UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark One) [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-13944 NORDIC AMERICAN TANKER SHIPPING LIMITED - ----------------------------------------------------------------- (Exact name of Registrant as specified in its charter) ISLANDS OF BERMUDA - ---------------------------------------------------------------- (Jurisdiction of incorporation or organization) Cedar House 41 Cedar Avenue Hamilton HM EX Bermuda (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED Common Shares American Stock Exchange ------------------------- ------------------------- Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. Common Shares, par value $0.01 9,706,606 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- Indicate by check mark which financial statement item the Registrant has elected to follow. Item 17 X Item 18 -----
TABLE OF CONTENTS PAGE PART I Item 1. Identity of Director, Senior Management and Advisor.......5 Item 2. Offer Statistics and Expected Timetable .................5 Item 3. Key Information .........................................5 A. Selected Financial Data ..................................5 B. Capitalization and Indebtedness ..........................7 C. Reasons for the Offer and Use of Proceeds ................7 D. Risk Factors ............................................8 Item 4. Information on the Company ..............................12 A. History and Development .................................12 B. Business Overview .......................................13 C. Organizational Structure .................................17 D. Property, Plant and Equipment ...........................17 Item 5. Operating and Financial Review and Prospects ............18 A. Operating Results .......................................18 B. Liquidity and Capital Resources .........................19 Item 6. Directors, Senior Management and Employees ..............20 A. Directors and Senior Management .........................20 B. Compensation ............................................22 C. Board Practices .........................................22 D. Employees ...............................................23 E. Share Ownership .........................................23 Item 7. Major Shareholders and Related Party Transactions .......23 A. Major Shareholders ......................................23 B. Related Party Transactions ..............................23 C. Interests of Experts and Counsel..........................23 Item 8. Financial Information ...................................24 A. Consolidated Statements and Other Financial Information ............................................24 Item 9. The Offer and Listing ...................................24 A.4. Market Price Information ..............................24 C. Markets on Which our Shares Trade .......................25 Item 10. Additional Information .................................25 A. Share Capital ...........................................25 B. Memorandum and Articles of Association ..................26 C. Material Contracts ......................................27 D. Exchange Controls .......................................27 E. Taxation ................................................27 F. Dividends and Paying Agents...............................28 G. Statement by Experts......................................28 H. Documents on Display......................................28 Item 11. Quantitative and Qualitative Disclosures About Market Risk ...............................................28 Item 12. Description of Securities other than Equity Securities. ...............................................29 Part II Item 13. Defaults, Dividend Arrearages and Delinquencies .........29 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds ...............................29 Item 15. [Reserved] .............................................. Item 16. [Reserved] ............................................. Part III Item 17. Financial Statements ...................................F-1 Item 18. Financial Statements ................................... 19. Exhibits ..........................................................F-11
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS. Not Applicable ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not Applicable ITEM 3. KEY INFORMATION A. SELECTED FINANCIAL DATA 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, 1999, 2000 and 2001 and selected balance sheet data as of December 31, 2000 and 2001 are derived from, and qualified by reference to, our audited consolidated financial statements included elsewhere in this document. The statements of operations data for each of the years ended December 31, 1997, 1998 and 1999 and selected balance sheet data as of December 31, 1997, 1998 and 1999 are derived from our audited financial statements not included in this document. <TABLE> SELECTED BALANCE SHEET DATA December 31, ---------------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> Assets Cash and Cash Deposit 630,868 1,922,925 2,507,017 3,637,758 19,499 Prepaid Finance Expenses 43,435 57,915 72,395 86,875 0 Prepaid Insurance 70,000 58,333 70,833 83,333 95,836 Accounts Receivable 170,180 10,228,286 0 0 1,499,380 Vessels 141,744,005 148,575,045 155,406,085 162,237,124 169,068,163 ----------- ---------- ----------- ----------- ---------- Total Assets 142,658,488 160,842,504 158,056,330 166,045,090 170,682,878 =========== =========== =========== =========== ========== Accounts Payable 0 0 0 675,384 1,181,385 Accrued Expenses 778,000 Accrued Interest 38,666 43,500 77,333 43,781 0 Bank Loan 30,000,000 30,000,000 30,000,000 30,000,000 0 ---------- ---------- ---------- ---------- ---------- Total Long- term Liabilities 30,816,666 30,043,500 30,077,333 30,719,165 1,181,385 Shareholder's Equity Share Capital 97,066 97,066 97,066 97,066 118,138 Accumulated Other Comprehensive Income (loss) (778,000) Other Shareholders' Equity 112,522,756 130,701,938 127,881,931 135,228,859 169,383,355 ----------- ----------- ----------- ----------- ---------- Total Shareholders' Equity 111,841,822 130,799,004 127,978,997 135,325,925 169,501,493 ----------- ----------- ----------- ----------- ---------- Total Liabilities and Shareholders' Equity 142,658,488 160,842,504 158,056,330 166,045,090 170,682,878 =========== =========== =========== =========== ========== </TABLE> <TABLE> SELECTED STATEMENT OF OPERATIONS DATA Year Ended December 31, ---------------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> Revenue 28,359,568 36,577,262 14,782,500 16,006,199 5,265,880 Ship Broker Commissions (184,781) (185,288) (184,781) (184,781) (47,081) Management Fee and Administrative Expense (281,406) (290,791) (314,004) (412,779) (461,674) Directors Insurance (72,333) (82,500) (97,500) 0 0 Depreciation (6,831,040) (6,831,040) (6,831,039) (6,831,039) (1,707,807) --------- --------- --------- -------- -------- Net Operating Income 20,990,008 29,187,643 7,355,176 8,577,600 3,049,318 ---------- --------- --------- --------- -------- Net Financial Items (1,604,532) (1,518,677) (1,580,498) 51,912 147,176 ---------- --------- --------- --------- -------- Net Profit for the Year 19,385,476 27,668,966 5,774,678 8,629,512 3,196,492 ========== ========= ========= ========= ======== Basic Earnings Per Share (a) 2.00 2.85 0.59 0.73 1.06 Diluted Earnings Per Share 2.00 2.85 0.59 0.73 0.57 Cash Dividends Declared Per Share 3.87 2.56 1.35 1.33 1.57 Weighted Average Shares Outstanding: Basic 9,706,606 9,706,606 9,706,706 11,796,530 3,018,518 Diluted 9,706,606 9,706,606 9,706,706 11,796,530 5,606,055 </TABLE> (a) Warrants to purchase 11,731,613 shares of common stock at $10.21 per share were outstanding during 1996 and 1997 but were not included in the computation of diluted earnings per share because the Company had negative earnings in 1996 and therefore, the effect would be anti-dilutive. B. CAPITALIZATION AND INDEBTEDNESS Not Applicable C. REASONS FOR THE OFFER AND USE OF PROCEEDS Not Applicable D. RISK FACTORS Industry Specific Risk Factors THE CYCLICAL NATURE OF THE TANKER INDUSTRY MAY LEAD TO VOLATILE CHANGES IN CHARTER RATES WHICH MAY ADVERSELY AFFECT THE COMPANY'S EARNINGS If the tanker industry, which has been cyclical, is depressed in the future when the Company's vessels' charters expire or when the Company wants to sell a vessel, the Company's earnings and available cash flow may decrease. The Company's ability to recharter its vessels on the expiration or termination of their current charters and the charter rates payable under any renewal or replacement charters will depend upon, among other things, economic conditions in the tanker market. Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products. The factors affecting the supply and demand for tanker vessels are outside of the Company's control, and the nature, timing and degree of changes in industry conditions are unpredictable. The factors that influence demand for tanker capacity include: - demand for oil and oil products; - global and regional economic conditions; - the distance oil and oil products are to be moved by sea; and - changes in seaborne and other transportation patterns The factors that influence the supply of tanker capacity include: - the number of newbuilding deliveries; - the scrapping rate of older vessels; and - the number of vessels that are out of service. The Company's vessels are currently operated under bareboat charters to BP Shipping Ltd., a wholly owned subsidiary of BP p.l.c. The Company receives a set minimum base rate charter hire and variable additional hire under these bareboat charters. The amount of additional hire is determined by a brokers' panel and therefore is subject to variation depending on general tanker market conditions. The Company cannot assure you that the Charterer will pay additional hire for any quarter. THE VALUE OF THE COMPANY'S VESSELS MAY FLUCTUATE AND ALSO DEPEND ON WHETHER BP SHIPPING LTD. RENEWS ITS CHARTERS WHICH COULD RESULT IN A LOWER SHARE PRICE Tanker values have generally experienced high volatility. Investors can expect the fair market value of the Company's oil tankers to fluctuate, depending on general economic and market conditions affecting the tanker industry and competition from other shipping companies, types and sizes of vessels, and other modes of transportation. In addition, as vessels grow older, they generally decline in value. These factors will affect the value of the Company's vessels at the termination of their charters or earlier at the time of their sale. It is very possible that the value of the Company's vessels could be well below both their implied value based on the trading price for the Company's shares and their present market value without the BP Shipping Ltd. charters. While the trading price for the Company's shares depends on many factors, the failure of BP Shipping Ltd. to renew the charters could result in a lower market price for the Company's shares. Company Specific Risk Factors BECAUSE THE COMPANY'S CHARTERS MAY EXPIRE IN 2004, THE COMPANY MAY INCUR ADDITIONAL EXPENSES AND NOT BE ABLE TO RECHARTER THE COMPANY'S VESSELS PROFITABLY Each of the Company's charters with BP Shipping Ltd. expires approximately seven years after the date of delivery of each vessel to us, which could be as early as September 2004, unless extended at the option of the charterer for seven successive one year periods, on twelve months' prior written notice. The charterer has the sole discretion to exercise that option under one or more of the charters. The charterer will not owe any fiduciary or other duty to the Company or its shareholders in deciding whether to exercise the extension option, and the charterer's decision may be contrary to the Company's interests or those of the Company's shareholders. The Company cannot predict at this time any of the factors that the charterer will consider in deciding whether to exercise any of its extension options under the charters. It is likely, however, that the charterer would consider a variety of factors, which may include whether a vessel is surplus or suitable to the charterer's requirements and whether competitive charterhire rates are available to the charterer in the open market at that time. In the event BP Shipping Ltd. does not extend the Company's current charters, the Company will present to its shareholders a recommendation by the Company's Board of Directors as to whether it believes that the sale of the Company's vessels is in the shareholders' best interests or whether an alternative plan, such as attempting to arrange a replacement charter, might be of greater benefit. Replacement charters may include shorter term time charters and employing the vessels on the spot charter market (which is subject to greater fluctuation than the time charter market). Any replacement charters may bring the Company lower charter rates and would likely require the Company to incur greater expenses which may reduce the amounts available, if any, to pay distributions to shareholders. THE COMPANY OPERATES IN THE HIGHLY COMPETITIVE INTERNATIONAL TANKER MARKET AND ITS POSITION COULD BE ADVERSELY AFFECTED IF BP SHIPPING LTD. DOES NOT RENEW THE COMPANY'S CHARTERS The operation of tanker vessels and transportation of crude and petroleum products and the other businesses in which the Company operates are extremely competitive. Competition arises primarily from other tanker owners, including major oil companies as well as independent tanker companies, some of whom have substantially greater resources. Competition for the transportation of oil and oil products can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to the charterers. During the term of the Company's existing charters with BP Shipping Ltd. the Company is not exposed to the risk associated with this competition. In the event that BP Shipping Ltd. does not renew the charters in 2004, the Company will have to compete with other tanker owners, including major oil companies as the well as independent tanker companies for charterers. Due in part to the fragmented tanker market, competitors with greater resources could enter and operate larger fleets through acquisitions or consolidations and may be able to offer better prices and fleets, which could result in the Company's achieving lower revenues from the Company's oil tankers. COMPLIANCE WITH ENVIRONMENTAL LAWS OR REGULATIONS MAY ADVERSELY AFFECT THE COMPANY'S EARNINGS AND FINANCIAL CONDITIONS IF BP SHIPPING LTD. DOES NOT RENEW ITS CHARTERS Regulations in the various states and other jurisdictions in which the Company's vessels trade affect the Company's business. Extensive and changing environmental laws and other regulations, compliance with which may entail significant expenses, including expenses for ship modifications and changes in operating procedures, affect the operation of the Company's vessels. Although BP Shipping Ltd. is responsible for all operational matters and bears all these expenses during the term of the Company's current charters, these expenses could have an adverse effect on the Company's business operations at any time after the expiration or termination of a charter or in the event BP Shipping Ltd. fails to make a necessary payment. THE COMPANY MAY NOT HAVE ADEQUATE INSURANCE IN THE EVENT EXISTING CHARTERS ARE NOT RENEWED There are a number of risks associated with the operation of ocean-going vessels, including mechanical failure, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, the operation of any vessel is subject to the inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. Under the existing charters, BP Shipping Ltd. bears all risks associated with the operation of the Company's vessels including any total loss of one or more vessels. However, the Company cannot assure investors that the Company will adequately insure against all risks in the event the Company's existing charters are not renewed at the expiration of their terms. The Company may not be able to obtain adequate insurance coverage at reasonable rates for the Company's fleet in the future and the insurers may not pay particular claims. THE COMPANY IS HIGHLY DEPENDENT ON BP SHIPPING LTD. AND BP p.l.c. The Company is highly dependent on the due performance by BP Shipping Ltd. of its obligations under the charters and by its guarantor, BP p.l.c. Any failure by BP Shipping Ltd. or BP p.l.c. to perform its obligations could result in enforcement by the Company's lenders of their rights including foreclosing on the mortgages over the vessels and the outstanding capital stock of the Company's subsidiaries, all of which are pledged to the lenders, and all of the subsidiaries' rights in the charters, and the consequent forfeiture of the Company's vessels. The Company's shareholders do not have any recourse against BP Shipping Ltd. or BP p.l.c. The Company's ability to recharter or sell the vessels if BP Shipping Ltd. or BP p.l.c. defaults would be subject to the rights of the lenders and the rights of the lessor under finance leases to which the Company is a party for its vessels. In addition, if BP Shipping Ltd. were to default on its obligations under a charter or not exercise its charter extension option, the Company may be required to change the flagging or registration of the related vessel and may incur additional costs, including maintenance and crew costs. INCURRENCE OF EXPENSES OR LIABILITIES MAY REDUCE OR ELIMINATE DISTRIBUTIONS The Company has made distributions quarterly since September 1997, in an aggregate amount equal to the charterhire received from BP Shipping Ltd. less the Company's cash expenses and less any reserves required in respect of any contingent liabilities. It is possible that the Company could incur other expenses or contingent liabilities that would reduce or eliminate the cash available for distribution as dividends. In particular, toward the end of the term of the charters in 2004, the Company is likely to have additional expenses and may have to set aside amounts for future payments of interest. The Company's loan agreements prohibit the declaration and payment of dividends if the Company is in default under them. In addition, the declaration and payment of dividends is subject at all times to the discretion of the Company's Board. The Company cannot assure you that the Company will pay dividends in the amounts anticipated or at all. THE COMPANY HAS A LIMITED BUSINESS PURPOSE WHICH LIMITS ITS FLEXIBILITY The Company's bye-laws limit the Company's business to engaging in the acquisition, disposition, ownership, leasing and chartering of the Company's three Suezmax oil tankers. During the terms of the Company's charters with BP Shipping Ltd. the Company expects that the only source of operating revenue from which the Company may pay distributions will be from these charters. GOVERNMENTS COULD REQUISITION THE COMPANY'S VESSELS DURING A PERIOD OF WAR OR EMERGENCY, RESULTING IN A LOSS OF EARNINGS A government could requisition for title or seize the Company's vessels. Requisition for title occurs when a government takes control of a vessel and becomes her owner. Also, a government could requisition the Company's vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates. If a vessel is requisitioned for hire from a pre-existing charterer beyond the scheduled termination date, BP Shipping Ltd. will be obligated to pay to us only those amounts received by it as charterhire from the requisitioning entity, less operating costs. This amount could be materially less than the charterhire that would have been payable otherwise. In addition, the Company would bear all risk of loss or damage to the vessel after the charter would otherwise have terminated. ITEM 4. INFORMATION ON THE COMPANY A. HISTORY AND DEVELOPMENT 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. B. BUSINESS OVERVIEW Vessels Owned by the Company Each of the Company's Vessels is a 1997 built, 151,459 dwt double hull Suezmax oil tanker. The purchase price of each Vessel was approximately $56.9 million. 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. 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 2001, 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 2001, the Company received Additional Hire for all four quarters. 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 Amoco 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 thereof) of a Charter, the Company's shareholders will be entitled to vote on a proposal to sell the related Vessels 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 Vessels. The proposal to sell the Vessels and distribute the resulting net proceeds shall be adopted if approved by the holders of a majority of the Common Shares voting at the meeting called for such purpose. The International Tanker Market International seaborne oil and petroleum products transportation services are mainly provided by two types of operator: major oil company captive fleets (both private and state-owned) and independent shipowner fleets. Both types of operators transport oil under short-term contracts (including single-voyage "spot charters") and long-term time charters with oil companies, oil traders, large oil consumers, petroleum product producers and government agencies. The oil companies own, or control through long-term time charters, approximately one third of the current world tanker capacity, while independent companies own or control the balance of the fleet. The oil companies use their fleets not only to transport their own oil, but also to transport oil for third-party charterers in direct competition with independent owners and operators in the tanker charter market. The oil transportation industry has historically been subject to regulation by national authorities and through international conventions. Over recent years, however, an environmental protection regime has evolved which has a significant impact on the operations of participants in the industry in the form of increasingly more stringent inspection requirements, closer monitoring of pollution-related events, and generally higher costs and potential liabilities for the owners and operators of tankers. In order to benefit from economies of scale, tanker charterers will typically charter the largest possible vessel to transport oil or products, consistent with port and canal dimensional restrictions and optimal cargo lot sizes. The oil tanker fleet is generally divided into the following five major types of vessels, based on vessel carrying capacity: (i) ULCC-size range of approximately 320,000 to 450,000 dwt; (ii) VLCC-size range of approximately 200,000 to 320,000 dwt; (iii) Suezmax-size range of approximately 120,000 to 200,000 dwt; (iv) Aframax-size range of approximately 60,000 to 120,000 dwt; and (v) small tankers of less than approximately 60,000 dwt. ULCCs and VLCCs typically transport crude oil in long-haul trades, such as from the Arabian Gulf to Rotterdam via the Cape of Good Hope. Suezmax tankers also engage in long-haul crude oil trades as well as in medium-haul crude oil trades, such as from West Africa to the East Coast of the United States. Aframax-size vessels generally engage in both medium-and short-haul trades of less than 1,500 miles and carry crude oil or petroleum products. Smaller tankers mostly transport petroleum products in short-haul to medium-haul trades. The tanker market in general was depressed through the second half of 1998 and 1999 as a result of lower volumes of oil transported due to cuts in oil production by OPEC. A high proportion of the OPEC cuts were taken by the Middle East producers which account for the long-haul crude. The cut in long-haul crude resulted in decreased transportation demand. At the beginning of the year 2000 the Suezmax market started to improve, backed by increasing OPEC production and the fact that scrapping of older tonnage in the weak 1999 market brought demand and supply of transportation capacity closer to a balance. A high-profile oil-spill off the coast of France in late 1999 created strong public and political pressure for stricter requirements on tankers. The result was an increased demand for modern quality tonnage as many leading charterers reduced their use of older tonnage. OPEC increased output on several occasions in 2000 in response to oil demand and the demand for tonnage grew through the year with gradually higher charter rates and, in the last quarter of 2000, the highest average Suezmax rates paid since the early 1970's. The charter rates have dropped in the beginning of 2001, compared to the highs of end 2000. Market rates which are used to determine additional hire decreased in 2001. The decrease was driven by OPEC oil production decreases and a slow down in the world economy. A strong Suezmax market will largely depend on the global oil demand in 2002 and the implementation by IMO of new rules that would remove from trading in the next 3 to 4 years almost all Suezmaxes built before 1980. Environmental and Other Regulations The operation of the Vessels are affected by environmental protection laws and other regulations. Such laws and regulations are subject to extensive and material changes. Compliance with such laws and regulations may entail significant expenses, including expenses for ship modifications and changes in operating procedures. Although all such expenses are payable by the Charterer during the term of the Charters, such expenses could have an adverse effect on the Company at any time after the expiration or termination of a Charter or in the event the Charterer and BP p.l.c. (as the guarantor of the obligations of the Charterer) fail to make any such payment. Certain proposals in the United States for new regulatory requirements could create significant additional expenses in such event. In particular, certain legislation has been proposed that would, among other things, impose minimum wage requirements on foreign crews, impose restrictions on the use of foreign-flagged vessels (such as the Vessels) in United States trade and impose additional costs on operators of foreign-built vessels (such as the Vessels). The Company cannot predict the likelihood of any of this proposed legislation being enacted or the ultimate cost of complying with such legislation if enacted. In addition, although the United States Oil Pollution Act of 1990, as amended ("OPA"), limits the strict liability of owners, operators and charterers by demise (i.e., bareboat charterers) of vessels (the "Responsible Parties") to the greater of $1,200 per gross ton or $10 million per tanker (subject to possible adjustment for inflation) for removal costs and damages that result from a discharge of oil, these limits do not apply if the discharge is caused by gross negligence or willful misconduct, or the violation of an applicable U.S. federal safety, construction or operating regulation by a Responsible Party. Pursuant to interim implementing regulations promulgated by the United States Coast Guard ("USCG"), Responsible Parties must meet new financial responsibility requirements that are significantly greater than those previously required. The protection and indemnity associations ("P&I Associations"), which have historically provided shipowners and operators financial assurance, have refused to furnish evidence of insurance to Responsible Parties and therefore, Responsible Parties have had to obtain financial assurance from other sources at additional cost. While the Charterer will be responsible for compliance during the term of the Charters, the inability of the Company to comply with these regulations following the expiration or termination of the Charters would have an adverse effect on the Company's business and results of operations. The International Maritime Organization, an agency of the United Nations ("IMO") has adopted regulations that are designed to reduce oil pollution in international waters. In complying with OPA and the IMO regulations and other regulations that may be adopted, shipowners and operators may be forced to incur additional costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Additional laws and regulations may be adopted which could limit the ability of the Company to do business and which could have a material adverse effect on the Company's business and results of operations following the expiration or termination of a Charter. The operation of the Vessels is also affected by the newly adopted requirements set forth in the IMO's International Management Code for the Safe Operation of Ships and Pollution Prevention (the "ISM Code"). The ISM Code requires shipowners and bareboat charterers to develop an extensive "Safety Management System," which includes policy statements, manuals, standard procedures and lines of communication. Noncompliance with the ISM Code may subject the shipowner or bareboat charterer to increased liability and may lead to decreases in available insurance coverage for affected vessels. Although compliance with the ISM Code is the responsibility of the Charterer during the term of the Charters, the Company would become primarily responsible for compliance with the ISM Code if the Charterer were to default in its obligations under the Charter. C. ORGANIZATIONAL STRUCTURE Prior to September 30, 1997, the Company was a wholly owned subsidiary of Ugland Nordic Shipping ASA, a Norwegian shipping company whose shares are listed on the Oslo Stock Exchange. On September 30, 1997, 11,731,613 warrants for the purchase of the Company's common shares, which had been sold to the public in 1995, were exercised. Ugland Nordic Shipping ASA currently provides managerial, administrative and advisory services to the Company pursuant to the Management Agreement and holds 11.85% of the outstanding Shares. D. PROPERTY, PLANT AND EQUIPMENT Other than the Vessels described elsewhere in this filing, the Company does not own or lease any tangible fixed property.
ITEM 5. 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 2001 decreased 22% from 2000 to $28,359,568 or $25,899 per day per vessel (T/C equivalent of $34,399 per day per vessel). Charterhire revenue for 2001 was derived from Base Hire of $14,782,500 ($13,500 per day per Vessel) and Additional Hire of $13,577,068 ($12,399 per day per vessel). Market rates which are used to determine additional hire decreased in 2001. The decrease was driven by OPEC oil production decreases and a slow down in the world economy. Additional hire by quarter, as determined by the Brokers Panel was $7,994,018, $3,572,587, $1,840,283 and $170,180 for the first through the fourth quarters of 2001, respectively. Charterhire (time charter equivalent) in each quarter of 2001 was $51,607, $35,088, $28,668 and $22,617 per day per Vessel, respectively. Comparatively, Base Hire in 2000 and 1999 was $14,823,000 and $14,782,500 ($13,500 per day per Vessel), respectively. Additional Hire was $21,754,262 in 2000 and $0 in 1999. Management, insurance and administrative costs (MI&A) for 2001, 2000 and 1999 were $538,520, $558,759 and $596,285, 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 decrease in costs of $20,239 from 2000 to 2001 is mainly due to lower insurance costs. 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 increased in 2001 to $36,272,601 due primarily to the decrease in accounts receivable of $10,058,106 partially offset by a decrease in charter hire revenue. The decrease in accounts receivable was due to the Additional Charter Hire for the 4th quarter 2000 which was paid in January 2001. Cash flow used in financing activities increased 51% to $37,564,658 due to the increase in dividends paid during the year. Dividend payment Total dividend paid out in 2001 was $37,564,658 or $3.87 per Share. The dividend payments per share in 1997, 1998, 1999, 2000 and 2001 have been as follows: Period 1997 1998 1999 2000 2001 ------------------------------------------------------------ 1st Quarter 0.40 0.32 0.34 1.41 2nd Quarter 0.41 0.32 0.45 1.19 3rd Quarter 0.32 0.35 0.67 0.72 4th Quarter 0.30 0.30 0.36 1.10 0.55 ------------------------------------------------------------ Total USD 0.30 1.43 1.35 2.56 3.87 ------------------------------------------------------------ The Company declared a dividend of $0.36 per share for the first quarter of 2002. The dividend of $0.36 was paid to Shareholders in February 2002. 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 3 years. The swap agreement terminates on the final repayment date of the Loan, i.e., the fourth quarter of the year 2004. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. DIRECTORS AND SENIOR MANAGEMENT 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. <TABLE> THE COMPANY <S> <C> <C> <C> NAME AGE POSITION Herbjorn Hansson 54 Director and President Peter Bubenzer Secretary Niels Erik Feilberg 40 Vice President and Treasurer Tharald Brovig 59 Director Hon. Sir David Gibbons 74 Director George C. Lodge 74 Director Axel Stove Lorentzen 49 Director Andreas Ove Ugland 47 Director THE MANAGER NAME AGE POSITION Niels Erik Feilberg 40 Chief Financial Officer Herbjorn Hansson 54 Director and President Peter Antturi 43 Director Bjorn Moller 44 Director Paul Wogan 39 Director </TABLE> Certain biographical information with respect to each director and executive officer of the Company and the Manager is set forth below. Herbjorn 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 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. 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. Tharald Brovig has been a director of the Company since July 1995 and has been a director of the Manager since its organization in June 1989. 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. Axel Stove Lorentzen has been a director of the Company since September 1995. Mr. Stove Lorentzen has also served as a director and Chairman of the Manager since May 1991 and September 1993 to June 1996, respectively, a director and Chairman of Lorentzen & Stemoco A/S since January 1981 and November 1994, respectively, and as a director of Skipskredittforeningen AS from March 1988 to May 1996. Mr. Stove Lorentzen formerly served as a director of Grand Hotel A/S from May 1986 to October 1993 and a director of Belships Company Ltd. Ships A/S from February 1984 to June 1993. 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. 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. Bjorn Moller has been a director of the Manager since April 2001. Mr. Moller 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. Moller assumed the role of President and Chief Executive Officer. Mr. Moller has a multinational background in shipping and commodities and is a graduate of the Copenhagen School of Business Economics. 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. B. COMPENSATION 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 $95,000 per annum. Accordingly, from the inception of the Company through December 31, 2001, 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. C. BOARD PRACTICES The members of the Company's board of directors serves until the next annual general meeting following his or her election to the board. The members of the current board of directors were elected at the annual general meeting held on June 7, 2002. D. EMPLOYEES The Company has not had any employees during the past three fiscal years. Pursuant to a management agreement with the Manager, the Manager provides management, administrative and advisory services to the Company. E. SHARE OWNERSHIP The following table sets forth information regarding the share ownership of the Company by its directors. All of the shareholders, including the directors listed in this table, are entitled to one vote for each share of common stock held. Title Identity of Person No. of Shares % of Class - ----- ------------------ ------------- ---------- Common Herbjorn Hansson * <1% Peter Bubenzer * <1% Niels Erik Feilberg * <1% Tharald Brovig * <1% Hon. Sir David Gibbons * <1% George C. Lodge * <1% Axel Stove Lorentzen * <1% Andreas Ove Ugland * <1% ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. MAJOR SHAREHOLDERS The following persons are beneficial owners of 5% or more of the Company's outstanding common shares at April 30, 2002: Name No. of Shares % of Shares - ---- ------------- ----------- Ugland Nordic Shipping ASA 1,150,221 11.85% According to a Schedule 13G filed on behalf of Teekay Shipping Corporation ("Teekay") on December 27, 2001, effective May 28, 2001 Teekay acquired direct ownership of all of the outstanding shares of Ugland Nordic Shipping ASA ("UNS"). As sole shareholder of UNS, Teekay has indirect beneficial ownership of the Company's common shares directly owned of record by UNS. B. RELATED PARTY TRANSACTIONS The Manager owns 1,150,221 (11.85%) Shares in the Company as of the date hereof and is party to the Management Agreement with the Company, pursuant to which it is entitled to a management fee of $250,000 per annum. C. INTERESTS OF EXPERTS AND COUNSEL Not Applicable ITEM 8. FINANCIAL INFORMATION A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION See Item 17 Legal Proceedings The Company is not currently involved in any legal proceedings that would have a significant effect on the Company's financial position or profitability. Dividend Policy The Company's dividend policy is to pay dividends to the holders of the Company's Shares in amounts substantially equal to the amounts received by it under the Charters, less expenses. In 2001, a portion of these dividends was considered return of capital for United States federal income tax purposes. In 2001, the Company paid total dividends of $37,564,658 or $3.87 per share. ITEM 9. THE OFFER AND LISTING A.4. MARKET PRICE INFORMATION The following tables set forth the high and low prices for the Shares for each year indicated below, for each quarter indicated below and for the six months ended April 30, 2002: AMEX AMEX OSE OSE LOW HIGH LOW HIGH For the year: 1998 $10.63 $16.50 NOK 95 NOK 129 1999 $ 9.63 $12.50 NOK 94 NOK 95 2000 $10.13 $23.44 NOK 90 NOK 212 2001 $13.00 $22.88 NOK 125 NOK 215 For the quarter ended: March 31, 2000 $10.25 $12.75 NOK 90 NOK 100 June 30, 2000 $12.50 $17.00 NOK 95 NOK 130 September 30, 2000 $16.56 $22.63 NOK 140 NOK 212 December 31, 2000 $17.88 $23.25 NOK 170 NOK 210 March 31, 2001 $16.90 $22.25 NOK 155 NOK 215 June 30, 2001 $16.00 $22.89 NOK 172 NOK 180 September 30, 2001 $13.75 $19.52 NOK 140 NOK 190 December 31, 2001 $13.00 $17.10 NOK 125 NOK 170 March 31, 2002 $12.95 $13.86 NOK 127 NOK 140 For the months: November, 2001 $13.00 $15.00 NOK 154 NOK 154 December, 2001 $13.01 $14.20 NOK 125 NOK 150 January, 2002 $13.86 $14.99 NOK 131 NOK 131 February, 2002 $12.95 $14.19 NOK 127 NOK 127 March, 2002 $13.35 $15.49 NOK 135 NOK 140 April, 2002 $13.82 $16.54 NOK 145 NOK 145 These bid quotations represent interdealer quotations, without retail mark-ups, mark-downs or commissions, and do not necessarily represent actual transactions. On December 31, 2001, the closing price of the Shares as quoted on the AMEX was $13.85, and as quoted on the OSE was NOK 131.00. On such date, there were 9,706,606 Shares issued and outstanding. C. MARKETS ON WHICH OUR SHARES TRADE 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." ITEM 10. ADDITIONAL INFORMATION A. SHARE CAPITAL Not Applicable B. MEMORANDUM AND ARTICLES OF ASSOCIATION The Company's Memorandum of Association provides that the Company's objects are as set forth in paragraphs (b) through (n) and (p) to (u), inclusive, of the Second Schedule to The Companies Act 1981 of Bermuda. The Company's Bye-laws limits the Company's business activities to: (i) entering into, or becoming a party to the Shipbuilding Contracts between the Company and the Builder providing for the construction of the Vessels; (ii) entering into, or becoming a party to the Supervision Agreement between the Company and the Charterer for the supervision of the construction of the Vessels; (iii) entering into, or becoming a party to, the Participation Agreement among the Company, the Manager, the Charterer, British Petroleum, Rabobank and Silver Island and the BP Letter Agreement among the Company, British Petroleum, the Charterer, the Manager, Lazard Freres & Co. LLC which sets forth certain continuing obligations of each of the parties thereto; (iv) entering into, or becoming a party to the Original Charters with the Charterer and subsequent Charters with any subsequent charterer of the Vessels; (v) entering into, or becoming a party to, the U.K. Finance Leases between the Company and any U.K. financial institution relating to the lease of the Vessels; (vi) entering into, or becoming a party to, the Underwriting Agreement relating to the public sale and offering of the Company warrants by Lazard Freres & Co. LLC, the Warrant Agreement relating to the exercise of the Company's warrants, the Management Agreement, and the Registration Rights Agreement between the Company and Silver Island; (vii) entering into, or becoming a party to any agreement and performing all acts necessary for the conduct of an offering by the Company of the Warrants, and the listing of the Common Shares on any stock exchange or their inclusion in any securities market; (viii) enforcing its rights and performing its obligations in respect of any and all of the foregoing; (ix) entering into agreements to charter, lease, sell or otherwise dispose of a Vessel upon the termination of its Original Charter; (x) entering into, or becoming a party to, and taking all actions including amending the Management Agreement and any other Agreements to which the Company is a party and furnishing such security over the Company's assets as may be necessary or desirable in connection with the incurrence of debt for borrowed money in the amount of up to US$30,000,000 to purchase its Common Shares, and authorizing the Company to pay from the proceeds of such debt and from its income any costs, fees and expenses in connection with such incurrence, or refinancing or replacement thereof, costs related to any current or future proposals submitted by the Board of Directors to amend these Bye-Laws including any related proxy solicitation and regulatory filings and costs related to the purchase by the Company of its Common Shares including the costs and fees related to the preparation and conduct of a "Dutch Auction" self-tender offer; and (xi) engaging in those activities, including the entering into additional or supplementary agreements, documents and instruments necessary, suitable or convenient to accomplish the foregoing or incidental thereto or connected therewith. The following sections of the Company's Registration Statement on Form F-3 (Registration No. 333-7536), including amendments thereto, filed with the Securities and Exchange Commission on August 29, 1997, are hereby incorporated by reference: 1. Dividend Policy (p.22); and 2. Description of Capital Stock (p.54). C. MATERIAL CONTRACTS The Company has not entered into any material contracts outside the ordinary course of business during the past two years. D. EXCHANGE CONTROLS There are currently no Bermudan laws or regulations that restrict the import or export of capital or the remittance of dividends or interest to non-resident holders of the Company's securities. E. TAXATION 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. BP Amoco 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. F. DIVIDENDS AND PAYING AGENTS Not Applicable G. STATEMENT BY EXPERTS Not Applicable H. DOCUMENTS ON DISPLAY Not Applicable ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates related to the variable rate of the Company's long-term borrowings (the "Loan"). The Company's borrowings under the Loan at December 31, 2001 of $30,000,000 bear interest at a variable rate which is reset semi-annually based on the underlying London interbank offer rate (LIBOR). Interest payments are made semi-annually, and the Loan expires in September 2004. The fair value of the Loan at December 31, 2001 is equal to its carrying amount at the same date. The Company has entered into an interest rate swap transaction to hedge the interest rate variability on the Loan. The swap has a notional amount equal to the outstanding principal of the Loan and expires on the same date. At December 31, 2001, the pay-fixed interest rate of the swap was 5.8% and the receive-variable rate was 7%. Periodic cash settlements under the swap agreement occur semi-annually on dates matching those of the interest payments under the Loan. The swap had a negative fair value of $778,000 at December 31, 2001 determined by calculating the cost of entering into an interest rate swap to offset the existing interest rate swap. The Company has not entered into any financial instruments for speculative or trading purposes. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not Applicable PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not Applicable ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not Applicable PART III ITEM 17. FINANCIAL STATEMENTS
NORDIC AMERICAN TANKER SHIPPING LIMITED TABLE OF CONTENTS. - ----------------------------------------------------------------- Page INDEPENDENT AUDITORS' REPORT F-1 FINANCIAL STATEMENTS Balance Sheets F-2 Statements of Operations F-3 Statements of Cash Flows F-4 Statements of Shareholders' Equity F-5 Notes to Financial Statements F-6
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders' of Nordic American Tanker Shipping Limited Bermuda We have audited the accompanying balance sheets of Nordic American Tanker Shipping Limited as of December 31, 2001 and 2000, and the related statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche AS Oslo, Norway February 28, 2002
<TABLE> BALANCE SHEETS AT DECEMBER 31, (all figures are in USD) <CAPTION> <S> <C> <C> <C> ASSETS Current assets 2001 2000 ----------- ----------- Cash and cash equivalents Note 1 630,868 1,922,925 Accounts receivable 170,180 10,228,286 Deferred finance costs Note 6 43,435 57,915 Prepaid insurance 70,000 58,333 ----------- ----------- Total current assets 914,483 12,267,459 ----------- ----------- Long-term assets Vessels Note 4 141,744,005 148,575,045 ----------- ----------- TOTAL ASSETS 142,658,488 160,842,504 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities 2001 2000 ----------- ----------- Accrued interest Note 6 38,666 43,500 ----------- ----------- Long-term liabilities Derivative instrument Note 8 778,000 - Long-term debt Note 6 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 (31,873,110) (13,693,928) Accumulated other comprehensive loss Note 7,8 (778,000) - ----------- ----------- Total shareholders' equity 111,841,822 130,799,004 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 142,658,488 160,842,504 ----------- ----------- The footnotes are an integral part of these financial statements </TABLE>
<TABLE> STATEMENTS OF OPERATIONS (all figures in USD) <CAPTION> Year ended December 31, ---------- --------------------------------------- Notes 2001 2000 1999 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Operating Revenue 1,3 28,359,568 36,577,262 14,782,500 Ship Broker Commissions (184,781) (185,288) (184,781) Administrative Expenses 2,5 (353,739) (373,291) (411,504) Depreciation 4 (6,831,040) (6,831,040) (6,831,039) ----------- ----------- ----------- Net Operating Income 20,990,008 29,187,643 7,355,176 ---------- ---------- ---------- Interest Income 189,244 277,552 214,532 Interest Expense 6 (1,769,000) (1,770,808) (1,767,449) Other Financial Charges (24,776) (25,423) (27,583) ----------- ----------- ----------- Net Financial Items (1,604,532) (1,518,679) (1,580,500) ----------- ----------- ----------- Net Profit before tax 19,385,476 27,668,964 5,774,676 ---------- ---------- ---------- Tax Expense 0 0 0 ---------- ---------- ---------- Net Profit for the Year 19,385,476 27,668,964 5,774,676 ---------- ---------- ---------- Basic and Diluted Earnings per Share 2.00 2.85 0.59 Weighted Average Number of Shares Outstanding 9,706,606 9,706,606 9,706,606 The footnotes are an integral part of these financial statements </TABLE>
<TABLE> STATEMENTS OF CASH FLOWS (all figures in USD) <CAPTION> Year Ended December 31, ------------------------------------- 2001 2000 1999 ----------- ---------- --------- <S> <C> <C> <C> Net Profit 19,385,476 27,668,964 5,774,676 Reconciliation of Net Profit to Net Cash from Operating Activities Depreciation 6,831,040 6,831,040 6,831,039 Amortization of prepaid finance costs 14,480 14,480 14,480 Increase (decrease) in assets and liabilities 10,041,605 (10,249,619) (629,332) ---------- ---------- ---------- Cash provided by Operating Activities 36,272,601 24,264,865 11,990,863 ---------- ---------- ---------- Financing Activities Additional Warrant Issue Cost - - (17,686) Dividends paid 37,564,658) (24,848,957) (13,103,918) ----------- ------------ ----------- Cash used in Financing Activities (37,564,658) (24,848,957) (13,121,604) ----------- ------------ ----------- Net decrease in Cash and Cash Equivalents (1,292,057) (584,092) (1,130,741) ----------- ------------ ----------- Beginning Cash and Cash Equivalents 1,922,925 2,507,017 3,637,758 ---------- ---------- ---------- Ending Cash and Cash Equivalents 630,868 1,922,925 2,507,017 ---------- ---------- ---------- Interest paid 1,773,834 1,804,641 1,767,449 ---------- ---------- ---------- The footnotes are an integral part of these financial statements </TABLE>
<TABLE> STATEMENTS OF SHAREHOLDERS' EQUITY (all figures in USD) <CAPTION> Number Common Additional- Accumulated Accumulated Total Total of shares stock paid-in-capital deficit other Shareholders' comprehensive comprehensive equity income income (loss) - ------------------ ---------- ------- ------------- ------------- -------------- -------------- ------------- <S> <C> <C> <C> <C> <C> <C> <C> Balance at 9,706,606 97,066 144,395,866 (9,167,007) 135,325,925 December 31, 1998 - ------------------ ---------- ------- ------------- ------------- -------------- -------------- Net profit 5,774,676 5,774,676 5,574,676 ------------- Total 5,574,676 comprehensive income ------------- Additional (17,686) (17,686) costs, repurchased shares Dividends paid (13,103,918) (13,103,918) - ------------------ ---------- ------- ------------- ------------- -------------- -------------- Balance at 9,706,606 97,066 144,395,866 (16,513,935) 127,978,997 December 31, 1999 - ------------------ ---------- ------- ------------- ------------- -------------- -------------- Net profit 27,668,964 27,668,964 27,668,964 ------------- Total 27,668,964 comprehensive income ------------- Dividends paid (24,848,957) (24,848,957) - ------------------ ---------- ------- ------------- ------------- -------------- -------------- Balance at 9,706,606 97,066 144,395,866 (13,693,928) 130,799,004 December 31,2000 - ------------------ ---------- ------- ------------- ------------- -------------- -------------- Net profit 19,385,476 19,385,476 19,385,476 Other comprehensive income: Cumulative effect of change in accounting for derivative instruments 618,094 618,094 618,094 Unrealized loss on derivative instruments (1,656,146) (1,656,146) (1,656,146) Adjustment for losses on derivatives reclassified to earnings 260,052 260,052 260,052 ------------- Total 18,607,476 comprehensive income ------------- Dividends paid (37,564,658) (37,564,658) - ------------------ ---------- ------- ------------- ------------- -------------- -------------- Balance at 9,706,606 97,066 144,395,866 (31,873,110) (778,000) 111,841,822 December 31, 2001 - ------------------ ---------- ------- ------------- ------------- -------------- -------------- The footnotes are an integral part of these financial statements </TABLE>
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. 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 favor. 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 vessel - 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. Derivatives: 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. The Company implemented SFAS 133 on January 1, 2001. The cumulative effect of adopting SFAS 133 was to recognize other comprehensive income of $618,094. See note 8. Taxes: The company is incorporated in Bermuda. Under current Bermuda law the Company is not subject to corporate income taxes. New Accounting Pronouncements: In October 2001, the FASB issued SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". The objectives of SFAS 144 are to address significant issues relating to the implementation of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and to develop a single accounting model based on the framework established in SFAS 121 for long-lived assets to be disposed of by sale. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. Additionally, the standard expands the scope of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and will be eliminated from the ongoing operations of the entity in a disposal transaction. The adoption of SFAS 144 by the Company on January 1, 2002 did not have any impact on the Company's financial position or results of operations. 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, 2001 11.9% of the shares. Management fees expense was $250,000 for 2001, 2000 and 1999. 3. OPERATING REVENUE The table below illustrates the breakdown of the charter hire for the years ended December 31, 2001, 2000 and 1999: 2001 2000 1999 ------------------------------------------- Base Hire 14,782,500 14,823,000 14,782,500 Additional Hire 13,577,068 21,754,262 0 ------------------------------------------- Total 28,359,568 36,577,262 14,782,500 ------------------------------------------- 4. VESSELS The long-term assets at December 31 consist of three Suezmax oil tankers built in 1997. 2001 2000 --------------- --------------- --------------- --------------- Acquisition cost 170,775,970 170,775,970 Accumulated depreciation 29,031,965 22,200,925 --------------- --------------- --------------- --------------- Net book value 141,744,005 148,575,045 --------------- --------------- Depreciation is calculated on a straight-line basis over the estimated lifetime of 25 years. 5. ADMINISTRATIVE EXPENSES 2001 2000 1999 -------- -------- -------- Management fee, Ugland Nordic Shipping AS 250,000 250,000 250,000 Directors and officers insurance 72,333 82,500 97,500 Other fees and expenses 31,406 40,791 64,004 ------------------------------------ Total administrative expenses 353,739 373,291 411,504 ------------------------------------ 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 is payable semi-annually at a variable rate of LIBOR plus 0.525% margin, approximately 2.5% at December 31, 2001. Accrued interest at December 31, 2001 and 2000 was $38,666 and $43,500. 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. 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 3 years. The swap agreement terminates on the final repayment date of the Loan, i.e. the 4th quarter of year 2004. Estimated carrying amounts and fair values of long-term debt are as follows <TABLE> December 31, 2001 December 31, 2000 Carrying amount Fair value Carrying amount Fair value --------------------------------------------------------------- <S> <C> <C> <C> <C> Long-term debt 30,000,000 30,000,000 30,000,000 30,000,000 </TABLE> Deferred 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, 2001 and 2000 the number of shares authorized, issued and outstanding was 9,706,606. On November 30, 1998, the Company's shareholders approved a proposal to allow the Company to borrow money for the purpose of repurchasing its Shares. On December 28, 1998, the Company purchased 2,107,244 Shares through a "Dutch Auction" self-tender offer at a price of $12.50 per Share. In addition, the Company paid $715,000 in transaction costs. The repurchased shares were retired. 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. No ineffectiveness has been recognized in earnings during 2001 since the critical terms of the interest rate swap and the hedged loan are the same. As of December 31, 2001 a loss of $848,500 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 36 months as of December 31, 2001. The fair value of the swap of $ -778,000 is recorded as a liability as of December 31, 2001. The fair value and carrying amount of the swap was $ 618,094 and 0, respectively, at December 31, 2000. 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 The Company is subject to claims and litigation in the normal course of business. In the view of the management, there were no such matters that would have a material adverse effect on future earnings or financial position.
ITEM 19. EXHIBITS 1.0* Memorandum of Association and By-Laws of Nordic American Tanker Shipping Limited, incorporated by reference to Exhibits 3.1 and 3.2 in the Registration Statement of Nordic American Tanker Shipping Limited filed August 28, 1995 on Form F-3, Registration No. 33-96268 (the "Registration Statement"). 4.1* Form of Bareboat Charter between Nordic American Tanker Shipping Limited and BP Shipping Ltd, incorporated by reference to Exhibit 10.3 in the Registration Statement filed on Form F-3, Registration No. 33-96268. 4.2* Form of Management Agreement between Nordic American Tanker Shipping Limited and Ugland Nordic Shipping AS incorporated by reference to Exhibit 10.8 in the Registration Statement on Form F-3, Registration No. 33-96268. - ------------------------ * Incorporated herein by reference.
SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sing this annual report on its behalf. NORDIC AMERICAN TANKER SHIPPING LIMITED By: /s/ Herbjorn Hansson -------------------------- Name: Herbjorn Hansson Title: President DATED: June 28, 2002 01318.0002#329229