NORDIC AMERICAN TANKERS
LIMITED
2011 ANNUAL
REPORT TO
SHAREHOLDERS
Nordic American Tankers Limited
Page 1 of 36
HISTORY AND DEVELOPEMENT
Nordic American Tankers Limited, or the Company, was founded on June 12, 1995 under the name Nordic American
Tanker Shipping Limited under the laws of the Islands of Bermuda and we maintain our principal offices at LOM
Building, 27 Reid Street, Hamilton HM 11, Bermuda. Our telephone number at such address is (441) 292-7202. We
are an international tanker company that currently owns 20 Suezmax tankers. The Company was formed for the
purpose of acquiring and chartering three double-hull Suezmax tankers that were built in 1997. In the autumn of
2004, the Company owned three vessels; at the end of 2005 the Company owned eight vessels; at the end of 2006 the
Company owned 12 vessels; at the end of 2009 the Company owned 15 vessels; at the end of 2010 the Company
owned 17 vessels; and at the end of 2011 the Company owned 20 vessels. We expect that the expansion process will
continue over time and that more vessels will be added to our fleet.
BUSINESS
We are an international tanker company that owns 20 double-hull Suezmax tankers that average approximately
156,000 dwt each. We chartered all of our vessels in the spot market pursuant to a cooperative arrangement with
Gemini Tankers LLC until November 24, 2011. In November 2011, the Orion Tankers pool was established with
Orion Tankers Ltd. as pool manager and our vessels were transferred from the Gemini Tankers LLC arrangement to
the Orion Tankers pool upon completion of previously fixed charters within Gemini Tankers LLC.
Historically, oil trade and, therefore, charter rates increased in the winter months and eased in the summer months as
demand for oil in the Northern Hemisphere rose in colder weather and fell in warmer weather. The tanker industry, in
general, has become less dependent on the seasonal transport of heating oil than a decade ago as new uses for oil and
oil products have developed, spreading consumption more evenly over the year. Most apparent is a higher seasonal
demand during the summer months due to energy requirements for air conditioning and motor vehicles.
Our Fleet
Our current fleet consists of 20 double-hull Suezmax tankers and all of our vessels are employed in the spot market
pursuant to our cooperative arrangement with Orion Tankers Ltd.
Vessel
Yard
Built
Deadweight
Tons
Delivered to NAT
Nordic Harrier
Nordic Hawk
Nordic Hunter
Nordic Voyager
Nordic Freedom
Nordic Fighter
Nordic Discovery
Nordic Saturn
Nordic Jupiter
Nordic Apollo
Nordic Moon
Nordic Cosmos
Nordic Sprite
Nordic Grace
Nordic Mistral
Nordic Passat
Nordic Vega
Nordic Breeze
Nordic Aurora
Nordic Zenith
Samsung
Samsung
Samsung
Dalian New
Daewoo
Hyundai
Hyundai
Daewoo
Daewoo
Samsung
Samsung
Samsung
Samsung
Hyundai
Hyundai
Hyundai
Bohai
Samsung
Samsung
Samsung
1997
1997
1997
1997
2005
1998
1998
1998
1998
2003
2002
2003
1999
2002
2002
2002
2010
2011
1999
2011
151,475
151,475
151,400
149,591
163,455
153,328
153,328
157,332
157,411
159,999
159,999
159,998
147,188
149,921
164,236
164,274
163,000
158,597
147,262
158,645
August 1997
October 1997
December 1997
November 2004
March 2005
March 2005
August 2005
November 2005
April 2006
November 2006
November 2006
December 2006
February 2009
July 2009
November 2009
March 2010
December 2010
August 2011
September 2011
November 2011
Nordic American Tankers Limited
Page 2 of 36
During 2011, our fleet increased by three vessels, including two newbuilding vessels that we took delivery of from
Samsung Heavy Industries Co., Ltd. pursuant to agreements that we entered into in April 2010.
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 may consider
charters at fixed rates depending on market conditions.
We currently operate all of our 20 vessels in the spot market through a cooperative arrangement with other vessels that
are not owned by us.
Spot Market
Spot Charters: Tankers operating in the spot market are typically chartered for a single voyage which may last up to
several weeks. Under a voyage charter, revenue is generated from freight billing, as we are responsible for paying
voyage expenses and the charterer is responsible for any delay at the loading or discharging ports. When our tankers
are operating on spot charters the vessels are traded fully at the risk and reward of the Company. For vessels operating
in the spot market other than through the pool (described below), the vessels will be operated by the pool manager.
Under this type of employment, the vessel’s revenues are not included in the profit sharing of the participating vessels
in the pool. The Company considers it appropriate to present this type of arrangement on a gross basis in the
Statements of Operations. See note 2 to our audited financial statements for further information concerning our
accounting policies.
During 2011, we temporarily operated six vessels in the spot market through the pool manager of the cooperative
arrangement. No vessels were operated in the spot market through cooperative arrangements during 2010.
Cooperative Arrangements: The pool manager of the cooperative arrangements has the responsibility for the
commercial management of the participating vessels, including marketing, chartering, operating and purchasing
bunker (fuel oil) for the vessels. Revenue is generated from freight billing, as the pool manager is responsible for
paying voyage expenses and the charterer is responsible for any delay at the loading or discharging ports. The pool
manager employs the vessels in the pool under a contract with a particular charterer for a number of voyages, with
each single voyage or contract of carriage being performed by a pool vessel after nomination by the pool manager.
Each participant in the pool shall, in relation to each of its vessels, maintain the vessel in a seaworthy condition and to
defined technical and operational standards and obtain and maintain the required number of vettings. The owners of
the participating vessels remain responsible for the technical costs including crewing, insurance, repair and
maintenance, financing and technical management of their vessels. The revenues, less voyage expenses, or net pool
earnings of all of the vessels are aggregated and divided by the actual earning days each vessel is available during the
period. The Company has considered it appropriate to present this type of arrangement on a net basis in the Statements
of Operations. See Note 2 to our audited financial statement.
If a vessel does not temporarily comply with the pool requirements, the vessel will continue to be operated in the spot
market by the pool manager, as described above under “Spot Charters.”
Until June 30, 2010, Frontline Ltd. (NYSE:FRO) and the private Stena Group of Sweden provided commercial
management services for all of the Company`s vessels trading in the spot market. From July 1, 2010 until November
2011, we placed all of our vessels in a spot market cooperation with Gemini Tankers LLC, where Frontline Ltd. and
Teekay Corporation (NYSE: TK), together with us were the main owners of the participating vessels.
In November 2011, the Orion Tankers pool was established with Orion Tankers Ltd. as pool manager. This company
is owned equally by us and Frontline Ltd. In mid-November 2011, our vessels were transferred from the Gemini
Tankers LLC arrangement to the Orion Tankers pool upon completion of previously fixed charters within Gemini
Tankers LLC.
Time Charters
No vessels were employed on time charters during 2011 and 2010.
Nordic American Tankers Limited
Page 3 of 36
Bareboat Charters
Under a bareboat charter, the charterer is responsible for operating and maintaining the vessel and for paying all
operating costs and expenses with respect to the vessel.
No vessels were employed on bareboat charters during 2011. During the year ended December 31, 2010, two of our
vessels were employed on bareboat charters that expired in June 2010 and October 2010, respectively.
THE 2011 TANKER MARKET (Source: Fearnleys)
Based on data for 2011, it was the worst year for the freight market for all types and sizes of tankers in almost a
decade. In 2002, freight rates were periodically lower than in 2011, but the downturn lasted for a shorter period of
time, and, more importantly, bunker costs were approximately 75% lower in 2002 compared to 2011. As a result of
bunker prices, earnings on a time charter equivalent basis for the largest vessels have been negative for a large part of
the year whereas Suezmax earnings have been positive. Normally, time charter equivalents are calculated on the basis
of normal service speed and corresponding bunker consumption, but more recently, due to speed optimization, time
charter equivalents for the largest vessels have been above zero as well.
The oil tanker fleet is generally divided into five major categories of vessels, based on carrying capacity and the types
of cargoes carried. A tanker’s carrying capacity is measured in deadweight tons, or 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 about
$5,400 per day during 2011, or about 80% lower than in 2010. Suezmaxes, whose carrying capacity ranges from
120,000 dwt to 200,000 dwt, achieved $16,200 per day during the same period, down from $28,500 in the year 2010.
Corresponding rates for Aframaxes, whose carrying capacity ranges from 80,000 dwt to 120,000 dwt, were about
$10,600 per day compared with $15,500 per day in the year 2010. 2011 has been more challenging for owners than
the weak tanker market in the year 2010. The earnings estimates used in this section are based on service speed and
consumption. As most owners currently operate their vessels as economically as possible, i.e., by slow steaming,
actual earnings are somewhat higher than those above. Earnings have periodically stayed far below operating costs
resulting in substantial operating losses for many companies. Suezmax tankers have generally generated earnings
above operating costs. Asset values in 2011 compared to 2010 for Suezmax tankers declined the least of the three
main crude tanker segments.
Preliminary estimates for seaborne crude oil trade, measured in tonne-miles, indicate a decrease of about 2.0% in 2011
compared to 2010. Measured by volume, the decrease is estimated to be about 2.5%, indicating an increase in average
distances. Crude oil imports to the U.S. show a decrease of about 3.3% compared to 2010. Based on 10 months
seaborne trade statistics, transportation work during this period fell by 3.9% compared to the first 10 months of 2010.
This indicates reduced average distances in combination with increased over land imports from Canada. In East Asia,
Chinese crude oil imports have stagnated in 2011 whereas Korean crude oil imports have increased and Japanese and
Taiwanese imports are down.
In 2011, a total of 60 VLCCs and 43 Suezmax tankers have been delivered from yards. The Suezmax fleet is expected
to expand by 11.5% and the VLCC fleet by 11.1% (both measured by deadweight tons) in 2012. In total, net tanker
fleet growth is estimated to be 8.0% in 2012.
The sale and purchase market for tankers, measured by the number of transactions, is expected to decrease compared
with 2010. In 2011, about 225 tankers have been sold compared to 269 in 2010. Prices are down across the tanker
market and, since the end of 2010, prices have declined between 9% and 44%.
The International Energy Agency (IEA), according to its November 2011 report, expects global demand for oil to
increase by an estimated 1.2% in 2012. With the current financial turmoil, especially in Europe, and continued
challenging times in the U.S. (despite falling unemployment and increased activity in the industry and construction
sector) Fearnleys is quite uncertain about market developments for tankers in 2012. Following a period of rising
inflation and numerous actions to restrict credit, the Chinese government has recently eased restrictions somewhat in
order to stimulate domestic demand. However, the two main areas of Chinese economic activity – the real estate
Nordic American Tankers Limited
Page 4 of 36
sector and exports – are expected to slow down in 2012. Fearnleys does not expect any significant increase in Chinese
crude oil imports in 2012.
OUR CREDIT FACILITY
The Company has a $500 million revolving credit facility, which is referred to as the Credit Facility.
The Company entered into the Credit Facility in September 2005. During 2006, the Company increased the Credit
Facility from $300 million to $500 million, and in March 2008, the term was extended from September 2010 to
September 2013. All other terms remained unchanged.
The Credit Facility provides funding for future vessel acquisitions and general corporate purposes. The Credit Facility
cannot be reduced by the lenders and there is no repayment obligation of the principal during the five-year term.
Amounts borrowed under the 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. Borrowings under the Credit facility are secured by first priority
mortgage over the Company’s vessels and assignment of earning and insurance.
Borrowings under the Credit facility are secured by first priority mortgage over the Company’s vessels and assignment
of earning and insurance. Under the terms and conditions of the 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 Credit Facility.
The undrawn amount of this facility as of December 31, 2011 was $270.0 million. The Company is currently in
compliance with its loan covenants.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Results of Operations
We present our Statement of Operations using voyage revenues and voyage expenses. During the year ended
December 31, 2011, all of our vessels were employed in the spot market. During the year ended December 31, 2010,
two of our vessels were employed on bareboat charters that expired in June 2010 and October 2010 and the rest of our
fleet was operated in the spot market. Under a bareboat charter, the charterer pays substantially all of the vessel
voyage expenses. Under a spot charter, the vessel owner pays all vessel voyage expenses. Vessel voyage expenses
consist primarily of fuel, port charges and commissions. Under our cooperative arrangement, the pool manager
employs the vessels in the pool under a contract with a particular charterer for a number of voyages, with each single
voyage or contract of carriage being performed by a pool vessel after nomination by the pool manager. The earnings
of all of the vessels are aggregated and divided by the actual earning days each vessel is available during the period.
Since the amount of voyage expenses that we incur for a charter depends on the type of the charter, we use net voyage
revenues to provide comparability among the different types of charters. Management believes that net voyage
revenue, a non-GAAP financial measure, provides more meaningful disclosure than voyage revenues, the most
directly comparable financial measure under accounting principles generally accepted in the United States, or US
GAAP because it enables us to compare the profitability of our vessels which are employed under bareboat charters,
spot related time charters and spot charters. Net voyage revenues divided by the number of days on the charter
provides the Time Charter Equivalent (TCE) Rate. -For bareboat charters, vessel voyage expenses must be added in
order to calculate TCE rates. Net voyage revenues and TCE rates are widely used by investors and analysts in the
tanker shipping industry for comparing the financial performance of companies and for preparing industry averages.
We believe that our method of calculating net voyage revenue is consistent with industry standards. The following
table reconciles our net voyage revenues to voyage revenues.
Nordic American Tankers Limited
Page 5 of 36
All figures in USD ‘000
Voyage Revenue
Voyage Expenses
Net Voyage Revenues
Vessel Operating Expenses
General and Administrative Expenses
Depreciation Expense
Loss on Contract
Net Operating (Loss) Income
Interest Income
Interest Expense
Other Financial Expense
Net (Loss) Income
All figures in USD ‘000
Voyage Revenue – net pool earnings
Voyage Revenue – gross freight
Bareboat Revenue
Total Voyage Revenue
Less Bareboat Revenue
Less Voyage expenses – gross voyage expenses
Total TCE revenue
Vessel Calendar Days (1)
Less bareboat days
Less off-hire days (2)
Total TCE days
TCE Rate per day (3)
Total Days – vessel operating expenses
Year Ended December 31,
2011
94,787
(14,921)
79,866
(54,859)
(15,394)
(64,626)
(16,200)
(71,213)
1,187
(2,130)
(142)
(72,298)
2010
126,416
-
126,416
(47,113)
(15,980)
(62,545)
-
778
632
(1,971)
(248)
(809)
Year Ended December 31,
2011
76,618
18,169
-
94,787
-
(14,921)
79,866
6,367
-
116
6,251
$ 12,777
6,370
2010
119,598
-
6,818
126,416
(6,818)
-
119.598
5,732
395
101
5,236
$ 22,841
5,337
Variance
(25.0%)
-
(36.8%)
(16.4%)
3.7%
(3.3%)
-
87.8%
(8.1%)
42.7%
-
Variance
(35.9%)
(25.0%)
(33.2%)
11.1%
14.9%
19.4%
(44.1%)
19.4%
(1)
(2)
(3)
Vessel Calendar Days is the total number of days the vessels were in our fleet.
Nordic Harrier (former Gulf Scandic) was redelivered from a bareboat charter in October 2010 and went directly into drydock for
repairs. The drydock period was completed in late April 2011 and the vessel was employed in the spot market pursuant to
cooperative arrangements on May 1, 2011. The calendar days and the off-hire days in connection with the drydock period of the
Nordic Harrier are not included in this table because the vessel had not operated in the spot market prior to May 1, 2011 and as a
result, the number of calendar and off-hire days would not have an impact on the comparison of TCE rate per day.
Time Charter Equivalent, (“TCE”), results from Total TCE revenue divided by Total TCE days
Voyage revenue decreased by 25.0% to $94.8 million for the year ended December 31, 2011, from $126.4 million for
the year ended December 31, 2010. The decrease in voyage revenue was primarily the result of a decrease in net pool
earnings by 35.9% to $76.6 million for the year ended December 31, 2011, from $119.6 million for the year ended
December 31, 2010, due to a decline in spot market rates. The decrease in net pool earnings was offset by an increase
in TCE days of 19.4% for the year ended December 31, 2011 from 2010, due to the expansion of the fleet by three
vessels in 2011 and TCE days for a whole year for the vessels delivered in 2010.
Voyage expenses were $14.9 million for the year ended December 31, 2011, compared to $0.0 million for the year
ended December 31, 2010. The voyage expenses of $14.9 million for the year ended December 31, 2011 is related to
the six vessels we temporarily operated in the spot market where the Company was the principal of the vessel’s
activities. During 2010 we did not operate as principal of the vessel’s activities. Vessels chartered for a single voyage
are presented in the Statement of Operations on a gross basis. The gross freight achieved on these voyages is included
in the voyage revenue. Revenues for vessels employed pursuant to a cooperative arrangement are presented net of
voyage expenses.
Nordic American Tankers Limited
Page 6 of 36
Net voyage revenues were $79.9 million for the year ended December 31, 2011 compared to $126.4 million for the
year ended December 31, 2010, representing a decrease of 36.8%. The decrease in net voyage revenues was primarily
the result of a decrease in the spot market rates for the period. Average TCE rate was $12,777 for the year ended
December 31, 2011 compared to $22,841 for the year ended December 31, 2010, representing a decrease of 44.1%.
The decrease in net voyage revenues was offset by an increase in revenue days of 19.4%, due to expansion of the fleet
by three vessels in 2011 and revenue days for a whole year for the vessels delivered in 2010.
Vessel operating expenses, or operating expenses, were $54.9 million for the year ended December 31, 2011
compared to $47.1 million for the year ended December 31, 2010, an increase of 16.4%. The increase in operating
expenses for the year ended December 31, 2011 compared to 2010 was a result of an increase in operating days of
19.4%, due to expansion of the fleet by three vessels in 2011 and operating days for a whole year for the vessels
delivered in 2010. The increase in operating expenses was offset by a decrease in the average operating expenses per
day of $8,600 for the year ended December 31, 2011, from $8,800 per day for the year ended December 31, 2010. The
decrease in average operating expenses per day is a result of our high focus on limiting costs and the cost synergies
created by operating a homogenous fleet.
General and administrative expenses were $15.4 million for the year ended December 31, 2011 compared to
$16.0 million for the year ended December 31, 2010, which resulted in a decrease of 3.7%. The decrease of
$0.6 million in general and administrative expenses during 2011 as compared to 2010, is a result of a decrease of
$2.2 million related to share-based compensation and pension costs, offset by an increase of $0.9 million related to the
arbitration procedures for the Nordic Galaxy and of $0.7 million related to the increase in expenses primarily due to
expansion of the fleet by three vessels in 2011. General and administrative expenses for the year ended December 31,
2011, include $3.1 million in expenses related to share-based compensation and pension costs as compared to $5.3
million for the year ended December 31, 2010. The decrease in general and administrative expenses of $2.2 million
related to share-based compensation and pension cost for the year ended December 31, 2011 compared to the year
ended December 31, 2010, is a result of a decrease in costs of $2.8 million related to the issuance of restricted shares
to the Manager after a follow-on offering that was conducted in 2010 under the management agreement as compared
to no such costs in 2011. In addition, a decrease in costs of $0.7 million in 2011 under deferred compensation plan is a
result of foreign currency exchange fluctuations related to the deferred compensation agreements which are
denominated in Norwegian krone and the financial assumption of the agreements. We had an increase in expenses in
2011 of $1.3 million related to restricted shares issued under the 2011 Equity Incentive Plan.
Depreciation expenses were $64.6 million for the year ended December 31, 2011 compared to $62.5 million for the
year ended December 31, 2010 which is an increase of 3.3%. The increase in depreciation expenses is a result of an
increase of $5.9 million in the total depreciation of vessels due to the expansion of our fleet by three vessels during
2011 and the inclusion of the depreciation for a whole year of the vessels delivered in 2010, offset by a decrease in
amortization expenses of drydocking costs of $3.8 million related to capitalized drydocking expenses that were fully
amortized during 2010.
Loss on Contract was $16.2 million for the year ended December 31, 2011. Loss on Contract is a result of the award
granted by the arbitral tribunal related to the arbitration involving the Nordic Galaxy. Even though the result of the
arbitration could have been more advantageous for the Company, we are satisfied that a ship that did not meet our
specifications did not enter our fleet. For further details, see Note 9 of our audited financial statements.
Net operating loss was $71.2 million for the year ended December 31, 2011 compared to net operating income of $0.8
million for the year ended December 31, 2010. The increase in net operating loss of $70.4 million was primarily a
result of a decrease in net voyage revenue of $46.6 million due to a decrease in spot market rates, an increase of vessel
operating expenses of $7.7 million and an increase of depreciation expenses of $2.1 million due to an increase in
operating days as well as the Loss on Contract of $16.2 million from the result of the award granted by the arbitral
tribunal related to arbitration involving the Nordic Galaxy.
Interest income was $1.2 million for the year ended December 31, 2011 and $0.6 million for the year ended December
31, 2010. Interest income of $1.2 million was derived from the loan furnished from the Company to the seller of the
Nordic Galaxy, which the Company did not take delivery of in August 2010. For further details, see Note 9 of our
audited financial statements.
Nordic American Tankers Limited
Page 7 of 36
Interest expenses were $2.1 million for the year ended December 31, 2011 compared to $2.0 million for the year
ended December 31, 2010. The increase in interest expenses is primarily the result of an increase in amounts borrowed
under the Credit Facility and an increase in interest rates during 2011 compared to 2010.
Liquidity and Capital Resources
Cash flows (used in) provided by operating activities decreased to ($12.2) million for the year ended December 31,
2011 from $57.8 million for the year ended December 31, 2010. The decrease in cash flows provided by operating
activities is primarily due to lower spot market rates and an increase of vessel operating expenses due to the expansion
of the fleet in December 2010 and during 2011.
Cash flows used in investing activities decreased to $81.8 million for the year ended December 31, 2011 compared to
$202.8 million for the year ended December 31, 2010. The cash flows used in investing activities for the year ended
December 31, 2011 consists primarily of payments made in connection with the drydocking of the Nordic Harrier and
in connection with the delivery of the Nordic Breeze, the Nordic Aurora and the Nordic Zenith. The cash flows used in
investing activities for the year ended December 31, 2010 were primarily a result of the expansion of our fleet by two
vessels in 2010, a loan to the sellers of the Nordic Galaxy of $8.4 million which we did not take delivery of, and
advances related to the two newbuildings that were delivered to us in August 2011 and in November 2011.
Cash flows provided by financing activities decreased to $100.7 million for the year ended December 31, 2011
compared to cash flow provided by financing activities of $131.8 million for the year ended December 31, 2010. The
financing activities for the year ended December 31, 2011 are the net proceeds from the drawdown of $155.0 million
under the Credit Facility less $54.3 million paid in dividends. The financing activities for the year ended December
31, 2010 represent proceeds from the follow-on offering of $136.5 million and the net proceeds from a drawdown of
$75.0 million under the Credit Facility less $79.7 million paid in dividends.
During 2012, eight of the Company’s vessels are required, as part of the class renewal survey, to be drydocked for
overhaul repair and maintenance. The total off-hire days are estimated to be 160 days and drydocking costs are
estimated to be $16.0 million. These drydocking costs are to be financed through the financial resources of the
Company. Management believes that the Company’s working capital is sufficient for its present requirements.
Nordic American Tankers Limited
Page 8 of 36
Contractual Obligations
The Company’s contractual obligations as of December 31, 2011, consist of our obligations as borrower under our
Credit Facility, the Management Agreement with Scandic American Shipping Ltd., and our deferred compensation
agreement for our Chairman, President and CEO and our Chief Financial Officer.
The following table sets out long-term financial, commercial and other obligations outstanding as of December 31,
2011 (all figures in thousands of USD).
Less than
1 year
1-3
years
3-5
years
More than 5
years
Contractual Obligations
Credit Facility (1)
Interest Payments (2)
Commitment Fees (3)
Management Fees (4)
Deferred Compensation Agreement (5)
Total
230,000
12,246
1,556
5,000
9,876
-
230,000
4,536
576
500
-
7,709
980
1,000
-
–
–
–
1,000
–
Total
258,678
5,613
239,689
1,000
–
–
–
2,500
9,876
12,376
Notes:
(1)
(2)
(3)
(4)
(5)
Refers to obligation to repay indebtedness outstanding as of December 31, 2011.
Refers to estimated interest payments over the term of the indebtedness outstanding as of December 31, 2011.
Refers to estimated commitment fees over the term of the indebtedness outstanding as of December 31, 2011.
Refers to the management fees payable to Scandic American Shipping Ltd. under the Management Agreement as of December 31, 2011.
Refers to estimated deferred compensation agreements payable to the Company’s CEO and CFO as of December 31, 2011.
Nordic American Tankers Limited
Page 9 of 36
Dividend payment
Our policy is to declare quarterly dividends to shareholders, substantially equal to our net operating cash flow
(determined as described below) during the previous quarter. The dividend to shareholders could be higher than the
operating cash flow or the dividend to shareholders could be lower than the operating cash flow after reserves as the
Board of Directors may from time to time determine are required, taking into account contingent liabilities, the terms
of our Credit Facility, our other cash needs and the requirements of Bermuda. However, if we declare a dividend in
respect of a quarter in which an equity issuance has taken place, we calculate the dividend per share as our net
operating cash flow for the quarter (after taking into account the factors described above) divided by the weighted-
average number of shares over that quarter. Net operating cash flow represents net income plus depreciation and non-
cash administrative charges. The dividend paid is the calculated dividend per share multiplied by the number of shares
outstanding at the end of the quarter.
Total dividends paid in 2011 were $54.3 million or $1.15 per share. The quarterly dividend payments per share in
2011, 2010 and 2009 were as follows:
Period
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total USD
2011
$0.25
0.30
0.30
0.30
$1.15
2010
$0.25
0.60
0.60
0.25
$1.70
2009
$0.87
0.88
0.50
0.10
$2.35
The Company declared a dividend of $0.30 per share in respect of the fourth quarter of 2011, which was paid to
shareholders in March 2012.
THE MANAGEMENT AGREEMENT
In June 2004, the Company entered into a Management Agreement with Scandic American Shipping Ltd.
(“Manager”). The Manager is owned by a company controlled by the Chairman and Chief Executive Officer of the
Company, Mr. Herbjørn Hansson and his family. Under the management agreement (“Management Agreement”), the
Manager has the daily, administrative commercial and operational responsibility for our vessels and is generally
required to manage our day-to-day business according to our objectives and policies as established and directed by the
Board of Directors. All decisions of a material nature concerning our business are taken by the Board of Directors.
The Management Agreement shall terminate on the date which is ten years from the calendar date, so that the
remaining term of the Management Agreement shall always be ten years unless terminated earlier in accordance with
its terms, essentially related to non-performance or negligence by the Manager.
For its services under the Management Agreement, the Manager is reimbursed for all of its costs incurred plus a
management fee of $500,000 per annum for the total fleet. The management fee was increased from $350,000 to
$500,000 per annum on December 1, 2011. In order to align the Manager’s interests with those of the Company, the
Company has 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 restricted common shares in order to maintain the
number of common shares issued to the Manager at 2% of our total outstanding common shares.
In 2011, the Board of Directors approved a new incentive plan, which we refer to as the 2011 Equity Incentive Plan,
under which a maximum of 400,000 common shares were reserved for issuance. A total of 400,000 restricted
common shares that are subject to vesting have been allocated among 23 persons employed in the management of the
Company, the Manager and the members of the Board. The holders of the restricted shares are entitled to voting rights
as well as receive dividends paid during the vesting period.
Nordic American Tankers Limited
Page 10 of 36
COMMERCIAL AND TECHNICAL MANAGEMENT AGREEMENTS
The Company has outsourced the commercial and technical management of its vessels to third-party companies
operating under the supervision of the Manager. The compensation under the commercial and technical management
agreements is in accordance with industry standards.
Commercial Management Agreements
Until June 30, 2010, Frontline Ltd. and the private Stena Group of Sweden provided commercial management services
for all the Company`s vessels trading in the spot market. In March 2010 the Company announced that it decided to
place all of its vessels in a spot market cooperation with Gemini Tankers LLC, where Frontline Ltd. and Teekay
Corporation, together with us were the main owners of the participating vessels. The Gemini Tankers LLC,
cooperative arrangement commenced on July 1, 2010.
In November 2011, the Orion Tankers pool was established with Orion Tankers Ltd. as pool manager. This company
is owned equally by us and Frontline Ltd. In mid-November 2011, our vessels were transferred from the Gemini
Tankers LLC arrangement to the Orion Tankers pool upon completion of previously fixed charters within Gemini
Tankers LLC.
Technical Management Agreements
The ship management firm of V.Ships Norway AS or V.Ships provides the technical management for 14 of the
Company’s vessels. The ship management firm of Colombia Shipmanagement Ltd, Cyprus provides the technical
management for four of the Company’s vessels. The ship management firm DSD Shipping AS, Norway provides the
technical management for one of the Company’s vessels. The ship management firm Hellespont Ship Management
GmbH & Co KG, Germany provides the technical management for one of the Company’s vessels.
DIVIDEND REINVESTMENT AND DIRECT STOCK PURCHASE PLAN
On March 26, 2009, the Company filed a registration statement on Form F-3ASR relating to the Dividend
Reinvestment and Direct Stock Purchase Plan for 1,664,450 shares of common stock to allow existing shareholders to
purchase additional common stock by reinvesting all or a portion of the dividends paid on their common stock and by
making optional cash investments and new investors to enter into the plan by making an initial investment. As at
December 31, 2011, December 31, 2010, and December 31, 2009, no shares were issued pursuant to the plan.
STOCKHOLDERS RIGHTS PLAN
On February 13, 2007, the Board of Directors adopted a stockholders rights agreement and declared a dividend of one
preferred stock purchase right to purchase one one-thousandth of a share of our Series A Participating Preferred Stock
for each outstanding share of our common stock, par value $0.01 per share. The dividend was payable on February 27,
2007 to stockholders of record on that date. Each right entitles the registered holder to purchase from us one one-
thousandth of a share of Series A Participating Preferred Stock at an exercise price of $115, subject to adjustment. We
can redeem the rights at any time prior to a public announcement that a person has acquired ownership of 15% or
more of the Company’s common stock.
This stockholders rights plan was designed to enable us to protect stockholder interests in the event that an unsolicited
attempt is made for a business combination with, or a takeover of, the Company. We believe that the stockholders
rights plan should enhance our Board’s negotiating power on behalf of stockholders in the event of a coercive offer or
proposal. We are not currently aware of any such offers or proposals.
Nordic American Tankers Limited
Page 11 of 36
COMPENSATION OF DIRECTORS AND OFFICERS
The six directors received, in the aggregate, $490,000 in cash fees for their services as directors for the year ended
December 31, 2011. The Vice Chairman of the Board of Directors received an additional annual cash compensation of
$10,000 in 2011. The members of the Audit Committee receive an additional annual cash retainer of $12,000 each per
year. The Chairman of the Audit Committee receives an additional annual cash compensation of $6,000 per year. We
do not pay director fees to the Chairman, President and Chief Executive Officer. We do, however, reimburse all of our
directors for all reasonable expenses incurred by them in connection with their services as members of our Board of
Directors.
EMPLOYMENT AGREEMENTS
We have employment agreements with Herbjørn Hansson, our Chairman, President and Chief Executive Officer;
Turid M. Sørensen, our Chief Financial Officer; Rolf I. Amundsen, our Chief Investor Relations Officer and Advisor
to the Chairman; and Jan Erik Langangen, our Executive Vice President, Business Development & Legal. Mr.
Hansson does not receive any additional compensation for his services as a director or Chairman of the Board. The
aggregate compensation of our executive officers during the year ended December 31, 2011 was approximately $2.9
million.
In 2011, the Board of Directors established the 2011 Equity Incentive Plan. The aggregate number of restricted shares
issued to our executive officers during the year ended December 31, 2011 was 110,000. The aggregate number of
restricted shares to our Directors during the year ended December 31, 2011 was 53,000. The vesting period is a four-
year cliff vesting period for 326,000 shares and a five-year cliff vesting period for 74,000 shares, that is, none of these
shares may be sold during the first four or five years after grant, as applicable, and the shares are forfeited if the
grantee leaves the Company before that time. The holders of the restricted shares are entitled to voting rights as well
as receive dividends paid in the period. The Board considers this arrangement to be in the best interests of the
Company.
Our Chairman, President and Chief Executive Officer and our Chief Financial Officer have individual deferred
compensation agreements. The Chief Executive Officer has served in his present position since the inception of the
Company in 1995. Please see Note 7 to the audited financial statements for further information about the agreements.
SHARE-BASED COMPENSATION PLANS
Management Agreement
In order to align the Manager’s interests with those of the Company, the Company has 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 restricted common shares in order to maintain the number of common shares issued to the
Manager at 2% of our total outstanding common shares.
2004 Stock Incentive Plan
As of December 31, 2010, the Company had a share-based compensation plan that had been active since 2004. The
plan was cancelled in 2011. Total compensation cost related to the 2004 Stock Incentive Plan was $0.06 million for
the year ended December 31, 2010, and was recorded within “General and Administrative expense” in the Statement
of Operations. All the restricted shares to employees and non-employees had vested by the end of 2010.
2011 Equity Incentive Plan
In 2011, the Board of Directors approved a new incentive plan under which a maximum of 400,000 common shares
were reserved for issuance. A total of 400,000 restricted common shares that are subject to vesting have been allocated
among 23 persons employed in the management of the Company, the Manager and the members of the Board. Under
the terms of 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 and other equity-based awards. The aggregate number of
restricted shares issued to our executive officers during the year ended December 31, 2011 was 110,000. The
aggregate number of restricted shares issued to our Directors during the year ended December 31, 2011 was 53,000.
Nordic American Tankers Limited
Page 12 of 36
The vesting period is a four-year cliff vesting period for 326,000 shares and a five-year cliff vesting period for 74,000
shares, that is, none of these shares may be sold during the first four or five years after grant, as applicable, and the
shares are forfeited if the grantee discontinues working for the Company before that time. The holders of the
restricted shares are entitled to voting rights as well as receive dividends paid during the vesting period.
Please see Note 11 to the audited financial statements for further information about the share-based compensation
Plan.
April 17, 2012 NORDIC AMERICAN TANKERS LIMITED
Nordic American Tankers Limited
Page 13 of 36
NORDIC AMERICAN TANKERS LIMITED
TABLE OF CONTENTS
_________________________________________________________________________________
Report Of Independent Registered Public Accounting Firm
Financial Statements:
Statements of Operations for the years ended December 31, 2011, 2010 and 2009
Balance Sheets as of December 31, 2011 and 2010
Statements of Shareholders’ Equity for the years ended December 31, 2011, 2010 and 2009
Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009
Notes to Financial Statements
Page
15
16
17
18
19
20-36
Nordic American Tankers Limited
Page 14 of 36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Nordic American Tankers Limited
Hamilton, Bermuda
We have audited the accompanying balance sheets of Nordic American Tankers Limited (the
“Company”) as of December 31, 2011 and 2010, and the related statements of operations,
shareholders’ equity and cash flows for each of the three years ended December 31, 2011. These
financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial
position of the Nordic American Tankers Limited as of December 31, 2011 and 2010, and the results
of their operations and their cash flows for each of the three years in the period ended December
31, 2011, in conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte AS
Oslo, Norway
April 16, 2012
Nordic American Tankers Limited
Page 15 of 36
NORDIC AMERICAN TANKERS LIMITED
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010, AND 2009
All figures in USD ‘000, except share and per share amount
Voyage Revenues
Voyage Expenses
Vessel Operating Expense –
excluding depreciation expense
presented below
General and Administrative
Expense
Depreciation Expense
Loss on Contract
Net Operating (Loss) Income
Interest Income
Interest Expense
Other Financial Expense
Total Other Expenses
Net (Loss) Income
Basic (Loss) Earnings per Share
Diluted (Loss) Earnings per Share
Notes
4
Year Ended December 31,
2011
2010
2009
94,787
(14,921)
126,416
–
124,370
(8,959)
(54,859)
(47,113)
(43,139)
3,6,7,11
(15,394)
(15,980)
(14,819)
8
9
13
15
15
(64,626)
(16,200)
(71,213)
1,187
(2,130)
(142)
(1,085)
(72,298)
(1.53)
(1.53)
(62,545)
(55,035)
-
778
632
(1,971)
(248)
(1,587)
(809)
(0.02)
(0.02)
-
2,418
614
(1,794)
(226)
(1,406)
1,012
0.03
0.03
Basic Weighted Average Number of Common
Shares Outstanding
Diluted Weighted Average Number of
Common Shares Outstanding
47,159,402
46,551,564
40,449,522
47,159,402
46,551,564
40,449,522
The footnotes are an integral part of these financial statements.
Nordic American Tankers Limited
Page 16 of 36
NORDIC AMERICAN TANKERS LIMITED
BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010
All figures in USD ‘000, except share and per share amount
As of December 31,
Notes
2011
2010
19
4
3,4
5,9
8
20
3
10
3
14
12
7
17
16
ASSETS
Current Assets
Cash and Cash Equivalents
Marketable securities
Accounts receivable, net
Accounts receivable, net related party
Inventory
Prepaid Expenses and Other Current Assets
Total Current Assets
Non-Current Assets
Vessels, Net
Investment in joint venture
Related party receivables
Other Non-current Assets
Total Non-current Assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts Payable
Accounts Payable, related party
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;
90,000,000 and 51,200,000 shares authorized,
47,303,394 and 46,898,782 shares issued and
outstanding at December 31, 2011 and
December 31, 2010, respectively
Additional Paid-in Capital
Contributed Surplus
Accumulated other Comprehensive Loss
Retained Earnings
Total Shareholders’ Equity
24,006
583
17,586
1,571
7,586
31,768
83,100
17,221
-
11,046
-
3,604
39,772
71,643
1,022,793
61
18,941
490
1,042,285
988,263
-
-
23,177
1,011,440
1,125,385
1,083,083
4,378
926
12,642
17,946
230,000
9,876
257,822
-
2,035
899
4,060
6,994
75,000
8,134
90,128
-
473
469
12,867
926,733
(212)
(72,298)
867,563
11,480
981,815
-
(809)
992,955
Total Liabilities and Shareholders’ Equity
1,125,385
1,083,083
The footnotes are an integral part of these financial statements.
Nordic American Tankers Limited
Page 17 of 36
NORDIC AMERICAN TANKERS LIMITED
STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
All figures in USD ‘000, except number of shares
Balance at December 31,
2008
Accumulated dividend
distributions defined as
return of capital.
Net (Loss) Income
Common Shares Issued,
net of $10.6 million
issuance costs
Reduction of share
premium
Compensation –Restricted
Shares
Share-based Compensation
Dividend Paid, $2.35 per
share
Balance at December 31,
2009
Net (Loss) Income
Common Shares Issued,
net of $3.5 million
issuance costs
Reduction of share
premium
Compensation –Restricted
Shares
Share-based Compensation
Return of Capital
Balance at December 31,
2010
Accumulated coverage of
loss as of December 31,
2010
Net (Loss) Income
Common Shares Issued,
2011 Equity Incentive Plan
Other Comprehensive
(Loss) Income
Compensation – Restricted
Shares
Share-based Compensation
Return of Capital
Balance at December 31,
2011
Number of
Shares
Common
Stock
Additional
Paid-in
Capital
Contributed
Surplus
Accumulated
other
Comprehensive
Loss
34,373,271
344
5,300
899,963
–
–
–
–
–
(117,021)
–
7,675,000
77
236,607
–
156,633
-
-
42,204,904
–
1
–
–
422
–
(236,607)
236,607
5,365
(2,133)
–
–
–
(94,419)
8,533
–
925,129
4,600,000
46
136,464
–
-
93,878
–
–
–
1
–
–
(136,414)
136,414
2,837
60
–
–
–
(79,728)
46,898,782
469
11,480
981,815
–
–
400,000
–
4,612
–
–
–
–
4
–
–
–
–
–
–
–
–
67
1,320
–
(809)
–
–
–
–
–
(54,273)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(212)
–
–
–
Retained
Earnings
Total
Shareholders’
Equity
(117,021)
788,586
117,021
1,012
-
1,012
–
–
–
–
236,684
–
5,366
(2,133)
(1,012)
(95,431)
–
(809)
934,084
(809)
–
–
–
–
–
136,510
–
2,838
60
(79,728)
(809)
992,955
809
(72,298)
–
(72,298)
–
–
–
–
–
4
(212)
67
1,320
(54,273)
47,303,394
473
12,867
926,733
(212)
(72,298)
867,563
The footnotes are an integral part of these financial statements.
Nordic American Tankers Limited
Page 18 of 36
NORDIC AMERICAN TANKERS LIMITED
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
All figures in USD ‘000
Year Ended December 31,
2011
2010
2009
Cash Flows from Operating Activities
Net (Loss) Income
(72,298)
(809)
1,012
Reconciliation of Net (Loss) Income to Net Cash
Provided by Operating Activities
Depreciation Expense
Loss on Contract
Dry-dock Expenditures
Amortization of Deferred Finance Costs
Deferred Compensation Liability
Compensation– Restricted Shares
Share-based Compensation
Other, net
Changes in Operating Assets and Liabilities:
Accounts Receivables
Accounts Payable and Accrued Liabilities
Prepaid and Other Current Assets
Deferred Revenue
Voyages in Progress
Other Non-current Assets
64,626
16,200
(11,577)
653
1,741
67
1,320
–
(8,111)
14,909
(8,149)
–
(5,233)
(6,311)
Net Cash (Used in) Provided by Operating Activities
(12,163)
62,545
-
(5,205)
653
2,450
2,838
60
–
7,326
(3,151)
172
(537)
–
(8,590)
57,752
55,035
-
(5,330)
653
1,606
5,366
(2,133)
124
17,650
(38)
(1,706)
88
-
(9,132)
63,195
Cash Flows from Investing Activities
Investment in Marketable Securities
Investment in Joint Venture
Investment in Vessels
Loan repayment from (paid to) seller, Nordic Galaxy
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
Dividends Paid
Net Cash 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
(795)
(61)
(91,536)
10,609
(81,783)
4
155,000
–
(54,273)
–
–
(194,426)
(8,384)
–
–
(179,275)
(11,055)
(202,810)
(190,330)
136,510
225,000
(150,000)
(79,728)
236,684
66,000
(81,000)
(95,431)
100,731
131,783
126,253
6,785
17,221
24,006
1,902
–
(13,275)
30,496
17,221
1,551
–
(882)
31,378
30,496
1,249
–
The footnotes are an integral part of these financial statements.
Nordic American Tankers Limited
Page 19 of 36
NORDIC AMERICAN TANKERS LIMITED
NOTES TO FINANCIAL STATEMENTS
(All amounts in USD ‘000 except where noted)
1.
NATURE OF BUSINESS
Nordic American Tankers Limited (the “Company”) was formed on June 12, 1995 under the laws of the Islands of
Bermuda. The Company’s shares trade under the symbol “NAT” on the New York Stock Exchange.
We are an international tanker company that owns 20 double-hull Suezmax tankers, which average approximately
156,000 dwt each. We chartered all of our vessels in the spot market pursuant to a cooperative arrangement with
Gemini Tankers LLC in 2011, until November 24, 2011, when we entered into a spot market arrangement with Orion
Tankers Ltd. (“Orion Tankers”). In 2010, we had chartered two of our 17 operating vessels on bareboat charters that
expired in June 2010, and October 2010, respectively. The Nordic Harrier (former Gulf Scandic) was redelivered to
the Company in October 2010 and went directly into drydock. The drydock period was completed in late April 2011,
and the vessel was employed in the spot market pursuant to cooperative arrangements on May 1, 2011.
Tanker markets are typically stronger in the fall and winter months (the fourth and first quarters of the calendar year)
in anticipation of increased oil consumption in the northern hemisphere during the winter months. Seasonal variations
in tanker demand normally result in seasonal fluctuations in spot market charter rates.
Our Fleet
Our current fleet consists of 20 double-hull Suezmax tankers and all of our vessels are employed in the spot market
pursuant to our cooperative arrangement with Orion Tankers Ltd.
Vessel
Nordic Harrier
Nordic Hawk
Nordic Hunter
Nordic Voyager
Nordic Freedom
Nordic Fighter
Nordic Discovery
Nordic Saturn
Nordic Jupiter
Nordic Apollo
Nordic Moon
Nordic Cosmos
Nordic Sprite
Nordic Grace
Nordic Mistral
Nordic Passat
Nordic Vega
Nordic Breeze
Nordic Aurora
Nordic Zenith
Yard
Samsung
Samsung
Samsung
Dalian New
Daewoo
Hyundai
Hyundai
Daewoo
Daewoo
Samsung
Samsung
Samsung
Samsung
Hyundai
Hyundai
Hyundai
Bohai
Samsung
Samsung
Samsung
Built
1997
1997
1997
1997
2005
1998
1998
1998
1998
2003
2002
2003
1999
2002
2002
2002
2010
2011
1999
2011
Deadweight
Tons
151,475
151,475
151,400
149,591
163,455
153,328
153,328
157,332
157,411
159,999
159,999
159,998
147,188
149,921
164,236
164,274
163,000
158,597
147,262
158,645
Delivered to NAT
August 1997
October 1997
December 1997
November 2004
March 2005
March 2005
August 2005
November 2005
April 2006
November 2006
November 2006
December 2006
February 2009
July 2009
November 2009
March 2010
December 2010
August 2011
September 2011
November 2011
During 2011, our fleet has increased by three vessels, including two newbuilding vessels that we entered into
agreements with Samsung Heavy Industries Co., Ltd. in April 2010.
Nordic American Tankers Limited
Page 20 of 36
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 estimates. The effects 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.
Revenue and Expense Recognition: Revenues and expenses are recognized on the accruals basis. Revenues are
generated from spot charters, cooperative arrangements and bareboat charter hires.
Voyage revenues and expenses are recognized ratably over the estimated length of each voyage and, therefore, are
allocated between reporting periods based on the relative transit time in each period. The impact of recognizing
voyage expenses ratably over the length of each voyage is not materially different on a quarterly and annual basis
from a method of recognizing such costs as incurred. Probable losses on voyages are provided for in full at the time
such losses can be estimated. Based on the terms of the customer agreement, 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. However, the Company does not recognize revenue if a charter has not been contractually
committed to by a customer and the Company, even if the vessel has discharged its cargo and is sailing to the
anticipated load port on its next voyage.
Spot Charters: Revenues and voyage expenses of the vessels operating on spot charters are tankers typically chartered
for a single voyage which may last up to several weeks. Revenue is generated from freight billing, as we are
responsible for paying voyage expenses and the charterer is responsible for any delay at the loading or discharging
ports. When our tankers are operating on spot charters the vessels are traded fully at the risk and reward of the
Company. For vessels operating in the spot market other than through the pool (described below under “Cooperative
arrangement”), the vessels will be operated by the pool manager. Under this type of employment, the vessel’s
revenues are not included in the profit sharing of the participating vessels in the pool. The Company considers it
appropriate to present the gross amount earned revenue from the spot charter, showing voyage expenses related to the
voyage separately in the statements of operations.
Cooperative Arrangement: Revenues and voyage expenses of the vessels operating in pool arrangements, through
cooperative arrangements, are combined and the resulting net pool revenues, calculated on a time charter equivalent
basis, are allocated to pool 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 same revenue and expense principles stated above are applied in determining the pool’s
net pool revenues. The Manager of the cooperative agreements is responsible for collecting voyage revenue, paying
voyage expenses and distributing net pool revenues to the owners of the participating vessels. Net revenues 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.
If a vessel does not temporarily comply with the pool requirements, the vessel will continue to be operated in the spot
market by the pool manager, as described above under “Spot Charters.”
Nordic American Tankers Limited
Page 21 of 36
Bareboat Charters: 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.
Vessel Operating Expenses: Vessel operating expenses include crewing, repair and maintenance, insurance, stores,
lubricants, management fee, communication expenses and tonnage tax. These expenses are recognized when incurred.
Cash and Cash Equivalents: Cash and cash equivalents consist of deposits with original maturities of three months
or less.
Marketable Securities: Marketable equity securities held by the Company are considered to be available-for-sale
securities and as such are carried at fair value. Any resulting unrealized gains and losses, net of deferred taxes if any,
are recorded as a separate component of other comprehensive income in equity unless the securities are considered to
be other than temporarily impaired, in which case unrealized losses are recorded in the income statement.
Accounts Receivable: Accounts and other receivables are presented net of allowances for doubtful balances. If
amounts become uncollectable, they are charged against income when that determination is made.
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.
Vessels, Net: Vessels are stated at their historical cost, which consists of the contracted purchase price and any direct
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 its 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 carrying amount
of the asset is less than its estimated fair market value an asset is considered to be impaired. If the estimated
undiscounted future cash flows expected to result from the use of the impaired asset and its eventual disposition is less
than the carrying amount of the asset, an impairment charge is recorded; if greater than the carrying amount, no
impairment is recorded. The amount of impairment is determined as the difference between the carrying value and the
fair value of the asset. There was no impairment charges recorded for the years ended December 31, 2011, 2010 or
2009.
Drydocking: The Company’s vessels are required to be drydocked approximately every 30 to 60 months. The
Company capitalizes a substantial portion of the costs incurred during drydocking and amortizes those costs on a
straight-line basis from the completion of a drydocking or intermediate survey to the estimated completion of the next
drydocking. Consistent with prior periods, drydocking costs include a variety of costs incurred while vessels are
placed within drydock, including expenses related to the dock preparation and port expenses at the drydock shipyard,
general shipyard expenses, expenses related to hull, external surfaces and decks, expenses related to machinery and
engines of the vessel, as well as expenses related to the testing and correction of findings related to safety equipment
on board. Company includes in capitalized drydocking those costs incurred as part of the drydock to meet
classification and regulatory requirements. The Company expenses costs related to routine repairs and maintenance
performed during drydocking, and for annual class survey costs. Ballast tank improvements are capitalized and
amortized on a straight-line basis over a period of eight years. 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.
Investment in Joint Venture: The Company’s investment in joint venture is accounted for using the equity method
of accounting. Under the equity method of accounting, the investment is stated at initial cost and is adjusted for
Nordic American Tankers Limited
Page 22 of 36
subsequent additional investments and the Company’s proportionate share of earnings or losses and distributions. The
Company evaluates its investment in joint venture for impairment when events or circumstances indicate that the
carrying value of the investment may have experienced an other than temporary decline in value below its carrying
value. If the estimated fair value is less than the carrying value and is considered an other than temporary decline, the
carrying value is written down to its estimated fair value and the resulting impairment is recorded in net income (loss).
Deferred Compensation Liability: The Company has two individual deferred compensation agreements with the
Company’s CEO and CFO. The deferred compensation liabilities are denominated in Norwegian currency. The
agreements are accounted for on an accrual basis using actuarial calculations. Any currency translation adjustments as
well as actuarial gains and losses are recognized in general and administration expenses as incurred.
Other Comprehensive Income (Loss): The Company follows the guidance in Accounting Standard Codification
(ASC) Topic 220, “Comprehensive Income” which requires separate presentation of certain transactions that are
recorded directly as components of shareholders’ equity.
Segment Information: The Company has identified only one operating segment under ASC Topic 280, “Segment
Reporting.” The Company has only one type of vessel – Suezmax crude oil tankers.
Geographical Segment: The Company currently operates all of its 20 vessels in the spot market through cooperative
arrangements with other vessels that are not owned by us. The earnings of all of the vessels are aggregated and divided
by the actual earning days each vessel was available during the period. The Company does not provide a geographical
analysis because the Company’s business is global in nature and the location of our vessels continually changes.
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.
Derivative Instruments: The Company did not hold any derivative instruments during 2011, 2010 and 2009, or at
December 31, 2011 or 2010, respectively.
Share-Based Payments:
Share-Based Compensation: The compensation costs for all of the Company’s stock-based compensation awards are
based on the fair value method as defined in ASC Topic 718, “Compensation – Stock Compensation.”
Restricted Shares to Employees and Non-Employees: The fair value of restricted shares is estimated based on the
market price of the Company’s shares. The fair value of unvested restricted shares granted to employees is measured
at grant date and the Company records the compensation expense for such awards over the vesting period. The fair
value of unvested restricted shares granted to non-employees is measured at fair value at each reporting date and the
Company records the compensation expense for such awards over the vesting period.
Restricted Shares to Manager: Restricted shares issued to the Manager are non-forfeitable and vest immediately.
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 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 Tankers Limited
Page 23 of 36
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 amounts 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 4 for further information.
Accounts receivable, net, consists 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, 2011 and 2010, 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 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, 2011 and 2010, and has not entered into any such
arrangements during 2011 or 2010.
Recent Accounting Pronouncements: In April 2011, the Financial Accounting Standards Board (“FASB”) issued
ASU 2011-04 to amend, Fair Value Measurements and Disclosures (Topic 820). This ASU requires new disclosures
and clarifies certain existing disclosures requirements about fair value measurements. ASU 2011-04 is effective for
interim and annual reporting periods beginning after December 15, 2011, early adoption is not permitted. The
Company does not expect the adoption of ASU 2011-04 to have a material impact on our financial position, results of
operations, or cash flows.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. This ASU requires the
Company to report all components of comprehensive income in the financial statement in the period in which they are
recognized. The guidance ASU 2011-05 is effective for public companies for fiscal years, and interim periods within
those years beginning after December 15, 2011. Early adoption is permitted. The Company does not expect the
adoption of ASU 2011-05 to have a material impact on our financial position, results of operations, or cash flows.
3.
RELATED PARTY TRANSACTIONS
Scandic American Shipping Ltd.:
In June 2004, the Company entered into a Management Agreement with Scandic American Shipping Ltd. (“Scandic”
or the “Manager”). The Manager is owned by a company controlled by the Chairman and Chief Executive Officer of
the Company, Mr. Herbjørn Hansson and his family. The Manager has administrative, commercial and operational
responsibility for the Company’s vessels and is required to manage the Company’s day-to-day business subject to the
Company’s 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 $500,000 per annum for the total fleet, increased from $350,000 to $500,000, effective December 1, 2011.
In order to align the Manager’s interests with those of the Company, the Company has issued to the Manager restricted
common shares equal to 2% of our outstanding common shares at par value of $0.01 per share. Any time additional
common shares are issued, the Manager will receive restricted common shares to maintain the number of common
shares issued to the Manager at 2% of our total outstanding common shares. During 2011, the Company issued to the
Manager 4,612 shares at an average fair value of $14.45, in connection with the adoption of the 2011 Equity Incentive
Nordic American Tankers Limited
Page 24 of 36
Plan. During 2010, the Company issued to the Manager 93,878 shares at a fair value of $30.24. The Company
recognized $0.1 million, $2.8 million and $5.4 million in noncash share-based compensation expense for the years
ended December 31, 2011, 2010 and 2009, respectively, related to the issuance of shares to the Manager. All of these
costs are included in “General and Administrative Expenses” within the statements of operations. In connection with
nine follow-on offerings, we have issued a total of 937,976 restricted shares to our Manager pursuant to the
Management Agreement. These restricted shares are primarily non-transferable for three years from the date of
issuance, except for a total of 149,183 restricted shares that are non-transferable for six years from the date of
issuance.
The Company recognized $3.8 million, $3.7 million, and $2.5 million of total costs for services provided under the
Management Agreement for the years ended December 31, 2011, 2010 and 2009, respectively. These costs are
included in “General and Administrative Expenses” in the statements of operations. The related party balances
included within accounts payable were $0.9 million and $0.9 million at December 31, 2011 and 2010, respectively.
In February 2011, the Company adopted a new equity incentive plan which we refer to as the 2011 Equity Incentive
Plan, pursuant to which a total of 400,000 restricted shares were reserved for issuance. A total of 174,000 restricted
shares were allocated to the Manager. The vesting period is four-year cliff vesting period for 100,000 shares and five-
year cliff vesting period for 74,000 shares, that is, none of these shares may be sold during the first four or five years
after grant, as applicable, and the shares are forfeited if the grantee discontinues working for the Company before that
time. The holders of the restricted shares are entitled to voting rights as well as receive dividends paid in the period.
Under the terms of 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 and other equity-based awards.
As of December 31, 2011, the Manager owned, together with its owners, 2.20% of the Company’s shares. The
Management Agreement terminates on the date which is ten years from the calendar date, so that the remaining term
of the Management Agreement is always ten years unless terminated earlier in accordance with its terms, essentially
related to non-performance or negligence by the Manager.
Board Member and Employees:
Mr. Jan Erik Langangen, Board Member and an employee of the Company, is a partner of Langangen & Helset
Advokatfirma AS, a firm which provides legal services to the Company. The Company recognized $0.1 million in
costs in each of the years ended December 31, 2011, 2010 and 2009, respectively, for the services provided by
Langangen & Helset Advokatfirma AS. These costs are included in “General and Administrative Expenses” within the
statements of operations. There were no related amounts included within “Accounts Payable” at December 31, 2011
and December 31, 2010.
Mr. Rolf Amundsen, the Company’s Investor Relations Manager, is a partner of Amundsen & Partners AS, a firm
which provides consultancy services to the Company. The Company recognized $0.1 million in costs in each of the
years ended December 31, 2011 and 2010 and 2009, respectively, for the services provided by Amundsen & Partners
AS. These costs are included in “General and Administrative Expenses” within the statements of operations. There
were no related amounts included within “Accounts Payable” at December 31, 2011 and December 31, 2010.
Orion Tankers Ltd:
In November 2011, the Orion Tankers pool was established, with Orion Tankers Ltd. as pool manager. Orion Tankers
Ltd. is owned equally by us and Frontline Ltd. In mid-November 2011, our vessels were transferred from the Gemini
Tankers LLC arrangement to the Orion Tankers pool upon completion of previously fixed charters within Gemini
Tankers LLC. The Company has recognized $0.1 million in costs for the year ended December 31, 2011. These costs
are included in “Voyage Expenses” within the statements of operations. As of December 31, 2011, the “Accounts
receivable, net related party” amount was $1.6 million and the amount represents the outstanding net earnings from
Orion pool.
As of December 31, 2011, the “Related party receivable” amount was $18.9 million and the amount represents the
outstanding working capital from the Orion pool. The working capital represents the value of bunkers on board our
vessels at the time of vessel delivery to the cooperative arrangements, including payment of initial funding of $0.2
million per vessel. The working capital is to be repaid to the Company within six months after the date of the
withdrawal from the agreements.
Nordic American Tankers Limited
Page 25 of 36
4.
REVENUE
During, 2011, we operated all of our 20 vessels in the spot market through cooperative arrangements with Gemini
Tankers LLC and Orion Tankers pool. During 2011, we temporarily operated six vessels in the spot market, through
cooperative arrangements as spot charters, compared to none during 2010. During 2009, we temporarily operated four
vessels in the spot market, through cooperative arrangements. During the year ended December 31, 2010, and 2009,
two of our vessels were employed on bareboat charters that expired in June 2010 and October 2010, respectively.
The table below provides the breakdown of revenues recorded as per the net method and the gross method.
All figures in USD ‘000
Voyage revenues, net pool earnings
Voyage revenues, gross freight through spot charters
Bareboat revenues
Total Voyage Revenues
2011
76,618
18,169
–
2010
2009
119,598
–
6,818
102,229
15,817
6,324
94,787
126,416
124,370
Since July 1, 2010 and until mid-November 2011, our vessels were employed in a spot market arrangement with
Gemini Tankers LLC, of which Frontline Ltd., Teekay Corporation, and we were the main owners of the participating
vessels. The cooperative arrangement was managed and operated by Gemini Tankers LLC. In November 2011, the
Orion Tankers pool was established, with Orion Tankers Ltd. as pool manager. Orion Tankers Ltd. is owned equally
by us and Frontline Ltd., and therefore a related party of the Company. In mid-November 2011, our vessels were
transferred from the Gemini Tankers LLC arrangement to the Orion Tankers pool upon completion of previously fixed
charters within Gemini Tankers LLC.
Gemini Tankers LLC accounted for 97% and Orion Pool accounted for 3% of the Company’s revenues for the year ended
December 31, 2011. Gemini Tankers LLC accounted for 78% and Stena pool accounted for 17% of the Company’s
revenues for the year ended December 31, 2010. Stena pool accounted for 41% and Gemini pool accounted for 40% of the
Company’s revenues for the year ended December 31, 2009.
Accounts receivable, net, as of December 31, 2011 and 2010, were $17.6 million and $11.0 million, respectively.
Gemini Tankers LLC accounted for 99% of the Company’s accounts receivable, net for the year ended December 31,
2011 and accounted for 100% of the Company’s accounts receivable, net for the year ended December 31, 2010. Stena
pool accounted for 61% and Gemini Tankers LLC accounted for 33% of the Company’s accounts receivables for the
year ended December 31, 2009.
Accounts receivable, net related party, as of December 31, 2011 was $1.6 million. Orion pool accounted for 100% of
the Company’s accounts receivable, net related party for the year ended December 31, 2011.
5.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
All figures in USD ‘000
Prepaid expenses
Deposit on Contracts, Nordic Galaxy
Loans to seller, Nordic Galaxy
Deferred Financing Costs
Voyage in Progress – temporarily spot charters
Working Capital, cooperative arrangements
Other
Total as of December 31,
2011
2,714
9,000
–
653
5,233
12,779
1,389
31,768
2010
1,894
9,000
26,809
653
–
-
1,416
39,772
Nordic American Tankers Limited
Page 26 of 36
As of December 31, 2011, the prepaid expenses and other current assets were $31.8 million compared to $39.8 million
as of December 31, 2010, a decrease of $8 million. The decrease is primarily due to a settlement of the loan from the
seller related to Nordic Galaxy of $26.8 million (see Note 9), offset by an increase related to gross presentation of
accrued income of $5.2 million for vessels temporarily operated as spot charters (see Note 4) and an increase of $12.8
million in working capital balance against Gemini Tankers LLC which were presented as part of other non-current
assets as per December 31, 2010.
6. GENERAL AND ADMINISTRATIVE EXPENSES
All figures in USD ‘000
2011
2010
Management fee to related party
Directors and officers insurance
Salary and wages
Audit, legal and consultants
Legal fees – Nordic Galaxy
Administrative services provided by related party
Other fees and expenses
Total General and Administration expense with cash effect
Compensation – Restricted shares to Manager
Share-based compensation
Deferred compensation plan
Total General and Administrative expense without cash effect
363
86
2,904
1,099
2,362
3,821
1,631
12,266
67
1,320
1,741
3,128
307
80
2,859
624
1,500
3,686
1,576
10,632
2,838
60
2,450
5,348
2009
245
82
2,202
954
–
2,514
1,670
7,667
5,366
180
1,606
7,152
Total for year ended December 31,
15,394
15,980
14,819
At the end of 2009 the Company owned 15 vessels; at the end of 2010 the Company owned 17 vessels; and at the end
of 2011 the Company owned 20 vessels.
7.
DEFERRED COMPENSATION LIABILITY
In August 2010, the Board of Directors approved a new unfunded deferred compensation agreement for Turid M.
Sørensen, the Chief Financial Officer. The agreement provides for unfunded deferred compensation computed as a
percentage of salary, and certain benefits for dependents. The deferred compensation liabilities are denominated in
Norwegian currency. Benefits vest over a period of employment of 20.5 years up to a maximum of 66% of the salary
level at the time of retirement, age of 67. Interest is imputed at 3.90% and 4.60% as of December 31, 2011 and 2010,
respectively. The rights under the agreement commenced in May 2008. As the agreement was effective in 2010,
vested rights under the agreement were recognized in 2010.
In May 2007, the Board of Directors approved an unfunded deferred compensation agreement for Herbjørn Hansson,
the Chairman, President and CEO. The agreement provides for unfunded deferred compensation computed as a
percentage of salary, and certain benefits for dependents. The deferred compensation liabilities are denominated in
Norwegian currency. Benefits vest over a period of employment of 14 years up to a maximum of 66% of the salary
level at the time of retirement, age of 70. Interest is imputed at 3.90% and 4.60% as of December 31, 2011 and 2010,
respectively. The rights under the agreement commenced in October 2004. The CEO has the right to require a bank
guarantee for the deferred compensation liability and the CEO has served in his position since the inception of the
Company in 1995. The total expense recognized in 2011, 2010 and 2009 was $1.7 million, $2.5 million and $1.6
million, respectively.
8.
VESSELS, NET
Vessels, net, consist of the carrying value of 20 vessels including drydocking costs. During 2011 and 2010, we did not
impair any of our vessels’ carrying value, as we believe the future undiscounted cash flows expected to be earned by
such vessels over their operating lives would exceed the vessels’ carrying amounts.
Nordic American Tankers Limited
Page 27 of 36
All figures in USD ‘000
Carrying Value December 31, 2010
Accumulated depreciation December 31, 2010
Depreciation expense 2010
Vessels Drydocking
17,245
971,018
19,782
275,744
9,364
53,181
Total
988,263
295,526
62,545
Carrying Value December 31, 2011
Accumulated depreciation December 31, 2011
Depreciation expense 2011
1,005,147
334,846
59,102
17,646
9,398
5,524
1,022,793
344,244
64,626
During 2011, our fleet has increased by three vessels, including two newbuilding vessels that we entered into
agreements with Samsung Heavy Industries Co., Ltd. in April 2010.
Newbuilding Deliveries.
In April 2010, the Company entered into agreements with Samsung Heavy Industries Co. Ltd. to acquire two Suezmax
newbuildings and the first vessel, the Nordic Breeze was delivered to the Company in August 2011 and the Nordic
Zenith was delivered to the Company in November 2011. The Company took ownership of the vessels upon delivery
from the shipyard at which time the title was transferred from the seller. The agreed total prices at delivery were $64.7
million and $64.7 million, respectively with 55% of the purchase prices paid when we signed the contracts and the
balance paid on delivery. The table below shows total capitalized costs related to the two newbuildings delivered in
2011:
All figures in USD ‘000
Newbuilding – Nordic Breeze
Instalment
Capitalized interest
Capitalized cost *)
Total Newbuilding – Nordic Breeze as of December 31,
All figures in USD ‘000
Newbuilding – Nordic Zenith
Instalment
Capitalized interest
Capitalized cost *)
Total Newbuilding – Nordic Breeze as of December 31,
Total as of December 31,
2011
2010
64,750
417
2,091
67,258
35,700
191
183
36,074
2011
2010
64,750
501
2,035
67,286
134,544
35,700
191
160
36,051
72,125
*) Capitalized cost consists of direct expenses incurred upon acquisition, such as supervision expenses incurred
during the construction period, commission paid and legal fees.
9.
NORDIC GALAXY
In August 2010, we did not take delivery of the first of the two newbuilding vessels we agreed to acquire on
November 5, 2007, because the vessel in our judgment was not in a deliverable condition as under the Memorandum
of Agreement between the Company and the seller. The seller, a subsidiary of First Olsen Ltd, did not agree with the
Company and the parties commenced arbitration procedures which took place in London, in October and November
2011. The agreed total price at scheduled delivery was $90.0 million per vessel, including supervision expenses. The
Company paid $9.0 million as deposit on contract in 2010. The Company furnished to the seller a loan equivalent to
the payment instalments under the shipbuilding contract. The loan from the Company to the seller accrued interest at a
rate equal to the Company’s cost of funds, and the loan was to be repaid on delivery of the vessel.
Nordic American Tankers Limited
Page 28 of 36
According to the first partial award received on November 18, 2011, the vessel was found to be in a deliverable
condition in August 2010. The seller originally claimed $26.8 million in compensation, which was the same amount
as the outstanding loan balance between the Company and the seller as per December 31, 2010. However, the first
partial award was limited to $16.2 million. The Loss on Contract of $16.2 million was recognized as a subsequent
event in our interim Statement of Operations for the nine months ended September 30, 2011, on Form 6-K filed on
January 18, 2011 in connection with the follow-on offering. The recorded Loss on Contract did not have an impact on
the Company’s net cash flow.
As a consequence of the first partial award, the seller repaid to us the net outstanding loan balance of $10.6 million. In
November 2011, the seller paid $1.2 million in interest income to us in connection with the outstanding balance of the
loan, which is presented as interest income in the Statement of Operations.
On January 17, 2012, we received the final award from the tribunal and as a consequence we shall be responsible for
some of the legal costs of the seller. We expect that the amount of legal fees of the seller will be approximately $1.2
million. The Company recognized $2.4 million, including the legal fees of the seller and $1.5 million of legal expenses
related to the Nordic Galaxy for the years ended December 31, 2011 and 2010, respectively. These costs are included
in “General and Administrative Expenses” in the Statement of Operations.
In February 2012, we received the deposit on contract of $9.0 million and interest income of $0.2 million.
10. OTHER NON-CURRENT ASSETS
All figures in USD ‘000
Working Capital, cooperative arrangements
Financial Charges
Total as of December 31,
2011
-
490
490
2010
22,034
1,143
23,177
As of December 31, 2010, the working capital of $22.0 million represents the value of bunkers on board our vessels at
the time of vessel delivery to the cooperative arrangement Gemini Tankers LLC, including payment of initial funding
of $0.2 million per vessel. The working capital is according to the Gemini Tankers agreement to be repaid to the
Company within six months after the date of the withdrawal from the agreement. In November, 2011, the Company
exited the cooperative arrangement with Gemini Tankers LLC and entered into cooperative arrangement with Orion
Tankers Pool. As a result of the withdrawal from the Gemini Tankers LLC agreement, the outstanding working capital
as of December 31, 2011 is transferred from other non-current assets, to prepaid expenses and other current assets, see
Note 5 of our audited financial statements.
11. SHARE-BASED COMPENSATION PLAN
Management Agreement
In order to align the Manager’s interests with those of the Company, the Company has issued to the Manager restricted
common shares equal to 2% of our outstanding common shares at par value of $0.01 per share. Any time additional
common shares are issued, the Manager will receive restricted common shares to maintain the number of common
shares issued to the Manager at 2% of our total outstanding common shares. During 2011, the Company issued to the
Manager 4,612 shares at an average fair value of $14.45, in connection with the adoption of the 2011 Equity Incentive
Plan. During 2010, the Company issued to the Manager 93,878 shares at a fair value of $30.24. These restricted shares
are primarily non-transferable for three years from the date of issuance, except for a total of 149,183 restricted shares
that are non-transferable for six years from the date of issuance.
2004 Stock Incentive Plan
As of December 31, 2010, the Company had a share-based compensation plan that had been active since 2004. The
plan was cancelled in 2011. Total compensation cost related to the 2004 Stock Incentive Plan was $0.06 million for
Nordic American Tankers Limited
Page 29 of 36
the year ended December 31, 2010, and was recorded within “General and Administrative expense” in the Statement
of Operations. All the restricted shares to employees and non-employees had vested by the end of 2010.
2011 Equity Incentive Plan
In 2011, the Board of Directors decided to establish a new incentive plan involving a maximum of 400,000 restricted
shares of which all 400,000 shares have been allocated among 23 persons employed in the management of the
Company, the Manager and the members of the Board. The shares are considered restricted as the shares vest after a
fixed day determined in the plan. The vesting period is four-year cliff vesting for 326,000 shares and five-year cliff
vesting for 74,000 shares, that is, none of these shares may be sold during the first four or five years after grant, as
applicable, and the shares are forfeited if the grantee discontinues working for the Company before that time. The
holders of the restricted shares are entitled to voting rights as well as receive dividends paid in the period. Under the
terms of 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 and other equity-based awards.
The compensation cost is recognized on a straight-line basis over the vesting period and is presented as part of the
general and administrative expenses. The total compensation cost related to restricted shares under the plan for the
year ended December 31, 2011 was $1.3 million. The intrinsic value of restricted shares outstanding at December 31,
2011 was $4.7 million.
As of December 31, 2011, there were 400,000 restricted shares outstanding at a weighted-average grant date fair value
of $23.88 for Employees of the Company including members of the Board, and of $22.06 for Non-employees which
includes the Manager and to persons employed by the Manager. As of December 31, 2011, unrecognized
compensation cost related to unvested restricted shares aggregated $6.7 million, which will be recognized over a
weighted period of 3.42 years.
The tables below summarize the Company’s restricted shares in connection with the 2011 Equity Incentive Plan as of
December 31, 2011:
Non-vested at January 1, 2011
Granted during the year
Vested during the year
Forfeited during the year
Non-vested at December 31, 2011
Restricted
shares–
Employees
-
163,000
-
-
163,000
Weighted-
average grant-
date fair value–
Employees
-
$23.88
-
-
$23.88
Restricted
shares–
Non-
employees
-
237,000
-
-
237,000
Weighted-average
grant-date fair
value–
Non-employees
-
$22.06
-
-
$22.06
Under the terms of the 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. At December 31, 2010, 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, 2010, all restricted stocks are vested. As of December 31, 2009, unrecognized
compensation cost related to unvested restricted stock aggregated $0.1 million.
The tables below summarize the Company’s restricted stock awards as of December 31, 2010:
Non-vested at January 1, 2010
Granted during the year
Vested during the year
Restricted
shares–
Employees
2,425
-
2,425
Weighted-
average grant-
date fair value–
Employees
$31.99
-
-
Restricted
shares–
Non-
employees
1,750
-
1,750
Weighted-average
grant-date fair
value–
Non-employees
$31.99
-
-
Nordic American Tankers Limited
Page 30 of 36
Forfeited during the year
Non-vested at December 31, 2010
-
-
-
-
-
-
-
-
12. LONG-TERM DEBT
The Company has a $500 million revolving credit facility (the “Credit Facility”), with a maturity in 2013.
The Credit Facility provides funding for future vessel acquisitions and general corporate purposes. The 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 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, 2011 and
December 31, 2010 were $0.8 million and $0.9 million, respectively. The undrawn amount of this facility as of
December 31, 2011 and December 31, 2010 was $270.0 million and $425.0 million, respectively.
Borrowings under the 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 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 Credit Facility.
At December 31, 2011, accrued interest and commitment fee was $0.2 million which was paid during the first quarter
of 2012. The Company was in compliance with its loan covenants for the year ended December 31, 2011.
13. 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 Credit Facility. Amounts borrowed under the Credit Facility bear interest equal
to LIBOR plus a margin between 0.7% and 1.2%. The financing costs incurred in connection with the refinancing of
the previous Credit Facility are deferred and amortized over the term of the Credit Facility on a straight-line basis. The
amortization of deferred financing costs for the years ended December 31, 2011, 2010 and 2009 was $0.7 million,
$0.7 million and $0.7 million, respectively. Total deferred financing costs were $1.1 million and $1.8 million at
December 31, 2011 and 2010, respectively.
14. ACCRUED LIABILITIES
All figures in USD ‘000
Accrued Interest
Accrued Expenses
Accrued Drydock expenses Nordic Harrier
Accrued voyage expenses *)
Total as of December 31,
2011
184
4,624
–
7,834
12,642
2010
83
3,028
949
–
4,060
*) As of December 31, 2011, we temporarily operated three vessels in the spot market, by the pool manager through
cooperative arrangements. The accrued voyage expenses of $7.8 million represents accrued port costs, bunkers
expenses and other voyage related expenses. No vessels were operated in the spot market by the pool manager
through cooperative arrangements during 2010.
Nordic American Tankers Limited
Page 31 of 36
The increase of accrued expenses as of December 31, 2011, compared to December 31, 2010, is related to the increase
in the size of our fleet by three vessels during 2011.
15. EARNINGS (LOSS) PER SHARE
Basic earnings per share (“EPS”) are 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.
For the year ended December 31, 2011 and 2010, the Company had a net loss, thus any effect of common stock
equivalents outstanding would be antidilutive. For the years ended December 31, 2011 and 2010, the Company had
400,000 restricted shares and 16,700 restricted shares outstanding, which were included in the total common shares
issued and outstanding as at December 31, 2011 and 2010, respectively.
All figures in USD
2011
2010
2009
Numerator:
Net Income (Loss)
Denominator:
Basic - Weighted Average Common Shares Outstanding
Dilutive Effect of Stock Options *
Dilutive – Weighted-Average Common Shares
Outstanding
Income (Loss) per Common Share:
Basic
Diluted
(72,298,337)
(809,130)
1,012,240
47,159,402
–
46,551,564
–
40,449,522
–
47,159,402
46,551,564
40,449,522
(1.53)
(1.53)
(0.02)
(0.02)
0.03
0.03
*
In August 2009, the Company announced that it had cancelled all outstanding stock options. Following the
cancellation described in Note 11, there is no more outstanding stock option under the Plan.
16. SHAREHOLDERS’ EQUITY
Authorized, issued and outstanding common shares roll-forward is as follows:
All figures in USD ´000, except number of
shares
Authorized
Shares
Issued and Out-
standing Shares
Common
Stock
Balance as of December 31, 2008
51,200,000
34,373,271
344
Common Shares Issued
in Follow-on Offering
Compensation – Restricted Shares
Common Shares Issued
in Follow-on Offering
Compensation – Restricted Shares
3,450,000
70,408
4,225,000
86,225
Balance as of December 31, 2009
51,200,000
42,204,904
Common Shares Issued
in Follow-on Offering
Compensation – Restricted Shares
4,600,000
93,878
Balance as of December 31, 2010
51,200,000
46,898,782
Common Shares Issued, 2011 Equity
400,000
35
–
42
1
422
46
1
469
4
Nordic American Tankers Limited
Page 32 of 36
Incentive Plan
Compensation – Restricted Shares
4,612
0
Increased authorized share capital
38,800,000
Balance as of December 31, 2011
90,000,000
47,303,394
473
On June 1, 2011, at its Annual General Meeting (“AGM”) held in Bermuda, the Company increased authorized share
capital from 51,200,000 common shares to 90,000,000 common shares, par value $0.01 per share.
In connection with the issuance of 400,000 shares related to the 2011 Equity Incentive Plan, the Manager was entitled
to 4,612 restricted shares in the Company. The 4,612 restricted shares were issued to the Manager on October 24,
2011.
The total issued and outstanding shares, as of December 31, 2011, were 47,303,094 shares of which 578,306 shares
were restricted shares issued to the Manager and of which 226,000 shares were restricted to members of the Board,
employees of the Company and to persons employed by the Manager. As of December 31, 2010, all the 16,700
restricted shares issued to employees and non-employees are vested, as described in Note 11. The total issued and
outstanding shares, as of December 31, 2010, were 46,898,782 shares of which 399,694 shares were restricted shares
issued to the Manager.
In January 2010, the Company completed an underwritten public offering of 4,600,000 common shares. The net
proceeds from the offering were $136.5 million. The net proceeds from the offering increased the Company’s Share
Premium Fund and the proceeds were used to prepare the Company for further expansion and repay of borrowings
under the Credit Facility.
In January 2009, the Company issued 3,450,000 common shares at $32.50 per share in a registered transaction. The
net proceeds of the offering were used to fund further acquisitions under planning and for general corporate purposes.
In May 2009, the Company issued 4,225,000 common shares at $32.00 per share in a registered transaction. The net
proceeds of the offering were used to fund further acquisitions under planning and for general corporate purposes.
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, including public notice to our creditors and a subsequent period for creditor notice of concern,
regarding the Company’s intention to make such funds available for distribution following shareholder approval. The
Share Premium Fund was $0.0 million and $0.0 million as of December 31, 2011 and 2010 respectively. Credits and
Charges to Additional Paid in Capital was a result of the accounting for the Company’s share based compensation
programs.
On June 29, 2010, at the Company’s Annual General Meeting, shareholders voted to reduce the Share Premium Fund
by the amount of $136.4 million. The legal procedures related to this reduction were finalized on August 6, 2010,
upon which the amount became eligible for distribution.
On June 19, 2009, at the Company`s Annual General Meeting, shareholders voted to reduce the Share Premium Fund
by the amount of $236.6 million. The legal procedures related to this reduction were finalized on August 12, 2009,
upon which the amount became eligible for distribution.
Contributed Surplus Account
The Company’s Contributed Surplus Account as defined by Bermuda law, consists of amounts previously recorded as
share premium, transferred to Contributed Surplus Account when resolutions are adopted by the Company’s
shareholders to make Share Premium Fund distributable or available for other purposes. As indicated by the laws
governing the Company, the Contributed Surplus Account can be used for dividend distribution and to cover
accumulated losses from its operations.
Nordic American Tankers Limited
Page 33 of 36
For 2010, the Company had a net loss of 0.8 million. As such, all dividend distributions were charged to our
Contributed Surplus Account. The accumulated deficit at the end of 2010 is to be charged against the Company’s
Contributed Surplus Account in 2011.
Stockholders Rights Plan
In 2007, the Board of Directors adopted a stockholders rights agreement and declared a dividend of one preferred
stock purchase right to purchase one one-thousandth of a share of our Series A Participating Preferred Stock for each
outstanding share of our common stock, par value $0.01 per share. The dividend was payable on February 27, 2007 to
stockholders of record on that date. Each right entitles the registered holder to purchase from us one one-thousandth of
a share of Series A Participating Preferred Stock at an exercise price of $115, subject to adjustment. We can redeem
the rights at any time prior to a public announcement that a person has acquired ownership of 15% or more of the
Company’s common stock.
This stockholders rights plan was designed to enable us to protect stockholder interests in the event that an unsolicited
attempt is made for a business combination with, or a takeover of, the Company. We believe that the stockholders
rights plan should enhance our Board’s negotiating power on behalf of stockholders in the event of a coercive offer or
proposal. We are not currently aware of any such offers or proposals.
17. COMMITMENTS AND CONTINGENCIES
Nordic Galaxy
On January 17, 2012, we received the final award from the tribunal and as a consequence we shall be responsible for
some of the legal costs of the seller. We expect that the amount of legal fees of the seller will be approximately $1.2
million, which is recognized as part of the “General & Administrative Expenses” as of December 31, 2011. Please see
Note 9.
Nordic Harrier
In October 2010, Nordic Harrier was redelivered, from a long-term bareboat charter agreement, to the Company, and
went directly into drydock for repair. The drydock period lasted until the end of April 2011. The vessel had not been
technically operated according to sound maintenance practices by Gulf Navigation Company LLC, and the vessel’s
condition on redelivery to us was far below the contractual obligation of the charterer. All drydock expenses are
capitalized and were paid during 2011. We have sought compensation for these expenses, but have not been able to
reach an agreement with the charterer. The arbitration procedures have started and are expected to be finalized in
2013.
Legal Proceedings and Claims
The Company may become 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 filed against the Company for the fiscal year 2011 or 2010, and the Company has not been a
party to any legal proceedings for the year ended December 31, 2011, December 31, 2010 and December 31, 2009,
except as disclosed in Note 9.
Nordic American Tankers Limited
Page 34 of 36
18. FINANCIAL INSTRUMENTS
The Company did not hold any derivative instruments during 2011, 2010 or 2009, or as of December 31, 2011 or
2010.
The majority of the Company’s transactions, assets and liabilities are denominated in United States dollars, the
functional currency of the Company. There is no significant risk that currency fluctuations will have a negative effect
of the value of the Company’s cash flows.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments and
other financial assets.
- The carrying value of cash and cash equivalents and marketable securities, is a reasonable estimate of fair
value.
- The estimated fair value for the working capital, cooperative arrangements is consider to be equal to the
carrying values since it is not possible to estimate the time or period of repayment, and the effect of this
discounting the outstanding balance is not expected to be material as compared to carrying value.
- The estimated fair value for the long-term debt is considered to be equal to the carrying values since it bears
variable interest rates.
The Company categorizes its fair value estimates using a fair value hierarchy based on the inputs used to measure fair
value for those assets that are recorded on the balance sheet at fair value. The fair value hierarchy has three levels
based on the reliability of the inputs used to determine fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets.
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market date, which require the reporting entity to develop its
own assumptions.
The carrying value of estimated fair value of the Company`s financial instruments at December 31, 2011 and 2010 are
as follows:
All figures in USD ‘000
Cash and Cash Equivalents
Marketable Securities
Working capital, cooperative
arrangements (current assets)
Loan to First Olsen Ltd. – refer to Note 5
Working capital, cooperative
arrangements (non-current assets)
Credit Facility
Fair Value
Hierarchy
Level
1
1
2011
Fair
Value
24,006
583
12,779
–
2011
Carrying
Value
24,006
583
12,779
–
2010
Fair
Value
17,221
-
–
26,809
2010
Carrying
Value
17,221
–
–
26,809
18,941
(230,000)
18,941
(230,000)
22,034
(75,000)
22,034
(75,000)
19. MARKETABLE SECURITIES
Marketable securities held by the Company are equity securities considered to be available-for-sale securities.
All figures in USD ‘000
Cost
Accumulated net unrealized loss
Fair value
2011
795
(212)
583
2010
–
–
–
Nordic American Tankers Limited
Page 35 of 36
At December 31, 2011, net unrealized loss on marketable securities included in comprehensive income is $0.2 million.
The Company has not recognized any sale of marketable securities in the period.
20. EQUITY METHOD INVESTMENTS
Orion Tankers Ltd. is a private limited company formed in November 2011 under the laws of the Island of Bermuda.
Orion Tankers Ltd. has a share capital $100,000, which is comprised of 10,000,000 shares with $0.01 per value. Orion
Tankers Ltd. is owned equally by the Company and Frontline Ltd. and, the business of the Orion Tankers Ltd. is to
provide transportation services on the high seas and administrative services herewith in general and the operation and
management of the Orion Tankers Pool. The net result of $0.01 million for the year ended December 31, 2011, is
included in interest income within the Statement of Operations.
Orion Tankers Ltd. acquired the Gemini Tankers AS, Norway in November, 2011, which was a full subsidiary of
Gemini Tankers LLC. Orion Tankers Ltd. paid $0.5 million for Gemini Tankers AS, to Gemini Tankers LLC. The
purchase of Gemini Tankers AS was funded by the owners of the Orion Tankers Ltd. in February 2012.
All figures in USD ‘000
Acquisition cost
Net Income
Carrying value
2011
2010
50
11
61
–
–
-
21. SUBSEQUENT EVENTS
In January 2012, the Company completed an underwritten public offering of 5,500,000 common shares which
strengthened its equity by $75.9 million. The underwritten public offering enhances the capacity of the Company to
strengthen the Company’s resources, to fund future acquisition and for general corporate purposes.
In February 2012, the Company declared a dividend of $0.30 per share in respect of the results for the fourth quarter
of 2011, which was paid to shareholders in March 2012.
* * * * *
Nordic American Tankers Limited
Page 36 of 36