UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of June 2006
Commission File Number
NORDIC AMERICAN TANKER SHIPPING LIMITED
(Translation of registrant's name into English)
Thistle House
4 Burnaby Street
Hamilton HM11
Bermuda
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [_]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): ___
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)7: ___
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [_] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): ________.
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Attached hereto as Exhibit 1 is Nordic American Tanker Shipping Limited's 2005
Annual Report to Shareholders.
Exhibit 1
[LOGO]
NORDIC AMERICAN TANKER
SHIPPING LIMITED
2005 ANNUAL
REPORT TO
SHAREHOLDERS
BUSINESS
General
Nordic American Tanker Shipping Limited, or the Company, was formed on June 12,
1995 under the laws of the Islands of Bermuda for the purpose of acquiring and
chartering three Suezmax tankers that were built in 1997. These three vessels
were bareboat chartered to BP Shipping Ltd., or BP Shipping, for a period of
seven years. BP Shipping redelivered these three vessels to us in September
2004, October 2004 and November 2004, respectively. We have continued contracts
with BP Shipping by time chartering to it two of our original vessels at spot
market related rates for three-year terms up to the autumn of 2007. We have
bareboat chartered the third of our original three vessels to Gulf Navigation
Company LLC, or Gulf Navigation, of Dubai, U.A.E. for a term of five years at a
fixed rate of charterhire, subject to two one-year extensions at Gulf
Navigation's option. We acquired our fourth vessel in November 2004, our fifth
and sixth vessels in March 2005, our seventh vessel in August 2005, our eighth
vessel in November 2005 and our ninth vessel in April 2006. We are currently
operating eight vessels in the spot market or on spot market related time
charters.
Our Fleet
Our fleet consists of nine modern double-hull Suezmax tankers. The following
chart provides information regarding each vessel, including its employment
status.
Year Employment Status
Vessel Yard Built Dwt (Expiration Date) Flag
------ ---- ----- --- ----------------- ----
Gulf Scandic Samsung 1997 151,459 Bareboat (Nov. 2009) Isle of Man
Nordic Hawk Samsung 1997 151,459 TC/spot(1) (Oct. 2007) Bahamas
Nordic Hunter Samsung 1997 151,459 TC/spot(1) (Sept. 2007) Bahamas
Nordic Voyager Dalian New 1997 149,591 Spot Norway
Nordic Freedom Daewoo 2005 159,500 Spot (Mar. 2007) Bahamas
Nordic Fighter Hyundai 1998 153,181 Spot Norway
Nordic Discovery Hyundai 1998 153,181 Spot Norway
Nordic Saturn Daewoo 1998 157,332 Spot Marshall Islands
Nordic Jupiter(2) Daewoo 1998 157,332 Spot Marshall Islands
----------
(1) TC/Spot = Time Charter on spot market related terms.
(2) The vessel was delivered to us on April 10, 2006.
OUR CHARTERS
We operate our vessels on bareboat charters, time charters and in the spot
market. Our goal is to take advantage of potentially higher market rates through
time charters with spot market related rates and voyage charters. Including our
recent acquisitions, we plan to operate eight of our nine vessels in the spot
market or on spot market related time charters although we may consider charters
at fixed rates depending on market conditions.
Bareboat Charters
We have chartered one of our vessels (the Gulf Scandic) under a bareboat charter
to Gulf Navigation, for a period of five years, terminating in the fourth
quarter of 2009, subject to two one-year extensions at Gulf Navigation's option.
Under the terms of the bareboat charter, Gulf Navigation is obligated to pay a
fixed charterhire of $17,325 per day for the entire charter period. During the
charter period, Gulf Navigation will be responsible for operating and
maintaining the vessel and will bear all costs and expenses with respect to the
vessel.
Time Charters
We have chartered two of our vessels (the Nordic Hawk and the Nordic Hunter)
under spot market related time charters to BP Shipping for a period of three
years each, terminating between September 1 and October 31, 2007. The amount of
charterhire payable under the charters to BP Shipping is based on a formula
designed to generate earnings to us as if we had operated the vessels in the
spot market on two routes used for the calculation, less 5%. The charterhire is
payable to us monthly. Under the time charters, BP Shipping is responsible for
all voyage related costs while the Company is responsible for providing the crew
and paying other operating costs.
Spot Charters
We currently operate one vessel (the Nordic Freedom) in the spot market (other
than in a pool). Tankers operating in the spot market typically are chartered
for a single voyage which may last up to several weeks. Tankers operating in the
spot market may generate increased profit margins during improvements in tanker
rates, while tankers operating fixed-rate time charters generally provide more
predictable cash flows.
Under a typical voyage charter in the spot market, we will be paid freight on
the basis of moving cargo from a loading port to a discharge port. We are
responsible for paying both operating costs and voyage costs and the charterer
is responsible for any delay at the loading or discharging ports.
Pooling Arrangements
We currently operate five of our vessels (the Nordic Voyager, Nordic Discovery,
Nordic Fighter, Nordic Saturn and Nordic Jupiter) in spot market pools with
other vessels that are not owned by us. The pools are managed by third party
pool administrators. The pool administrator of each pool has the responsibility
for the commercial management of the participating vessels, including the
marketing, chartering, operation and bunker (fuel oil) purchase of the vessels.
The pool participants remain responsible for all other costs including the
financing, insurance, manning and technical management of their vessels. The
earnings of all of the vessels are aggregated, or pooled, and divided according
to the relative performance capabilities of the vessel and the actual earning
days each vessel is available. The pool vessels are operated in the spot market
by the pool administrators.
THE TANKER MARKET 2005
For the third year in a row the tanker market was very profitable for tanker
owners. Even though 2005 was not as robust as 2004 for crude carriers, it was
the second best year since the 1970s. The oil tanker fleet is generally divided
into five major categories of vessels, based on carrying capacity. A tanker's
carrying capacity is measured in dead weight 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 VLCC (Very Large Crude Carrier), whose carrying
capacity ranges from 200,000 dwt to 320,000 dwt, reached an average of $55,000
per day, down from the extraordinary high $89,000 the year before. Suezmaxes,
whose carrying capacity ranges from 120,000 dwt to 200,000 dwt, achieved $48,000
per day, versus $65,000 in 2004. Corresponding rates for Aframaxes, whose
carrying capacity ranges from 80,000 dwt to 120,000 dwt, were $40,000 compared
with $47,000 in 2004.
Estimates indicate an increase in seaborne oil trade of 3.5% from 2004 to 2005
and a slight reduction in average transport distance. Based on industry reports,
there was an increase in waiting time in ports and straits compared with the
year before, leading to a decline in the productivity of the fleet. Our
preliminary estimates show an overall growth of 3% to 4% in tanker tonnage
demand from 2004 to 2005.
The tanker fleet, excluding chemical tankers, rose at the highest rate in many
years on a dwt basis, with deliveries of 28 million dwt, while scrapping and
other removals amounted to no more than 5 million dwt. Fleet growth by dwt in
2005 was as high as 7%, resulting in a drop in the fleet's utilization rate from
91.5% in 2004 to 88.5% in 2005.
The most important trend in the global oil market in 2005 was the stagnation in
oil production outside OPEC. Hurricane-related supply disruptions in the US
Gulf, higher than anticipated North Sea depletion rates and a more moderate
growth in Russian oil output were the main elements behind the stagnation of
non-OPEC production.
The consequence of less oil from non-OPEC sources was an increased demand for
OPEC oil. Since OPEC already produced at almost full capacity most of the extra
demand resulted in higher prices. Lack of spare oil production capacity drove
crude oil prices to, at its peak, above $70 per barrel and dampened the
extremely strong growth in oil consumption of close to 4% in 2004 to only 1.3%
in 2005 according to the most recent estimates.
The sale and purchase market for tankers was strong in 2005, especially for very
modern tankers. Values for double hull tankers increased on average
approximately 7.5%, whereas values for single hull tankers on average fell
approximately 10%.
According to the January 2005 Oil and Gas Journal, the Middle East has 57.1% of
the world's proven oil reserves, which will continue to drive long and medium
haul seaborne transportation. World oil production reached 84.6 million barrels
per day in January 2006. OPEC countries located in the Middle East supplied
approximately a quarter of this volume. Given the dominance of world oil
reserves located in this region, this share is expected to grow in coming years
as oil fields in other parts of the world gradually reach maturity and begin a
process of natural decline. The length of transportation distances between the
Middle East and consuming areas means that such a trend would boost ton-miles
(the product of volumes and transport distances) and could be beneficial for
tanker demand.
A significant and ongoing shift toward quality in vessels and operations has
taken place during the last decade as charterers and regulators increasingly
focus on safety and protection of the environment. Since 1990, there has been an
increasing emphasis on environmental protection through legislation and
regulations such as the U.S. Oil Pollution Act of 1990, International Maritime
Organization protocols and Classification Society procedures, demanding higher
quality tanker construction, maintenance, repair and operations. Operators that
have proven an ability to seamlessly integrate these required safety regulations
into their operations are being rewarded. For example, the emergence of vessels
equipped with double hulls represented a differentiation in vessel quality and
enabled such vessels to command improved earnings in the spot charter markets.
The effect has been a shift in major charterers' preference towards greater use
of double hulls and, therefore, more difficult trading conditions for older
single-hull vessels. These changes were reflected in the sharp increase in
scrapping of older vessels during periods of weaker market conditions in recent
years. As a result, the net increase in transportation capacity for Suezmax
tankers has been relatively low during this period, or 7.0% from 1993 through
2003 according to R.S. Platou Economic Research a.s. However, due to the
increase in oil demand, deliveries have increased and net Suezmax tanker
capacity has grown 13.5% since the beginning of 2003. We believe charterers
generally prefer more modern, double-hull vessels resulting in a portion of the
older vessels achieving lower levels of employment. Two major oil companies have
announced they will no longer charter single-hull tonnage.
OUR CREDIT FACILITY
In September 2005, we entered into a new $300 million revolving credit facility,
which we refer to as the New Credit Facility. The New Credit Facility became
effective as of October 2005 and replaced our previous credit facility from
October 2004, a portion of which was set to mature in October 2005. The New
Credit Facility will mature in September 2010.
The New Credit Facility provides funding for future vessel acquisitions and
general corporate purposes. The New Credit Facility cannot be reduced by the
lender and there is no repayment obligation of the principal during the five
year term. Amounts borrowed under the New Credit Facility bear interest at a
rate equal to LIBOR plus a margin between 0.7% and 1.2% (depending on the loan
to vessel value ratio). We must pay a commitment fee of 30% of the applicable
margin on any undrawn amounts.
In September 2005, we borrowed $60.0 million under our previous credit facility
to finance part of the purchase price of our seventh vessel that we acquired in
August 2005, and $7.0 million to finance the down payment for the acquisition of
our eighth vessel.
In October 2005, we refinanced the aggregate borrowings of $67 million under our
previous credit facility by drawing on our New Credit Facility. Borrowings under
the New Credit Facility are secured by mortgages over our vessels and assignment
of earnings and insurance. We are permitted to pay dividends in accordance with
our dividend policy as long as we are not in default under the New Credit
Facility.
In November 2005, we borrowed $63.0 million under our New Credit Facility to
finance part of the purchase price of our eighth vessel that we acquired in
September 2005.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Results of Operations
Our net voyage revenues increased from $62,526,245 for year ended December 31,
2004 compared to $86,129,262 for year ended December 31, 2005, an increase of
37.7%.
All figures in USD 2005 2004
--------------------------------------------------------------------------------
Voyage Reenue 117,110,178 67,451,598
Voyage Expenses (30,980,916) (4,925,353)
--------------------------------------------------------------------------------
Net Voyage Revenue 86,129,262 62,526,245
--------------------------------------------------------------------------------
The increase in net voyage revenues was primarily due to the addition of four
vessels to the fleet. The Company acquired two vessels in March 2005, one vessel
in August 2005 and one vessel in November 2005.
Vessel operating expenses were $11,220,770 for 2005 compared to $1,976,766 for
2004. The increase is due to the change in the Company's operating structure as
of October 2004 from a passive leasing company into an operating company. Prior
to October 2004 the original three vessels were on bareboat charter to BP
Shipping. Under bareboat charter agreements all vessel operating expenses are
paid by the charterer.
Administrative expenses were $8,492,164 for 2005 compared to $10,851,688 for
2004. The decrease was due to the non-cash charge of $9,252,365 in 2004 compared
to $3,582,995 in 2005 that is linked to a change in the compensation scheme for
Scandic American Shipping Ltd., or the Manager. This decrease was off-set by a
full year of general and administrative expenses reflecting the new operating
structure of the Company as described above. The original incentive plan for the
Manager was a revenue based cash commission structure. The Manager agreed to
eliminate the commission. The cash commission was replaced by restricted share
issuances to the Manager of 2% of the Company's outstanding common shares from
time to time in order to align the interests of the Manager and the Company.
These restricted shares are non-transferable for three years from issuance. In
connection with the transition to an operating company, the Company introduced a
stock incentive plan with 400,000 shares reserved for issuance of which 270,000
stock options were granted at December 31, 2005. The initial strike price for
options granted in 2005 was equal to $38.75, which was the offering price per
share of our common shares in our follow-on offering in November 2004. The
Company has recorded a compensation cost of $1,415,000 associated with the
employee stock option awards.
Net operating income for 2005 increased 14.3% from the comparable period in 2004
from $42,779,627 to $48,887,328 primarily due to increased revenue and costs as
described above.
Liquidity and Capital Resources
Cash flows provided by operating activities decreased by 18.7% in 2005 to
$51,055,588 compared to $62,817,261 in 2004 primarily due to change in the
Company's operation as described above.
Cash flow provided from financing activities increased by 577% in 2005 to
$226,613,441 compared to $33,486,608 for the same period in 2004. The increase
was due to (i) proceeds from a follow-on offering of $161.9 million, (ii) net
proceeds from the drawdown of the credit facility of $130.0 million, offset by
(iii) dividends paid of $64.2 million and (iv) payment of loan facility costs of
$1.1 million in respect of our $300 million new credit facility.
Cash flow used in investing activities increased by 344.7% in 2005 to
$294,161,063 compared to $66,137,277 in 2004. The increase represents the
acquisition costs of four vessels acquired in 2005.
We believe that our working capital is sufficient for the Company's present
requirements.
Dividend payment
Total dividends paid in 2005 were $64,279,487 or $4.21 per share. Dividend
payments per share in 2003, 2004 and 2005 were as follows:
Period 2005 2004 2003
------------------------------------------------------------
1st Quarter $1.62 $1.15 $0.63
2nd Quarter 1.15 1.70 1.27
3rd Quarter 0.84 0.88 0.78
4th Quarter 0.60 1.11 0.37
------------------------------------------------------------
Total USD $4.21 $4.84 $3.05
------------------------------------------------------------
The dividend paid out in a quarter is based on the results of the previous
quarter.
The Company declared a dividend of $1.88 per share in the first quarter of 2006
which was paid to shareholders in March 2006. In addition, the Company declared
a dividend of $1.58 per share in the second quarter of 2006 which will be paid
to shareholders in May 2006.
THE MANAGEMENT AGREEMENT
Under the Management Agreement the Manager has commercial and operational
responsibility of our vessels and is required to manage our day-to-day business
subject, always, to our objectives and policies as established and directed from
time to time by the Board of Directors. All decisions of a material nature
concerning our business are reserved to the Board of Directors. The Management
Agreement has been extended five years and will terminate on June 30, 2019,
unless earlier terminated pursuant to its terms, or extended by the parties
following mutual agreement. For its services under the Management Agreement, the
Manager is entitled to cover its costs incurred plus a management fee equal to
$100,000 per annum. The Management Agreement formerly provided that the Manager
would receive 1.25% of any gross charterhire paid to us. In order to further
align the Manager's interests with those of the Company, the Manager agreed with
us to amend the Management Agreement to eliminate this payment, and we have
issued to the Manager restricted common shares equal to 2% of our outstanding
common shares. Any time additional common shares are issued, the Manager will
receive additional restricted common shares to maintain the number of common
shares issued to the Manager at 2% of our total outstanding common shares. These
restricted shares are non-transferable for three years from issuance.
COMMERCIAL AND TECHNICAL MANAGEMENT AGREEMENTS
We have entered into a commercial management agreement with Teekay Chartering
Limited, or Teekay, an affiliate of Teekay Shipping Corporation for the Nordic
Freedom. Under the supervision of the Manager, Teekay's duties include seeking
and negotiating charters for this vessel.
We have entered into a commercial management agreement with the Swedish based
Stena Bulk AS, or Stena, for the Nordic Voyager, which is operated in a pool
with other Stena-controlled Suezmax tankers. Under the supervision of the
Manager, Stena's duties in the pool include seeking and negotiating charters for
this vessel.
We have entered into a commercial management agreement with Frontline Management
ASA, or Frontline, for the Nordic Fighter and the Nordic Discovery, which are
operated in a pool with other Frontline controlled Suezmax tankers. Under the
supervision of the Manager, Frontline's duties in the pool include seeking and
negotiating charters for these vessels.
We have entered into a commercial management agreement with the U.S. based OMI
Corporation, or OMI, for the Nordic Saturn and Nordic Jupiter, which are
operated in a pool with other OMI-controlled Suezmax tankers. Under the
supervision of the Manager, OMI's duties in the pool include seeking and
negotiating charters for these vessels. We have entered into a technical
management agreement for Nordic Jupiter with OMI Marine Services under the
supervision of the Manager.
We have entered into a technical management agreement for Nordic Hawk, Nordic
Hunter, Nordic Voyager, Nordic Freedom and Nordic Saturn with Teekay Marine
Services AS (formerly IUM Shipmanagement AS), or TMS, under the supervision of
the Manager.
We have entered into a technical management agreement for the Nordic Fighter and
the Nordic Discovery with V.Ships Norway AS, or V.Ships. V.Ships is a marine
service group that provides ship management and related services to a managed
fleet of approximately 650 vessels worldwide.
Compensation under the commercial and technical management agreements is in
accordance with industry standards.
COMPENSATION OF DIRECTORS AND OFFICERS
During 2005, the six non-employee directors received, in the aggregate,
approximately $228,100 in cash fees for their services as directors. From June
20, 2005 the Board was expanded from five to seven directors of which each of
the non-employee directors receives a fee at the annual rate of $45,000. We do
not pay director fees to employee directors. We do, however, reimburse our
directors for all reasonable expenses incurred by them in connection with
serving on our board of directors. Directors may receive restricted shares or
other grants under our 2004 Stock Incentive Plan described below.
EMPLOYMENT AGREEMENTS
We have an employment agreement with Herbjorn Hansson, our Chairman, President
and Chief Executive Officer, Turid M. S0rensen, our Chief Financial Officer, and
Rolf Amundsen, our Chief Investor Relations Officer and Advisor to the Chairman.
Mr. Hansson does not receive any additional compensation for serving as a
director or the Chairman of the Board. The aggregate compensation of our
executive officers during 2005 was $475,000. The aggregate compensation of our
executive officers is expected to be approximately $720,000 during 2006. On
certain terms the employment agreement may be terminated by us or Mr. Hansson
upon six months' written notice to the other party. The employment agreement
with Ms. S0rensen may be terminated by us or by Ms. S0rensen upon six months'
written notice to the other party. The employment agreement with Mr. Amundsen
may be terminated by us or Mr. Amundsen upon three months' written notice to the
other party.
2004 STOCK INCENTIVE PLAN
Under the terms of the Company's 2004 Stock Incentive Plan, the directors,
officers and certain key employees of the Company and the Manager are eligible
to receive awards which include incentive stock options, non-qualified stock
options, stock appreciation rights, dividend equivalent rights, restricted
stock, restricted stock units and performance shares. A total of 400,000 common
shares are reserved for issuance upon exercise of options, as restricted share
grants or otherwise under the plan. Included under the 2004 Stock Incentive Plan
are options to purchase common shares at an exercise price equal to $38.75, the
offering price per share of the Company's common shares in our follow-on
offering in November 2004, subject to annual downward adjustment if the payment
of dividends in the related fiscal year exceed a 3% yield calculated based on
the initial strike price. During 2005 the Company granted an aggregate of
320,000 stock options that the Board of Directors had agreed to issue during
2004. These options will vest in equal installments on each of the first four
anniversaries of the grant dates.
MAY 18, 2006 NORDIC AMERICAN TANKER
SHIPPING LIMITED
NORDIC AMERICAN TANKER SHIPPING LIMITED
TABLE OF CONTENTS
-------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS 9
FINANCIAL STATEMENTS:
Statements of Operations 10
Balance Sheets 11
Statements of Shareholders' Equity 12
Statements of Cash Flows 13
Notes to Financial Statements 15-22
Deloitte
[LOGO]
Deloitte
Statsautoriserte Revisorer AS
Karenslyst alle 20
Postboks 347 Skoyen
0213 Oslo
Telefon: 23 27 90 00
Telefax: 23 27 90 01
www.deloitte.no
To the annual general meeting of Nordic American Tanker Shipping Ltd.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the balance sheets of Nordic American Tanker Shipping Ltd. (the
"Company") as of December 31, 2005 and 2004, and the related statements of
operations, statements of comprehensive income, and cash flows for each of the
three years ended December 31, 2005. 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. The Company has determined that it
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. 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 Company as of December 31, 2005 and
2004, and the results of their operations and their cash flows for the years
December 31, 2005 and 2004, in conformity with accounting principles generally
accepted in the United States of America.
Oslo, Norway, May 18, 2006
/s/ Deloitte Statsautoriserte Revisorer AS
Member of
Deloitte Touche Tohmatsu
Audit.Tax & Legal.Consulting.Financial Advisory.
STATEMENTS OF OPERATIONS
All figures in USD
Year Ended December 31,
---------------------------------------------------------------
Notes 2005 2004 2003
----- ---- ---- ----
Voyage Revenue 3 117,110,178 67,451,598 37,185,975
Voyage Expenses (30,980,916) (4,925,353) 0
Vessel Operating Expenses -
excluding depreciation expense
presented below (11,220,770) (1,976,766) 0
Administrative Expenses 2, 7 (8,492,164) (10,851,688) (468,087)
Depreciation 6 (17,529,000) (6,918, 164) (6,831,040)
-------------------- ------------------ -------------------
Net Operating Income 48,887,328 42,779,627 29,886,848
-------------------- ------------------ -------------------
Interest Income 850,803 143,230 26,462
Interest Expense 9, 10 (3,453,963) (1,971,304) (1,797,981)
Other Financial Income (Charges) 33,574 (135,621) (15,040)
-------------------- ------------------ -------------------
Net Financial Items (2,569,586) (1,963,695) (1,786,559)
-------------------- ------------------ -------------------
Net profit before Tax 46,317,742 40,815,932 28,100,289
-------------------- ------------------ -------------------
Tax Expense 0 0 0
-------------------- ------------------ -------------------
Net Profit for the Year 46,317,742 40,815,932 28,100,289
-------------------- ------------------ -------------------
Basic Earnings per Share 3.03 4.05 2.89
Diluted Earnings per Share 3.03 4.05 2.89
Basic Weighted Average Number of
Shares Outstanding 15,263,622 10,078,391 9,706,606
Diluted Weighted Average Number
of Shares Outstanding 15,263,622 10,078,391 9,706,606
The footnotes are an integral part of these financial statements
BALANCE SHEETS
All figures in USD
Notes Dec. 31, 2005 Dec. 31, 2004
----- ------------- -------------
ASSETS
Current Assets
Cash and Cash Equivalents 14,240,482 30,732,516
Accounts Receivables, net 4 19,556,725 4,539,354
Voyages in Progress 2,445,906 0
Prepaid Expenses and Other Assets 5 3,147,527 1,479,710
--------------------- -------------------
Total Current Assets 39,390,640 36,751,580
--------------------- -------------------
Long-term Assets
Vessels, net 6 463,933,101 187,301,038
Other Long-term Assets 2,520,712 150,793
--------------------- -------------------
Total Long-term Assets 466,453,813 187,451,831
--------------------- -------------------
Total Assets 505,844,453 224,203,411
--------------------- -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable 1,562,188 411,366
Deferred Revenue 11 537,055 1,286,070
Accrued Liabilities 2,873,039 637,582
--------------------- -------------------
Total Current Liabilities 12 4,972,282 2,335,018
--------------------- -------------------
Long-term Liabilities
Long-term Debt 9 130,000,000 0
--------------------- -------------------
Total Long-term Liabilities 130,000,000 0
--------------------- -------------------
SHAREHOLDERS' EQUITY
Common Shares, 13 166,445 130,678
par value $0.1 per share,
issued and outstanding
(51,200,000 shares authorized);
16,644,496 shares issued and
outstanding, (13,067,838
issued and outstanding in 2004)
Additional Paid-in Capital 432,682,337 265,752,581
Accumulated Deficit (61,976,611) (44,014,866)
--------------------- -------------------
Total Shareholders' Equity 370,872,171 221,868,393
--------------------- -------------------
Total Liabilities & Shareholders' Equity 505,844,453 224,203,411
--------------------- -------------------
The footnotes are an integral part of these financial statements
STATEMENTS OF SHAREHOLDERS' EQUITY
All figures in USD, except where noted
Accumulated
Additional Other Total Total
No. of Common Paid-in Accumulated Comprehensive Shareholders' Comprehensive
Shares Shares Capital Deficit Loss Equity Income
------ ------ ------- ------- ---- ------ ------
Balance at 01.01.03 9,706,606 97,066 144,395,866 (36,129,835) (2,016,000) 106,347,097
Net Profit 28,100,289 28,100,289 28,100,289
Unrealized Loss on (365,723) (365,723) (365,723)
Derivative Instruments
Adjustment for Losses on
Derivatives Reclassified
to Earnings 1,231,723 1,231,723 1,231,723
Dividend Paid (29,605,410) (29,605,410)
Total Comprehensive Income 28,966,289
------------------------------------------------------------------------------------------------------------------------------------
Balance at 12.31.03 9,706,606 97,066 144,395,866 (37,634,956) (1,150,000) 105,707,976
------------------------------------------------------------------------------------------------------------------------------------
Net Profit 40,815,932 40,815,932 40,815,932
Common Shares Issued 3,361,232 33,612 121,356,715 121,390,327
Unrealized Loss on
Derivative Instruments
(20,710) (20,710) (20,710)
Adjustment for Losses on
Derivatives Reclassified
to Earnings 1,170,710 1,170,710 1,170,710
Dividend Paid (47,195,842) (47,195,842)
Total Comprehensive Income 41,965,932
------------------------------------------------------------------------------------------------------------------------------------
Balance at 12.31.04 13,067,838 130,678 265,752,581 (44,014,866) 0 221,868,393
------------------------------------------------------------------------------------------------------------------------------------
Net Profit 46,317,742 46,317,742 46,317,742
Common Shares Issued 3,576,658 35,767 165,514,756 165,550,523
Stock Option Plan valuation 1,415,000 1,415,000
Dividend paid (64,279,487) (64,279,487)
Total Comprehensive Income 88,283,674
------------------------------------------------------------------------------------------------------------------------------------
Balance at 12.31.05 16,644,496 166,445 432,682,337 (61,976,611) 0 370,872,171
------------------------------------------------------------------------------------------------------------------------------------
The footnotes are an integral part of these financial statements
STATEMENTS OF CASH FLOWS
All figures in USD
Year Ended December 31,
-----------------------------------------------------------------
2005 2004 2003
-------------------- -------------------- -------------------
Cash Flows from Operating Activities
Net Profit 46,317,742 40,815,932 28,100,289
Reconciliation of Net Profit to Net Cash from
Operating Activities
Depreciation 17,529,000 6,918,164 6,831,040
Amortization of Prepaid Finance Costs 717,910 112,838 14,480
Share-based Compensation & Stock Option Plan 4,997,995 9,252,365 0
Increase/Decrease in:
Accounts Receivables (15,017,371) 3,602,956 (4,865,784)
Accounts Payable and Accrued Liabilities 3,386,273 1,010,626 (178,140)
Deferred Revenue (749,015) 1,286,075 0
Other Assets (6,126,946) (181,695) (8,334)
-------------------- -------------------- -------------------
Net Cash Provided by Operating Activities 51,055,588 62,817,261 29,893,551
-------------------- -------------------- -------------------
Cash Flows from Investing Activities
Investment in Vessels (294,161,063) (66,137,277) 0
-------------------- -------------------- -------------------
Net Cash Used in Investing Activities (294,161,063) (66,137,277) 0
-------------------- -------------------- -------------------
Cash Flows from Financing Activities
Proceeds from Issuance of Common Stock 161,967,534 112,137,953 0
Proceeds from Use of Credit Facility 135,000,000 96,000,000 0
Repayments of Credit Facility (5,000,000) (126,000,000) 0
Loan Facility Costs (1,074,606) (1,455,503) 0
Dividends Paid (64,279,487) (47,195,842) (29,605,410)
-------------------- -------------------- -------------------
Net Cash Provided by (Used in) Financing Activities 226,613,441 33,486,608 (29,605,410)
-------------------- -------------------- -------------------
Net (Decrease) Increase in Cash and Cash Equivalents (16,492,034) 30,166,592 288,141
-------------------- -------------------- -------------------
Beginning Cash and Cash Equivalents 30,732,516 565,924 277,783
-------------------- -------------------- -------------------
Ending Cash and Cash Equivalents 14,240,482 30,732,516 565,924
-------------------- -------------------- -------------------
Cash paid for Interest 916,104 1,774,264 1,975,125
The footnotes are an integral part of these financial statements
NORDIC AMERICAN TANKER SHIPPING LIMITED
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP).
Nature of Business: The principal business of Nordic American Tanker Shipping
Limited (the "Company") is to own and operate crude oil tankers.
Use of Estimates: Preparation of financial statements in accordance with US GAAP
necessarily includes amounts based on estimates and assumptions made by
management. Actual results could differ from those amounts. The effects of
changes in accounting estimates are accounted for in the same period as the
estimates are changed.
Concentration of Credit Risk: Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of cash and
accounts receivable. The Company maintains its cash with reputable financial
institutions. The terms of these deposits are on demand to minimize risk. The
Company has not experienced any losses related to these cash deposits and
believes it is not exposed to any significant credit risk.
Accounts receivable consist of uncollateralized receivables from international
customers primarily in the international shipping industry. To minimize risk
associated with international transactions, all sales are denominated in U.S.
currency. The Company routinely assesses the financial strength of its
customers. Accounts receivable are presented net of allowances for doubtful
accounts relating to demurrage claims. If amounts become uncollectible, they
will be charged to operations when that determination is made.
Interest Rate Risk: The Company is exposed to interest rate risk for its debt
borrowed under the New 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,
2005 and has not entered into any such arrangements in 2005.
Cash and Cash Equivalents: Cash and cash equivalents consist of deposits with
original maturities of three months or less.
Foreign Currency Risk: The Company's functional currency is the U.S. dollar as
all revenues are received in U.S. dollars and the majority of the Company's
expenditures are made in U.S. dollars. The Company's reporting currency is U.S.
dollars. The Company considers currency risk to be insignificant.
Property and Equipment: Depreciation are provided on a straight-line basis over
the estimated useful lives of the assets. The Company's property and equipment
are recorded as per cost method and consist solely of vessels. The estimated
useful life of these vessels is 25 years from the date the vessel is delivered
from the shipyard. Repairs and maintenance are expensed as incurred.
Impairment of Long-Lived Assets: Long-lived assets are required to be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition is less than the carrying amount of the asset, the
asset is deemed impaired. The amount of the impairment is measured as the
difference between the carrying value and the fair value of the asset.
Revenue and expense recognition: Revenue and expense recognition policies for
voyage and time charter agreements are as follows:
Bareboat: Revenues from bareboat charters are recorded at a fixed charterhire
rate per day over the term of the charter. The charterhire is payable monthly in
advance. During the charter period the charterer will be responsible for
operating and maintaining the vessel and will bear all costs and expenses with
respect to the vessel.
Time charters under spot related terms: The revenue from time charters under
spot related terms payable under the charters is based on a formula designed to
generate earnings to us as if we had operated the vessels in the spot market on
two routes used for the calculation, less 5% in commission to the charterer. The
charterhire is payable to us monthly. The charterer is responsible for all
voyage related costs while the Company is responsible for providing the crew and
paying other operating costs
Spot charters. Voyage revenues and voyage expenses are recognized on a pro rata
basis based on the relative transit time in each period. Estimated losses on
voyages are provided for in full at the time such losses become evident. A
voyage is deemed to commence upon the completion of discharge of the vessel's
previous cargo and is deemed to end upon the completion of discharge of the
current cargo. Voyage expenses primarily include only those specific costs which
are borne by the Company in connection with voyage charters which would
otherwise have been borne by the charterer under time charter agreements. These
expenses principally consist of fuel, canal and port charges. Demurrage income
represents payments by the charterer to the vessel owner when loading and
discharging time exceed the stipulated time in the voyage charter. Demurrage
income is measured in accordance with the provisions of the respective charter
agreements and the circumstances under which demurrage claims arise and is
recognized on a pro rata basis over the length of the voyage to which it
pertains. At December 31, 2005 and 2004, the Company has no reserves against its
due from charterers balance associated with demurrage revenues.
Pooling arrangements: Revenues and voyage expenses of the vessels operating in
pool arrangements are pooled and the resulting net pool revenues, calculated on
a time charter equivalent basis, are allocated to the pool participants
according to an agreed formula. Formulas used to allocate net pool revenues vary
among different pools but generally allocate revenues to pool participants on
the basis of the number of days a vessel operates in the pool with weighting
adjustments made to reflect vessels' differing capacities and performance
capabilities. The same revenue and expenses principles stated above are applied
in determining the pool's net pool revenues. The pool managers are responsible
for collecting voyage revenue, paying voyage expenses and distributing net pool
revenues to the participants.
Based on the guidance from EITF 99-19 earnings generated from pools in which the
Company is the principal of its vessels' activities are recorded based on gross
method. Earnings generated from pools in which the Company is not regarded as
the principal of the vessels' activities are recorded as per net method.
The Company accounts for the net pool revenues allocated by these pools as
"Voyage Revenue" in its statements of operations.
Vessel Operating Expenses: Vessel Operating Expenses include crewing, repair and
maintenance, insurance, stores, lube oils and communication expenses. These
expenses are recognized when incurred.
Accounting for Drydocking Costs: The Company's vessels are required to be
drydocked approximately every 30 to 60 months for major repairs and maintenance
that cannot be performed while the vessels are in operation. The Company follows
the deferral method of accounting for drydocking costs whereby actual costs
incurred are deferred and are amortized on a straight-line basis over the period
through the date the next drydocking is scheduled to become due. Unamortized
drydocking costs of vessels that are sold are written off to income in the year
of the vessel's sale. The capitalized and unamortized drydocking costs are
included in the book value of the vessels. Amortization expense of the
drydocking costs is included in depreciation expense.
Inventories: Inventories, which comprise principally of bunker fuel, are stated
at cost which is determined on a first-in, first-out (FIFO) basis.
Financial Instruments: The fair values of cash and cash equivalents, short-term
investments, accounts receivable, and accounts payable approximate carrying
value because of the short-term nature of these instruments.
Loan Financing costs: Finance costs, including fees, commissions and legal
expenses, which are presented as other assets are capitalized and amortized on a
straight-line basis over the term of the relevant Credit Facility. Amortization
of finance costs is included in interest expense.
Segment Information: The Company has identified only one operating segment under
Statement of Financial Accounting Standards ("SFAS") No. 131 "Segments of an
Enterprise and Related Information." The Company has only one type of vessel -
Suezmax crude oil tankers - operating on time charter contracts at market
related rates, in the spot market and on long-term bareboat contract.
Geographical Segment: We currently operate four of our vessels in spot market
pools with other vessels that are not owned by us. The pools are managed by
third party pool administrators. The earnings of all of the vessels are
aggregated, or pooled, and divided according to the relative performance
capabilities of the vessel and the actual earning days each vessel is available.
The pool vessels are operated in the spot market by the pool administrators. As
a significant portion of our vessels are operated in pools it is not practical
to allocate geographical data to each vessel and thereby not giving meaningful
information to the reader.
Derivative Instruments and Hedging Activities: The Company accounts for its
derivative instruments and hedging activities according to No. 133, "Accounting
for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137
and SFAS No. 138. This standard, as amended, requires derivative instruments to
be recorded in the balance sheet at their fair value. Changes in the fair value
of derivatives that do not qualify for hedge treatment, as well as ineffective
portions of any hedge, are recorded to earnings. Changes in fair value for
qualifying cash flow-hedges are recorded in equity and are realized in earnings
in conjunction with the gain or loss on the hedged item or transaction.
Changes in the fair value of qualifying hedges offset corresponding changes in
the fair value of the hedged item in the statement of operations.
Share-Based Compensation: The Company has chosen early adoption of the
accounting standard No. 123 (R) "Share-Based Payment" ("SFAS123R"), which
establishes a fair value-based method of accounting for share-based compensation
plans. The adoption of the standard did not have any significant effect on the
financial statement as the Company previously used the SFAS 123. The Company
applied the modified prospective method.
Earnings per Share: SFAS No. 128 "Earnings Per Share ("EPS")," requires EPS to
be computed and reported as both basic EPS and diluted EPS. Basic EPS is
computed by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed by dividing net income by
the weighted average number of common shares and dilutive common stock
equivalents (i.e. stock options, warrants) outstanding during the period.
The Company's average stock price during 2005 was above the average exercise
price of the option and a dilutive effect on EPS could potentially arise.
However, the proceeds of an exercise of all outstanding options calculated as
per the Treasury Stock Method would exceed the costs of acquiring stocks at the
average 2005 stock price. The potential effect of the outstanding options is
therefore anti-dilutive and is not included in the numbers stated above.
Income taxes: The Company is incorporated in Bermuda. Under current Bermuda law,
the Company is not subject to corporate income taxes.
Reclassifications: Certain amounts on the balance sheets and the statement of
operations in prior year financial accounts have been reclassified to conform to
the current year presentation.
New Pronouncements: In December 2004, the FASB issued SFAS No. 153, Exchanges of
Non-monetary Assets, an amendment of APB Opinion No. 29. The adoption of this
statement, effective June 2005, did not have any impact on the Company's results
of operations, financial position or cash flows.
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
("SFAS") No. 154, Accounting Changes and Error Corrections, effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. SFAS 154 requires voluntary changes in accounting
principle be retrospectively applied to financial statements from previous
periods unless such application is impracticable. Under the newly issued
standard changes in depreciation, amortization, or depletion for long-lived,
non-financial assets should be accounted for as a change in accounting estimate
that is effected by a change in accounting principle. The Company believes that
the adoption of this standard will not have a material impact on the Company's
results of operations, financial position or cash flow.
2. RELATED PARTY TRANSACTIONS
The Manager, Scandic American Shipping Ltd., is jointly owned by the Chairman
and CEO of the Company, Mr. Herbjorn Hansson, and a Board Member, Mr. Andreas
Ove Ugland. The Manager, under the Management Agreement, assumes commercial and
operational responsibility of our vessels and is required to manage our
day-to-day business subject, always, to our objectives and policies as
established from time to time by the Board of Directors. For its services under
the Management Agreement, the Manager is entitled to cover the cost incurred
plus a management fee equal to $100,000 per annum. The Manager also has a right
to 2% of the Company's total outstanding shares (see Note 8 "Share-Based
Compensation"). The Company has recognized total costs of $2,196,264 for the
services provided under the Management Agreement for the year ended December 31,
2005. The comparable amount for the years 2004 and 2003 were $653,799 and $0
respectively. Additionally the Company recognized $3,582,995 in non-cash
share-based compensation expense during the year 2005 related to the issuance of
shares to the Manager (see Note 8 "Share-Based Compensation"). The comparable
amount for the years 2004 and 2003 were $9,252,365 and $0 respectively. Payable
at December 31, 2005 was $396,314 and payable at December 31, 2004 was $105,080
and these items are included in the accounts payable. The costs are included in
administrative expenses.
Mr. Jan Erik Langangen, Executive Vice President of the Manager, is a partner of
Langangen & Helset Advokatfirma AS which in the past has also provided and may
continue to provide legal services to us. The Company has recognized costs of
$77,526 for the services provided by Langangen & Helset Advokatfirma AS in 2005.
The comparable amount for the years 2004 and 2003 were $33,435 and $3,361
respectively. Payable at December 31, 2005 was $0 and payable at December 31,
2004 was $38,157. These costs are included as administrative expenses.
3. REVENUE
For the twelve months ending December 31, 2005 the Company's only source of
income was from the Company's eight vessels. The table below shows the current
employment of the vessels. All of the Company's revenues are earned in
international markets.
Charterer*/
Vessel name Employment Commerical Operator
--------------------------------------------------------------------------------
Gulf Scandic Bareboat Gulf Navigation*
Nordic Hawk Spot / TC BP Shipping*
Nordic Hunter Spot / TC BP Shipping*
Nordic Freedom Spot Teekay Shipping
Nordic Voyager Spot Stena Bulk
Nordic Fighter Spot Frontline
Nordic Discovery Spot Frontline
Nordic Saturn Spot OMI
--------------------------------------------------------------------------------
One customer accounted for 37%, 97% and 100% of the Company's revenues during
the year ended December 31, 2005, 2004 and 2003, respectively.
4. ACCOUNTS RECEIVABLE
2005 2004
-----------------------------------------------------------------------
BP Shipping 4,030,009 4,310,979
Gulf Navigation Company 0 189,114
Gemini Tankers Ltd 2,725,145 0
Stena Bulk 5,192,581 0
Frontline 4,628,353 0
Teekay Shipping Corporation 2,980,637 0
Others < 10% 0 39,261
-----------------------------------------------------------------------
Total Accounts Receivable 19,556,725 4,539,354
-----------------------------------------------------------------------
There are no allowance for doubtful accounts as at December 31, 2005 and 2004.
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
2005 2004
-----------------------------------------------------------------------
Bunkers and lubricants inventory 2,136,762 0
Other < 5% 1,010,765 1,479,710
-----------------------------------------------------------------------
Total as per December 31, 3,147,527 1,479,710
-----------------------------------------------------------------------
6. PROPERTY AND EQUIPMENT
Property and equipment consist of eight modern double hull Suezmax crude oil
tankers. Depreciation is calculated on a straight-line basis over the estimated
useful life of the vessels. The estimated useful life of a new vessel is 25
years.
2005 2004
--------------------------------------------------------------------------
Opening Balance 236,913,247 170,775,970
Acquisitions 294,161,063 66,137,277
--------------------------------------------------------------------------
Closing Balance 531,074,310 236,913,247
--------------------------------------------------------------------------
Opening Balance (49,612,209) (42,694,045)
Depreciation (17,529,000) (6,918,164)
--------------------------------------------------------------------------
Closing Balance (67,141,209) (49,612,209)
--------------------------------------------------------------------------
Net Book Value as per December 31, 463,933,101 187,301,038
--------------------------------------------------------------------------
Included in the above amounts as at December 31, 2005 are drydocking charges and
ballast tank improvements with a net book value of $2.2 million. Depreciation
expenses for drydocking and ballast tank improvements were $0.16 million. There
were no such charges for the comparable period of 2004.
7. ADMINISTRATIVE EXPENSES
2005 2004 2003
--------------------------------------------------------------------------
Management fee 100,000 175,000 250,000
Directors and officers insurance 121,427 112,500 101,666
Salary and wages 635,393 165,490 0
Audit, legal and consultants 678,858 587,831 106,281
Outsourced administrative services 1,460,871 313,309 0
Share-based compensation 3,582,995 9,252,365 0
2004 Stock Incentive Plan 1,415,000 0 0
Other fees and expenses 497,620 245,193 10,140
--------------------------------------------------------------------------
Total administrative expenses 8,492,164 10,851,688 468,087
--------------------------------------------------------------------------
The decrease in total administrative expenses is due to the decrease in
share-based compensation caused by the change in the terms of the Management
Agreement with the Manager effective from October 2004. The Management Agreement
formerly provided that the Manager would receive 1.25% of any gross charterhire
paid to the Company. In order to further align the Manager's interests with
those of the Company, the Manager agreed with us to amend the Management
Agreement to eliminate this payment. The Company issued to the Manager in
October 2004 restricted common shares equal to 2% of our outstanding common
shares. Any time additional common shares are issued, the Manager will receive
additional restricted common shares to maintain the number of common shares
issued to the Manager at 2% of our total outstanding common shares. In
connection with the follow-on offering of March 2005, restricted shares were
issued to the Manager in accordance with the Management Agreement. The
share-based compensation expense related to the issuance of restricted shares to
the Manager of $3,582,995 in 2005 was classified as administrative expenses.
The decrease in share-based compensation is offset by increase in other
administrative expenses due to the change in operating structure as of October
2004 from a passive leasing company into an operating company.
8. SHARE-BASED COMPENSATION
2004 Stock Incentive Plan
Under the terms of the Company's 2004 Stock Incentive Plan, or the Plan, the
directors, officers and certain key employees of the Company and the Manager
will be eligible to receive awards which include incentive stock options,
non-qualified stock options, stock appreciation rights, dividend equivalent
rights, restricted stock, restricted stock units and performance shares. The
Company believes that such awards better align the interests of its employees
with those of its shareholders. A total of 400,000 common shares are reserved
for issuance upon exercise of options, as restricted share grants or otherwise
under the plan. A total of 320,000 options have been issued as at December 31,
2005.
Stock option awards were granted with an exercise price equal to the market
price of the Company's stock at the date of a public offering in November 2004,
with later adjustments for dividends to share holders exceeding 3% of the
initial stock option exercise price. Stock option awards generally vest equally
over four years from grant date and have a 10-year contractual term.
The fair value of each option award is estimated on the date of grant using the
Black & Scholes option valuation model that uses the assumptions noted in the
following table. Stock options to non-employees are measured at each reporting
date and fair value is estimated with the same model used for estimating fair
value of the options granted to employees. Because the option valuation model
incorporates ranges of assumptions for inputs, those ranges are disclosed.
Expected volatilities are based on implied volatilities from historical
volatility of the Company's stock and other factors. Expected life of the
options is estimated to be equal to the vesting period for employees when
calculating the fair value of the options. When calculating the fair value of
the options issued to non-employees the expected life is equal to the actual
life of options. The Company recognizes the compensation cost for stock options
issued to non-employees over the service period, which is considered to be equal
to the vesting period.
Stock options to employees are measured at fair value at the grant date and the
compensation cost is recognized on a straight-line basis over the vesting
period. The assumptions used when estimating the fair value at grant date are
specified in the table below.
Stock options to non-employees are measured at fair value at the balance sheet
date and the assumptions used are specified separately in the table below.
The risk-free rate for periods within the contractual life of the stock options
is based on the U.S. Treasury yield curve in effect at the time of grant for
options to employees. The risk-free rate at year-end is used for stock options
issued to non-employees.
12.31.2005 12.31.2005
--------------------------------------------------------------------------------
Weighted average figures Employees Non-employees
--------------------------------------------------------------------------------
Expected volatility 42.60 % 42.08 %
--------------------------------------------------------------------------------
Expected dividends 3 % 3 %
--------------------------------------------------------------------------------
Expected life 3.81 9.27
--------------------------------------------------------------------------------
Risk-free rate (range) 3.52 % - 4.43 % 4.53 % - 4.61 %
--------------------------------------------------------------------------------
A summary of option activity under the Plan as of December 31, 2005, and changes
during the year then ended is presented below:
Weighted-
average
Shares Shares exercise
Options employees non-employees price
------------------------------------------------------------------------------
Outstanding at January 1, 2005 - -
------------------------------------------------------------------------------
Granted 240,000 80,000 $35.70
-----------------------------------------------------------------------------
Exercised - -
------------------------------------------------------------------------------
Forfeited or expired - -
------------------------------------------------------------------------------
Outstanding at December 31, 2005 240,000 80,000 $35.70
------------------------------------------------------------------------------
Exercisable at December 31, 2005 55,000 12,500 $35.70
------------------------------------------------------------------------------
Outstanding and exercisable stock options as at December 31, 2005 have a
weighted-average remaining term of 9.07 years for employees and 9.30 for
non-employees. The exercise price for outstanding stock options as at December
31, 2005 is $35.70.
Weighted-average Weighted-average
Options - grant-date fair Options - grant-date fair value -
Employees value - Employees Non-employees Non-employees
---------------------------------------------------------------------------------------------------------------------------------
Non-vested at January 1, 2005 - - - -
---------------------------------------------------------------------------------------------------------------------------------
Granted during the year 240,000 $18.44 80,000 $22.93
---------------------------------------------------------------------------------------------------------------------------------
Vested during the year (55,000) $18.65 (12,500) $29.29
---------------------------------------------------------------------------------------------------------------------------------
Forfeited during the year - - - -
---------------------------------------------------------------------------------------------------------------------------------
Estimated forfeitures unvested options - - - -
---------------------------------------------------------------------------------------------------------------------------------
Non-vested at December 31, 2005 185,000 $18.38 67,500 $21.75
---------------------------------------------------------------------------------------------------------------------------------
We refer to Note 7 in regards to the compensation cost related to the Plan
recognized in the profit and loss account. Unrecognized compensation cost
related to the Plan is $3,831,763 as at December 31, 2005. That cost is expected
to be recognized over a weighted-average period of 1.95 years.
Restricted Shares
The Management Agreement formerly provided that the Manager would receive 1.25%
of any gross charterhire paid to us. In order to further align the Manager's
interests with those of the Company, the Manager agreed with us to amend the
Management Agreement, effective October 12, 2004, to eliminate this payment, and
we have issued to the Manager restricted common shares equal to 2% of our
outstanding common shares at par value of $0.01 per share. Any time additional
common shares are issued, the Manager will receive additional restricted common
shares to maintain the number of common shares issued to the Manager at 2% of
our total outstanding common shares. These restricted shares are
non-transferable for three years from issuance. During 2005 the Company has
issued to the Manager 76,658 shares at an average fair value of $46.74. The
share-based compensation expense related to the issuance of restricted shares to
the Manager of $3,582,995 in 2005 was classified as administrative expenses.
The shares are considered restricted as the holders of the shares cannot dispose
of them for three years from issuance.
9. LONG-TERM DEBT
In September 2005, the Company entered into a new $300 million revolving credit
facility, which is referred to as the New Credit Facility. The New Credit
Facility became effective as of October 2005 and replaced the previous credit
facility from October 2004, a portion of which was set to mature in October
2005. The New Credit Facility will mature in September 2010.
The New Credit Facility provides funding for future vessel acquisitions and
general corporate purposes. The New Credit Facility cannot be reduced by the
lender and there is no repayment obligation of the principal during the five
year term. Amounts borrowed under the New Credit Facility bear interest at a
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.
Borrowings under the Credit Facility are secured by mortgages over our vessels
and assignment of earnings and insurance. We will be able to pay dividends in
accordance with our dividend policy as long as we are not in default under the
Credit Facility.
In February 2005, the Company borrowed $5.0 million under the previous Credit
Facility to finance part of the purchase price of the second vessel that was
acquired in February 2005. The borrowings were repaid in March 2005.
In September 2005, the Company borrowed $60.0 million under the previous credit
facility to finance part of the purchase price of the seventh vessel that was
acquired in August 2005, and $7.0 million to finance the down payment for the
acquisition of the eighth vessel that was acquired in November 2005.
In October 2005, the Company refinanced the borrowings of $67.0 million under
our previous credit facility by drawing on the New Credit Facility.
In November 2005, the Company borrowed $63.0 million under the New Credit
Facility to finance part of the purchase price of the eighth vessel that was
acquired in September 2005.
Accrued interest as per December 31, 2005 is $900,000 and is payable during the
first quarter of 2006.
10. FINANCIAL ITEMS
Interest expense consists of interest expense on the long-term debt, commitment
fee and loan financing costs related to the $300 million New Credit Facility.
The $130 million borrowed bear an interest equal to LIBOR plus a margin between
0.7% and 1.2%. The loan financing costs are expenses incurred in connection with
the refinancing of the New Credit Facility. These charges are amortized over the
term of the New Credit Facility on a straight-line basis. Amortization of loan
costs is included in the interest expense. The amortization of loan financing
costs were for the years 2005, 2004 and 2003 $717,910, $112,838 and $14,480
respectively. Total capitalized loan financing costs are $1,713,835 as per
December 31, 2005 and as per December 31, 2004 $1,357,140.
The amortization of loan financing costs for the years 2006 to 2009 are $364,000
per year and $257,835 for the year 2010.
The commitment fee is based on 30% of the applicable margin on any undrawn
amounts.
11. DEFERRED REVENUE
Deferred revenue of $537,055 represents prepaid freight received from one of our
customers prior to December 31, 2005, for services to be rendered during January
2006.
12. TOTAL CURRENT LIABILITIES
2005 2004
-------------------------------------------------------------------------
Accounts Payable 751,977 411,366
Accounts Payable, Technical & Commercial Managers 784,425 0
Deferred Revenue 537,055 1,286,070
Accrued Interests 1,170,044 0
Accrued Expenses, Technical & Commercial Managers 1,459,445 0
Other Current Liabilities <5% 269,336 637,582
-------------------------------------------------------------------------
Total Current Liabilities 4,972,282 2,335,018
-------------------------------------------------------------------------
13. STOCKHOLDERS' EQUITY
Authorized, and issued and outstanding common shares roll-forward is as follows:
Issued and
Authorized Outstanding
Shares Shares
-----------------------------------------------------------------------
Balance at 01.01.04 51,200,000 9,706,606
Issuance of Common Shares
in Secondary Offering 3,105,000
Share-based Compensation 256,232
-----------------------------------------------------------------------
Balance at 12.31.04 51,200,000 13,067,838
-----------------------------------------------------------------------
Issuance of Common Shares
in Secondary Offering 3,500,000
Share-based Compensation 76,658
-----------------------------------------------------------------------
Balance at 12.31.05 51,200,000 16,644,496
-----------------------------------------------------------------------
The total issued and outstanding shares as of December 31, 2005 were 16,644,496
shares of which 332,890 shares was restricted as described in Note 8. The total
issued and outstanding shares as of December 31, 2004 was 13,067,838 shares of
which 256,232 shares were restricted as described in Note 8.
14. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
In 2003, the Company had outstanding a $30 million variable rate loan that was
repaid in November 2004. The Company had hedged the variable interest exposure
by an interest rate swap whereby the Company paid a fixed interest rate and
received a variable interest (LIBOR). The interest rate swap was designated as a
cash flow hedge of the interest payments on the loan. The interest rate swap
matured in 2004. The Company did not hold any derivative instruments at December
31, 2005.
The effective portion of gains and losses on the interest rate swap designated
as a cash flow hedge was deferred to accumulated other comprehensive income and
was reclassified to earnings as the hedged interest payments were recognized.
The Company reclassified $1,170,000 from accumulated other comprehensive income
to earnings in 2004. The reclassified loss was included in interest expense.
The fair value of the swap was recorded as a liability of $1,150,000 at December
31, 2003.
15. COMMITMENTS AND CONTINGENCIES
Litigation and Environmental Matters -The Company may be a party to various
legal proceedings generally incidental to its business and is subject to a
variety of environmental and pollution control laws and regulations. As is the
case with other companies in similar industries, the Company faces exposure from
actual or potential claims and legal proceedings. Although the ultimate
disposition of legal proceedings cannot be predicted with certainty, it is the
opinion of the Company's management that the outcome of any claim which might be
pending or threatened, either individually or on a combined basis, will not have
a materially adverse effect on the financial position of the Company, but could
materially affect the Company's results of operations in a given year.
16. SUBSEQUENT EVENTS
In February 2006, the Company agreed to acquire a double hull Suezmax tanker
from an unrelated third party for a purchase price of $69.0 million. The vessel
was delivered to us on April 10, 2006.
In March 2006, the Company sold 4,297,500 shares (including the over-allotment)
in a public offering in the US to fund the acquisition of the ninth vessel,
repay outstanding debt and to fund the acquisition of the tenth vessel that the
Company is actively pursuing. The offering was priced at $28.50 per share, and
net proceeds to the Company were $115.2 million.
In April 2006, the Company borrowed $69.0 million under the Credit Facility to
finance the ninth vessel delivered to the Company on April 10, 2006.
* * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORDIC AMERICAN TANKER SHIPPING LIMITED
Dated: June 20, 2006 By /s/ Herbjorn Hansson
----------------------------
Name: Herbjorn Hansson
Title: Chairman, Chief Executive
Officer and President
SK 01318 0002 679180