NORDIC AMERICAN TANKER
SHIPPING LIMITED
2008 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. Since then, these vessels have operated in the spot market or on spot market-related charters. 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. Gulf Navigation has exercised its first one-year option and extended the charter through the
fourth quarter of 2010. 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. 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. In December 2008 the Company agreed to acquire our 15th vessel for an aggregate purchase
price of $56.7 million. The Nordic Sprite was delivered to us in February 2009 and is employed in the spot market.
Our Fleet
Our fleet consists of 15 modern double-hull Suezmax tankers of which two are newbuildings. The following chart
provides information regarding each vessel, including its employment status.
Year
Built Dwt(1)
Employment Status
Flag
1997 151,475 Bareboat
1997 151,475 Spot
1997 151,400 Spot
2005 163,455 Spot
1997 149,591 Spot
1998 153,328 Spot
1998 153,328 Spot
1999 147,188 Spot, delivered Feb 2009
1998 157,332 Spot
1998 157,411 Spot
2003 159,999 Spot
2002 159,998 Spot
2003 159,999 Spot
2009 163,000 Expected delivery end of Dec. 2009
2010 163,000 Expected delivery end of Apr. 2010
Isle of Man
Bahamas
Bahamas
Bahamas
Norway
Norway
Norway
Norway
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Vessel
Yard
Samsung
Gulf Scandic
Samsung
Nordic Hawk
Nordic Hunter
Samsung
Nordic Freedom Daewoo
Dalian New
Nordic Voyager
Hyundai
Nordic Fighter
Nordic Discovery Hyundai
Samsung
Nordic Sprite
Daewoo
Nordic Saturn
Daewoo
Nordic Jupiter
Samsung
Nordic Apollo
Samsung
Nordic Cosmos
Samsung
Nordic Moon
Bohai
Nordic Galaxy
Bohai
Nordic Vega
(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 twelve of our thirteen existing vessels in the spot market or on spot market related time charters although we
may consider charters at fixed rates depending on market conditions. Our thirteenth vessel is on a long term fixed bare
boat charter.
Nordic American Tanker Shipping Limited
Page 2 of 28
Cooperative Arrangements
We currently operate twelve of our thirteen existing 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
Chartering Services Inc, 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
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 ended December 31, 2008, we have temporarily operated several vessels (Nordic Jupiter, Nordic
Hawk, Nordic Hunter and Nordic Apollo) 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, the 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.
Gulf Navigation has exercised its first one-year option and extended the charter for one additional year through the
fourth quarter of 2010. 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 2008 TANKER MARKET (Source: R.S. Platou Economic Research a.s.)
Despite the global economic crisis and a decline in oil consumption, we believe the tanker market experienced its best
year ever in 2008.
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 spot rate of $88,000 per day for the year ended
December 31, 2008, a significant increase from $51,000 per day for the year ended December 31, 2007. Suezmaxes,
whose carrying capacity ranges from 120,000 dwt to 200,000 dwt, achieved $67,000 per day for the year ended
December 31, 2008, up from $40,000 for the year ended December 31, 2007. Corresponding rates for Aframaxes,
whose carrying capacity ranges from 80,000 dwt to 120,000 dwt, were $50,000 per day for the year ended December
31, 2008 as compared with $35,000 per day for the year ended December 31, 2007. Our fleet is comprised of Suezmax
tankers.
On an annual average basis, the tanker fleet increased by 4.3% from 2007 to 2008. Deliveries of new tankers reached
approximately 33 million dwt for the year ended December 31, 2008, up from 29 million dwt for the year ended
December 31, 2007. Scrapping amounted to approximately 4 million dwt. Five VLCCs were sold for scrapping; one
Suezmax, nine Aframaxes and 54 smaller tankers were reported as sold for scrapping. The average scrapping age for
all tankers was 24.8 years for the year ended December 31, 2008, compared with 27.6 years for the year ended
December 31, 2007. It has further been reported that 11.4 million dwt or 86 tankers were undergoing conversions to
other uses, of which 19 were VLCCs and 14 were Suezmaxes.
Nordic American Tanker Shipping Limited
Page 3 of 28
Estimates indicate an increase in seaborne oil trade of 1- 2% from 2007 to 2008 and a relatively strong increase in the
average transport distance, driven by a strong rise in Middle East oil production. Other factors such as more floating
storage and reduced speed (due in part to the record-high bunker prices) contributed strongly to the high growth in
demand for tonnage. Charterers’ steadily reduced acceptance of single-hull tankers also played a large role in the
increase in demand for double-hull tonnage. In 2008, the single-hull vessels represented approximately an average of
21% of the existing tanker fleet. Tonnage demand growth increased by approximately 7%, resulting in an increase in
capacity utilization from 88% in 2007 to 90.5% in 2008.
Extreme volatility and record-high crude prices characterized the oil market in 2008. After OPEC cut output in 2007,
the year 2008 started with relatively low oil inventories and an oil price of $100 per barrel on a distinct rising trend.
OPEC then had a strong incentive to raise its output until the capacity limit was reached in July, at a price level of
$147 per barrel. OPEC crude supply increased by 4% to 5% in the first half of the year, with the Middle East supply
increasing by 6% to 7%. This strong supply growth was the main driver of the strong tanker market in 2008. As the
global economy weakened sharply in the second half of the year, oil prices steeply declined and OPEC cut output
targets a number of times but did not prevent prices falling as low as $35 per barrel. For the year ended December 31,
2008, as a whole, OPEC crude production (including Angola and Ecuador) was up 0.9 million barrels per day (“mbd”)
or 3%, while OPEC natural gas liquid, or NGL, production increased by 0.2 mbd. World oil consumption contracted
for the first time since 1983, according to the International Energy Agency, or IEA, by 0.4%. U.S. oil consumption fell
dramatically by 6%, while China increased its consumption by more than 4%.
Secondhand tanker sales fell from approximately 400 in the year ended December 31, 2007 to approximately 300 in
the year ended December 31, 2008. After the collapse of the U.S. and European financial markets, virtually no sales
have been reported. Values for double-hull vessels had increased some 40% to 50% from the start of the year to the
peak in July, then fell to values of approximately 30% lower than at the beginning of the year.
According to the IEA's World Energy Outlook, published in November 2008, as much as 84% of the projected
increase in world oil supply between 2007 and 2015 will come from OPEC countries. The Middle East will account
for 69% of this increase in oil production, while two thirds of the projected increase in oil trade will be exported from
this region. According to BP's Statistical Review of World Energy for 2008, the Middle East had 61% of the world’s
proven oil reserves, which will continue to drive long and medium haul seaborne transportation. 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, or OPA, International Maritime Organization, or 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, the Company entered into a $300 million revolving credit facility, which is referred to as the 2005
Credit Facility. The 2005 Credit Facility became effective as of October 2005 and replaced the previous facility from
October 2004, a portion of which was set to mature in September 2005.
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. 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). The Company pays a commitment fee of
30% of the applicable margin on any undrawn amounts.
Nordic American Tanker Shipping Limited
Page 4 of 28
In September 2006, the Company increased the 2005 Credit Facility to $500 million. The other material terms of the
2005 Credit Facility were not amended.
In April 2008, the Company extended the term of the 2005 Credit Facility to 2013. All other terms are unchanged.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Results of Operations
Year ended December 31,
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 Income (Expense)
Net Income
Revenue days (1)
2008
228,000
(10,051)
217,950
(35,593)
(12,785)
(48,284)
121,288
931
(3,392)
17
118,844
4,224
2007
Variance
186,986
(47,122)
139,864
(32,124)
(12,132)
(42,363)
53,245
904
(9,683)
(260)
44,206
55.8%
10.8%
5.4%
14.0%
127.8%
3.0%
(65.0%)
106.5%
168.8%
4,117
2.6%
(1) Revenue days consist of 366 days related to the one vessel employed on bareboat charter and 3,858 days related to
vessels employed in the spot market.
Our net voyage revenues increased from $139.9 million for year ended December 31, 2007 to $217.9 million for the
year ended December 31, 2008, an increase of 55.8%. The increase in net voyage revenues was primarily the result of
an increase in the spot market rates for the period. The average spot market rate for our fleet during 2008 was $54,900
per day compared to $35,600 during 2007, a 54.2% increase.
Vessel operating expenses were $35.6 million for the year ended December 31, 2008 compared to $32.1 million for
the year ended December 31, 2007. The average operating expenses for the vessels increased from approximately
$8,000 per day per vessel for the fiscal year 2007 to approximately $8,800 per day per vessel during the fiscal year
2008. The increase in vessel operating expenses was primarily a result of increased repair and maintenance activity in
2008. In addition, we experienced an industry wide price increase in vessel operating costs, in particular crewing
costs, lubricating oil costs and repair and maintenance costs.
General and administrative expenses were $12.8 million for the year ended December 31, 2008 compared to
$12.1 million for the year ended December 31, 2007. The general and administrative expenses in 2008 include a non-
cash charge related to stock-based compensation to our manager, Scandic American Shipping Ltd., or the Manager, of
$3.6 million related to one follow-on offering in 2008 and costs of $1.4 million related to the deferred compensation
plan for the Company’s Chief Executive Officer. For further details of the management agreement and administrative
expenses we refer you to the section “The Management Agreement” on page 7 and Note 5 of our audited financial
statements included herein. The general and administrative expenses in 2007 included a non-cash charge of $2.2
million of stock-based compensation to our Manager, related to one follow-on offerings concluded in that year and
costs of $2.7 million related to the deferred compensation plan for the Company’s CEO.
Nordic American Tanker Shipping Limited
Page 5 of 28
Depreciation expense was $48.3 million for the year ended December 31, 2008 compared to $42.4 million for the year
ended December 31, 2007. The increase is primarily the result of the depreciation of the cost deferred for the
drydocking of vessels during 2008.
Net operating income was $121.3 million for the year ended December 31, 2008 compared to $53.2 million for the
year ended December 31, 2007, an increase of approximately 127.8%. This increase is primarily due to significantly
higher spot market rates during 2008 compared to 2007.
Interest income was $0.9 million for both the year ended December 31, 2008 and the year ended December 31, 2007.
Interest income was derived from the excess cash in interim periods from the proceeds of the follow-on offering in
May 2008 and the timing of subsequent repayment of debt during the year.
Interest expense was $3.4 million for the year ended December 31, 2008 compared to $9.7 million for the year ended
December 31, 2007. The decrease is primarily due to the repayment of debt during 2008 with the proceeds from the
follow-on offering concluded in May 2008.
Liquidity and Capital Resources
Cash flows provided by operating activities increased by 53.0% to $127.9 million for the year ended December 31,
2008 from $83.6 million for the year ended December 31, 2007 primarily due to significantly higher spot market rates
during 2008, as described above.
Cash flows used in investing activities decreased by 62.0% to $10.1 million for the year ended December 31, 2008
compared to $26.4 million for the year ended December 31, 2007. The investing activities during 2008 represent
vessel improvements. The investing activities during 2007 represent deposits for new acquisitions and vessel
improvements.
Cash flows used in financing activities increased by 79.5% to $99.8 million for the year ended December 31, 2008
compared to $55.6 million for the year ended December 31, 2007. The financing activities for the year ended
December 31, 2008 represent (i) net repayment of debt under the 2005 Credit Facility of $90.5 million, (ii) payment of
$2.3 million in fees related to the extension of the 2005 Credit Facility, and (iii) dividends paid of $165.9 million, all
of which were offset by proceeds from a follow-on offering of $158.9 million.
Management believes that the Company’s working capital is sufficient for its present requirements.
Dividend payment
Total dividends paid in 2008 were $165.9 million or $4.89 per share. The quarterly dividend payments per share in
2008, 2007 and 2006 were as follows:
Period
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total USD
2008
$0.50
1.18
1.60
1.61
$4.89
2007
$1.00
1.24
1.17
0.40
$3.81
2006
$1.88
1.58
1.07
1.32
$5.85
The dividend paid out each quarter is based on the results of the previous quarter.
The Company declared a dividend of $0.87 per share in respect of the fourth quarter of 2008 which was paid to
shareholders in March 2009.
Nordic American Tanker Shipping Limited
Page 6 of 28
THE MANAGEMENT AGREEMENT
Scandic American Shipping Ltd is the Manager of the Company. Under the Management Agreement the Manager has
the daily commercial and operational responsibility for our vessels and is generally required to manage our day-to-day
business subject to our objectives and policies as established and directed 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 by mutual
agreement.
For its services under the Management Agreement, the Manager is reimbursed for all of 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
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. In
connection with seven follow-on offerings, we have issued a total of 757,874 restricted shares to our Manager
pursuant to the Management Agreement. 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. Under
the supervision of the Manager, the ship management firm of V.Ships Norway AS or V.Ships, provides the technical
management for 12 of the Company’s 13 vessels.
The Company also works together with Frontline Ltd. (NYSE:FRO) and the private Stena group of Sweden - both
world names in the tanker industry - to provide commercial management services. 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.
We believe that compensation under the commercial and technical management agreements is in accordance with
industry standards.
SHAREHOLDERS’ RIGHTS PLAN
The Board of Directors adopted a shareholder rights plan in 2007 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 $390,000 in cash fees for their services as
directors for the year ended December 31, 2008. 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.
Nordic American Tanker Shipping Limited
Page 7 of 28
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 2008 was approximately $1.3
million. The aggregate compensation of our executive officers is expected to be approximately $1.5 million during
2009. Under certain circumstances, 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.
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
to the audited financial statements included herein 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 installments 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. During 2008, a former Board member cancelled his stock incentive award
in agreement with the Company and received compensation of $100,000. Please see Note 9 to the audited financial
statements included herein for further information about the Plan.
May 8, 2009
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, 2008, 2007 and 2006
Balance Sheets as of December 31, 2008 and 2007
Page
10
11
12
Statements of Shareholders’ Equity for the years ended December 31, 2008, 2007 and 2006
13
Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
14
Notes to Financial Statements
15-28
Nordic American Tanker Shipping Limited
Page 9 of 28
Nordic American Tanker Shipping Limited
Page 10 of 28
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
All figures in USD ‘000, except share and per share amount
Year Ended December 31,
Notes
2008
2007
2006
Voyage Revenues
Voyage Expenses
Vessel Operating Expenses - excluding
depreciation expense presented below
3
General and Administrative Expenses
Depreciation Expense
2,5,6,9
7
Net Operating Income
Interest Income
Interest Expense
Other Financial Income (Expense)
11
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
228,000
(10,051)
(35,593)
(12,785)
(48,284)
121,288
931
(3,392)
17
(2,443)
118,844
3.63
3.62
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)
72,242
1,602
(6,339)
(112)
(4,849)
67,393
3.14
3.14
32,739,057
28,252,472
21,476,196
32,832,854
28,294,997
21,476,196
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, 2008 AND 2007
All figures in USD ‘000, except share and per share amount
December 31,
December 31,
Notes
2008
2007
ASSETS
Current Assets
Cash and Cash Equivalents
Accounts Receivable, net $0 allowance at
December 31, 2008 and 2007
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, 34,373,271
shares issued and outstanding and 29,975,312
shares issued and outstanding at December 31,
2008 and December 31, 2007, respectively
Additional Paid-in Capital
Retained Earnings
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
3
4
7
8
2
12
13
10
6
16
15
31,378
40,335
-
22,406
94,119
707,853
9,000
2,906
719,759
813,878
1,947
449
3,817
6,214
15,000
4,078
25,292
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
344
300
905,262
(117,020)
852,121
(180,316)
788,586
813,878
672,105
804,628
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, 2008, 2007 AND 2006
All figures in USD ‘000, except number of shares
Number of
Shares
Common
Stock
Additional
Paid-in Capital
Retained
Earnings
Total
Shareholders’
Equity
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
Issuance of 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
Issuance of Restricted Shares
Share-based Compensation
Dividend Paid, $3.81 per share
3,000,000
61,224
31
119,720
2,289
1,261
Balance at December 31, 2007
29,975,312
300
852,121
Net Income
Common Shares Issued, net of $6.5
million issuance costs
Issuance of Restricted Shares
Share-based Compensation
Dividend Paid, $4.89 per share
4,310,000
87,959
43
1
Balance at December 31, 2008
34,373,271
344
158,847
3,617
1,015
(110,338)
905,262
(61,977)
67,393
(122,590)
(117,174)
44,206
(107,349)
(180,316)
118,844
(55,548)
(117,020)
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
118,844
158,890
3,618
1,015
(165,886)
788,586
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, 2008, 2007 AND 2006
All figures in USD ‘000
Year Ended December 31,
2008
2007
2006
Cash Flows from Operating Activities
Net Income
118,844
44,206
67,393
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
Net Cash (Used in) Investing Activities
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
48,284
618
1,413
1,015
3,618
(607)
(25,846)
(5,461)
(18,049)
(3,585)
(88)
7,753
(9)
127,900
-
(10,053)
(10,053)
158,890
25,000
(115,500)
(2,316)
(165,886)
42,363
514
2,665
2,289
1,261
(305)
(1,072)
(2,971)
(9,496)
2,260
-
100
1,835
83,649
(18,000)
(8,424)
(26,424)
119,751
55,000
(123,000)
(14)
(107,349)
29,254
402
-
6,369
1,545
-
6,140
9,763
-
(8,332)
-
(5,407)
(514)
106,613
-
(317,800)
(317,800)
288,357
274,500
(231,000)
(591)
(122,590)
Net Cash (Used in) Provided by Financing Activities
(99,812)
(55,612)
208,676
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
18,036
13,342
31,378
3,441
-
1,613
11,729
13,342
9,690
-
(2, 511)
14,240
11,729
5,499
-
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, 2008 the Company owns 15 double hull Suezmax tankers including one vessel delivered in
February 2009 and two newbuildings. The following chart provides information regarding each vessel.
Vessel
Gulf Scandic
Nordic Hawk
Nordic Hunter
Nordic Freedom
Nordic Voyager
Nordic Fighter
Nordic Discovery
Nordic Sprite
Nordic Saturn
Nordic Jupiter
Nordic Apollo
Nordic Cosmos
Nordic Moon
Nordic Galaxy
Nordic Vega
(1) Deadweight tons.
Yard
Samsung
Samsung
Samsung
Daewoo
Dalian New
Hyundai
Hyundai
Samsung
Daewoo
Daewoo
Samsung
Samsung
Samsung
Bohai
Bohai
Year
Built Dwt(1)
Employment Status
Flag
1997
1997
1997
2005
1997
1998
1998
1999
1998
1998
2003
2002
2003
2009
2010
Isle of Man
151,475 Bareboat
Bahamas
151,475 Spot
Bahamas
151,400 Spot
Bahamas
163,455 Spot
Norway
149,591 Spot
Norway
153,328 Spot
153,328 Spot
Norway
147,188 Spot, delivered Feb 2009 Norway
157,332 Spot
157,411 Spot
159,999 Spot
159,998 Spot
159,999 Spot
163,000 Expected delivery end of Dec 2009
163,000 Expected delivery end of Apr. 2010
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
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.
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. Transactions in foreign currencies during the year
are translated into U.S dollars at the rates of exchange in effect at the date of the transaction.
Cash and Cash Equivalents: Cash and cash equivalents consist of deposits with original maturities of three months
or less.
Inventories: Inventories, which are comprised of bunker fuel and lubrication oil, 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.
Nordic American Tanker Shipping Limited
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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 residual 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, 2008, 2007 or 2006.
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 12 of its 13 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:
Nordic American Tanker Shipping Limited
Page 16 of 28
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
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
based on the net method.
The Company accounts for the net revenues allocated by these cooperative agreements as “Voyage Revenue” in its
statements of operations. See Note 3 for further information
Spot charters: Voyage revenues are recognized on a pro rata basis based on the relative transit time in each period. 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. Demurrage income is included in
“Voyage Revenues” in the Statement of Operations. At December 31, 2008 and 2007, the Company had no reserves
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. The expected
minimum payments to be received under the bareboat charter to Gulf Navigation amount to $6.3 million annually. The
contract was scheduled to terminate in the fourth quarter of 2009, and subject to two one-year extensions. Gulf
Navigation has exercised its first one-year option and extended the charter for one additional year.
Vessel Operating Expenses: Vessel operating expenses include crewing, repair and maintenance, insurance, stores,
lubricants, communication expenses and tonnage tax. These expenses are recognized when incurred.
Derivative Instruments: The Company did not hold any derivative instruments at December 31, 2008 or 2007.
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.
Nordic American Tanker Shipping Limited
Page 17 of 28
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
directly as components of stockholders' equity. The Company has no other comprehensive income / (loss) and
accordingly comprehensive income / (loss) is equal to 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 financial institutions it believes are reputable.
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, due to the current financial
crisis the maximum credit risk the Company would be exposed to is a total loss of outstanding cash and cash
equivalents and 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, 2008 and 2007, 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, 2008 and 2007, and has not entered into any such
arrangements during 2008.
Recent Accounting Pronouncements: In February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-2
(“FSP 157-2”), which delays the effective date of SFAS No. 157, “Fair Value Measurement,” (“SFAS 157”) to fiscal
years beginning after November 15, 2008 and interim periods with those fiscal years for all nonfinancial assets and
liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at
least annually) until January 1, 2009 for calendar year end entities. The Company adopted SFAS 157, except as it
applies to nonfinancial assets and liabilities as noted in FSP 157-2, beginning from January 1, 2008. The partial
adoption of SFAS 157 did not have any effect on the Company’s financial position or results of operations and cash
flows. The Company is currently evaluating the effect that the adoption of SFAS 157, as it relates to nonfinancial
assets and liabilities, will have on its financial position, results of operations or 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 requirements to enable the evaluation of the
nature and financial effects of the business combination. SFAS 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15,
2008. An entity may not apply it before that date. The Company must adopt this standard as of January 1, 2009. As the
provisions of SFAS No. 141 (R) are applied prospectively, the impact to the Company cannot be determined until any such
transaction occurs.
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
Nordic American Tanker Shipping Limited
Page 18 of 28
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’s adoption of SFAS 160
did not have any impact on the Company’s financial position, results of operations and 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 adoption of SFAS 161 did not have any
impact on the Company’s financial position, results of operations and cash flows
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 for the Company’s vessels and is required to manage the Company’s day-to-day business, subject to the
objectives and policies 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 2008, the Company issued to the Manager 87,959 shares at an average fair value of $39.45. The Company
recognized $2.2 million, $2.2 million and $1.6 million of total costs for services provided under the Management
Agreement for the years ended December 31, 2008, 2007, and 2006, respectively. Additionally, the Company
recognized $3.6 million, $2.3 million and $6.3 million in non-cash share-based compensation expense for the years
ended December 31, 2008, 2007 and 2006, 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 $0.4 million and $0.7 million at December 31, 2008 and 2007,
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 $0.1 million, $0.2 million, and
$0.1 million in costs for the years ended December 31, 2008, 2007 and 2006, 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, 2008
and December 31, 2007, respectively.
3.
REVENUE
For the twelve months ending December 31, 2008, the Company’s only source of revenue was from the Company’s
12 existing 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.
The table below provides the breakdown of revenues recorded as per the net method and the gross method.
All figures in USD ‘000
Net Method
Gross Method
Total Voyage Revenue
2008
204,402
23,598
228,000
2007
65,354
121,632
186,986
2006
53,177
122,343
175,520
Nordic American Tanker Shipping Limited
Page 19 of 28
Two cooperation arrangements accounted for 50% and 41% of the Company’s revenues for the year ended December 31,
2008. Five cooperation arrangements accounted for 24%, 23%, 16%, 15% and 14% of the Company’s revenues,
respectively, for the year ended December 31, 2007. One cooperation arrangement accounted for 23% of the
Company’s revenues during the year ended December 31, 2006.
Accounts receivable at December 31, 2008 and 2007 are $40.3 million and $14.5 million, respectively. The following
is a breakdown of this amount:
All figures in USD ‘000
Accounts Receivable
Accounts Receivable - Technical and Commercial Managers
Total as per December 31,
2008
2007
-
40,335
113
14,376
40,335
14,489
Two cooperation arrangements accounted for 53% and 43% of the Company’s accounts receivables for the year ended
December 31, 2008. Two cooperation arrangements accounted for 45% and 40% of the Company’s accounts
receivables, for the year ended December 31, 2007.
4.
PREPAID EXPENSES AND OTHER ASSETS
All figures in USD ‘000
Bunkers and lubricants - Technical and Commercial Managers
Other current assets - Technical and Commercial Managers
Prepaid expenses - Technical and Commercial Managers
Deposit on Contract
Receivables related to Newbuildings
Financial Charges
Other
Total as per December 31,
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
2008
2,137
-
2,304
9,000
7,370
653
942
22,406
2008
225
87
1,711
684
2,208
1,724
6,639
3,618
1,115
1,413
6,146
2007
6,835
580
1,046
-
-
514
244
9,219
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,
12,785
12,132
12,750
Nordic American Tanker Shipping Limited
Page 20 of 28
6.
DEFERRED COMPENSATION LIABILITY
In May 2007, the Board of Directors approved a new unfunded deferred compensation plan for Herbjørn Hansson, the
Chairman, President and CEO. The plan provides for unfunded deferred compensation computed as a percentage of
salary. Benefits vest over a 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 6.0% and 4.5% as per December 31, 2008 and 2007, respectively.
The rights under the plan commenced on October 2004. The total expense recognized in 2008 was $1.4 million. 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 was recognized in 2007. 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
Net Book Value December 31, 2008
Accumulated depreciation December 31, 2008
Depreciation expense 2008
Vessels Drydocking
21,066
686,788
9,339
176,611
7,222
41,063
Net Book Value December 31, 2007
Accumulated depreciation December 31, 2007
Depreciation expense 2007
717,799
135,548
39,893
22,832
3,211
2,470
Total
707,853
185,950
48,284
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 in 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, 2008, the Company has paid a deposit of 10% of the purchase price in the aggregate amount of
$18.0 million for both vessels.
Nordic American Tanker Shipping Limited
Page 21 of 28
The table below shows total capitalized costs related to the two newbuildings:
All figures in USD ‘000
Newbuilding - Nordic Galaxy expected delivery 4Q09
Deposit on contract
Capitalized interest
Capitalized cost
Total Newbuilding – Nordic Galaxy as per December 31,
Newbuilding – Nordic Vega expected delivery April 2010
Deposit on contract
Capitalized interest
Capitalized cost
Total Newbuilding - Nordic Vega as per December 31,
2008
2007
9,000
163
108
9,271
9,000
143
108
9,251
9,000
152
-
9,152
9,000
153
-
9,153
Total as per December 31,
18,522
18,305
Due to the expected delivery of the newbuilding Nordic Galaxy in 4Q09, items related to this vessel have been
classified as current assets and recorded within “Prepaid and Other Expenses” in the balance sheet.
9.
SHARE-BASED COMPENSATION PLAN
The Company has a share-based compensation plan which is described below. Total compensation cost related to the
plan was $1.1 million, $1.3 million and $1.5 million for the years ended December 31, 2008, 2007, and 2006,
respectively and was recorded within “General and Administrative expense” in the statement of operations.
Unrecognized compensation cost related to the plan was $0.3 million (stock options plus restricted shares) as of
December 31, 2008.
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. 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, 2008. New shares are 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.
No modifications were 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 options granted in 2007 have an exercise price equal to the market price of
the shares at the grant date, with later adjustments for dividends exceeding 3%. 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.
Nordic American Tanker Shipping Limited
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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 are considered to be appropriate since 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
compensation cost is recognized using the accelerated method. 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, 2008
Employees
40.90 %
3.0 %
2.81
3.25 % - 4.43 %
Non-employees
41.47 %
3.0 %
6.27
1.69 – 1.85 %
A summary of option activity under the Plan as of December 31, 2008, and changes during the year then ended is
presented below:
Options
Outstanding at January 1, 2008
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2008
Exercisable at December 31, 2008
Options
employees
250,000
-
-
(10,000)
240,000
227,500
Options
non-employees
80,000
-
-
-
80,000
72,500
Weighted-average
exercise price
$ 28.54
-
-
$24.64
$24.81
$24.69
Outstanding and exercisable stock options as at December 31, 2008 have a weighted-average remaining contractual
term of 6.22 years for employees and 6.33 years for non-employees. The exercise price for outstanding stock options
as at December 31, 2008 is in the range of $24.64 – $30.19. The intrinsic value of options outstanding at December
31, 2008 was $2.9 million and the intrinsic value of exercisable options was $2.8 million
One stock option agreement with a non-executive Director was cancelled in November 2008. The Company paid a
lump sum of $ 0.1 million as full and final consideration for this cancellation. The remaining compensation cost for
this specific agreement was less than $0.1 million and the Company has recognized $0.1 million as an expense in the
period. There have been no other exercise or payments related to the stock option plan during the fiscal years 2006,
2007 or 2008.
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
Weighted-
average grant-
date fair value
- Employees
$18.38
-
$17.84
-
-
$18.64
Options
-
Non-
employees
67,500
-
(20,000)
-
-
47,500
Weighted-average
grant-date fair
value
- Non-employees
$21.75
-
$22.93
-
-
$21.25
Nordic American Tanker Shipping Limited
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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
Options
-
Employees
Non-vested at January 1, 2008
Granted during the year
Vested during the year
Forfeited during the year
Estimated forfeitures unvested options
Non-vested at December 31, 2008
75,000
-
(52,500)
(10,000)
-
12,500
Weighted-
average grant-
date fair value
- Employees
$ 18.64
$ 7.00
$ 17.84
-
-
$ 17.73
Weighted-
average grant-
date fair value
- Employees
$ 17.73
-
$ 16.84
$ 20.36
-
$ 7.78
Options
-
Non-
employees
47,500
-
(20,000)
-
-
27,500
Options
-
Non-
employees
27,500
-
(20,000)
-
-
7,500
Weighted-average
grant-date fair
value
- Non-employees
$ 21.25
-
$ 22.93
-
-
$20.03
Weighted-average
grant-date fair
value
- Non-employees
$20.03
-
$ 22.93
-
-
$12.32
The total fair value of options vested during the years ended December 31, 2008, 2007 and 2006 approximates the
amounts expensed in the periods. Unrecognized compensation cost related to the stock options is $0.1 million, which
will be recognized over a weighted average period of 1.44 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.
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 (the date the
awards were 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 shares. 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 shares vest equally in annual installments over a period of four years. The
holders of the restricted shares are entitled to receive dividends paid in the period as well as 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 (2007:
2,425) restricted shares to employees and 1,750 (2007: 1,750) restricted shares to non-employees vested in 2008.
The compensation cost for employees and non-employees is recognized on a straight-line basis over the vesting
period. The total compensation cost in 2008 related to restricted shares was $ 0.1 million (2007: $0.1 million). The
intrinsic value of outstanding and vested restricted shares at December 31, 2008 was $0.6 million and $0.3 million,
respectively.
Nordic American Tanker Shipping Limited
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At December 31, 2008, 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, 2008, unrecognized compensation cost
related to unvested restricted stock aggregated $0.2 million ($0.3 million per December 31, 2007), which will be
recognized over a weighted average period of 0.92 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 tables below summarize the Company’s restricted stock awards as of December 31, 2008 and December 31, 2007:
Restricted
shares -
Employees
9,700
-
2,425
-
7,275
Restricted
shares -
Employees
7,275
-
2,425
-
4,850
Weighted-
average grant-
date fair value
- Employees
$31.99
-
-
-
$31.99
Weighted-
average grant-
date fair value
- Employees
$31.99
-
-
-
$31.99
Restricted
shares
- Non-
employees
7,000
-
1,750
-
5,250
Restricted
shares
- Non-
employees
5,250
-
1,750
-
3,500
Weighted-average
grant-date fair
value
- Non-employees
$31.99
-
-
-
$31.99
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
Non-vested at January 1, 2008
Granted during the year
Vested during the year
Forfeited during the year
Non-vested at December 31, 2008
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 term of the facility. Amounts borrowed under the 2005 Credit Facility bear interest at an annual
rate equal to LIBOR plus a margin between 0.70% 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, 2008 and December 31, 2007 were $1.0 million and $0.8 million, respectively.
In September 2006, the amount of the 2005 Credit Facility was increased to $500 million. The other terms of the 2005
Credit Facility were not amended. In April 2008, the Company extended the original five year term of the 2005 Credit
Facility to 2013. All other terms are unchanged The undrawn amount of this facility as of December 31, 2008 and
2007 was $485.0 million and $ 394.5 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. Under the terms and conditions of the 2005 Credit Facility the Company is,
among other things, required to maintain certain loan to vessel value ratios, and to maintain a book equity of no less
than $150.0 million, and to remain listed on a recognized stock exchange, and to obtain the consent of the lenders
prior to creating liens on or disposing of the Company’s vessels. 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.
At December 31, 2008, accrued interest and commitment fee was $0.1 million which was paid during the first quarter
of 2009.
The Company was in compliance with its loan covenants for the year ended December 31, 2008.
Nordic American Tanker Shipping Limited
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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 $15 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 2008, 2007 and 2006
was $0.6 million, $0.5 million and $0.4 million, respectively. Total capitalized deferred financing costs were $3.1
million and $1.4 million at December 31, 2008 and 2007, respectively.
12. DEFERRED REVENUE
Deferred revenue at December 31, 2008 of $0.4 million represents prepaid freight received from one of our customers
prior to December 31, 2008 for services to be rendered during January 2009.
13. ACCRUED LIABILITIES
All figures in USD ‘000
Accrued Interest
Accrued Expenses - Technical and Commercial Managers
Accrued commission
Other Current Liabilities
Total as per December 31,
2008
85
2,997
462
273
2007
572
11,989
190
3,780
3,817
16,531
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
2008
2007
2006
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
118,844,410
44,205,635
67,393,423
32,739,057
93,797
28,252,472
42,525
21,476,196
-
32,832,854
28,294,997
21,476,196
3.63
3.62
1.56
1.56
3.14
3.14
* For 2006 the Company’s average stock price was above the average exercise price of the options 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 the shares 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.
Nordic American Tanker Shipping Limited
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15. SHAREHOLDERS’ EQUITY
Authorized, and issued and outstanding common shares roll-forward is as follows:
All figures in USD ´000, except number
of shares
Balance at January 1, 2006
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 Follow-on Offering
Share-based Compensation
Balance at December 31, 2007
Issuance of Common Shares
in Follow-on Offering
Share-based Compensation
Balance at December 31, 2008
Authorized
Shares
51,200,000
Issued and Out-
standing Shares
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
4,310,000
87,959
34,373,271
51,200,000
51,200,000
51,200,000
Common Stock
166
43
1
58
1
269
30
1
300
43
1
344
In May 2008, the Company completed an underwritten public offering of 4,310,000 common shares. The net
proceeds from the offering were $158.9 million which were used to prepare the Company for further expansions and
repay borrowings under the 2005 Credit Facility.
The total issued and outstanding shares as of December 31, 2008 were 34,373,271 shares of which 354,575 shares
were restricted shares issued to the Manager and 8,350 shares were restricted shares issued to employees and non-
employees as described in Note 9. The total issued and outstanding shares as of December 31, 2007 were 29,975,312
shares of which 343,274 shares were restricted.
Additional Paid in Capital
Included in Additional Paid in Capital is the Company’s Share Premium Fund as defined by Bermuda Law. The Share
Premium Fund cannot be distributed without complying with certain legal procedures designed to protect the creditors
of the Company. The Share Premium Fund was $0.0 million and $851.5 million as of December 31, 2008 and 2007
respectively.
On June 23, 2008, at the Company’s Annual General Assembly Meeting, shareholders voted to reduce the Share
Premium Fund by the amount of $1,010.3 million. The legal procedures related to this reduction were finalized on
August 29, 2008, upon which the amount became eligible for distribution.
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.
Nordic American Tanker Shipping Limited
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No claims have been filed against the Company for the fiscal year 2008 or 2007. The Company is not a party to any
legal proceedings for the year ended December 31, 2008 and December 31, 2007, respectively.
At December 31, 2008, the Company had payment obligations totalling $211.3 million in connection with the
agreement to acquire two newbuildings entered into in November 2007 and the double-hull Suezmax tanker Nordic
Sprite agreed to acquire in December 2008. The payments due in 2009 and 2010 are $148.8 million and $62.6 million,
respectively. Please see Note 8 for further information related to the newbuildings.
17. SUBSEQUENT EVENTS
In January 2009, the Company completed an underwritten public offering of 3,450,000 common shares which
strengthened its equity by $107.5 million in order to enhance the capacity of the Company to make further accretive
acquisitions.
In February 2009, the double-hull Suezmax tanker Nordic Sprite was delivered to the Company.
In February 2009, the Company declared a dividend of $0.87 per share in respect of the fourth quarter of 2008 which
was paid to shareholders in March 2009.
In May 2009, the Company declared a dividend of $0.88 per share in respect of the first quarter of 2009 which is
expected to be paid to shareholders in June 2009.
In May 2009, the Company announced the acquisition of our sixteenth suezmax vessel, a 150,000 dwt double-hull
tanker for a purchase price of $57.0 million. The vessel is expected to be delivered from the seller no later than July
15, 2009. The new vessel will be operated in the spot market or on spot market-related charters.
* * * * *
Nordic American Tanker Shipping Limited
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