FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of May, 2003
NORDIC AMERICAN TANKER SHIPPING LIMITED
(Translation of registrant's name into English)
Cedar House
41 Cedar Avenue
Hamilton HMEX
Bermuda
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
------
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
------ ------
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Set forth herein is the 2002 Annual Report to Shareholders of Nordic
American Tanker Shipping Limited.
ADDITIONAL INFORMATION
BP p.l.c. files annual reports on Form 20-F (File No. 1-6262) and
periodic reports on Form 6-K with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended.
NORDIC AMERICAN TANKER
SHIPPING LIMITED
2002 ANNUAL
REPORT TO
SHAREHOLDERS
BUSINESS
General
Nordic American Tanker Shipping Limited (the "Company") was incorporated on
June 12, 1995, under the laws of the Islands of Bermuda ("Bermuda") for the
purpose of acquiring, disposing, owning, leasing, and chartering three double
hull Suezmax oil tankers (the "Vessels"). The principal executive offices of the
Company are located at Cedar House, 41 Cedar Avenue, Hamilton HM EX, Bermuda,
telephone number (441) 295-2244.
Pursuant to an agreement (the "Management Agreement") between the Company
and its Manager, Ugland Nordic Shipping AS (the "Manager"), the Manager provides
certain management, administrative and advisory services to the Company.
Vessels owned by the Company
Each Vessel acquired by the Company is a 1997 built, 151,459 dead weight
tonne double hull Suezmax oil tanker. The purchase price of each Vessel was
approximately $56.9 million (the "Original Contract Price"). The Vessels were
delivered between August and December 1997 and have been designed according to
the specifications set forth in the shipbuilding contracts between the Builder
and the Company (the "Shipbuilding Contracts"). The Vessels were built at
Samsung Heavy Industries Co. Ltd. in South Korea (the "Builder").
Each Vessel is registered in the Isle of Man and flies the British flag.
Chartering Operations Commenced on September 30, 1997
Each Vessel is chartered to BP Shipping Ltd. (the "Charterer") pursuant to
separate "hell and high water" bareboat charters (the "Charters"). The initial
term of the Charters is from September 30, 1997 and will end approximately seven
years from that date, subject to extension at the option of the Charterer for up
to seven successive one-year periods. Under each Charter, the Charterer is
required to provide the Company with at least twelve months' prior notice of
each such extension. The Company's dividend policy is to pay dividends to the
shareholders in amounts substantially equal to the amounts received by it under
the Charters, less expenses. In 2002, a portion of these dividends was
considered return of capital for United States federal income tax purposes.
The daily charterhire rate payable under each Charter is comprised of two
components: (i) a fixed minimum rate of charterhire of $13,500 per Vessel per
day (the "Base Rate"), paid quarterly in advance, and (ii) additional
charterhire (which will be determined and paid quarterly in arrears and may
equal zero) which would equal the excess, if any, of a weighted average of the
daily time charter rates for two round-trip trade routes traditionally served by
Suezmax tankers (Bonny, Nigeria to/from the Louisiana Offshore Oil Port, and
Hound Point, U.K. to/from Philadelphia, Pennsylvania (the "Reference Ports")),
over the sum of (A) an agreed amount of $8,500 representing daily operating
costs and (B) the Base Rate ("Additional Hire"). The amount of Additional Hire,
if any, will be determined by the London Tanker Brokers Panel or another panel
of ship brokers mutually acceptable to the Charterer and the Company (the
"Brokers Panel"). In 2002, the Company received Additional Hire for the 4th
quarter only.
Pursuant to the terms of the Charters, the Charterer's obligation to pay
charterhire is absolute, regardless whether there is loss or damage to a Vessel
or any other reason. The Charterer is also obligated to indemnify and hold the
Company harmless from all liabilities arising from the operation, design and
construction of the Vessels prior to and during the term of the Charters,
including environmental liabilities, other than liabilities arising out of the
gross negligence or willful misconduct of the Company. The obligations of the
Charterer are guaranteed by BP p.l.c., the successor company to the merger
between Amoco Corp and The British Petroleum Company p.l.c.
At least six months prior to the end of the term (including any extension )
of one or more Charters, the Company's shareholders will be entitled to vote on
a proposal to sell the related Vessel(s) and to distribute the net proceeds to
the shareholders to the extent permitted under Bermuda law. The Board of
Directors of the Company (the "Board") will make a recommendation which may
favor such sale or an alternative plan, such as the operation, rechartering or
other disposition of the Vessel(s). The proposal to sell the Vessel(s) and
distribute the resulting net proceeds shall be adopted if approved by a majority
of the shareholders.
Nature of Trading Market
The primary trading market for the Shares is the American Stock Exchange
(the "AMEX"), on which the Shares are listed under the symbol NAT. The secondary
trading market for the Shares is the Oslo Stock Exchange (the "OSE") also with
the symbol NAT.
The high and low bid prices for the Shares by quarter, in 2001 thru 2002
are as follows:
AMEX AMEX OSE OSE
---- ---- --- ---
Low High Low High
For the quarter ended:
March 31, 2001 $16.90 $22.25 NOK 215.00 NOK 155.00
June 30, 2001 $16.00 $22.89 NOK 180.00 NOK 172.00
September 30, 2001 $13.75 $19.52 NOK 190.00 NOK 140.00
December 31, 2001 $13.00 $17.10 NOK 170.00 NOK 125.00
March 31, 2002 $12.95 $15.50 NOK 127.00 NOK 140.00
June 30, 2002 $13.50 $16.55 NOK 122.00 NOK 140.00
September 30, 2002 $ 9.86 $14.25 NOK 90.00 NOK 135.00
December 31, 2002 $10.11 $13.82 NOK 90.00 NOK 100.00
These bid quotations represent interdealer quotations without retail
mark-ups, mark-downs or commissions, and do not necessarily represent actual
transactions. On December 31, 2002, the closing price of the Shares as quoted on
the AMEX was $13.54, and as quoted on the OSE was NOK 99.00. On such date, there
were 9,706,606 Shares issued and outstanding.
SELECTED FINANCIAL INFORMATION
The following historical financial information should be read in
conjunction with our audited consolidated financial statements and related notes
all of which are included elsewhere in this document and "Operating and
Financial Review and Prospects." The statements of operations data for each of
the three years ended December 31, 2000, 2001, and 2002 and selected balance
sheet data as of December 31, 2001 and 2002 are derived from our audited
consolidated financial statements included elsewhere in this document. The
statements of operations data for each of the years ended December 31, 1998 and
1999 and selected balance sheet data as of December 31, 1998, 1999 and 2000 are
derived from our audited financial statements not included in this document.
December 31
2002 2001 2000 1999 1998
-------------------------------------------------------------------------------
Assets
Cash and Cash Deposit 277,783 630,868 1,922,925 2,507,017 3,637,758
Prepaid Finance Expenses 28,955 43,435 57,915 72,395 86,875
Prepaid Insurance 83,333 70,000 58,333 70,833 83,333
Accounts Receivable 3,276,523 170,180 10,228,286 0 0
Vessels 134,912,965 141,744,005 148,575,045 155,406,085 162,237,124
----------- ----------- ----------- ----------- -----------
Total Assets 138,579,559 142,658,488 160,842,504 158,056,330 166,045,090
=========== =========== =========== =========== ===========
Accounts Payable 996 0 0 0 675,384
Accrued expenses 2,016,000 778,000 0 0 0
Accrued Interest 215,466 38,666 43,500 77,333 43,781
Bank Loan 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000
---------- ---------- ---------- ---------- ----------
Total Long-term Liabilities 32,232,462 30,816,666 30,043,500 30,077,333 30,719,165
========== ========== ========== ========== ==========
Shareholders' Equity 97,066 97,066 97,066 97,066 97,066
Share Capital
Accumulated Other
Comprehensie Loss (2,016,000) (778,000) 0 0 0
Other Shareholders Equity 108,266,031 112,522,756 130,701,938 127,881,931 135,228,859
----------- ----------- ----------- ----------- -----------
Total Shareholder's Equity 106,347,097 111,841,822 130,799,004 127,978,997 135,325,925
Total Liabilites
and Shareholder's Equity 138,579,559 142,658,488 160,842,504 158,056,330 166,045,090
=========== =========== =========== =========== ===========
SELECTED STATEMENT OF OPERATIONS DATA
Year Ended December 31,
2002 2001 2000 1999 1998
-------------------------------------------------------------------------------
Revenue 18,057,989 28,359,568 36,577,262 14,782,500 16,006,199
Ship Broker Cornrnissions (184,781) (184,781) (185,288) (184,781) (184,781)
Mgmt. Fee & Adrnin. Exp. (340,381) (281,406) (290,791) (314,004) (412,779)
Directors Insurance (86,667) (72,333) (82,500) (97,500) 0
Depreciation (6,831,040) (6,831,040) (6,831,040) (6,831,039) (6,831,039)
---------- ---------- ---------- ---------- ----------
Net Operating Income 10,615,120 20,990,008 29,187,643 7,355,176 8,577,600
---------- ---------- ---------- --------- ---------
Net Financial Items (1,767,852) (1,604,532) (1,518,677) (1,580,498) 51,912
---------- ---------- ---------- ---------- ------
Net Profit for the Year 8,847,268 19,385,476 27,668,966 5,774,678 8,629,512
========= ========== ========== ========= =========
Basic Earnings Per Share 0.91 2.00 2.85 0.59 0.73
Diluted Earnings Per Share 0.91 2.00 2.85 0.59 0.73
Cash Dividends
Declared Per Share 1.35 3.87 2.56 1.35 1.33
Weighted Average Shares
Outstanding:
Basic 9,706,606 9,706,606 9,706,606 9,706,606 11,796,530
Diluted 9,706,606 9,706,606 9,706,606 9,706,606 11,796,530
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Overview
The Company owns three modern double hull 151,459 dead weight tonne Suezmax
tankers (the "Vessels"), which were delivered in the last half of 1997. The
Vessels were built at Samsung Heavy Industries Ltd. in South Korea.
Each Charter is subject to extension at the option of the Charterer for up
to seven successive one-year periods. During the term of each Charter (including
any extension thereof) the Charterer is obligated to pay (i) the Base Rate,
which is charterhire at a fixed minimum daily rate of $13,500 per Vessel per day
(time charter equivalent of $22,000 per day), payable quarterly in advance and
(ii) Additional Hire, to the extent spot charter rates exceed certain levels,
payable quarterly in arrears, from January 1998. The amount of Additional Hire
for each quarter, if any, will be determined by the Brokers Panel.
Results of Operations
The Company's revenues from charterhire for 2002 decreased 36% from 2001 to
$18,057,989 or $16,491 per day per vessel (time charter equivalent of $24,991
per day per vessel). Charterhire revenue for 2002 was derived from Base Hire of
$14,782,500 ($13,500 per day per Vessel) and Additional Hire of $3,275,489
($2,991 per day per vessel).
Market rates which are used to determine additional hire decreased
significantly in 2002. The decrease was driven by OPEC oil production decreases
and a slow down in the world economy. Additional hire, determined by the Brokers
Panel, was awarded for 4th quarter 2002 only. The additional hire was
$3,275,489. Charterhire per day per Vessel (time charter equivalent) for each
quarter of 2002 was $22,000 for the 1st, 2nd and 3rd quarter and $33,868 for the
4th quarter.
Comparatively, Base Hire in 2001 and 2000 was $14,782,500 ($13,500 per day
per Vessel) for each year. Additional Hire was $13,577,068 in 2001 and
$21,754,262 in 2000.
Management, insurance and administrative costs ("MI&A") for 2002, 2001 and
2000 were $611,829, $538,520 and $558,759 respectively. The Company's MI&A for
all three years consisted of ship brokers commissions of approximately $185,000
and management fees of $250,000 which are fixed. The increase in costs of
$73,309 from 2001 to 2002 is mainly due to higher insurance costs and attorney
fees. Depreciation expense approximated $6,831,040 for each of the three years.
Liquidity and Capital Resources
The Company's cash flows are primarily from charter hire revenue.
Cash flows provided by operating activities decreased in 2002 to
$12,750,908 due primarily to the decrease in net profit and an increase in
accounts receivable due to additional hire awarded in 4th quarter.
Cash flow used in financing activities decreased 65% to $13,103,993 due to
the decrease in dividends paid during the year.
There were no cash flows from investing activities during the year.
Due to the nature of the business, cash flows are predictable with the
exception of additional charter hire to be awarded, if any. The Company expects
that cash from base charter hire will be sufficient to meet operational
requirements in 2003. The Company does not have plans for significant capital
expenditures or other investments during 2003.
Dividend payment
Total dividend paid out in 2002 was $13,103,993 or $1.35 per Share. The
dividend payments per share in 1997, 1998, 1999, 2000, 2001 and 2002 have been
as follows:
Period 1997 1998 1999 2000 2001 2002
-------------------------------------------------------------------------
1st Quarter 0.40 0.32 0.34 1.41 0.36
2nd Quarter 0.41 0.32 0.45 1.19 0.34
3rd Quarter 0.32 0.35 0.67 0.72 0.33
4th Quarter 0.30 0.30 0.36 1.10 0.55 0.32
-------------------------------------------------------------------------
Total USD 0.30 1.43 1.35 2.56 3.87 1.35
-------------------------------------------------------------------------
The Company declared a dividend of $0.63 per share for the first quarter of
2003. The dividend of $0.63 was paid to Shareholders in February 2003.
Long-Term Debt and Repurchase of Common Stock
In 1998 the Company borrowed $30.0 million from Den norske Bank ASA, Oslo,
Norway ("DnB"), to finance the repurchase of 2,107,244 shares through a "Dutch
Auction" self-tender offer at a price of $12.50 per Share. The total purchase
price of the Shares including the costs associated with the transaction was
$27.1 million. On May 12, 1999, the General Shareholders Meeting approved the
remaining proceeds being utilized to increase the quarterly dividends.
An important objective of the repurchase of Shares was to increase the
Company's cash distribution to shareholders while the Vessels are on charter to
the Charterer. While the Vessels are on charter, the minimum cash distribution
per Share (assuming receipt of Base Hire and no increase of expenses) has
increased by $0.15, from $1.20 to $1.35 per year, an increase of 12.5%.
The Company has entered into an interest swap agreement with DnB, as a
result of which the Company pays a fixed interest on the Loan of 5.80% per annum
for the next 2 years. The swap agreement terminates on the final repayment date
of the Loan, i.e., the fourth quarter of the year 2004.
Contractual Obligations
The Company does not have contractual obligations or commercial commitments
except long-term debt as described above.
Disclosure and Internal Controls
As of December 31, 2002, an evaluation was performed under the supervision
and with the participation of the Company's Chairman, Chief Executive Officer
and Chief Financial Officer of the effectiveness of the design and operation of
the Company's disclosure controls and procedures. Based on that evaluation,
these officers have concluded that the Company's disclosure controls and
procedures were effective as of December 31, 2002. No significant changes in the
Company's internal controls or in other factors have occurred that could
significantly affect controls subsequent to December 31, 2002.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management of the Company and the Manager
Pursuant to the Management Agreement, the Manager provides management,
administrative and advisory services to the Company with respect to the Vessels.
Set forth below are the names and positions of the directors and executive
officers of the Company and the Manager. Directors of the Company are elected
annually, and each director elected holds office until a successor is elected.
Officers of both the Company and the Manager are elected from time to time by
vote of the respective board of directors and hold office until a successor is
elected.
The Company
Name Age Position
---- --- --------
Peter Bubenzer 48 Secretary
Tharald Br0vig 60 Director
Niels Erik Feilberg 41 Vice President and Treasurer
Hon. Sir David Gibbons 75 Director
Herbj0rn Hansson 55 Director and President
George C. Lodge 75 Director
Andreas Ove Ugland 48 Director
The Manager
Name Age Position
---- --- --------
Peter Antturi 44 Director
Niels Erik Feilberg 41 Chief Financial Officer
Herbj0rn Hansson 55 Director; President
Bj0rn M0ller 45 Director
Paul Wogan 40 Director
Certain biographical information with respect to each director and
executive officer of the Company and the Manager is set forth below.
Herbj0rn Hansson has been President and Chief Executive Officer of the
Company and of the Manager since July 1995 and September 1993, respectively, and
has served as a director of the Manager since its organization in June 1989 and
as a director of the Company since July 1995. Mr. Hansson formerly served as the
Chairman of the Board of the Manager from June 1989 to September 1993. Mr.
Hansson has been involved in various aspects of the shipping industry and
international finance since the early 1970s, including serving as Chief
Economist of Intertanko, the International Association of Independent Tanker
Owners, from 1975-1980. He was an executive officer of the Anders Jahre/Kosmos
Group from 1980 to 1989, serving as Chief Financial Officer from 1983 to 1988.
Peter Antturi has been a director of the Manager since December 2001. Mr.
Antturi is Vice President and Chief Financial Officer of Teekay Shipping Corp.
Mr. Antturi joined Teekay in 1991, as Manager, Accounting and Controller, before
becoming CFO in 1997. Since 1985, Mr. Antturi has held a number of accounting
and finance roles in the shipping industry.
Peter Bubenzer has been the Secretary of the Company since May 1999. Mr.
Bubenzer has been a Partner of the law firm of Appleby, Spurling & Kempe,
Bermuda since 1986.
Tharald Br0vig has been a director of the Company since July 1995 and has
been a director of the Manager since its organization in June 1989.
Niels Erik Feilberg has been Vice President and Treasurer of the Company
since July 1995 and is Chief Financial Officer of the Manager, which he has been
with since 1994. He was working in the Treasury Department of Anders
Jahre/Kosmos Group from 1987 and in the same area in the Skaugen Group from 1989
to the end of 1993.
Sir David Gibbons has been a director of the Company since September 1995.
Sir David served as the Prime Minister of Bermuda from August 1977 to January
1982. Sir David has served as Chairman of The Bank of N.T. Butterfield and Son
Limited since 1986 and as Chief Executive Officer of Edmund Gibbons Ltd. since
1954.
George C. Lodge has been a director of the Company since September 1995.
Professor Lodge has been a member of the Harvard Business School faculty since
1963. He was named associate professor of business administration at Harvard in
1968 and received tenure in 1972.
Bj0rn M0ller has been a director of the Manager since April 2001. Mr.
M0ller is the President and CEO of Teekay Shipping Corp. and has been with
Teekay since 1985, serving as Head of Group Chartering and Strategic Development
before heading up overall operations in 1997 with his promotion to Chief
Operating Officer. In 1998, Mr. M0ller assumed the role of President and Chief
Executive Officer. Mr. M0ller has a multinational background in shipping and
commodities and is a graduate of the Copenhagen School of Business Economics.
Andreas Ove Ugland has been a director of the Company since February 1997.
Mr. Ugland has also served as director and Chairman of: Ugland International
Holding Plc, a shipping/transport company listed on the London Stock Exchange,
Andreas Ugland & Sons AS, Grimstad, Norway, H0egh Ugland Autoliners AS, Oslo and
Buld Associates Inc., Bermuda. Mr. Ugland has had his whole career in shipping
in the Ugland family owned shipping group.
Paul Wogan has been a director of the Manager since April 2001. Mr. Wogan
is the Managing Director of Teekay Shipping (UK). Mr. Wogan, the former Chief
Executive Officer of Seachem Tankers, joined Teekay in November 2000. Mr. Wogan
spent 10 years with Seachem, the world's fourth largest chemical tanker company,
serving as Vice President of Marketing before becoming CEO in 1997. Prior to
joining Seachem, he was involved in chartering for a major crude oil and product
carrier fleet controlled by the Ceres Hellenic Group (Livanos), the company that
subsequently founded Seachem. Mr. Wogan holds an MBA from Cranfield School of
Management.
COMPENSATION OF DIRECTORS AND OFFICERS
Pursuant to the Management Agreement, the Manager will pay from the
Management Fee the annual directors' fees of the Company, currently estimated at
an aggregate amount of $80,000 per annum. Accordingly, from the inception of the
Company through December 31, 2002, the Directors of the Company have not been
paid by the Company any amount for services rendered by them to the Company in
any capacity.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
The Manager owns 1,001,221 (10.31%) Shares in the Company as of February 1,
2003, and is party to the Management Agreement with the Company, pursuant to
which the Manager is entitled to a management fee of $250,000 per annum.
NORWEGIAN TAX PROCEEDING
In September 2002, the Company received a letter from the Tax Assessment
Board of the Norwegian Central Tax Office for Large Corporations, (the "Tax
Board"), stating that the Tax Board had determined that the Company was subject
to Norwegian income taxation for the years 1995 through 2000. The Company
believes that the Tax Board's determination is without merit and erroneous and
is contesting the assessment vigorously.
Accordingly, the Company has appealed the decision of the Tax Board to the
Norwegian Tax Assessment Appeal Board (the "Appeal Board"). The Company has been
advised that a decision from the Appeal Board may be expected during the second
or third quarter of 2003. If the Appeal Board should decide in favor of the Tax
Board, the Company may make further appeals to the Norwegian Court of Justice,
which has three levels. The Norwegian tax authorities may appeal a decision in
favor of the Company to the County Tax Appeal Board.
The decision of the Tax Board relates to the years 1995 through 2000.
Applying Norwegian tax principles, the Company did not have any taxable income
for those years or for 2001. At year-end 2001, the deferred tax loss is NOK 41.6
mill (approx. USD 5.6 million). This tax loss would be carried forward and used
for the tax year 2002. After application of this loss carry-forward, under
Norwegian tax principles, the Company's net income would total approximately NOK
59.1 mill (approx. USD 8.5 milllion) for 2002. However, as previously stated,
the strong view of the Company is that the Company should not be taxed in
Norway.
In accordance with its distribution policy, the Company has made cash
distributions to shareholders in amounts that exceed the net income of the
Company. Under Norwegian tax principles, if they applied, in the view of the
Company, a portion of these distributions would be considered as a repayment of
paid up share capital.
Given this premise, there would be no tax for the Company during the period
through 2002. However, if Norwegian tax principles apply, there is a probability
that the distributions could be seen as a repayment of untaxed capital from the
Company, and the Company would incur so-called correction income, which for the
period to and including 2001 would amount to NOK 728.6 million (approx. USD 99
million). The tax would constitute 28% of that amount. In the view of the
Company, such a treatment of its cash distributions would be incorrect.
The Company's view is that the Tax Board's determination is without merit
and is erroneous. In part, the view of the Company is based on an opinion that
the Company received from Norwegian counsel in connection with the Company's
warrants offering in 1995, as described in the Company's offering prospectus.
However, the Company cannot assure investors of a successful appeal of the Tax
Board's determination.
The Company is bearing legal costs in connection with the Norwegian tax
proceeding which would otherwise be available for distribution.
ADDITIONAL INFORMATION
The Company will file with the Securities and Exchange Commission an Annual
Report on Form 20-F. A copy of such report is available without cost to each
shareholder.
BP p.l.c., the successor company to the merger between Amoco Corp and The
British Petroleum Company p.l.c., files annual reports on Form 20-F (File No.
005-42076) and periodic reports on Form 6-K with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended.
The Company is incorporated in Bermuda. Under current Bermuda law, the
Company is not subject to tax on income or capital gains, and no Bermuda
withholding tax will be imposed upon payments of dividends by the Company to its
shareholders. No Bermuda tax is imposed on holders with respect to the sale or
exchange of Shares. Furthermore, the Company has received from the Minister of
Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966, as
amended, an assurance that, in the event that Bermuda enacts any legislation
imposing any tax computed on profits or income, including any dividend or
capital gains withholding tax, or computed on any capital asset, appreciation,
or any tax in the nature of an estate, duty or inheritance tax, then the
imposition of any such tax shall not be applicable. The assurance further
provides that such taxes, and any tax in the nature of estate duty or
inheritance tax, shall not be applicable to the Company or any of its
operations, nor to the shares, debentures or other obligations of the Company,
until March 2016.
MARCH 31, 2003 NORDIC AMERICAN TANKER
SHIPPING LIMITED
NORDIC AMERICAN TANKER SHIPPING LIMITED
TABLE OF CONTENTS.
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Page
INDEPENDENT AUDITORS' REPORT 11
FINANCIAL STATEMENTS
Balance Sheets 12
Statements of Operations 13
Statements of Cash Flows 13
Statements of Shareholders' Equity 14
Notes to Financial Statements 15-19
Deloitte
& Touche
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Nordic American Tanker Shipping Ltd
Bermuda
We have audited the accompanying balance sheets of Nordic American
Tanker Shipping Ltd. (the "company") as of December 31, 2002 and 2001
and the related statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31
, 2002. 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 auditing standards
generally accepted in the United States of America. 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 includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes 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, 2002 and 2001, and the results of its operations and its
cash flows for each of the three years in the period ended December
31,2002 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE
Oslo, Norway
March 31, 2003
BALANCE SHEETS AT DECEMBER 31,
(all figures are in USD)
ASSETS
Current assets 2002 2001
---- ----
Cash and cash equivalents Note 1 277,783 630,868
Accounts receivable 3,276,523 170,180
Prepaid finance costs Note 6 28,955 43,435
Prepaid insurance 83,333 70,000
--------- ---------
Total current assets 3,666,594 914,483
========= =========
Long term assets
Vessels Note 4 134,912,965 141,744,005
----------- -----------
TOTAL ASSETS 138,579,559 142,658,488
=========== ===========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities 2002 2001
---- ----
Accrued interest Note 6 215,466 38,666
LONG-TERM LIABILITIES
Derivative contract Note 7,8 2,016,000 778,000
Long-term debt Note 6,8 30,000,000 30,000,000
Shareholders' Equity
Common stock Note 7 97,066 97,066
Additional paid-in capital Note 7 144,395,866 144,395,866
Accumulated deficit Note 7 (36,129,835) (31,873,110)
Accumulated other
comprehensive loss Note 7,8 (2,016,000) (778,000)
---------- --------
Total Shareholders' Equity 106,347,097 111,841,822
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 138,579,559 142,658,488
=========== ===========
The footnotes are an integral part of these financial statements
STATEMENTS OF OPERATIONS
(all figures in USD) Year Ended December 31,
-----------------------
Notes 2002 2001 2000
----- ---- ---- ----
Operating Revenue 1,3 18,057,989 28,359,568 36,577,262
Ship Broker Commissions (184,781) (184,781) (185,288)
Administrative Expenses 2,5 (427,048) (353,739) (373,291)
Depreciation 4 (6,831,040) 6,831,040) (6,831,040)
---------- --------- ----------
Net Operating Income 10,615,120 0,990,008 29,187,643
---------- --------- ----------
Interest Income 21,409 189,244 277,552
Interest Expense 6 (1,764,424) (1,769,000) (1,770,808)
Other Financial Charges (24,837) (24,776) (25,423)
---------- --------- ----------
Net Financial Items (1,767,852) (1,604,532) (1,518,679)
---------- --------- ----------
Net Profit before tax 8,847,268 9,385,476 27,668,964
---------- --------- ----------
Tax Expense 0 0 0
--------- --------- -----------
Net Profit for the Year 8,847,268 9,385,476 27,668,964
---------- --------- ----------
Basic and Diluted Earnings per Share 0.91 2.00 2.85
Weighted Average Number of
Shares Outstanding 9,706,606 9,706,606 9,706,606
STATEMENTS OF CASH FLOWS
(all figures in USD) Year Ended December 31,
-------------------- -----------------------
2002 2001 2000
---- ---- ----
Net Profit 8,847,268 19,385,476 27,668,964
Reconciliation of Net Profit to Net
Cash from Operating Activities
Depreciation 6,831,040 6,831,040 6,831.040
Amortization of prepaid finance costs 14,480 14,480 14,480
Increase (decrease) in receivables
and payables (2,941,880) 10,041,605 (10,249,619)
---------- ---------- -----------
Net Cash from Operating Activities 12,750,908 36,272,601 24,264,865
---------- ---------- -----------
Financing Activities
Dividends paid (13,103,993) (37,564,658) (24,848,957)
----------- ----------- ------------
Net Cash from Financing Activities (13,103,993) (37,564,658) (24,848,957)
----------- ------------ ------------
Net decrease in Cash and Cash
Equivalents (353,085) (1,292,057) (584,092)
----------- ------------ ------------
Beginning Cash and Cash Equivalents 630,868 1,922,925 2,507,017
----------- ------------ ------------
Ending Cash and Cash Equivalents 277,783 630,868 1,922,925
----------- ------------ ------------
Cash Paid for Interest 1,587,622 1,773,834 1,804,641
----------- ------------ ------------
The footnotes are an integral part of these financial statements
STATEMEVTS OF SHAREHOLDERS' DQUITY
(all figures in USD)
Accumulated
Total Additional other Total Total
Common paid-in Retained comprehensive Shareholders' comprehensive
stock capital earnings income Equity income
-----------------------------------------------------------------------------------------------------------------------
Balance at 12.31.99 97,066 144,395,866 (16,513,935) --- 127,978,997
-----------------------------------------------------------------------------------------------------------------------
Net profit 27,668,964 27,668,964 27,668,964
----------
Total comprehensive
Income 27,668,964
----------
Dividends paid (24,848,957) (24,848,957)
-----------------------------------------------------------------------------------------------------
Balance at 12.31.00 97,066 144,395,866 (13,693,928) --- 130,799,004
-----------------------------------------------------------------------------------------------------
Net profit 19,385,476 19,385,476 19,385,476
Cumulative effect of
change in accounting for 618,094 618,094 618,094
derivative instruments
Unrealized loss on
derivative instruments (1,656,146) (1,656,146) (1,656,146)
Adjustment for losses on
derivatives reclassified to 260,052 260,052 260,052
earnings
Total comprehensive
Income 18,607,476
----------
Dividends paid (37,564,658) (37,564,658)
-----------------------------------------------------------------------------------------------------
Balance at 12.31.01 97,066 144,395,866 (31,873,110) (778,000) 111,841,822
-----------------------------------------------------------------------------------------------------
Net profit 8,847,268 8,847,268 8,847,268
Unrealized loss on
derivative instruments (2,262,564) (2,262,564) (2,262,564)
Adjustment for losses on
derivatives reclassified to 1,024,564 1,024,564 1,024,564
earnings
Total comprehensive
income 7,609,268
---------
Dividends paid (13,103,993) (13,103,993)
------------------------------------------------------------------------------------------------------
Balance at 12.31.02 97,066 144,395,866 (36,129,835) (2,016,000) 106,347,097
------------------------------------------------------------------------------------------------------
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
Thesefinancial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America.
Nature of Business and Concentration of Risk: The principal business of
Nordic American Tanker Shipping Limited (the "Company") is the charter of
three Suezmax tankers to BP Shipping until September 2004, with a further
seven one-year options in BP's favour.
Use of estimates: Preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
necessarily includes amounts based on estimates and assumptions made by
management. Actual results could differ from those amounts.
Cash and Cash Equivalents: Cash and cash equivalents consist of deposits
with original maturities of three months or less.
Property and Equipment: Depreciation and amortization are provided on a
straight-line basis over the estimated useful lives of the assets. The
Company's property consists solely of vessels. The estimated useful life of
these vessels is 25 years.
Impairment of Long-Lived Assets: Long-lived assets are required to be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If
the estimated undiscounted future cash flows expected to result from the
use of the asset and its eventual disposition is less than the carrying
amount of the asset, the asset is deemed impaired. The amount of the
impairment is measured as the difference between the carrying value and the
fair value of the asset.
Revenue Recognition: The daily charterhire rate payable under each Charter
is comprised of two components: (i) a fixed minimum rate of charterhire of
$13,500 per Vessel per day (the "Base Rate"), paid quarterly in advance at
the beginning of the quarter, and (ii) additional charterhire (which will
be determined and paid quarterly in arrears and may equal zero) which would
equal the excess, if any, of a weighted average of the daily time charter
rates for two round-trip trade routes traditionally served by Suezmax
tankers (Bonny, Nigeria to/from the Louisiana Offshore Oil Port, and Hound
Point, U.K. to/from Philadelphia, Pennsylvania (the "Reference Ports")),
over the sum of (A) an agreed amount of $8,500 representing daily operating
costs, and (B) the Base Rate ("Additional Hire"). The amount of Additional
Hire, if any, will be determined by the London Tanker Brokers Panel or
another panel of ship brokers mutually acceptable to the Charterer and the
Company.
Revenue from vessel charter is recognized on the basis of the number of
days in the fiscal period.
Segment Information: The Company has only one type of vessels - oil tankers
on bareboat charters. As a result, management, including the chief
operating decision makers, reviews operating results solely by revenue per
day and thus the Company has determined that it operates under one
reportable segment.
Interest Rate Swap: In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).
This standard incorporating the amendments from SFAS 138 requires
derivative instruments to be recorded in the balance sheet at their fair
value. Changes in the fair value are recorded to earnings for each period
unless specific hedge criteria are met. 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.
Taxes: The company is incorporated in Bermuda. Under current Bermuda law,
the Company is not subject to corporate income taxes.
New Pronouncements: In June 2002, the FASB issued SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." SFAS No. 146
provides guidance related to accounting for costs associated with disposal
activities covered by SFAS No. 144 or with exit or restructuring activities
previously covered by EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146
supercedes EITF Issue No. 94-3 in its entirety. SFAS No. 146 requires that
costs related to exiting an activity or to a restructuring not be
recognized until the liability is incurred. SFAS No. 146 will be applied
prospectively to exit or disposal activities that are initiated after
December 31, 2002.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires
that a liability be recorded in the guarantor's balance sheet upon issuance
of a guarantee. In addition, FIN 45 requires disclosures about the
guarantees that an entity has issued. The company does not expect FIN 145
to have any material impact on its results of operations or financial
condition.
2. RELATED PARTY TRANSACTIONS
The Company has entered into a management agreement with Ugland Nordic
Shipping AS (UNS) under which UNS will provide certain administrative,
management and advisory services to the Company for an amount of $250,000
per year. UNS is the Commercial Manager of the Company, and owns as of
December 31, 2002 10.31% of the shares.
Management fees expense was $250,000 for 2002, 2001 and 2000.
3. REVENUE
The table below illustrates the breakdown of the charter hire for the years
ended December 31, 2002, 2001 and 2000:
Year 2002 2001 2000
Base Hire 14,782,500 14,782,500 14,823,000
Additional Hire 3,275,489 13,577,068 21,754,262
--------- ---------- ----------
Total 18,057,989 28,359,568 36,577,262
========== ========== ==========
4. VESSELS
The long term assets consist of three suezmax oil tankers built in 1997.
All Vessel 2002 2001
Acquisition cost 1997 170,775,970 170,775,970
Accumulated depreciation as of 35,863,005 29,031,965
December 31 ---------- ----------
Book value as of December 31 134,912,965 141,744,005
=========== ===========
Depreciation is calculated on a straight-line basis over the estimated
lifetime of 25 years. The basis for the depreciation is the actual cost
price of the vessels in 1997, i.e. $170,775,970 in total for the three
vessels.
5. ADMINISTRATIVE EXPENSES
2002 2001 2000
Management fee, Ugland Nordic Shipping AS 250,000 250,000 250,000
Directors and officers insurance 86,667 7,333 82,500
Other fees and expenses 90,381 31,406 40,791
------ ------ ------
Total administrative expenses 427,048 353,739 373,291
======= ======= =======
6. LONG-TERM DEBT
In 1998, the Company entered into a loan agreement for $30 million with Den
norske Bank ASA, Oslo (DnB). The loan falls due in full in September 2004.
Interest payments are based on the variable rate of LIBOR plus 0.525%
margin, approximately 2.2825% at December 31, 2002. Accrued interest at
December 31, 2002 and 2001 was $215,466 and $38,666. The Company has
pledged the vessels as collateral. In association with the loan the Company
must meet certain financial covenants. The main covenants are associated
with change in ownership, new contracts or change in existing contracts,
minimum value adjusted equity and minimum liquidity.
The Company pays an annual agency fee of $10,000 to DnB in connection with
the loan.
Interest on all long-term borrowings is variable, therefore the carrying
amount of the debt approximates its fair value.
The Company has entered into an interest swap agreement with DnB, enabling
the Company to pay a fixed interest on the loan of 5.80% annually for the
next two years. The swap agreement terminates on the final repayment date
of the Loan, i.e. the 4th quarter of year 2004. Interest on all long-term
borrowings is variable, therefore the carrying amount of the debt
approximates its fair value.
Prepaid finance costs
In connection with the loan in 1998, the Company paid $86,875 in an
arrangement fee and commitment fee. The fees will be amortized over the
term of the Loan, i.e. with 1/6 every year from January 1, 1999.
7. SHAREHOLDERS' EQUITY
Par value of the common shares is $.01. At December 31, 2002 and 2001 the
number of shares authorized, issued and outstanding was 9,706,606.
8. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
The company is exposed to interest rate risk from its variable rate loan of
$30 million. The company's risk management objective has been to lock in
the interest payments on the loan. The company has entered into an interest
rate swap where the company pays a fixed interest and receives a variable
interest and has designated this swap as a cash flow hedge of the interest
payments on the loan.
Gains or losses on the interest rate swap designated as a cash flow hedge
will be deferred to accumulated other comprehensive income and will be
reclassified to earnings when the hedged interest payments are recognized.
The amount of ineffectiveness recorded in 2002 and 2001 was immaterial. As
of December 31, 2002 loss of $1,136,570 after tax is expected to be
reclassified from accumulated other comprehensive income to earnings during
the next twelve months. The maximum length of time that the company has
hedged its exposure to variability in future interest payments is
approximately 24 months as of December 31, 2002. The fair value of the swap
of $ -2,016,000 is recorded as a liability as of December 31, 2002. The
fair value of the swap was $-778,000 at December 31, 2001.
9. CONCENTRATIONS
The Company's charter revenues and accounts receivable are derived entirely
from bareboat charters with one counterparty, BP Shipping Ltd.
10. COMMITMENTS AND CONTINGENCIES
NORWEGIAN TAX PROCEEDING
In September 2002, the Company received a letter from the Tax Assessment
Board of the Norwegian Central Tax Office for Large Corporations, (the "Tax
Board"), stating that the Tax Board had determined that the Company was
subject to Norwegian income taxation for the years 1995 through 2000. The
Company believes that the Tax Board's determination is without merit and
erroneous and is contesting the assessment vigorously.
Accordingly, the Company has appealed the decision of the Tax Board to the
Norwegian Tax Assessment Appeal Board (the "Appeal Board"). The Company has
been advised that a decision from the Appeal Board may be expected during
the second or third quarter of 2003. If the Appeal Board should decide in
favor of the Tax Board, the Company may make further appeals to the
Norwegian Court of Justice, which has three levels. The Norwegian tax
authorities may appeal a decision in favor of the Company to the County Tax
Appeal Board.
The decision of the Tax Board relates to the years 1995 through 2000.
Applying Norwegian tax principles, the Company did not have any taxable
income for those years or for 2001. At year end 2001, the deferred tax loss
is NOK 41.6 mill (approx. USD 5.6 million). This tax loss would be carried
forward and used for the tax year 2002. After application of this loss
carry-forward, under Norwegian tax principles, the Company's net income
would total approximately NOK 59.1 mill (approx. USD 8.5 million) for 2002.
However, as previously stated, the strong view of the Company is that the
Company should not be taxed in Norway.
In accordance with its distribution policy, the Company has made cash
distributions to shareholders in amounts that exceed the net income of the
Company. Under Norwegian tax principles, if they applied, in the view of
the Company, a portion of these distributions would be considered as a
repayment of paid up share capital.
Given this premise, there would be no tax for the Company during the period
through 2002. However, if, Norwegian tax principles apply, there is a
probability that the distributions could be seen as a repayment of untaxed
capital from the Company, and the Company would incur so-called correction
income, which for the period to and including 2001 would amount to NOK
728.6 million (approx. USD 99 million). The tax would constitute 28% of
that amount. In the view of the Company, such a treatment of its cash
distributions would be incorrect.
The Company's view is that the Tax Board's determination is without merit
and is erroneous. In part, the view of the Company is based on an opinion
that the Company received from Norwegian counsel in connection with the
Company's warrants offering in 1995, as described in the Company's offering
prospectus. However, the Company cannot assure investors of a successful
appeal of the Tax Board's determination.
The Company is bearing legal costs in connection with the Norwegian tax
proceeding which would otherwise be available for distribution.
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
(registrant)
Dated: May 13, 2003 By: /s/ Herbjorn Hansson
--------------------
Herbjorn Hansson
President and
Chief Executive Officer
01318.0002 #404385