2003 Annual Report to Shareholders
NORDIC AMERICAN TANKER
SHIPPING LIMITED
2003 ANNUAL
REPORT TO
SHAREHOLDERS
2003 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 Canon’s Court, 22 Victoria Street,
Hamilton HM 12, Bermuda, telephone number (441) 298-3207.
Pursuant to an agreement (the "Management Agreement") between the Company and its
Manager, Scandic American Shipping Ltd. (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. BP Shipping the
charterer of the Company’s 3 Suezmax tankers, has not delivered notice of exercise of its options
to extend the charters. Accordingly, the existing charters will terminate on October 1, 2004,
subject to a redelivery window for the vessels of between September 1, 2004 and November 1,
2004. 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 2003, 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 2003, 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 or any other reason. The
Nordic American Tanker Shipping Ltd
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2003 Annual Report to Shareholders
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 p.l.c., the successor company to the merger between Amoco Corp and The
British Petroleum Company p.l.c.
At the annual general meeting of the company on May 30, 2003 it was decided to novate
the management agreement from Ugland Nordic Shipping AS to Scandic American Shipping Ltd.
On October 1, 2003 the Company announced that BP Shipping (BP) did not exercise its
option to extend the charters for all three vessels. Under the Company`s Bye-Laws, the Company
was obligated to call a special meeting of shareholders no later than April 1, 2004, to consider a
proposal to sell the vessels and distribute the net proceeds to shareholders or to assess other
alternatives. At the Company’s Special Meeting of Shareholders on March 15, 2004, the
Company’s shareholders decided by vote of approximately 96% of those voting to continue the
Company in business. However, as the quorum was not sufficient to amend the Company’s bye-
laws, the restrictions on the Company’s business activities will continue to expire on the
termination of the BP charters on October 1, 2004 (subject to possible extensions of up to 30 days
at BP’s option). Following termination of the restrictions, the Company will be free under its
bye-laws to conduct any business permitted by law on an unrestricted basis. The Board of
Directors is currently reviewing the Company’s business plan. The Board has authorized
Management to negotiate an extention of the Den norske Bank loan or its refinancing for an
additional three years, expiring in the year 2008.
On May 10, 2004, the Company announced that it has entered into a bareboat charter
with Gulf Navigation Company LLC of Dubai, U.A.E. for one of its vessels as of the expiration
of its Charter. The five-year bareboat charter agreement, with two optional one-year extensions,
provides for a bareboat charter rate of $17,325 per day for the vessel.
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 2002 and 2003 are as follows:
AMEX
High
AMEX
Low
OSE
Low
OSE
High
For the quarter ended:
March 31, 2002
June 30, 2002
September 30, 2002
December 31, 2002
March 31, 2003
June 30, 2003
September 30, 2003
December 31, 2003
$12.95
$13.50
$ 9.86
$10.11
$12.62
$13.00
$13.10
$11.25
$15.50
$16.55
$14.25
$13.82
$14.65
$16.89
$15.80
$15.45
NOK 127.00
NOK 122.00
NOK 90.00
NOK 90.00
NOK 70.00
NOK 70.00
NOK 80.00
NOK 67.00
NOK 140.00
NOK 140.00
NOK 135.00
NOK 100.00
NOK 101.00
NOK 105.00
NOK 110.00
NOK 146.00
These bid quotations represent interdealer quotations without retail mark-ups, mark-
downs or commissions, and do not necessarily represent actual transactions. On December 31,
2003, the closing price of the Shares as quoted on the AMEX was $15.05, and as quoted on the
OSE was NOK 103.00. On such date, there were 9,706,606 Shares issued and outstanding.
Nordic American Tanker Shipping Ltd
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2003 Annual Report to Shareholders
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, 2001, 2002, and 2003 and selected balance
sheet data as of December 31, 2002 and 2003 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, 1999, 2000 and 2001 and selected balance sheet data as of December
31, 1999, 2000 and 2001 are derived from our audited financial statements not included in this
document.
Nordic American Tanker Shipping Ltd
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2003 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 Short-term Liabilities
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
2003
2002
December 31,
2001
2000
1999
565 924
14 475
91 667
8 142 307
128 081 925
136 896 298
277 783
28 955
83 333
3 276 523
134 912 965
138 579 559
630 868
43 435
70 000
170 180
141 744 005
142 658 488
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
0
1 150 000
38 322
30 000 000
31 188 322
996
0
0
0
996
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2 016 000
215 466
30 000 000
32 231 466
778 000
38 666
30 000 000
30 816 666
0
43 500
30 000 000
30 043 500
0
77 333
30 000 000
30 077 333
97 066
97 066
97 066
97 066
97 066
(1 150 000)
106 760 910
105 707 976
(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
136 896 298
138 579 559
142 658 488
160 842 504
158 056 330
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
2003
37 370 756
(184 781)
(366 421)
(101 666)
(6 831 040)
29 886 848
(1 786 559)
28 100 289
Year Ended December 31,
2001
2002
18 057 989
(184 781)
(340 381)
(86 667)
(6 831 040)
10 615 120
(1 767 852)
8 847 268
28 359 568
(184 781)
(281 406)
(72 333)
(6 831 040)
20 990 008
(1 604 532)
19 385 476
2000
36 577 262
(185 288)
(290 791)
(82 500)
(6 831 040)
29 187 643
(1 518 677)
27 668 966
1999
14 782 500
(184 781)
(314 004)
(97 500)
(6 831 039)
7 355 176
(1 580 498)
5 774 678
Basic Earnings Per Share
Diluted Earnings Per Share
Cash Dividends
Declared Per Share
Weighted Average Shares Outstanding:
Basic
Diluted
2,89
2,89
3,05
0,91
0,91
1,35
2,00
2,00
3,87
2,85
2,85
2,56
0,59
0,59
1,35
9 706 606
9 706 606
9 706 606
9 706 606
9 706 606
9 706 606
9 706 606
9 706 606
9 706 606
9 706 606
Nordic American Tanker Shipping Ltd
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2003 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.
The contracts with BP Shipping commenced on October 1, 1997 and will terminate on 1
October 2004, subject to a redelivery window for the vessels of between September 1, 2004 and
November 1, 2004. During the term of each Charter 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 2003 increased 106.9% from 2002 to
$37,370,756 or $34,129 per day per vessel (time charter equivalent of $42,628 per day per
vessel). Charterhire revenue for 2003 was derived from Base Hire of $14,782,500 ($13,500 per
day per Vessel) and Additional Hire of $22,588,256 ($20,629 per day per vessel).
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. Charterhire per day per Vessel (time charter equivalent) for
each quarter of 2003 was $57,756, $38,291, $23,243 and $51,501 per day per Vessel,
respectively.
Comparatively, Base Hire in 2002 and 2001 was $14,782,500 ($13,500 per day per
Vessel) for each year. Additional Hire was $3,275,489 and $13,577,068 in 2001.
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.
Liquidity and Capital Resources
The Company’s cash flows are primarily from charter hire revenue.
Cash flows provided by operating activities increased in 2003 to $29,893,551 due
primarily to the increase in net profit and an increase in accounts receivable due to additional hire
awarded in 4th quarter.
Cash flow used in financing activities increased 126% to $29,605,408 due to the increase
in dividends paid during the year.
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2003 Annual Report to Shareholders
There were no cash flows from investing activities during the year.
Due to the nature of the business, cash flows have been predictable with the exception of
additional charter hire to be awarded, if any. However, with the expiration of the Charters with
BP, the Company will be exposed to the international tanker charter spot market, which
historically has been quite volatile. On May 10, 2004, the Company announced that it has
entered into a bareboat charter with Gulf Navigation Company LLC of Dubai, U.A.E. for one of
its vessels as of the expiration of its Charter. The five-year bareboat charter agreement, with two
optional one-year extensions, provides for a bareboat charter rate of $17,325 per day for the
vessel. However, the Company does not expect that both of its remaining vessels will be placed
on fixed rate charters following termination of the Charters with BP.
The Company expects that cash from charter hire will be sufficient to meet operational
requirements in 2004. The Company does not have plans for significant capital expenditures or
other investments during 2004, and the Company expects to refinance its $30 million loan with
Den norske Bank ASA, as set forth below.
Dividend payment
Total dividend paid out in 2003 was $29,605,410 or $3.05 per Share. The dividend
payments per share in 1997, 1998, 1999, 2000, 2001,2002 and 2003 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
2003
0.63
1.27
0.78
0.37
3.05
The Company declared a dividend of $1.15 per share for the first quarter of 2004. The
dividend of $1.15 was paid to Shareholders in February 2004. In addition, the Company declared
a dividend of $1.70 per share for the second quarter of 2004, which is being paid to Shareholders
in May 2004.
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. The loan with DnB is due during the fourth quarter of 2004. The Company believes
that it will be able to refinance this loan with DnB on similar terms.
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 the Charters with BP, 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%. There is no guarantee that this level can be maintained following termination
of the Charters.
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2003 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% per annum. The swap agreement
terminates on the final repayment date of the Loan, i.e., the fourth quarter of the year 2004.
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, 2003, an evaluation was performed under the supervision and with
the participation of the Company’s Chairman, Chief Executive 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, 2003. No significant changes in the Company’s internal
controls or in other factors have occurred that could significantly affect controls subsequent to
December 31, 2003.
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
At the Annual General Meeting of the Company on May 30, 2003 it was decided to
novate the management agreement from Ugland Nordic Shipping AS to Scandic American
Shipping Ltd, Bermuda.
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
Hon. Sir David Gibbons
Herbjørn Hansson
George C. Lodge
Andreas Ove Ugland
Torbjørn Gladsø
49
76
56
76
49
56
Secretary
Director
Director and Chairman, Chief Executive
Officer and President
Director
Director
Director
The Manager
Name Age Position
Director
Andreas Ove Ugland
Director; President
Herbjørn Hansson
49
56
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2003 Annual Report to Shareholders
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 since July
1995. He is a major shareholder and Deputy Chairman of Scandic American Shipping Ltd.
(“Scandic”), the Company’s manager. He has been President and Chief Executive Officer of
Ugland Nordic Shipping ASA (the “Former Manager”), the Company’s previous manager, since
September 1993. Mr. Hansson has served as a director of the Company since July 1995 and as a
director of the Former Manager, since its organization in June 1989. Mr. Hansson served as the
Chairman of the Board of the Former 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
Tanker Owners and independent operators, from 1975-1980. He was an officer of the Anders
Jahre/Kosmos Group from 1980 to 1989, serving as Chief Financial Officer from 1983 to 1988.
Sir David Gibbons has been a director of the Company since September1995. 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 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,
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. Mr. Ugland is controlling
shareholder and Chairman of Scandic.
Torbjørn Gladsø has been a director of the Company since October 2003. Mr. Gladsø 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.
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,
2003, 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.
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
Nordic American Tanker Shipping Ltd
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2003 Annual Report to Shareholders
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.
MAY 11, 2004
NORDIC AMERICAN TANKER
SHIPPING LIMITED
Nordic American Tanker Shipping Ltd
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2003 Annual Report to Shareholders
NORDIC AMERICAN TANKER SHIPPING LIMITED
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
12
13
14
14
15
16-19
Nordic American Tanker Shipping Ltd
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2003 Annual Report to Shareholders
Deloitte
Statsautoriserte Revisorer AS
Karenslyst alle 20
Postboks 347 Skøyen
0213 OSLO
Telefon: 23 27 90 00
Telefax: 23 27 90 01
www.deloitte.no
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, 2003 and 2002 and the related statements of operations, shareholders’
equity, and cash flows for each of the three years in the period ended December 31, 2003. 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 an 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 an 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, 2003 and 2002, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
Oslo, Norway, May 11, 2004
Deloitte
Medlemmer av Den Norske Revisorforening
org.nr: 980 211 282
Nordic American Tanker Shipping Ltd
12 of 19
2003 Annual Report to Shareholders
ASSETS
Current assets
Cash and cash equivalents
Accounts receivables
Prepaid finance costs
Prepaid insurance
Total current assets
Long term assets
Vessels
TOTAL ASSETS
Note 1
Note 6
2003
2002
565 924
8 142 307
14 475
91 667
8 814 373
277 783
3 276 523
28 955
83 333
3 666 594
Note 4
128 081 925
134 912 965
136 896 298
138 579 559
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Accounts payables
Accrued interest
Derivative contract
Current portion of long-term debt
Total Current liabilities
Long-term liabilities
Derivative contract
Long-term debt
Total Long-term liabilities
Shareholders' Equity
Common stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Shareholders' Equity
Note 6
Note 7, 8
Note 6, 8
Note 7, 8
Note 6, 8
Note 7
Note 7
Note 7
Note 7, 8
2003
-
38 322
1 150 000
30 000 000
31 188 322
-
-
-
97 066
144 395 866
(37 634 956)
(1 150 000)
105 707 976
2002
996
215 466
-
-
216 462
2 016 000
30 000 000
32 016 000
97 066
144 395 866
(36 129 835)
(2 016 000)
106 347 097
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
136 896 298
138 579 559
The footnotes are an integral part of these financial statements
Nordic American Tanker Shipping Ltd
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2003 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
Year Ended December 31,
2003
2002
2001
37 370 756
(184 781)
(468 087)
(6 831 040)
29 886 848
26 462
(1 797 981)
(15 040)
(1 786 559)
28 100 289
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
0
0
28 100 289
8 847 268
0
19 385 476
Basic and Diluted Earnings per Share
Weighted Average Number of
Shares Outstanding
2,89
0,91
2,00
9 706 606
9 706 606
9 706 606
STATEMENT OF CASH FLOWS
All figures in USD
Net profit
Reconciliation of Net Profit to Net Cash from
Operating Activities
Depreciation
Amortization of prepaid finance costs
Increase (decrease) in receivables and payables
Net cash from Operating Activitites
Financing Activities
Dividends paid
Net cash from financing activities
Year Ended December 31,
2003
2002
2001
28 100 289
8 847 268
19 385 476
6 831 040
14 480
(5 052 258)
29 893 551
6 831 040
14 480
(2 941 880)
12 750 908
6 831 039
14 480
10 041 605
36 272 600
(29 605 410)
(29 605 410)
(13 103 993)
(13 103 993)
(37 564 658)
(37 564 658)
Net increase (decrease) in cash and cash equivalents
288 141
(353 085)
(1 292 058)
Beginning Cash and Cash Equivalents
277 783
630 868
1 922 925
Ending Cash and Cash Equivalents
565 924
277 783
630 867
Cash Paid for Interest
1 975 125
1 587 622
1 773 834
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
97 066
Additional
paid-in
capital
144 395 866
2003 Annual Report to Shareholders
Accumulated
other
comprehensive
income
-
Retained
earnings
(13 693 928)
19 385 476
Total
Shareholders'
Equity
130 799 004
Total
comprehensive
income
19 385 476
19 385 476
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
Net profit
Unrealized loss on
derivative instruments
Adjustment for losses on
derivatives reclassified to
earnings
Total comprehensive
income
Dividends paid
Balance at 12.31.03
97 066
144 395 866
(37 564 658)
(31 873 110)
8 847 268
97 066
144 395 866
(13 103 993)
(36 129 835)
28 100 289
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
(2 016 000)
(13 103 993)
106 347 097
7 609 268
28 100 289
28 100 289
(365 723)
(365 723)
(365 723)
1 231 723
1 231 723
1 231 723
28 966 289
97 066
144 395 866
(29 605 410)
(37 634 956)
(1 150 000)
(29 605 410)
105 707 976
The footnotes are an integral part of these financial statements
Nordic American Tanker Shipping Ltd
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2003 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.
Derivative instrument and Hedging: The Company accounts for its derivative instruments and
hedges according to SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” as
amended. This standard, as amended, 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 of qualifying hedges offset corresponding changes in the fair value of the
hedged item in the statement of operations.
Nordic American Tanker Shipping Ltd
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2003 Annual Report to Shareholders
Taxes: The company is incorporated in Bermuda. Under current Bermuda law, the Company is not
subject to corporate income taxes.
New Pronouncements: 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 adoption of FIN 45 did not have a material impact on the Company’s financial
statement.
In April 2003 the FASB issued SFAS No. 149, “Amendment of SFAS No. 133 on Derivative
Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies financial accounting and
reporting for derivative instruments by requiring that contracts with comparable characteristics be
accounted for similarly. In particular, this statement clarifies the circumstances under which a contract
with an initial net investment meets the characteristics of a derivative, clarifies when a derivative
contains a financing component, amends the definition of an underlying to conform it to the language
used in FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others” and amends certain other existing pronouncements.
SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as stated
below and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on the Company’s financial statements.
In May 2003 the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity”. SFAS No. 150 modifies the accounting for certain
financial instruments that, under previous guidance, issuers could account for as equity. SFAS No. 150
requires that those instruments be classified as liabilities in statements of financial position. The
adoption of SFAS No. 150 did not have a material impact on the Company’s financial statements.”
2. RELATED PARTY TRANSACTIONS
The Company has entered into a management agreement with Scandic American Shipping Ltd. (SAS)
under which SAS will provide certain administrative, management and advisory services to the
Company for an amount of $250,000 per year. SAS is the Commercial Manager of the Company and
it is owned by Herbjorn Hansson and Andreas Ove Ugland. SAS owns as of December 31, 2003
indirectly through its owners 0.15% of the shares.
Management fees expense was $250,000 for 2003, 2002 and 2001.
3. REVENUE
The table below illustrates the breakdown of the charter hire for the years ended December 31, 2003,
2002 and 2001:
Year
Base Hire
Additional Hire
Total
2003
14,782,500
22,588,256
37,370,756
2002
14,782,500
3,275,489
18,057,989
2001
14,782,500
13,577,068
28,359,568
4. VESSELS
Nordic American Tanker Shipping Ltd
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2003 Annual Report to Shareholders
All Vessel
2003
2002
Aquisition cost 1997
Accumulated depreciation as of December 31
Book value as of December 31
The long term assets consist of three suezmax oil tankers built in 1997. 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
Management fee
Directors and officers insurance
Other fees and expenses
2003
2002
2001
250,000
101,666
116,421
250,000
86,667
90,381
250,000
72,333
31,406
Total administrative expenses
468,087
427,048
353,739
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 at expiration of the BP contract in 2004. Interest payments are based
on the variable rate of LIBOR plus 0.525% margin, approximately 1.665% at December 31, 2003.
Accrued interest at December 31, 2003 and 2002 was $38,322 and $215,466 respectively. 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.
The Company believes that it will be able to refinance this loan with DnB on similar terms.
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, 2003 and 2002 the number of shares
authorized, issued and outstanding was 9,706,606.
Nordic American Tanker Shipping Ltd
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2003 Annual Report to Shareholders
8. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
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 2003, 2002 and 2001 was
immaterial. As of December 31, 2003 a loss of $1,150,000 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 11 months as of December 31, 2003.
The fair value of the swap was recorded as a liability of $1,150,000 and $2,016,000 at December 31,
2003 and 2002, respectively.
9. CONCENTRATIONS
The Company’s charter revenues and accounts receivable are derived entirely from bareboat charters
with one counterparty, BP Shipping Ltd.
Nordic American Tanker Shipping Ltd
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