2004 Annual Report to Shareholders
NORDIC AMERICAN TANKER
SHIPPING LIMITED
2004 ANNUAL
REPORT TO
SHAREHOLDERS
Nordic American Tanker Shipping Limited
Page 1 of 17
2004 Annual Report to Shareholders
BUSINESS
General
Nordic American Tanker Shipping Limited. (the “Company”) was formed on June 12, 1995 under the laws of the
Islands of Bermuda (“Bermuda”) for the purpose of acquiring and chartering three Suezmax tankers that were
built in 1997. These three vessels were bareboat chartered to BP Shipping Ltd., or BP Shipping, for a period of
seven years. BP Shipping redelivered these three vessels to us in September 2004, October 2004 and November
2004, respectively. We have continued contracts with BP Shipping by time chartering to it two of our original
vessels at spot market related rates for three-year terms up to the autumn of 2007. We have bareboat chartered the
third of our original three vessels to Gulf Navigation Company LLC, or Gulf Navigation, of Dubai, U.A.E. for a
term of five years at a fixed rate of charterhire, subject to two one-year extensions at Gulf Navigation’s option.
We acquired in November 2004 our fourth vessel, which we are currently operating in the spot market.
In January 2005, the Company agreed to acquire a double hull Suezmax tanker which was delivered to us on
March 21, 2005. In February 2005, the Company agreed to acquire a double hull Suezmax tanker which was
delivered to us from Daewoo Shipyard in Korea on March 29, 2005.
Our Fleet
Our fleet, including the two additional vessels we have acquired in 2005, consists of six modern double-hull
Suezmax tankers. The following chart provides information regarding each vessel, including its employment
status.
Vessel
Yard
Year
Built Dwt
Employment Status
(Expiration Date)
1997
Gulf Scandic (ex. British Harrier)
1997
Nordic Hawk (ex. British Hawk)
Nordic Hunter (ex. British Hunter)
1997
Nordic Voyager (ex. Wilma Yangtze) Dalian New 1997
Samsung
Samsung
Samsung
Nordic Fighter (ex. Front Fighter)
1998
Nordic Freedom (newbuilding)
2005
(1) TC/Spot = Time Charter on spot market related terms.
(2) The vessels were delivered to us in late March 2005.
Hyundai
Daewoo
151,459 Bareboat (Nov. 2009)
151,459 TC/spot(1) (Oct. 2007)
151,459 TC/spot(1) (Oct. 2007)
149,591 Spot
153,181 Spot(2)
159,500 Spot(2)
Flag
Isle of Man
Bahamas
Bahamas
Norway
Norway
Bahamas
OUR CHARTERS
We operate our vessels on bareboat charter, spot related time charters and in the spot market. Our goal is to
manage our cash flows through the use of fixed-rate bareboat and time charters for part of our fleet, while taking
advantage of potentially higher market rates through time charters with spot market related rates and voyage
charters.
Bareboat Charters
We have chartered one of our vessels (the Gulf Scandic) under a bareboat charter to Gulf Navigation, for a period
of five years, terminating in the fourth quarter of 2009, subject to two one-year extensions at Gulf Navigation’s
option. Under the terms of the bareboat charter, Gulf Navigation is obligated to pay a fixed charterhire of $17,325
per day for the entire charter period. During the charter period, Gulf Navigation will be responsible for operating
and maintaining the vessel and will bear all costs and expenses with respect to the vessel.
Time Charters
We have chartered two of our vessels (the Nordic Hawk and the Nordic Hunter) under spot market related time
charters to BP Shipping for a period of three years each, terminating between September 1 and October 31, 2007.
The amount of charterhire payable under the charters to BP Shipping is based on a formula designed to generate
earnings to us as if we had operated the vessels in the spot market on two routes used for the calculation, less 5%.
The charterhire is payable to us monthly. Under the time charters, BP Shipping is responsible for all voyage
related costs while the Company is responsible for providing the crew and paying other operating costs.
Nordic American Tanker Shipping Limited
Page 2 of 17
2004 Annual Report to Shareholders
Spot Charters
We currently operate one of our four vessels (the Nordic Voyager) and have deployed the two additional vessels
that we have recently purchased in 2005 (the Nordic Fighter and the Nordic Freedom), in the spot market. Tankers
operating in the spot market typically are chartered for a single voyage which may last up to several weeks.
Tankers operating in the spot market may generate increased profit margins during improvements in tanker rates,
while tankers operating fixed-rate time charters generally provide more predictable cash flows.
Under a typical voyage charter in the spot market, we will be paid freight on the basis of moving cargo from a
loading port to a discharge port. We are responsible for paying both operating costs and voyage costs and the
charterer is responsible for any delay at the loading or discharging ports.
THE TANKER MARKET 2004
Tanker freight rates in 2004 were significantly higher than in the previous high periods in 2000 and 2003. In the
single voyage market VLCCs achieved an average of close to $90,000 per day compared to the $50,000 per day
level in the two previous peak years. For the year as a whole Suezmax tankers reached an average of $65,000 per
day, significantly higher than the $40,000 per day obtained in 2000 and in 2003.
Based on export volume data, estimates indicate an increase in seaborne oil trade of 6% from 2003 to 2004.
Average transport distance rose by 1%. There seems to have been a small improvement in productivity due to the
modernization of the tanker fleet and a reduction in waiting days in the Bosphorus from 2003 to 2004.
Accordingly tonnage demand increased by 6.5%.
The active tanker fleet rose by 3.7% from 2003 to 2004, calculated on an annual average basis, resulting in an
increase in the utilization rate from 89% in 2003 to 91.5% in 2004, the highest level recorded in the last three
decades. Freight rates in 2004 fluctuated wildly, a logical consequence of such a record high utilization rate level.
The active VLCC fleet increased by 2 %, while the Suezmax fleet rose by 5%. Deliveries of new tankers reached
27 million dwt in 2004, down from 30 million dwt in 2003. Removals amounted to 10 million dwt in 2004
compared to an average of 19 million dwt in the previous four years. Removals are based on the point in time
vessels are actually removed from the market and not when reported sold for scrapping or for conversions.
Some 8 million dwt were sold for scrapping in 2004 and 2 million dwt were sold for conversion. The average age
for all tankers sold for scrapping was 27.3 years in 2004, compared to 26.6 years in 2003.
As a result of the extremely strong dry bulk market, 2 million dwt of combined carriers moved from oil trades to
dry trades from 2003 to 2004 and limited the fleet growth in oil transportation.
The highest global economic growth since 1976 stimulated world oil consumption, which rose by 3.4% in 2004.
This is the highest oil consumption growth rate since the 1970s. Global oil production climbed an exceptional
4.5% resulting in a moderate building of oil inventories. OPEC raised its crude oil production by more than 7%
and reached a peak of more than 30 mbd in the fourth quarter of the year. This was very close to its production
capacity, leading to a 35% surge in crude oil prices from 2003 to 2004. The strong growth in oil consumption
despite the sharp rise in oil prices may be attributed, in parts, to heavy subsidization of end-user prices in many of
the countries with strong consumption growth.
The main driver behind these strong freight market conditions was China with its strong growth in oil consumption
and imports. In the first half of 2004, Chinese oil consumption was 22% higher than in the same period the year
before. Oil imports rose by more than 30% for the second year in a row.
2004 was also a record-breaking year in the vessel sale and purchase market with regard to transaction volumes as
well as ship market values. During 2004, tankers monitored by R.S. Platou Shipbrokers increased in market value
by some 45% (20% in 2003). Double hull tankers rose by 40% (25%), whereas single hull tankers were up
between 35% and 75%.
OUR CREDIT FACILITY
In October 2004, we entered into the Credit Facility, which consists of a $50 million revolving credit facility and a
$250 million revolving credit facility. The $50 million facility will mature in October 2007 and the $250 million
facility will mature in October 2005, unless we exercise our one-year extension option or our option to convert
Nordic American Tanker Shipping Limited
Page 3 of 17
2004 Annual Report to Shareholders
any drawn amounts to a five-year term loan. Amounts borrowed under the Credit Facility bear interest at a rate
equal to LIBOR plus a margin of 0.80% to 1.20% per year (depending on the loan to vessel value ratio). We may
draw unborrowed amounts under the Credit Facility in connection with any future vessel acquisitions or for
working capital purposes. Borrowings under the Credit Facility are secured by mortgages over our existing and
new vessels and assignments of earnings and insurances, and drawings will be available subject to loan to vessel
value ratios. The terms and conditions of the Credit Facility require compliance with certain restrictive covenants,
which we feel are consistent with loan facilities incurred by other shipping companies. Under the Credit Facility,
we are, among other things, required to (i) maintain certain loan to vessel value ratios, (ii) maintain a book equity
of no less than $75 million, (iii) remain listed on a recognized stock exchange and (iv) obtain the consent of the
lenders prior to creating liens on our vessels.
The Credit Facility provides that we may not pay dividends if there is a default under the Credit Facility. We will
be able to pay dividends in accordance with our dividend policy as long as we repay any amounts drawn under the
$250 million facility within one year from the closing of the Credit Facility and are not otherwise in default of the
Credit Facility.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Results of Operations
Our net voyage revenues increased from $37,185,975 for year ended December 31, 2003 compared to
$62,526,245 for year ended December 31, 2004, an increase of 68.1%.
2004
2003
Voyage Revenue
67 451 598
37 185 975
Voyage Expenses
Net Voyage Revenue
(4 925 353)
62 526 245
0
37 185 975
The increase in net voyage revenues was due to higher tanker spot market rates in the twelve month period in 2004 and
the addition of one vessel on November 23, 2004. The tanker spot market rates are determined by the demand for the
carriage of oil and the distance the oil is to be carried, measured in tonne miles, and the supply of vessels to
transport that oil.
Vessel operating expenses were $1,976,766 for 2004. The Company’s results for 2004 were impacted by one time
extra operating costs associated with the expiry of the bareboat charters with BP for two of the Company’s ships
and the continued employment for one of them to BP under a spot related time charter. The Company did not have
vessel operating expenses for the comparable period of 2003 since all the vessels were chartered to BP Shipping
under bareboat charter agreements. Under bareboat charter agreements all vessel operating expenses are paid by
the charterer.
Administrative expenses were $10,851,688 for 2004 compared to $468,087 for the comparable period of 2003.
The increase was primarily due to costs associated with our transition to an operating company. These costs are
mainly due to increased frequency of communication with shareholders, increased frequency of board meetings,
costs related to the redelivery of the three vessels from BP Shipping, legal fees and consulting fees.
Administrative expenses also include a non-cash charge of $9.2 million linked to a change in the compensation
scheme for our Manager, Scandic American Shipping Ltd. The original incentive plan was a revenue based cash
commission structure. The Manager agreed to eliminate the commission. The cash commission was replaced by
restricted share issuances to the Manager of 2% of the Company’s outstanding common shares in order to align
the interests of the Manager and the Company. These restricted shares are non-transferable for three years from
issuance. In connection with the transition to an operating company, a stock incentive plan of 400,000 shares has
been introduced. The initial strike price for options granted in 2005 was equal to $38.75 – the issue price in the
follow-on offering in November 2004.
Net operating income for 2004 increased 43.1% from the comparable period in 2003 from $29,886,849 to
$42,779,627 primarily due to increased revenue and costs as described above.
Nordic American Tanker Shipping Limited
Page 4 of 17
2004 Annual Report to Shareholders
Liquidity and Capital Resources
Cash flows provided by operating activities increased by 110.1% in 2004 to $62,817,261 compared to
$29,893,551 in 2003 primarily due to the increased revenue and change in the Company’s operation as described
above.
Cash flow provided from financing activities for 2004 was $33,486,608 compared to cash flow used of
$29,605,410 for the same period in 2003. The increase was due to (i) proceeds from a follow-on offering of
$112.1million offset by (ii) dividends paid of $47.2 million, (iii) repayment of $30 million in bank debt and (iv)
payment of loan facility costs of $1.5 million in respect of our $300 million credit facility.
Cash flow used by investing activities was $66,137,277 which represents the acquisition cost of the vessel
acquired in November 2004. There were no investing activities for the comparable period of 2003.
The Company is of the opinion that the working capital is sufficient for the Company’s present requirements.
Dividend payment
Total dividends paid in 2004 were $47,195,842 or $4.84 per share. Dividend payments per share in 2002, 2003
and 2004 have been as follows:
Period
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2002
$0.36
0.34
0.33
0.32
2003
$0.63
1.27
0.78
0.37
2004
$1.15
1.70
0.88
1.11
Total USD
$1.35
$3.05
$4.84
The Company declared a dividend of $1.62 per share for the first quarter of 2005 which was paid to shareholders
in February 2005. In addition, the Company declared a dividend of $1.15 per share for the second quarter of
2005, which will be paid to shareholders in May 2005.
THE MANAGEMENT AGREEMENT
Under the Management Agreement the Manager assumes commercial and operational responsibility of our vessels
and is required to manage our day-to-day business subject, always, to our objectives and policies as established
and directed from time to time by the Board of Directors. All decisions of a material nature concerning our
business are reserved to the Board of Directors. The Management Agreement has been extended five years and
will terminate on June 30, 2019, unless earlier terminated pursuant to its terms, as discussed below, or extended
by the parties following mutual agreement. For its services under the Management Agreement, the Manager is
entitled to cover the cost incurred plus a management fee equal to $100,000 per annum. The Management
Agreement formerly provided that the Manager would receive 1.25% of any gross charterhire paid to us. In order
to further align the Manager’s interests with those of the Company, the Manager agreed with us to amend the
Management Agreement to eliminate this payment, and we have issued to the Manager restricted common shares
equal to 2% of our outstanding common shares. Any time additional common shares are issued, the Manager will
receive additional restricted common shares to maintain the number of common shares issued to the Manager at
2% of our total outstanding common shares. These restricted shares are non-transferable for three years from
issuance.
CHARTERING AND TECHNICAL MANAGEMENT AGREEMENTS
We have entered into a chartering agreement, commencing end of March 2005, with Teekay Chartering Limited,
or Teekay, an affiliate of Teekay Shipping Corporation for our newbuilding, Nordic Freedom. Under the
supervision of the Manager, Teekay’s duties will include seeking and negotiating charters for this vessel. As with
the Nordic Hunter and the Nordic Hawk, the technical management of the Nordic Freedom will be performed by
IUM Shipmanagement AS under the supervision of the Manager.
We have entered into a chartering agreement, commencing in the second quarter of 2005, with the Swedish based
Stena Bulk AS, or Stena, for the Nordic Voyager under the supervision of the Manager. Stena’s duties will include
seeking and negotiating charters for this vessel. The chartering and technical management for the Nordic Voyager
Nordic American Tanker Shipping Limited
Page 5 of 17
2004 Annual Report to Shareholders
is being temporarily performed by affiliates of the previous owner. Following the commencement of the
chartering agreement with Stena, Wilhelmsen Marine Services AS, an affiliate of the previous owner will, in the
near term, continue to perform the technical management for the vessel.
We have entered into a chartering agreement, commencing in the second quarter of 2005, with Frontline under the
supervision of the Manager for the Nordic Fighter. Frontline’s duties will, under the supervision of the Manager,
include seeking and negotiating charters for this vessel. We have entered into a technical management agreement
for the Nordic Fighter with V.Ships under the supervision of the Manager.
COMPENSATION OF DIRECTORS AND OFFICERS
During 2004, the five non-employee directors received, in the aggregate, approximately $106,000 in cash fees for
their services as directors. For the period from October 1, 2004 through December 31, 2004 and for each fiscal
year thereafter, each of our non-employee directors receives a fee at the annual rate of $45,000. We do not pay
director fees to employee directors. We do, however, reimburse our directors for all reasonable expenses incurred
by them incurred in connection with serving on our board of directors. Directors may receive restricted shares or
other grants under our 2004 Stock Incentive Plan described below.
EMPLOYMENT AGREEMENTS
We have an employment agreement with Herbjørn Hansson, our Chairman, President and Chief Executive Officer
and Mr. Rolf Amundsen, our Chief Financial Officer. Mr. Hansson does not receive any additional compensation
for serving as a director or the Chairman of the Board. The aggregate compensation of our executive officer
during 2004 was $133,333 The aggregate compensation of our executive officers is expected to be approximately
$560,000 during 2005. On certain terms the employment agreement may be terminated by us or Mr. Hansson
upon six months’ written notice to the other party.
2004 STOCK INCENTIVE PLAN
Under the terms of the Company’s 2004 Stock Incentive Plan, the directors, officers and certain key employees of
the Company and the Manager are eligible to receive awards which include incentive stock options, non-qualified
stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and
performance shares. A total of 400,000 common shares is reserved for issuance upon exercise of options, as
restricted share grants or otherwise under the plan. Included under the 2004 Stock Incentive Plan are options to
purchase common shares at an exercise price equal to $38.75, the offering price of the shares offered in the
follow-on offering in November 2004, subject to annual downward adjustment if the payment of dividends in the
related fiscal year exceed a 3% yield calculated based on the initial strike price. In February 2005 the Company
granted, under the terms of the Company’s 2004 Stock Incentive Plan, a total of 270,000 stock options that the
Board of Directors had agreed to issue during 2004. These options will vest in equal instalments on each of the
first four anniversaries of the closing of the follow-on offering in November 2004.
MAY 18, 2005
NORDIC AMERICAN TANKER
SHIPPING LIMITED
Nordic American Tanker Shipping Limited
Page 6 of 17
2004 Annual Report to Shareholders
NORDIC AMERICAN TANKER SHIPPING LIMITED
TABLE OF CONTENTS
_________________________________________________________________________________
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
Balance Sheets
Statements of Operations
Statements of Cash Flows
Statements of Shareholders’ Equity
Notes to Financial Statements
Page
8
9
10
11
12
13
Nordic American Tanker Shipping Limited
Page 7 of 17
2004 Annual Report to Shareholders
Nordic American Tanker Shipping Limited
Page 8 of 17
2004 Annual Report to Shareholders
BALANCE SHEET
All figures in USD
ASSETS
Current Assets
Cash and Cash Equivalents
Accounts Receivable
Prepaid Finance Charges
Prepaid Insurance
Total Current Assets
Long-term Assets
Vessels
Prepaid Finance Charges
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable
Deferred Revenue
Accrued Liabilities
Derivative Contract
Current Portion of Long-term Debt
Total Current liabilities
SHAREHOLDERS' EQUITY
Common Shares,
par value $.01 per share,
(51,200,000 shares authorized; 13,067,838 issued
and outstanding, (9,706,606 in 2003)
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit
Total Shareholders' Equity
Total liabilities & Shareholders' equity
Notes
Dec. 31
2004
Dec. 31
2003
1
1
4
30 732 516
4 539 354
1 206 348
273 362
36 751 580
565 924
8 142 307
14 475
91 667
8 814 373
187 301 038
150 793
224 203 411
128 081 925
0
136 896 298
411 366
1 286 070
637 582
0
0
2 335 018
0
0
38 322
1 150 000
30 000 000
31 188 322
6
130 678
97 066
265 752 581
0
(44 014 866)
221 868 393
224 203 411
144 395 866
(1 150 000)
(37 634 956)
105 707 976
136 896 298
The footnotes are an integral part of these financial statements
Nordic American Tanker Shipping Limited
Page 9 of 17
2004 Annual Report to Shareholders
STATEMENTS OF OPERATIONS
(all figures in USD)
Voyage Revenue
Voyage Expenses
Vessel Operating Expenses
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
Year Ended December 31,
2003
2004
2002
67 451 598
(4 925 353)
(1 976 766)
(10 851 688)
(6 918 164)
42 779 627
143 230
(1 971 304)
(135 621)
(1 963 695)
40 815 932
0
40 815 932
37 185 975
0
0
(468 087)
(6 831 040)
29 886 848
26 462
(1 797 981)
(15 040)
(1 786 559)
28 100 289
0
28 100 289
17 873 208
0
0
(427 048)
(6 831 040)
10 615 120
21 409
(1 764 424)
(24 837)
(1 767 852)
8 847 268
0
8 847 268
Basic and Diluted Earnings per Share
Weighted Average Number of
Shares Outstanding
4.05
2.89
0.91
10 078 391
9 706 606
9 706 606
The footnotes are an integral part of these financial statements
Nordic American Tanker Shipping Limited
Page 10 of 17
2004 Annual Report to Shareholders
STATEMENTS OF CASH FLOWS
(all figures in USD)
Year Ended December 31,
2003
2004
2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit
40 815 932
28 100 289
8 847 268
Reconcilation of Net Profit to Net Cash From
Operating Activities
Depreciation
Amortization of Prepaid Finance Costs
Share-based Compensation
Increase (decrease) in:
Accounts Receivable
Accounts Payable and Accrued Liabilities
Deferred Revenue
Other Assets
Net Cash Provided By Operating Activities
6 918 164
112 838
9 252 365
3 602 956
1 010 626
1 286 075
(181 695)
62 817 261
6 831 040
14 480
0
(4 865 784)
(178 140)
0
(8 334)
29 893 551
6 831 040
14 480
0
(3 106 343)
176 800
0
(12 337)
12 750 908
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Vessels
Net Cash Used In Investing Activitites
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale of Common Stock
Proceeds from Use of the Credit Facility
Repayment of Debt
Loan Facility Costs
Dividends Paid
Net Cash Provided By (Used In) Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Beginning Cash and Cash Equivalents
Ending Cash and Cash Equivalents
(66 137 277)
(66 137 277)
112 137 953
96 000 000
(126 000 000)
(1 455 503)
(47 195 842)
33 486 608
30 166 592
565 924
30 732 516
0
0
0
0
0
0
0
0
(29 605 410)
(29 605 410)
288 141
277 783
565 924
0
0
0
0
(13 103 993)
(13 103 993)
(353 085)
630 868
277 783
Cash Paid for Interest
1 774 264
1 975 125
1 587 622
The footnotes are an integral part of these financial statements
Nordic American Tanker Shipping Limited
Page 11 of 17
2004 Annual Report to Shareholders
STATEMENTS OF SHAREHOLDERS’ EQUITY
(all figures in USD)
Common
Shares
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Shareholders'
Equity
Total
Comprehensive
Income
Balance at 01.01.02
97 066
144 395 866
(31 873 110)
(778 000)
111 841 822
Net Profit
Unrealized Loss on
Derivative Instruments
Adjustment for Losses on
Derivatives Reclassified to
Earnings
Dividends Paid
Total Compehensive
Income
8 847 268
8 847 268
8 847 268
(2 262 564)
(2 262 564)
(2 262 564)
1 024 564
1 024 564
1 024 564
(13 103 993)
(13 103 993)
7 609 268
Balance at 12.31.02
97 066
144 395 866
(36 129 835)
(2 016 000)
106 347 097
28 100 289
28 100 289
28 100 289
(365 723)
(365 723)
(365 723)
(29 605 410)
1 231 723
1 231 723
(29 605 410)
1 231 723
Net Profit
Unrealized Loss on
Derivative Instruments
Adjustment for Losses on
Derivatives Reclassified to
Earnings
Dividends Paid
Total Compehensive
Income
Net profit
Common Shares Issued
Unrealized Loss on
Derivative Instruments
Adjustment for Losses on
Derivatives Reclassified to
Earnings
Dividends Paid
Total Compehensive
Income
Balance at 12.31.03
97 066
144 395 866
(37 634 956)
(1 150 000)
105 707 976
33 612
121 356 715
40 815 932
40 815 932
121 390 327
28 966 289
40 815 932
(20 710)
(20 710)
(20 710)
(47 195 842)
1 170 710
1 170 710
(47 195 842)
1 170 710
41 965 932
Balance at 12.31.04
130 678
265 752 581
(44 014 866)
-
221 868 393
The footnotes are an integral part of these financial statements
Nordic American Tanker Shipping Limited
Page 12 of 17
2004 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 (US GAAP).
Nature of Business: The principal business of Nordic American Tanker Shipping Limited (the ”Company”) is to
own and operate Suezmax crude oil tankers.
Use of Estimates: Preparation of financial statements in accordance with US GAAP necessarily includes amounts
based on estimates and assumptions made by management. Actual results could differ from those amounts.
Concentration of Credit Risk: Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and accounts receivable. The Company maintains its cash with reputable
financial institutions. The terms of these deposits are on demand to minimize risk. The Company has not
experienced any losses related to these cash deposits and believes it is not exposed to any significant credit risk.
Accounts receivable consist of uncollateralized receivables from international customers primarily in the
international shipping industry. To minimize risk associated with international transactions, all sales are
denominated in U.S. currency. The Company routinely assesses the financial strength of its customers. The
Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is
required. If amounts become uncollectible, they will be charged to operations when that determination is made.
Cash and Cash Equivalents: Cash and cash equivalents consist of deposits with original maturities of three
months or less.
Property and Equipment: Depreciation and amortization are provided on a straight-line basis over the estimated
useful lives of the assets. The Company’s property and equipment consist solely of vessels. The estimated useful
life of these vessels is 25 years from the date the vessel is delivered from the shipyard. Repairs and maintenance
are expensed as incurred.
Impairment of Long-Lived Assets: Long-lived assets are required to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the
estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition
is less than the carrying amount of the asset, the asset is deemed impaired. The amount of the impairment is
measured as the difference between the carrying value and the fair value of the asset.
Revenue Recognition: Revenues are generated from freight billings, time charter and bareboat charter hires.
Time charter and bareboat charter revenues are recorded over the term of the charter as the applicable vessel
operates under the charter. The Company uses a discharge-to-discharge basis in determining percentage of
completion for all spot voyages. The operating results of voyages in progress at a reporting date are estimated and
recognised pro-rata on a per day basis.
Financial Instruments: The fair values of cash and cash equivalents, short-term investments, accounts
receivable, and accounts payable approximated carrying value because of the short-term nature of these
instruments
Finance costs: Finance costs, including fees, commissions and legal expenses, which are presented as other
assets are capitalized and amortized on a straight-line basis over the term of the relevant Credit Facility.
Amortization of finance costs is included in interest expense.
Segment Information: The Company has identified only one operating segment under Statement of Financial
Accounting Standards (“SFAS”) No. 131 “Segments of an Enterprise and Related Information.” The Company
has only one type of vessel – Suezmax crude oil tankers – operating on time charter contracts at market related
rates, in the spot market and on long-term bareboat contract.
Nordic American Tanker Shipping Limited
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2004 Annual Report to Shareholders
Stock-Based Compensation: The Company follows No. 123, “Accounting for Stock-Based Compensation”
(“SFAS 123”), which establishes a fair value-based method of accounting for stock-based compensation plans
Derivative Instruments and Hedging Activities: The Company accounts for its derivative instruments and
hedging activities according to No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as
amended by SFAS No. 137 and SFAS No. 138. This standard, as amended, requires derivative instruments to be
recorded in the balance sheet at their fair value. Changes in the fair value of derivatives that do not qualify for
hedge treatment, as well as ineffective portions of any hedge, are recorded to earnings. Changes in fair value for
qualifying cash flow-hedges are recorded in equity and are realized in earnings in conjunction with the gain or
loss on the hedged item or transaction.
Changes in the fair value of qualifying hedges offset corresponding changes in the fair value of the hedged item in
the statement of operations.
Net Profit per Share: SFAS No. 128 “Earnings Per Share,” (EPS) requires earnings per share to be computed and
reported as both basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income
by the weighted average number of common shares and dilutive common stock equivalents (ie. stock options,
warrants) outstanding during the period. The Company does not have any potentially dilutive or anti-dilutive
securities outstanding.
Income taxes: The Company is incorporated in Bermuda. Under current Bermuda law, the Company is not
subject to corporate income taxes.
New Pronouncements: In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), which replaces SFAS No. 123 and supercedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS 123R requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on their fair values beginning with the
first annual period after June 15, 2005, with early adoption encouraged. Under SFAS 123R, the Company must
determine the appropriate fair value model to be used for valuing share-based payments, the amortization method
for compensation cost and the transition method to be used at date of adoption. The Company is currently
evaluating the effect that the adoption of SFAS 123R will have on its results of operations and financial condition
but does not expect it to have a material impact.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets—An Amendment of
APB Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the
exception from fair value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with an
exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to change significantly as a result of
the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005. The Company is
currently evaluating the effect that the adoption of SFAS 153 will have on its results of operations and financial
condition but does not expect it to have a material impact.
2. RELATED PARTY TRANSACTIONS
The Manager, Scandic American Shipping Ltd., is jointly owned by the Chairman and CEO of the Company, Mr.
Herbjørn Hansson, and a Board Member, Mr. Andreas Ove Ugland. The Manager, under the Management
Agreement, assumes commercial and operational responsibility of our vessels and is required to manage our day-
to-day business subject, always, to our objectives and policies as established from time to time by the Board of
Directors. For its services under the Management Agreement, the Manager is entitled to cover the cost incurred
plus a management fee equal to $100,000 per annum. The Manager also has a right to 2% of the Company’s total
outstanding shares (see Note 7 “Share-Based Compensation”). The Company has recognized total costs of
$653,799 for the services provided under the Management Agreement for the year ended December 31, 2004,
additionally the Company recognized $9,252,365 in non-cash share-based compensation expense related to the
issuance of shares to the Manager (see Note 7 “Share-Based Compensation”). Payable at year end was $105,080.
At the end of the year 2004 Mr. Ugland held a 25.7% ownership interest in IUM Shipmanagement AS (IUM), a
third-party technical manager to whom the Manager has sub-contracted technical management for some of the
vessels. The Company has recognized costs of $1,863,552 for the services provided under the Technical
Management Agreements for the year ended December 31, 2004. Payable at year end was $116,681.
Nordic American Tanker Shipping Limited
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2004 Annual Report to Shareholders
Mr. Jan Erik Langangen, Executive Vice President of the Manager, is a partner of Langangen & Helset
Advokatfirma DA which in the past has also provided and may continue to provide legal services to us. The
Company has recognized costs of $33,435 for the services provided by Langangen & Helset Advokatfirma DA.
Payable at year end was $38,157.
3. REVENUE
For the twelve months ending December 31, 2004, our only source of income was from our four vessels of which
two are on charter to BP Shipping, one vessel on charter to Gulf Navigation and one on charter to the previous
owner. All of the Company’s revenues are earned in international markets.
One customer accounted for 97% of Company’s revenues during the year ended December 31, 2004. One
customer accounted for 100% of Company’s revenues during the year ended December 31, 2003 and December
31, 2002.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of four Suezmax crude oil tankers built in 1997. Depreciation is calculated on a
straight-line basis over the estimated useful life of the vessels. The estimated useful life of a new vessel is 25
years.
Acquisition cost
Accumulated depreciation
2004
2003
$236,913,247
(49,612,209)
$170,775,970
(42,694,045)
$187,301,038
$128,081,925
5. ADMINISTRATIVE EXPENSES
Management fee
Directors and officers insurance
Share-based compensation
Other fees and expenses
2004
$175,000
112,500
9,252,365
1,311,823
Total administrative expenses
$10,851,688
2003
$250,000
101,666
0
116,421
$468,087
2002
$250,000
86,667
0
90,381
$427,048
6. STOCK HOLDERS’ EQUITY
Authorized, and issued and outstanding common shares rollforward is as follows:
Balance at 01.01.03
Follow-on Offering - November 2004
Share-based Compensation
Balance at 12.31.04
Authorized
Shares
Issued and
Outstandig
Shares
51 200 000
9 706 606
-
-
51 200 000
3 105 000
256 232
13 067 838
Nordic American Tanker Shipping Limited
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2004 Annual Report to Shareholders
7. SHARE-BASED COMPENSATION
2004 Stock Incentive Plan
Under the terms of the Company’s 2004 Stock Incentive Plan, the directors, officers and certain key employees of
the Company and the Manager will be eligible to receive awards which include incentive stock options, non-
qualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units
and performance shares. A total of 400,000 common shares are reserved for issuance upon exercise of options, as
restricted share grants or otherwise under the plan. No options have been issued or are outstanding at December
31, 2004.
Restricted Shares
The Management Agreement formerly provided that the Manager would receive 1.25% of any gross charterhire
paid to us. In order to further align the Manager’s interests with those of the Company, the Manager agreed with
us to amend the Management Agreement, effective October 12, 2004, to eliminate this payment, and we have
issued to the Manager restricted common shares equal to 2% of our outstanding common shares at par value of
$0.01 per share. At the time when additional common shares are issued, the Manager will receive additional
restricted common shares to maintain the number of common shares issued to the Manager at 2% of our total
outstanding common shares. These restricted shares are non-transferable for three years from issuance. During
2004 the Company has issued to the Manager an aggregate of 256,232 shares at an average fair value of $36.11.
The share-based compensation expense related to the issuance of restricted shares to the Manager of $9,252,365 in
2004 was classified as administrative expenses.
8. LONG-TERM DEBT
On September 29, 2004, the Company obtained an extension of the maturity of its $30 million loan from
December 2004 to October 2007. Interest on the loan, as extended, was at a rate equal to LIBOR plus a margin of
0.70%.
In October 2004 the Company entered into the Credit Facility, which consists of a $50 million revolving credit
facility and a $250 million revolving credit facility. The $50 million facility will mature in October 2007 and the
$250 million facility will mature in October 2005, unless the Company exercises the one-year extension option or
the option to convert any drawn amounts to a five-year term loan. Amounts borrowed under the Credit Facility
will bear interest at a rate equal to LIBOR plus a margin between 0.80% to 1.20% per year. The Company pays a
commitment fee, at a rate ranging from 0.24% to 0.36% per year, on any undrawn amount.
On November 8, 2004, the Company repaid its $30 million loan with proceeds from the Credit Facility. The
drawn amount on the credit facility was subsequently repaid with proceeds from the share issue on November 23,
2004. There were no outstanding borrowings under the Credit Facility at December 31, 2004.
9. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
In 2003, the Company had outstanding a $ 30 million variable rate loan that was repaid in November 2004. The
Company had hedged the variable interest exposure by an interest rate swap whereby the Company paid a fixed
interest rate and received a variable interest (LIBOR). The interest rate swap was designated as a cash flow hedge
of the interest payments on the loan. The interest rate swap matured in 2004. The Company did not hold any
derivative instruments at December 31, 2004.
The effective portion of gains and losses on the interest rate swap designated as a cash flow hedge was deferred to
accumulated other comprehensive income and was reclassified to earnings as the hedged interest payments were
recognized. The Company reclassified $1,170,000 from accumulated other comprehensive income to earnings in
2004. The reclassified loss was included in interest expense.
The fair value of the swap was recorded as a liability of $1,150,000 at December 31, 2003.
Nordic American Tanker Shipping Limited
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2004 Annual Report to Shareholders
10. COMMITMENTS AND CONTINGENCIES
Litigation and Environmental Matters –The Company can be a party to various legal proceedings generally
incidental to its business and is subject to a variety of environmental and pollution control laws and regulations.
As is the case with other companies in similar industries, the Company faces exposure from actual or potential
claims and legal proceedings. Although the ultimate disposition of legal proceedings cannot be predicted with
certainty, it is the opinion of the Company’s management that the outcome of any claim which might be pending
or threatened, either individually or on a combined basis, will not have a materially adverse effect on the financial
position of the Company, but could materially affect the Company’s results of operations in a given year.
11. SUBSEQUENT EVENTS
In January 2005 the Company entered into two separate agreements to acquire a 1998 built Suezmax vessel and a
2005 Suezmax newbuilding at an aggregate purchase price of $149.25 million. The Company took delivery of the
vessels in March 2005.
In February 2005 the Company granted, under the terms of the Company’s 2004 Stock Incentive Plan, a total of
270,000 stock options. The closing price of our common shares on the date these options were granted was
$48.95 per share as reported on the New York Stock Exchange. These options will vest in equal instalments on
each of the first four anniversaries of the closing of the Company’s follow-on offering in November 2004.
In March 2005, the Company sold 3,500,000 shares in a public offering in the US to fund the acquisition of the
two vessels and to repay outstanding debt. The offering was priced at $49.50 per share, and net proceeds (after
offering costs of $ 11.1 million) to the Company were $162.1 million. The Company issued 76,658 restricted
shares to the Manager as a result of this offering (see Note 7 Share-based Compensation).
In May 2005 Mr. Andreas Ove Ugland has exercised a right to sell his shares in IUM Shipmanagement AS (IUM)
and does no longer hold any interests in IUM
* * * * *
Nordic American Tanker Shipping Limited
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