NORDIC AMERICAN TANKER
SHIPPING LIMITED
2007 ANNUAL
REPORT TO
SHAREHOLDERS
Nordic American Tanker Shipping Limited
Page 1 of 28
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 double-hull Suezmax tankers that
were built in 1997 (the “original vessels”). These three vessels were bareboat chartered to BP Shipping Ltd. (“BP
Shipping”), for a period of seven years. BP Shipping redelivered the three vessels to the Company in September 2004,
October 2004 and November 2004, respectively. We continued contracts with BP Shipping by time chartering to it
two of our original vessels at spot market related rates for three-year terms through September and October 2007,
respectively. We have bareboat chartered the third of our original three vessels to Gulf Navigation Company LLC
(“Gulf Navigation”), of Dubai, United Arab Emirates for a five-year term at a fixed rate charterhire, subject to two
one-year extensions at Gulf Navigation’s option. Our fourth vessel was delivered to us in November 2004, our fifth
and sixth vessels in March 2005, our seventh vessel in August 2005, our eighth vessel in November 2005, our ninth
vessel in April 2006, our 10th and 11th vessels in November 2006 and our 12th vessel in December 2006. We are
currently operating eleven of our 12 vessels in the spot market or on spot market related charters. In November 2007,
the Company agreed to acquire two Suezmax newbuildings which are expected to be delivered in the fourth quarter of
2009 and by end of April 2010, respectively.
Our Fleet
Our fleet consists of 14 modern double-hull Suezmax tankers of which two are newbuildings. The following chart
provides information regarding each vessel, including its employment status.
Yard
Samsung
Samsung
Samsung
Daewoo
Dalian New
Hyundai
Hyundai
Daewoo
Daewoo
Samsung
Samsung
Samsung
Bohai
Bohai
Year
Built Dwt(1)
Employment Status
(Expiration Date)
Flag
1997
1997
1997
2005
1997
1998
1998
1998
1998
2003
2002
2003
2009
2010
151,475 Bareboat (Nov. 2009)
151,475 Spot
151,400 Spot
163,455 Spot
149,591 Spot
153,328 Spot
153,328 Spot
157,332 Spot
157,411 Spot
159,999 Spot
159,998 Spot
159,999 Spot
163,000 Expected delivery 4Q’09
163,000 Expected delivery 2Q’10
Isle of Man
Bahamas
Bahamas
Bahamas
Norway
Norway
Norway
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Vessel
Gulf Scandic
Nordic Hawk
Nordic Hunter
Nordic Freedom
Nordic Voyager
Nordic Fighter
Nordic Discovery
Nordic Saturn
Nordic Jupiter
Nordic Apollo
Nordic Cosmos
Nordic Moon
Newbuilding
Newbuilding
(1) Deadweight tons.
OUR CHARTERS
It is our policy to operate our vessels either in the spot market, on time charters or on bareboat charters. Our goal is to
take advantage of potentially higher market rates with spot market related rates and voyage charters. We currently
operate eleven of our twelve trading vessels in the spot market or on spot market related time charters although we
may consider charters at fixed rates depending on market conditions.
Cooperative Arrangements
We currently operate eleven of our twelve trading vessels in spot market cooperation with other vessels that are not
owned by us. These arrangements are managed and operated by the Swedish group Stena Bulk AB and by Frontline
Management Limited, both of which are third party administrators. The administrators have the responsibility for the
commercial management of the participating vessels, including marketing, chartering, operating and purchasing
Nordic American Tanker Shipping Limited
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bunker (fuel oil) for the vessels. The participants remain responsible for all other costs including the financing,
insurance, crewing and technical management of their vessels. The earnings of all of the vessels are aggregated and
divided according to the relative performance capabilities of each vessel and the actual earning days each vessel was
available during the period. The vessels are operated in the spot market under our supervision .
Spot Charters
During the year, we have temporarily operated several vessels (Nordic Saturn, Nordic Jupiter, Nordic Hawk, Nordic
Hunter, Nordic Apollo, Nordic Cosmos and Nordic Moon) in the spot market, other than in cooperative arrangements.
Tankers operating in the spot market are typically 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 on fixed-rate time charters generally provide more predictable cash flows.
Under a typical voyage charter in the spot market, we are 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.
Bareboat Charters
We have chartered one of our vessels (Gulf Scandic) under a bareboat charter to Gulf Navigation, for a five- year term
terminating in the fourth quarter of 2009 and subject to two one-year extensions at Gulf Navigation’s option. Under
the terms of this 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 is responsible for operating and maintaining the
vessel and is responsible for covering all operating costs and expenses with respect to the vessel.
THE 2007 TANKER MARKET
Despite a fleet growth of 5 percent and an almost unchanged oil production tanker freight rates only fell moderately
from 2006 to 2007.
The oil tanker fleet is generally divided into five major categories of vessels, based on carrying capacity. A tanker’s
carrying capacity is measured in dwt, which is the amount of crude oil measured in metric tons that the vessel is
capable of loading. In the single voyage market the Very Large Crude Carrier (“VLCC”), whose carrying capacity
ranges from 200,000 dwt to 320,000 dwt, reached an average of $51,000 per day, a moderate decline from $56,000 per
day in 2006. Suezmaxes, whose carrying capacity ranges from 120,000 dwt to 200,000 dwt, achieved $40,000 per day,
down from $48,000 the year before. Corresponding rates for Aframaxes, whose carrying capacity ranges from 80,000
dwt to 120,000 dwt, were $35,000 per day compared with $38,000 per day in 2006.
On an annual average basis, the tanker fleet increased by 5.3% from 2006 to 2007. Deliveries of new tankers reached
29 million dwt, down from 23 million dwt in 2006. Scrapping amounted to 3.5 million dwt. No VLCCs were sold for
scrapping; 1 Suezmax, 8 Aframaxes and 81smaller tankers were reported as sold for scrapping. The average scrapping
age for all tankers was 27.6 years compared with 26.0 years in 2006. It has further been reported that 7.6 million dwt
or 36 tankers were undergoing conversions, of which 21 were VLCCs and 11 were Suezmaxes.
Estimates indicate an increase in seaborne oil trade of 1% from 2006 to 2007 and a relatively strong increase in the
average transport distance, driven by China. The trade growth in ton-mile terms is estimated at approximately 2.5%.
There have also been some additional factors contributing to the tonnage demand growth. Among these factors, the
most significant is a reduction in the productivity of single-hull tankers (in 2007 single hull accounted for about 25%
of the total fleet). Tonnage demand growth increased by approximately 4%, resulting in a decrease in capacity
utilization from 88.5% in 2006 to 87.5% in 2007.
After the strong 4% growth in oil consumption in 2004, oil production capacity has been basically fully utilized. With
a continued high economic growth in the years after, capacity constraints have reduced the growth in oil consumption
to only between 1.0% and 1.5% and crude oil prices rose to $72 per barrel for Brent crude reported as an average for
2007. Again non-OPEC producers failed to meet expectations and their production increased only by 0.5 mbd
(million barrels per day).
Nordic American Tanker Shipping Limited
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The weak trend in non-OPEC production led to more pressure on OPEC. However, it is problematic that most of the
unused production capacity is heavy-sour crude that the refining industry is not designed to handle.
Given the high level of commercial oil stocks in 2006, OPEC reduced output for most of the second half of 2006 in
order to avoid a price collapse in 2007. OPEC’s production (excluding Angola which became a member from 2007)
fell by 0.7 mbd, of which the Middle East dropped 0.4 mbd. At the end of the year, commercial oil stocks in OECD
countries were brought down to 52 days compared to 55 days at mid-year.
In mid-November, freight rate averages for the year seemed rather dismal, but a sudden rise in oil production, longer
transport distances and a lot of slowsteaming due to much higher bunker prices led to a very tight balance in the spot
market in the last six weeks of the year. We believe this was not anticipated by charterers and in response to fears of
getting short of quality tonnage, VLCC rates climbed over a few weeks from $20,000 per day to $200-$300,000 per
day. Suezmax rates increased from $21,000 mid-November to $100,000 in the last three weeks of December.
From 2006 to 2007 tanker sales increased by 20 percent after the extreme upturn in December 2006. Values for double
hull tankers reached an all time high and ended the year approximately 5 to 10 percent higher than at the start. There
were an estimated 400 vessels sold during the year, of which about 20 percent are assumed to be converted into dry
cargo ships.
According to Oil and Gas Journal, the Middle East had 56% of the world’s proven oil reserves in January 2008, which
will continue to drive long and medium haul seaborne transportation. Middle East supplied approximately 30% of
total world oil production. Given the dominance of world oil reserves located in this region, this share is expected to
grow in coming years as oil fields in other parts of the world gradually reach maturity and begin a process of natural
decline. The length of transportation distances between the Middle East and consuming areas means that such a trend
would boost ton-miles (the product of volumes and transport distances) and may increase tanker demand.
A significant and ongoing shift toward quality in vessels and operations has taken place during the last decade as
charterers and regulators increasingly focus on safety and protection of the environment. Since 1990, there has been an
increasing emphasis on environmental protection through legislation and regulations such as the Oil Pollution Act of
1990 (OPA), International Maritime Organization (IMO) protocols and Classification Society procedures. Such
regulations emphasize higher quality tanker construction, maintenance, repair and operations. Operators that have
proven an ability to seamlessly integrate these required safety regulations into their operations are being rewarded. For
example, the emergence of vessels equipped with double hulls represented a differentiation in vessel quality and
enabled such vessels to command improved earnings in the spot charter markets. The effect has been a shift in major
charterers’ preference towards greater use of double hulls and, therefore, more difficult trading conditions for older
single-hull vessels.
OUR CREDIT FACILITY
In September 2005, we entered into a $300 million revolving credit facility, which we refer to as the 2005 Credit
Facility. The 2005 Credit Facility was set to mature in September 2010.
The 2005 Credit Facility provides funding for future vessel acquisitions and general corporate purposes. The 2005
Credit Facility commitment is guaranteed by the lender and the Company has no repayment obligation during the term
of the facility. Amounts borrowed under the 2005 Credit Facility bear interest at an annual rate equal to LIBOR plus a
margin between 0.7% and 1.2% (depending on the loan to vessel value ratio). We are obligated to pay a commitment
fee of 30% of the applicable margin on any undrawn amounts.
In September 2006, we increased our 2005 Credit Facility to $500 million; the other material terms of the 2005 Credit
Facility were not amended. At the date of this report we have drawn $115.5 million from this facility.
In April 2008, the Company extended the term of the 2005 Credit Facility for another three years. The 2005 Credit
Facility expires in September 2013.
Nordic American Tanker Shipping Limited
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Results of Operations
All figures in USD ‘000
Voyage Revenue
Voyage Expenses
Net Voyage Revenues
Vessel Operating Expense
General and Administrative
Expenses
Depreciation Expense
Net Operating Income
Interest Income
Interest Expense
Other Financial (Expense) Income
Net Income
Revenue days
Year ended December 31,
2007
186,986
(47,122)
139,864
(32,124)
(12,132)
2006
Variance
175,520
(40,172)
135,348
(21,102)
(12,750)
3.3%
52.2%
(4.8%)
(42,363)
(29,254)
44.8%
53,245
904
(9,683)
(260)
44,206
72,242
1,602
(6,339)
(112)
(26.3%)
(43.5%)
52.7%
132.1%
67,393
(34.4%)
4,117
3,264
26.1%
Our net voyage revenues increased from $135.3 million for year ended December 31, 2006 to $139.9 million for year
ended December 31, 2007, an increase of 3.3%. The increase in net voyage revenues was primarily the result of having 12
vessels in operation during the entire year resulting in an increase in the number of revenue days by 26.1% offset by lower
spot market rates for the period. The average spot market rate during 2007 was $35,600 per day compared to $44,500 per
day for 2006, a decrease of 20.0%.
Vessel operating expenses were $32.1 million for the year ended December 31, 2007 compared to $21.1 million for
the year ended December 31, 2006. The increase is primarily the result of having all twelve vessels in operation for the
entire year. The average operating expenses for the vessels increased from $7,200 per day per vessel for the fiscal year
2006 to $8,000 per day per vessel during fiscal year 2007. The increase in daily operating expenses is primarily due to
an industry wide price increase on the vessel operating costs, in particular crewing costs, lubricating oil costs and
repair and maintenance costs.
General and administrative expenses were $12.1 million for the year ended December 31, 2007 compared to
$12.8 million for the year ended December 31, 2006. The general and administrative expenses in 2006 included a non-
cash charge of $6.3 million of stock-based compensation to our Manager, Scandic American Shipping Ltd. (the
“Manager”) related to two follow-on offerings concluded last year. The general and administrative expenses in 2007
include a non-cash charge related to stock-based compensation to our Manager of $2.2 million related to one follow-
on offering in 2007 and costs of $2.7 million related to the pension plan for the Company’s Chief Executive Officer
(“CEO”). For further details of the management agreement we refer you to the section “The Management Agreement”
on page 6 and Note 5 for further details of our general and administrative expenses.
Depreciation expense was $42.4 million for the year ended December 31, 2007 compared to $29.3 million for the year
ended December 31, 2006. The increase is primarily the result of having 12 vessels in operation for all of 2007.
Net operating income was $53.2 million for year ended December 31, 2007 compared to $72.2 million for the year ended
December 31, 2006, a decrease of approximately 26.3%. This decrease is primarily due to lower spot market rates during
2007 compared to 2006.
Interest income was $0.9 million for the year ended December 31, 2007 compared to $1.6 million for the year ended
December 31, 2006. Interest income was higher in 2006 mostly in part of the excess cash in interim periods from the
proceeds of the two follow-on offerings and the timing of subsequent payments for vessels acquired during the year.
Nordic American Tanker Shipping Limited
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Interest expense was $9.7 million for the year ended December 31, 2007 compared to $6.3 million for the year ended
December 31, 2006. The increase is primarily due to the expansion of the fleet. Our policy is to maintain a debt level
of approximately $15 million per vessel in the current market conditions.
Liquidity and Capital Resources
Cash flows provided by operating activities decreased by 21.6% for the year ended December 31, 2007 to $83.6
million from $106.6 million for the year ended December 31, 2006 primarily due to lower spot market rates during
2007, as described above.
Cash flows used in investing activities decreased by 91.7% for the year ended December 31, 2007 to $26,4 million
compared to $317.8 million for the year ended December 31, 2006. The Company acquired four vessels during 2006
compared to no vessel acquisitions during 2007. In November 2007, the Company agreed to acquire two Suezmax
newbuildings which are expected to be delivered in the fourth quarter of 2009 and by end of April 2010, respectively.
The Company has paid a 10% deposit of $18.0 million in total for both vessels.
Cash flows provided by financing activities decreased 126.7% for the year ended December 31, 2007 to -$55,6 million
compared to $208.7 million for the year ended December 31, 2006. The net decrease was attributable to (i) net
repayment of debt under the 2005 Credit Facility of $68.0 million, and (ii) dividends paid of $107.3 million, offset by
proceeds from a follow-on offering of $119.7 million.
Management is of the opinion that working capital is sufficient for the Company’s present requirements.
Dividend payment
Total dividends paid in 2007 were $107.3 million or $3.81 per share. The quarterly dividend payments per share in
2007, 2006 and 2005 were as follows:
Period
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total USD
2007
$1.00
1.24
1.17
0.40
$3.81
2006
$1.88
1.58
1.07
1.32
$5.85
2005
$1.62
1.15
0.84
0.60
$4.21
The dividend paid out each quarter is based on the results of the previous quarter.
The Company declared a dividend of $0.50 per share in respect of the fourth quarter of 2007 which was paid to
shareholders in March 2008. In addition, the Company declared a dividend of $1.18 per share in respect of the first
quarter of 2008 which will be paid to shareholders in June 2008.
THE MANAGEMENT AGREEMENT
Under the Management Agreement the Manager has the daily commercial and operational responsibility of our vessels
and is generally required to manage our day-to-day business subject 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 will terminate on June 30, 2019, unless terminated
earlier pursuant to its terms or extended by the parties following mutual agreement.
For its services under the Management Agreement, the Manager is reimbursed for all its costs incurred plus a
management fee equal to $225,000 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, in 2004, the Manager agreed with us to amend the Management Agreement to eliminate this payment,
and instead the Company issued to the Manager restricted common shares equal to 2% of our outstanding common
Nordic American Tanker Shipping Limited
Page 6 of 28
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 the date of issuance.
COMMERCIAL AND TECHNICAL MANAGEMENT AGREEMENTS
The Company has outsourced its commercial and technical management of its vessels to third party operators. During
the year, the Company has consolidated its technical operating functions. Under the supervision of the Manager, the
ship management firm of V.Ships Norway AS (“V.Ships”) is managing 11 of the Company’s 12 vessels. This
consolidation is expected to facilitate crew rotation among the vessels which together with economies of scale should
result in cost improvements.
The Company has also consolidated its commercial operating functions. The Company is now working together with
Frontline Ltd. (NYSE:FRO) and the private Stena group of Sweden – both world names in the tanker industry. These
arrangements are expected to create synergies through economies of scale, resulting in a positive impact on the overall
results. Under the supervision of the Manager, Frontline and Stena’s duties include seeking and negotiating charters
for these vessels.
Compensation under the commercial and technical management agreements is in accordance with industry standards.
SHAREHOLDERS’ RIGHTS PLAN
The Board of Directors has adopted a shareholder rights plan designed to enable the Company to protect shareholder
interests in the event that an unsolicited attempt is made for a business combination with or takeover of the Company.
The Company believes that the shareholder rights plan will enhance the Board’s negotiating power on behalf of
shareholders in the event of a coercive offer or proposal. The Company is not currently aware of any such offers or
proposals, and adopted the plan as a matter of prudent corporate governance.
The terms of the shareholder rights plan are set forth in the Company’s Form 8-A filed with the Securities and
Exchange Commission on February 14, 2007. Rights under the plan were issued to shareholders of record as of the
close of business on February 27, 2007.
COMPENSATION OF DIRECTORS AND OFFICERS
The six non-employee directors received, in the aggregate, approximately $360,000 in cash fees for their services as
directors for the year ended December 31, 2007. The Vice Chairman of the Board of Directors receives an additional
annual cash retainer of $5,000 per year. The members of the Audit Committee receive an additional annual cash
retainer of $10,000 each per year. The Chairman of the Audit Committee receives an additional annual cash retainer
of $5,000 per year. We do not pay director fees to employee directors. We do, however, reimburse all of our directors
for all reasonable expenses incurred by them 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,
Turid M. Sørensen, our Chief Financial Officer, and Rolf I. Amundsen, our Chief Investor Relations Officer and
Advisor to the Chairman. 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 officers during 2007 was approximately $1.3
million. The aggregate compensation of our executive officers is expected to be approximately $1.5 million during
2008. On certain terms, the employment agreement may be terminated by us or Mr. Hansson upon six months’ written
notice to the other party. The employment agreement with Ms. Sørensen may be terminated by us or by Ms. Sørensen
upon six months’ written notice to the other party. The employment agreement with Mr. Amundsen may be terminated
by us or Mr. Amundsen upon three months’ written notice to the other party.
Nordic American Tanker Shipping Limited
Page 7 of 28
In May 2007, the Board of Directors approved the implementation of a deferred compensation plan for the President
and CEO. The CEO has served in his present position since the inception of the Company in 1995. Please see Note 6
of the financial statements for further information about the Plan.
2004 STOCK INCENTIVE PLAN
Under the terms of the Company’s 2004 Stock Incentive Plan (the “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,
performance shares and phantom stock units. A total of 400,000 common shares are 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, subject to annual downward
adjustment if the payment of dividends in the related fiscal year exceeds a 3% yield calculated based on the initial
strike price. During 2005, the Company granted an aggregate of 320,000 stock options under the terms of the Plan.
These options vest in equal instalments on each of the first four anniversaries of the grant dates. During 2006, the
Company granted an aggregate of 16,700 restricted shares. No stock options were granted in 2006. During 2007, the
Company granted 10,000 stock options to a newly elected Board member with an exercise price equal to $35.17,
subject to annual downward adjustment if the payment of dividends in the related fiscal year exceeds a 3% yield
calculated based on the initial strike price.
MAY 9, 2008
NORDIC AMERICAN TANKER
SHIPPING LIMITED
Nordic American Tanker Shipping Limited
Page 8 of 28
NORDIC AMERICAN TANKER SHIPPING LIMITED
TABLE OF CONTENTS
_________________________________________________________________________________
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FINANCIAL STATEMENTS:
Statements of Operations for the years ended December 31, 2007, 2006 and 2005
Balance Sheets as of December 31, 2007 and 2006
Page
10
11
12
Statements of Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005
13
Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
14
Notes to Financial Statements
15-28
Nordic American Tanker Shipping Limited
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Nordic American Tanker Shipping Limited
Page 10 of 28
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
All figures in USD ‘000, except share and per share amount
Notes
3
2, 5, 6, 9
7
11
Voyage Revenues
Voyage Expenses
Vessel Operating Expenses -
excluding depreciation expense
presented below
General and Administrative Expenses
Depreciation Expense
Net Operating Income
Interest Income
Interest Expense
Other Financial (Expense) Income
Total Other Expense
Net Income
Basic Earnings per Share 14
Diluted Earnings per Share 14
Basic Weighted Average Number of Common Shares
Outstanding
Diluted Weighted Average Number of Common
Shares Outstanding
Year Ended December 31,
2007
2006
2005
186,986
(47,122)
(32,124)
(12,132)
(42,363)
53,245
904
(9,683)
(260)
(9,039)
44,206
1.56
1.56
175,520
(40,172)
(21,102)
(12,750)
(29,254)
117,110
(30,981)
(11,221)
(8,492)
(17,529)
72,242
48,887
1,602
(6,339)
(112)
(4,849)
67,393
3.14
3.14
850
(3,454)
34
(2,570)
46,317
3.03
3.03
28,252,472
21,476,196
15,263,622
28,294,997
21,476,196
15,263,622
The footnotes are an integral part of these financial statements.
Nordic American Tanker Shipping Limited
Page 11 of 28
BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006
All figures in USD ‘000, except share and per share amount
December 31,
December 31,
Notes
2007
2006
3
4
7
8
2
12
13
10
6
16
15
ASSETS
Current Assets
Cash and Cash Equivalents
Accounts Receivable, net $0 allowance at
December 31, 2007 and 2006
Voyages in Progress
Prepaid Expenses and Other Assets
Total Current Assets
Non-current Assets
Vessels, Net
Deposit on contract
Other Non-current Assets
Total Non-current Assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts Payable
Deferred Revenue
Accrued Liabilities
Total Current Liabilities
Long-term Debt
Deferred Compensation Liability
Total Liabilities
Commitments and Contingencies
SHAREHOLDERS’ EQUITY
Common Stock, par value $0.01 per Share;
51,200,000 shares authorized, 29,975,312
shares issued and outstanding and 26,914,088
shares issued and outstanding at December 31,
2007 and December 31, 2006, respectively
Additional Paid-in Capital
Accumulated Deficit
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
13,342
14,489
7,753
9,219
44,803
740,631
18,305
889
759,825
804,628
7,290
537
16,531
24,358
105,500
2,665
132,523
11,729
13,417
7,853
11,479
44,478
752,478
-
3,224
755,702
800,180
3,006
537
11,191
14,734
173,500
-
188,234
300
269
852,121
(180,316)
672,105
804,628
728,851
(117,174)
611,946
800,180
The footnotes are an integral part of these financial statements.
Nordic American Tanker Shipping Limited
Page 12 of 28
STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
All figures in USD ‘000, except number of shares
Number of
Shares
Common
Shares
Additional
Paid-in Capital
Accumulated
Deficit
Total
Shareholders’
Equity
Balance at December 31, 2004
13,067,838
131
265,753
Net Income
Common Shares Issued, net of $11.3
million issuance costs
Compensation - Restricted Shares
Share-based Compensation
Dividend Paid, $4.21 per share
3,500,000
76,658
35
161,932
3,583
1,415
Balance at December 31, 2005
16,644,496
166
432,682
Net Income
Common Shares Issued, net of $16.5
million issuance costs
10,047,500
103
288,254
Compensation - Restricted Shares
222,092
Share-based Compensation
Dividend Paid, $5.85 per share
6,369
1,545
Balance at December 31, 2006
26,914,088
269
728,851
Net Income
Common Shares Issued, net of $4.5
million issuance costs
3,000,000
31
119,720
Compensation - Restricted Shares
61,224
Share-based Compensation
Dividend Paid, $3.81 per share
2,289
1,261
Balance at December 31, 2007
29,975,312
300
852,121
(44,015)
46,318
(64,279)
(61,977)
67,393
(122,590)
(117,174)
44,206
(107,349)
(180,316)
221,868
46,318
161,967
3,583
1,415
(64,279)
370,872
67,393
288,357
6,369
1,545
(122,590)
611,946
44,206
119,751
2,289
1,261
(107,349)
672,105
The footnotes are an integral part of these financial statements.
Nordic American Tanker Shipping Limited
Page 13 of 28
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
All figures in USD ‘000
Year Ended December 31,
2007
2006
2005
Cash Flows from Operating Activities
Net Income
44,206
67,393
46,317
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Depreciation Expense
Amortization of Deferred Finance Costs
Deferred Compensation Liability
Compensation - Restricted Shares
Share-based Compensation
Capitalized Interest
Changes in Operating Assets and Liabilities:
Accounts Receivables
Accounts Payable and Accrued Liabilities
Dry-dock Expenditures
Prepaid and Other Assets
Deferred Revenue
Voyages in Progress
Other Non-current Assets
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Deposit on Contract
Investment in Vessels
42,363
514
2,665
2,289
1,261
(305)
(1,072)
(2,971)
(9,496)
2,260
-
100
1,835
83,649
29,254
402
-
6,369
1,545
-
6,140
9,763
-
(8,332)
-
(5,407)
(514)
106,613
17,529
718
-
3,583
1,415
-
(15,019)
2,545
-
( 1,667)
(749)
(2,446)
(1,171)
51,056
(18,000)
(8,424)
-
(317,800)
-
(294,161)
Net Cash Used in Investing Activities
(26,424)
(317,800)
(294,161)
Cash Flows from Financing Activities
Proceeds from Issuance of Common Stock
Proceeds from Use of Credit Facility
Repayments on Credit Facility
Credit Facility Costs
Dividends Paid
Net Cash (Used in) Provided by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginning of Year
Cash and Cash Equivalents at the End of Year
Cash Paid for Interest
Cash Paid for Taxes
119,751
55,000
(123,000)
(14)
(107,349)
288,357
274,500
(231,000)
(591)
(122,590)
161,967
135,000
(5,000)
(1,075)
(64,279)
(55,612)
208,676
226,613
1,613
11,729
13,342
9,690
-
(2, 511)
(16,492)
14,240
11,729
5,499
-
30,732
14,240
916
-
The footnotes are an integral part of these financial statements.
Nordic American Tanker Shipping Limited
Page 14 of 28
NORDIC AMERICAN TANKER SHIPPING LIMITED
NOTES TO FINANCIAL STATEMENTS
(All amounts in USD ‘000 except where noted)
1.
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Nordic American Tanker Shipping Limited (the “Company”) was formed on June 12, 1995
under the laws of the Islands of Bermuda. The Company owns and operates crude oil tankers. The Company trades
under the symbol “NAT” on the New York Stock Exchange.
As of December 31, 2007 the Company owns 14 double hull Suezmax tankers of which two are newbuildings. The
following chart provides information regarding each vessel.
Yard
Samsung
Samsung
Samsung
Daewoo
Dalian New
Hyundai
Hyundai
Daewoo
Daewoo
Samsung
Samsung
Samsung
Bohai
Bohai
Year
Built Dwt(1)
Employment Status
(Expiration Date)
Flag
1997
1997
1997
2005
1997
1998
1998
1998
1998
2003
2002
2003
2009
2010
151,475 Bareboat (Nov. 2009)
151,475 Spot
151,400 Spot
163,455 Spot
149,591 Spot
153,328 Spot
153,328 Spot
157,332 Spot
157,411 Spot
159,999 Spot
159,998 Spot
159,999 Spot
163,000 Expected delivery 4Q’09
163,000 Expected delivery 1Q’10
Isle of Man
Bahamas
Bahamas
Bahamas
Norway
Norway
Norway
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Vessel
Gulf Scandic
Nordic Hawk
Nordic Hunter
Nordic Freedom
Nordic Voyager
Nordic Fighter
Nordic Discovery
Nordic Saturn
Nordic Jupiter
Nordic Apollo
Nordic Cosmos
Nordic Moon
Newbuilding
Newbuilding
(1) Deadweight tons.
Basis of Accounting: These financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”).
Use of Estimates: Preparation of financial statements in accordance with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those amounts. The affects of changes in accounting estimates are
accounted for in the same period in which the estimates are changed.
Reclassifications: Certain amounts in the prior year note disclosures have been reclassified to conform to the current
year presentation
Foreign Currency Translation: The functional currency of the Company is the United States (“U.S.”) dollar as all
revenues are received in U.S. dollars and the majority of the Company’s expenditures are incurred and paid in U.S.
dollars. The Company’s reporting currency is also the U.S. dollar.
Cash and Cash Equivalents: Cash and cash equivalents consist of deposits with original maturities of three months
or less.
Nordic American Tanker Shipping Limited
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Inventories: Inventories, which comprise principally of bunker fuel, are stated at cost which is determined on a first-
in, first-out (FIFO) basis. Inventory is reported within "Prepaid Expenses and Other Current Assets" within the
balance sheet.
Vessels, net: Vessels are stated at their historical cost, which consists of the contracted purchase price and any direct
material expenses incurred upon acquisition (including improvements, on site supervision expenses incurred during
the construction period, commissions paid, delivery expenses and other expenditures to prepare the vessel for her
initial voyage) less accumulated depreciation. Financing costs incurred during the construction period of the vessels
are also capitalized and included in vessels’ cost based on the weighted average method. Certain subsequent
expenditures for conversions and major improvements are also capitalized if it is determined that they appreciably
extend the life, increase the earning capacity or improve the efficiency or safety of the vessel. Depreciation is
calculated based on cost less estimated salvage value and is provided over the estimated useful life of the related assets
using the straight-line method. The estimated useful life of a vessel 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. There have been no impairments recorded for the
years ended December 31, 2007, 2006 or 2005.
Drydocking: The Company's vessels are required to be drydocked approximately every 30 to 60 months for overhaul
repairs and maintenance that cannot be performed while the vessels are in operation. The Company follows the
deferral method of accounting for drydocking costs whereby actual costs incurred are deferred and are amortized on a
straight-line basis through the expected date of the next drydocking. Ballast tank improvements are capitalized and
amortized on a straight-line basis over a period of eight years. Major steel improvements are capitalized and amortized
on a straight-line basis over the remaining useful life of the vessel. Unamortized drydocking costs of vessels that are
sold are written off to income in the year of the vessel's sale. The capitalized and unamortized drydocking costs are
included in the book value of the vessels. Amortization expense of the drydocking costs is included in depreciation
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.
Geographical Segment: The Company currently operates 11 of its 12 vessels in spot market cooperations with other
vessels that are not owned by the Company. The cooperations are managed by third party commercial managers. The
earnings of all of the vessels are aggregated and divided according to the relative performance capabilities of the
vessel and the actual earning days each vessel is available. The vessels in the cooperations are operated in the spot
market by the commercial managers. As a significant portion of the Company’s vessels are operated in cooperations, it
is not practical to allocate geographical data to each vessel nor would it give meaningful information to the reader.
Fair Value of Financial Instruments: The fair values of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate carrying value because of the short-term nature of these instruments.
Deferred Financing Costs: Finance costs, including fees, commissions and legal expenses, which are recorded as
“Other assets” on the balance sheet are deferred and amortized on a straight-line basis over the term of the relevant
debt borrowings. Amortization of finance costs is included in “Interest Expense” in the statement of operations.
Revenue and Expense Recognition: Revenue and expense recognition policies for voyage and time charter
agreements are as follows:
Cooperative agreements: Revenues and voyage expenses of the vessels operating in cooperative agreements are
combined and the resulting net revenues, calculated on a time charter equivalent basis, are allocated to the participants
according to an agreed formula. Formulas used to allocate net revenues vary among different cooperative
Nordic American Tanker Shipping Limited
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arrangements, but generally, revenues are allocated to participants on the basis of the number of days a vessel operates
with weighting adjustments made to reflect each vessels’ differing capacities and performance capabilities. The
administrators of the cooperations are responsible for collecting voyage revenue, paying voyage expenses and
distributing net pool revenues to the participants.
Based on the guidance from Emerging Issuance Task Force (“EITF”) No. 99-19, “Reporting Revenue Gross as a
Principal versus Net as an Agent” (“EITF 99-19”), earnings generated from cooperative agreements in which the
Company is the principal of its vessels’ activities are recorded based on gross method. Earnings generated from
cooperative agreements in which the Company is not regarded as the principal of its vessels’ activities are recorded
per the net method.
The Company accounts for the net revenues allocated by these cooperative agreements as “Voyage Revenue” in its
statements of operations.
Spot charters: Voyage revenues are recognized on a pro rata basis based on the relative transit time in each period.
Estimated losses on voyages are provided for in full at the time such losses become evident. A voyage is deemed to
commence upon the completion of discharge of the vessel’s previous cargo and is deemed to end upon the completion
of discharge of the current cargo. Voyage expenses are recognized as incurred and primarily include only those
specific costs which are borne by the Company in connection with voyage charters which would otherwise have been
borne by the charterer under time charter agreements. These expenses principally consist of fuel, canal and port
charges. Demurrage income represents payments by the charterer to the vessel owner when loading and discharging
time exceed the stipulated time in the voyage charter. Demurrage income is measured in accordance with the
provisions of the respective charter agreements and the circumstances under which demurrage claims arise and is
recognized on a pro rata basis over the length of the voyage to which it pertains. At December 31, 2007 and 2006, the
Company had no reserves against its due from charterers balance associated with demurrage revenues.
Bareboat: Revenues from bareboat charters are recorded at a fixed charterhire rate per day over the term of the
charter. The charterhire is payable monthly in advance. During the charter period the charterer is responsible for
operating and maintaining the vessel and bears all costs and expenses with respect to the vessel. Expected minimum
payments to be received under the charter amounts to $ 6,3 mill annually. The contract is terminating in the fourth
quarter of 2009 and subject to two one-year extensions.
Vessel Operating Expenses: Vessel operating expenses include crewing, repair and maintenance, insurance, stores,
lubricants and communication expenses. These expenses are recognized when incurred.
Derivative Instruments: The Company did not hold any derivative instruments at December 31, 2007 or 2006.
Share-Based Compensation: Effective December 31, 2005, the Company adopted Statement of Financial
Accounting Standards (“SFAS”) No. 123(R) “Share-Based Payment” (“SFAS 123R”), using the modified prospective
application transition method which requires measurement of compensation cost for all stock based awards at fair
value and recognition of compensation over the requisite service period for awards expected to vest. See Note 9 for
additional information.
Restricted Shares to Manager: Restricted shares issued to the Manager are accounted for in accordance with EITF
Issue No. 00-18, "Accounting for Certain Transactions Involving Equity Instruments Granted to Other Than
Employees", which states that the measurement date for an award that is nonforfeitable and that vests immediately
should be the date the award is issued, even though services have not yet been performed. Accordingly the
compensation expense for each of the respective issuances was measured at fair value on the date the award was
issued, or the grant date, and expensed immediately as performance was deemed to be complete. The fair value was
determined using the stated par value, the number of shares issued, and the Company's stock price on the date of grant.
Income Taxes: The Company is incorporated in Bermuda. Under current Bermuda law, the Company is not subject
to corporate income taxes.
Other Comprehensive Income (Loss): The Company follows the provisions of SFAS No. 130 "Statement of
Comprehensive Income” (“SFAS 130”) which requires separate presentation of certain transactions that are recorded
Nordic American Tanker Shipping Limited
Page 17 of 28
directly as components of stockholders' equity. The Company has no other comprehensive income / (loss) and
accordingly comprehensive income / (loss) equal net income for the periods presented.
Concentrations:
Fair value: The Company operates in the shipping industry which historically has been cyclical with corresponding
volatility in profitability and vessel values. Vessel values are strongly influenced by charter rates which in turn are
influenced by the level and pattern of global economic growth and the world-wide supply and demand for vessels. The
spot market for tankers is highly competitive and charter rates are subject to significant fluctuations. Dependence on
the spot market may result in lower utilization. Each of the aforementioned factors are important considerations
associated with the Company’s assessment of whether the carrying amount of its own vessels are recoverable.
Credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents and accounts receivable. The fair value of the financial instrument
approximates the net book value. 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. However, the maximum credit risk the Company
would be exposed to is a total loss of outstanding accounts receivable. See Note 3 for further information.
Accounts receivable consist of uncollateralized receivables from international customers engaged in the international
shipping industry. The Company routinely assesses the financial strength of its customers. Accounts receivable are
presented net of allowances for doubtful accounts. If amounts become uncollectible, they will be charged to operations
when that determination is made. For the years ended December 31, 2007 and 2006, the Company did not record an
allowance for doubtful accounts.
Interest risk: The Company is exposed to interest rate risk for its debt borrowed under the 2005 Credit Facility. In
certain situations, the Company may enter into financial instruments to reduce the risk associated with fluctuations in
interest rates. The Company has no outstanding derivatives at December 31, 2007 and has not entered into any such
arrangements in 2007.
Recent Accounting Pronouncements: In July 2006, the FASB issued FASB Interpretation No. 48 “Accounting for
Uncertainty in Income Taxes” (“FIN 48”), which clarifies the criteria that must be met prior to recognition of the
financial statement benefit of a position taken in a tax return. FIN 48 provides a benefit recognition model with a two-
step approach consisting of a “more-likely-than-not” recognition criteria, and a measurement attribute that measures
the position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate
settlement. FIN 48 also requires the recognition of liabilities created by differences between tax positions taken in a
tax return and amounts recognized in the financial statements. FIN 48 is effective as of the beginning of the first
annual period beginning after December 15, 2006, which is the year ended December 31, 2007. The adoption of FIN
48 did not have any impact on the Company’s financial position, results of operations and cash flows.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement,” (“SFAS 157”) which defines fair
value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured
at fair value. This Statement does not require any new fair value measurements. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 did not have any
impact on the Company’s financial position, results of operations and cash flows.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair value. SFAS 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. The adoption of SFAS 159 did not have any impact on the Company’s financial position, results
of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141(R) “Business Combinations” (“SFAS 141(R)”), which replaces
SFAS No. 141, “Business Combinations”. This statement establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure
Nordic American Tanker Shipping Limited
Page 18 of 28
requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is
effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential
impact, if any, of the adoption of SFAS 141(R) on its financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements,
an Amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). This statement establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership
interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS
160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent
and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15,
2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on its financial
position, results of operations or cash flows.
In March 2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging
Activities”. The new standard is intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s
financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently
evaluating the potential impact, if any, of the adoption of SFAS 161 on our financial statements.
2.
RELATED PARTY TRANSACTIONS
Scandic American Shipping Ltd. (the “Manager”), is owned by a company owned by the Chairman and Chief
Executive Officer (“CEO”) of the Company, Mr. Herbjørn Hansson, and his family. The Manager, under a
management agreement with the Company (the “Management Agreement”), assumes commercial and operational
responsibility of the Company’s vessels and is required to manage the Company’s day-to-day business, subject to the
objectives and policies as established by the Board of Directors. For its services under the Management Agreement,
the Manager is entitled to reimbursement of costs directly related to the Company plus a management fee equal to
$225,000 per annum. The Manager also has a right to ownership of 2% of the Company’s total outstanding shares.
During 2007, the Company issued to the Manager 61,224 shares at an average fair value of $35.13. The Company
recognized $2.2 million, $1.6 million and $1.5 million of total costs for services provided under the Management
Agreement for the years ended December 31, 2007, 2006, and 2005, respectively. Additionally, the Company
recognized $2.3 million, $6.3 million and $3.6 million in non-cash share-based compensation expense for the years
ended December 31, 2007, 2006 and 2005, respectively, related to the issuance of shares to the Manager. All of these
costs are included in “General and Administrative Expenses” within the statement of operations. The related party
balances included within accounts payable were $680,501 and $491,081 at December 31, 2007 and 2006, respectively.
Mr. Jan Erik Langangen, Executive Vice President of the Manager, is a partner of Langangen & Helset Advokatfirma
AS, a firm which provides legal services to the Company. The Company recognized $157,265, $97,071, and $77,526
in costs for the years ended December 31, 2007, 2006 and 2005, respectively, for the services provided by Langangen
& Helset Advokatfirma AS. These costs are included in “General and Administrative Expenses” within the statement
of operations. There were no related amounts included within “Accounts Payable” at December 31, 2007 and
December 31, 2006, respectively.
3.
REVENUE
For the twelve months ending December 31, 2007, the Company’s only source of revenue was from the Company’s
12 vessels.
Revenues generated from cooperations in which the Company is the principal of its vessels activities are recorded
based on the gross method. Revenues generated from cooperations in which the Company is not regarded as the
principal of its vessels’ activities are recorded per the net method.
Nordic American Tanker Shipping Limited
Page 19 of 28
The table below provides the breakdown of revenues recorded as per the net method and the gross method.
All figures in USD ‘000
2007
2006
2005
Net Method
Gross Method
65,354
121,632
53,177
122,343
30,116
86,994
Total Voyage Revenue
186,986
175,520
117,110
Five Customers accounted for 24%, 23%, 16%, 15% and 14%, respectively, for the year ended December 31, 2007.
One customer accounted for 23% and 37% of the Company’s revenues during the year ended December 31, 2006,
and 2005, respectively.
Accounts receivable as per December 31, 2007 and 2006 are $14.5 million and $13.4 million, respectively. The
following is a breakdown of the account:
All figures in USD ‘000
2007
2006
Accounts Receivable
113
Accounts Receivable - Technical and Commercial Managers 14,376
7,784
5,633
Total as per December 31,
14,489 13,417
Accounts receivable are recorded at their expected net realized value.
Two cooperations accounted for 45% and 40%, respectively, for the year ended December 31, 2007 . Five
cooperations accounted for 23%, 22%, 21%, 18%, 16% of the accounts receivable balance for the year ended
December 31, 2006 respectivly
4.
PREPAID EXPENSES AND OTHER ASSETS
All figures in USD ‘000
2007
2006
Bunkers and lubricants - Technical and Commercial Managers 6,835
Other current assets - Technical and Commercial Managers
580
1,046
Prepaid expenses - Technical and Commercial Managers
758
Other
5,110
3,247
1,716
1,406
Total as per December 31,
9,219 11,479
5. GENERAL AND ADMINISTRATIVE EXPENSES
All figures in USD ‘000
Management fee to related party
Directors and officers insurance
Salary and wages
Audit, legal and consultants
Administrative services provided by related party
Other fees and expenses
Total General and Administration expense with cash effect
Compensation – restricted shares issued to related party
Share-based compensation (2004 Stock Incentive Plan)
Deferred compensation plan
Total General and Administrative expense without cash effect
2007
162
109
1,331
849
2,162
1,304
5,917
2,289
1,261
2,665
6,215
2006
100
116
1,022
1,171
1,564
864
4,836
6,369
1,545
-
7,914
Total as per December 31,
12,132
12,750
2005
100
121
635
679
1,461
498
3,494
3,583
1,415
-
4,998
8,492
Nordic American Tanker Shipping Limited
Page 20 of 28
The line item Pension Costs is related to the implementation of a deferred compensation plan for the CEO. See Note 6
for further details of the deferred compensation plan.
6.
DEFERRED COMPENSATION LIABILITY
In May 2007, the Board of Directors approved a new unfunded deferred compensation plan for Herbjorn Hansson, the
Chairman, President and CEO. The plan provides for unfunded deferred compensation computed as a percentage of
salary. Benefits are vested over the period of employment of 11 years up to a maximum of 66% of the salary level at
the time of retirement. Interest is imputed at 4.5%.
The rights under the plan commenced on October 2004. The total expense recognized in 2007 was $2.7 million, of
which $1.8 million relates to retroactive effect. As the plan was effective in 2007, the full expense is recognized in
2007. The deferred compensation liability as of December 2007 was $2.7 million and was recorded as a non-current
liability in the balance sheet. The CEO has served in his present position since the inception of the Company in 1995.
7.
VESSELS, NET
Vessels, net consist of 12 modern double hull Suezmax crude oil tankers and drydocking charges. 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.
All figures in USD ‘000
Vessels Drydocking
Total
Net Book Value December 31, 2006
Accumulated depreciation December 31, 2006
Depreciation expense 2006
749,230
95,655
28,673
Net Book Value December 31, 2007
Accumulated depreciation December 31, 2007
Depreciation expense 2007
717,799
135,548
39,893
3,248
741
581
22,832
3,211
2,470
752,478
96,396
29,254
740,631
138,759
42,363
8.
DEPOSIT ON CONTRACT
In November 2007, the Company entered into an agreement to acquire two Suezmax newbuildings which are expected
to be delivered in the fourth quarter of 2009 and by the end of April 2010, respectively. The Company will take
ownership of the vessels upon delivery from the shipyard at which time the title is transferred from the seller. The
vessels will be built by a Chinese shipyard. The sellers are subsidiaries of First Olsen Ltd. and the agreed all inclusive
price at delivery is $90.0 million per vessel, including supervision expenses.
The Company has agreed to furnish to the sellers a loan equivalent to the remaining payment installments under the
shipbuilding contract. The loan will be paid in installments on the dates and in amounts corresponding to the payment
schedule under the shipbuilding contract. The debt shall accrue interest at a rate equal to the Company’s cost of funds
at any time. The debt will be repayable on delivery of the vessels.
As of December 31, 2007, the Company has paid a deposit of 10% of the purchase price in the aggregate amount of
$18.0 million for both vessels.
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The table below shows total capitalized costs related to the two newbuildings:
All figures in USD ‘000
2007
2006
Newbuilding #1
Newbuilding #2
Total as per December 31,
9,152
9,153
18,305
-
-
-
Included in the balance above is capitalized interest in the aggregate amount of $305,000.
9.
SHARE-BASED COMPENSATION PLAN
The Company has a share-based compensation plan which is described below. Total compensation cost related the
plan in the amount of $1.3 million, $1.5 million and $1.4 million for the years ended December 31, 2007, 2006, and
2005, respectively was recorded within “General and Administrative expense” in the statement of operations.
Unrecognized compensation cost related to the plan was $1.2 million as of December 31, 2007, which is expected to
be recognized over a weighted-average period of 1,13 years.
2004 Stock Incentive Plan
Under the terms of the Company’s 2004 Stock Incentive Plan (the “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, performance shares and phantom stock units. The Company believes that such awards better align the interests
of its employees with those of its shareholders. A total of 400,000 common shares are reserved for issuance upon
exercise of options, as restricted share grants or otherwise under the plan. A total of 330,000 options and 16,700
restricted shares have been issued as of December 31, 2007. New shares will be issued upon exercise of stock options.
In August 2007, the Board of Directors adopted amendments to the Plan to provide for the issuance of Phantom Stock
Units and to give discretion to the Administrator of the Plan with respect to dividends paid on common shares
awarded under the Plan. There are no modifications made to the terms of the Plan.
Stock option awards were granted with an exercise price equal to the market price of the Company’s stock at the date
of a public offering in November 2004, with later adjustments for dividends to shareholders exceeding 3% of the
initial stock option exercise price. Stock option awards generally vest equally over four years from grant date and have
a 10-year contractual term.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model
that uses the assumptions noted in the table below. Stock options to non-employees are measured at each reporting
date and fair value is estimated with the same model used for estimating fair value of the options granted to
employees. Because the option valuation model incorporates ranges of assumptions for inputs, those ranges are
disclosed. Expected volatilities are based on implied volatilities from historical volatility of the Company’s stock and
other factors. Expected life of the options is estimated to be equal to the vesting period for employees when
calculating the fair value of the options. When calculating the fair value of the options issued to non-employees the
expected life is equal to the actual life of options. The Company recognizes the compensation cost for stock options
issued to non-employees over the service period, which is considered to be equal to the vesting period. All options
issued are expected to be exercised.
Stock options to employees are measured at fair value at the grant date and the compensation cost is recognized on a
straight-line basis over the vesting period. The assumptions used when estimating the fair value at grant date are
specified in the table below.
Stock options to non-employees are treated in accordance with EITF 96-18 and unvested options are measured at fair
value at each balance sheet date with a final measurement date upon vesting. Fair value measurement of unvested
options is considered to be appropriate due to that the performance commitment for non-employees has not been
reached for unvested options. The fair value of the options is used to measure the value of the services provided by the
non-employees as it is considered to be more reliable than measuring the fair value of the services received. The
Nordic American Tanker Shipping Limited
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compensation cost is recognized using the accelerated method. The assumptions used are specified separately in the
table below.
The assumptions used are specified separately in the table below.
The risk-free rate for periods within the contractual life of the stock options is based on the U.S. Treasury yield curve
in effect at the time of grant for options to employees. The risk-free rate at year-end is used for stock options issued to
non-employees.
Weighted average figures
Expected volatility
Expected dividends
Expected life
Risk-free rate (range)
December 31, 2007
Employees
40.90 %
3.0 %
3.81
3.25 % - 4.43 %
Non-employees
31.84 %
3.0 %
7.27
3.60 – 3.80 %
A summary of option activity under the Plan as of December 31, 2007, and changes during the year then ended is
presented below:
Options
Outstanding at January 1, 2007
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2007
Exercisable at December 31, 2007
Options
employees
240,000
10,000
-
-
250,000
175,000
Options
non-employees
80,000
-
-
-
80,000
52,500
Weighted-average
exercise price
$ 31.01
$ 33.92
-
-
$ 28.54
$ 28.37
Outstanding and exercisable stock options as at December 31, 2007 have a weighted-average remaining term of 7.21
years for employees and 7.32 for non-employees. The exercise price for outstanding stock options as at December 31,
2007 is in the range of $28.37 – $33.92. The intrinsic value of options outstanding at December 31, 2007 was
$1,424,000 and the intrinsic value of exercisable options was $1,012,375.
Options
-
Employees
Non-vested at January 1, 2005
Granted during the year
Vested during the year
Forfeited during the year
Estimated forfeitures unvested options
Non-vested at December 31, 2005
-
240,000
(55,000)
-
-
185,000
Weighted-
average grant-
date fair value
- Employees
-
$ 18.44
$ 18.65
-
-
$ 18.38
Options
-
Non-
employees
-
80,000
(12,500)
-
-
67,500
Weighted-average
grant-date fair
value
- Non-employees
-
$ 22.93
$ 29,29
-
-
$21.75
Nordic American Tanker Shipping Limited
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Options –
Employees
Non-vested at January 1, 2006
Granted during the year
Vested during the year
Forfeited during the year
Estimated forfeitures unvested options
Non-vested at December 31, 2006
185,000
-
(60,000)
-
-
125,000
Options
-
Employees
Non-vested at January 1, 2007
Granted during the year
Vested during the year
Forfeited during the year
Estimated forfeitures unvested options
Non-vested at December 31, 2007
125,000
10,000
(60,000)
-
-
75,000
Weighted-
average grant-
date fair value
- Employees
$18.38
-
$17.84
-
-
$18.64
Weighted-
average grant-
date fair value
- Employees
$ 18.64
$ 7.00
$ 17.84
-
-
$ 17.73
Options
-
Non-
employees
67,500
-
(20,000)
-
-
47,500
Options
-
Non-
employees
47,500
-
(20,000)
-
-
27,500
Weighted-average
grant-date fair
value
- Non-employees
$21.75
-
$22.93
-
-
$21.25
Weighted-average
grant-date fair
value
- Non-employees
$ 21.25
-
$ 22.93
-
-
$20.03
The total fair value of shares vested during the years ended December 31, 2007, 2006 and 2005 was $1.2million,
$1.3million and $1.1million, respectively
Specification of the aggregate compensation cost related to the 2004 Stock Incentive Plan recognized in the profit and
loss account is disclosed in note 5. Unrecognized compensation cost related to the Plan is $1,221,896 as at December
31, 2007. That cost is expected to be recognized over a weighted-average period of 1.13 years. There have been no
exercise or any payments related to the stock option plan during the financial period 2005 - 2007 and hence no related
cash flow effects.
There is no material income tax benefit for stock-based compensation due to the Company’s tax structure.
Restricted Shares to Employees and Non-Employees
Under the terms of the Company’s 2004 Stock Incentive Plan 16,700 shares of restricted stock awards were granted to
certain employees and non-employees during 2006. The restricted shares were granted on May 12, 2006 (approved by
the Board) at a grant date fair value of $31.99 per share.
The fair value of restricted shares is estimated based on the market price of the Company’s share. The fair value of
restricted shares granted to employees is measured at grant date and the fair value of unvested restricted shares granted
to non-employees is measured at fair value at each reporting date. See further comments above related to measurement
of options and restricted shares issued to non-employees.
The shares are considered restricted as the holders of the shares cannot dispose of them for a period of up to four years
from issuance and the restricted shares vest in yearly installments during this period. The holders of the restricted
shares do have ordinary shareholder rights in this period and the holder is entitled to declared dividends in the period
and has voting rights.
The restricted shares vest in four equal amounts in May 2007, May 2008, May 2009 and May 2010. There were 9,700
restricted shares granted to employees and 7,000 restricted shares granted to non-employees in 2006. 2,425 restricted
shares to employees and 1,750 restricted shares to non-employees vested in 2007.
The compensation cost for employees and non-employees are recognized on a straight-line basis over the vesting
period. The total compensation cost in 2007 related to restricted shares was $ 60,618. The intrinsic value of
outstanding and vested restricted shares at December 31,2007 was $ 548,094 and $ 137,024, respectively.
Nordic American Tanker Shipping Limited
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At December 31, 2007, there were 16,700 restricted shares outstanding at a weighted-average grant date fair value of
$31.99 for employees and $31.99 for non-employees. As of December 31, 2007, unrecognized compensation cost
related to unvested restricted stock aggregated $333,466 ($467,017 per December 31 2006), which will be recognized
over a weighted average period of 2.4 years.
Specification of the aggregate compensation cost related to the 2004 Stock Incentive Plan recognized in the profit and
loss account is disclosed in note 5.
The table below summarizes the Company’s restricted stock awards as of December 31, 2007:
Restricted
shares -
Employees
9,700
-
2,425
-
7,275
Weighted-
average grant-
date fair value
- Employees
$31.99
-
-
-
$31.99
Restricted
shares
- Non-
employees
7,000
-
1,750
-
5,250
Weighted-average
grant-date fair
value
- Non-employees
$31.99
-
-
-
$31.99
Non-vested at January 1, 2007
Granted during the year
Vested during the year
Forfeited during the year
Non-vested at December 31, 2007
10. LONG-TERM DEBT
In September 2005, the Company entered into a $300 million revolving credit facility, which is referred to as the 2005
Credit Facility. The 2005 Credit Facility provides funding for future vessel acquisitions and general corporate
purposes. The 2005 Credit Facility cannot be reduced by the lender and there is no repayment obligation of the
principal during the five year term with maturity that was scheduled for September 2010. Amounts borrowed under
the 2005 Credit Facility bear interest at an annual rate equal to LIBOR plus a margin between 0.70% and 1.20%
(depending on the loan to vessel value ratio). The Company pays a commitment fee of 30% of the applicable margin
on any undrawn amounts. Total commitment fees paid for the year ended December 31, 2007 and December 31, 2006
were $0.8 million and $0.7 million, respectively.
In September 2006, the Company increased the 2005 Credit Facility to $500 million. The other terms of the 2005
Credit Facility were not amended. The undrawn amount of this facility as of December 31, 2007 and 2006 was $394.5
million and $ 326.5 million, respectively.
Borrowings under the 2005 Credit Facility are secured by first priority mortgages over the Company’s vessels and
assignment of earnings and insurance. The Company is permitted to pay dividends in accordance with its dividend
policy as long as it is not in default under the 2005 Credit Facility.
As at December 31, 2007, accrued interest was $0.6 million which was paid during the first quarter of 2008.
The Company was in compliance with its restrictive covenants for the year ended December 31, 2007.
11. INTEREST EXPENSE
Interest expense consists of interest expense on the long-term debt, the commitment fee and amortization of the
deferred financing costs related to the 2005 Credit Facility. The $105.5 million drawn on the facility bears interest
equal to LIBOR plus a margin between 0.7% and 1.2%. The deferred financing costs incurred in connection with the
refinancing of the previous credit facility are deferred and amortized over the term of the 2005 Credit Facility on a
straight-line basis. The amortization of deferred financing costs for the years ended December 2007, 2006 and 2005
was $0.5 million, $0.4 million and $0.7 million, respectively. Total capitalized deferred financing costs were $1.4
million and $1.9 million at December 31, 2007 and 2006, respectively.
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12. DEFERRED REVENUE
Deferred revenue as at December 31, 2007 in the amount of $0.5 million represents prepaid freight received from one
of our customers prior to December 31, 2007 for services to be rendered during January 2008.
13. ACCRUED LIABILITIES
All figures in USD ‘000
2007
2006
Accrued Interest
572
Accrued Expenses - Technical and Commercial Managers 12,179
3,780
Other Current Liabilities
1,003
9,862
326
Total as per December 31,
16,531 11,191
14. EARNING PER SHARE
Basic earnings per share (“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 (i.e. stock options, warrants) outstanding during the period.
All figures in USD
2007
2006
2005
Numerator:
Net Income
Denominator:
Basic - Weighted Average Common Shares Outstanding
Dilutive Effect of Stock Options *
Dilutive – Weighted Average Common Shares Outstanding
Income per Common Share:
Basic
Diluted
44,205,635
67,393,423
46,317,742
28,252,472
42,525
21,476,196
-
15,263,622
-
28,294,997
21,476,196
15,263,622
1.56
1.56
3.14
3.14
3.03
3.03
* For 2006 and 2005 the Company’s average stock price was above the average exercise price of the option and a
dilutive effect on EPS could potentially arise. However, the proceeds of an exercise of all outstanding options
calculated as per the Treasury Stock Method would exceed the costs of acquiring stocks at the average stock price.
The potential effect of the outstanding options is therefore anti-dilutive and is not included in the calculation of diluted
earnings per share. The average number of potentially dilutive options was 320,000 for the year ended December 31,
2006, and 295,000 for the year ended December 31, 2005, respectively.
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15. SHAREHOLDERS’ EQUITY
Authorized, and issued and outstanding common shares roll-forward is as follows:
Balance at December 31, 2004
Issuance of Common Shares
in Follow-on Offering
Share-based Compensation
Balance at December 31, 2005
Issuance of Common Shares
in Follow-on Offering
Share-based Compensation
Issuance of Common Shares
in Follow-on Offering
Share-based Compensation
Restricted Shares
Share-based Compensation
Balance at December 31, 2006
Issuance of Common Shares
in Block Trade transaction
Share-based Compensation
Balance at December 31, 2007
Authorized
Shares
51,200,000
51,200,000
51,200,000
51,200,000
Issued and Out-
standing Shares
13,067,838
3,500,000
76,658
16,644,496
4,297,500
87,704
5,750,000
117,347
16,700
341
26,914,088
3,000,000
61,224
29,975,312
In July 2007, the Company completed an underwritten public offering of 3,000,000 common shares. The net proceeds
of the offering were $119.8 million which were used to repay indebtedness under the Company's revolving credit
facility and to prepare the Company for further expansion.
The total issued and outstanding shares as of December 31, 2007 were 29,975,312 shares of which 343,274 shares
were restricted to the Manager and 12,525 shares were restricted to employees and non-employees as described in
Note 9. The total issued and outstanding shares as of December 31, 2006 was 26,914,088 shares of which 538,282
shares were restricted as described in Note 9.
16. COMMITMENTS AND CONTINGENCIES
The Company may 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.
No claims have been made against the Company for the fiscal year 2007 or 2006. The Company is not a party to any
legal proceedings for the year ended December 31, 2007 and December 31, 2006, respectively.
At December 31, 2007, the Company had payment obligations totalling $162.0 million in connection with the
agreement to acquire two newbuildings entered into in November 2007. The payments due in 2008, 2009 and 2010 are
$7.4 million, $103.1 million and $51.5 million, respectively. Please see Note 8 for further information.
Nordic American Tanker Shipping Limited
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17. SUBSEQUENT EVENTS
In February 2008, the Company declared a dividend of $0.50 per share in respect of the fourth quarter of 2007 which
was paid to shareholders in March 2008.
In April 2008, the Company extended the tenure of the 2005 Credit Facility to 2013. All other terms are unchanged.
The Company paid a fee in the amount of $2.1 million for the extension of the tenure from 2010 to 2013. This amount
will be amortized over the new term of the facility.
In May 2008, the Company declared a dividend of $1.18 per share in respect of the first quarter of 2008 which will be
paid to shareholders in June 2008.
* * * * *
Nordic American Tanker Shipping Limited
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