Tax
Board had determined that the Company was subject to Norwegian income taxation for the years
1995 through 2000. The Company believes that the Tax Board's determination is without merit
and erroneous and is contesting the assessment vigorously.
Accordingly, the Company has appealed the decision of the Tax Board to the Norwegian Tax
Assessment Appeal Board (the "Appeal Board"). The Company has been advised that a decision
from the Appeal Board may be expected during the second or third quarter of 2003. If the Appeal
Board should decide in favor of the Tax Board, the Company may make further appeals to the
Norwegian Court of Justice, which has three levels. The Norwegian tax authorities may appeal a
decision in favor of the Company to the County Tax Appeal Board.
The decision of the Tax Board relates to the years 1995 through 2000. Applying Norwegian tax
principles, the Company did not have any taxable income for those years or for 2001. At year end
2001, the deferred tax loss is NOK 41.6 mill (approx. USD 5.6 million). This tax loss would be
carried forward and used for the tax year 2002. After application of this loss carry-forward, under
Norwegian tax principles, the Company’s net income would total approximately NOK 59.1 mill
(approx. USD 8.5 million) for 2002. However, as previously stated, the strong view of the
Company is that the Company should not be taxed in Norway.
In accordance with its distribution policy, the Company has made cash distributions to
shareholders in amounts that exceed the net income of the Company. Under Norwegian tax
principles, if they applied, in the view of the Company, a portion of these distributions would be
considered as a repayment of paid up share capital.
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2002 Annual Report to Shareholders
Given this premise, there would be no tax for the Company during the period through 2002.
However, if, Norwegian tax principles apply, there is a probability that the distributions could be
seen as a repayment of untaxed capital from the Company, and the Company would incur so-
called correction income, which for the period to and including 2001 would amount to NOK 728.6
million (approx. USD 99 million). The tax would constitute 28% of that amount. In the view of
the Company, such a treatment of its cash distributions would be incorrect.
The Company's view is that the Tax Board's determination is without merit and is erroneous. In
part, the view of the Company is based on an opinion that the Company received from Norwegian
counsel in connection with the Company's warrants offering in 1995, as described in the
Company's offering prospectus. However, the Company cannot assure investors of a successful
appeal of the Tax Board's determination.
The Company is bearing legal costs in connection with the Norwegian tax proceeding which
would otherwise be available for distribution.
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