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, 1998 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 2
TABLE OF CONTENTS (1) Page Part I Item 1 Description of Business.................. 4 Item 2 Description of Property.................. 11 Item 3 Legal Proceedings........................ 11 Item 4 Control of Registrant.................... 11 Item 5 Nature of Trading Market................. 12 Item 7 Taxation................................. 12 Item 8 Selected Financial Data.................. 13 Item 9 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 14 Item 10 Directors and Officers of Registrant..... 16 Item 11 Compensation of Directors and Officers... 19 Item 13 Interest of Management in Certain Transactions......................... 19 Part IV Item 17 Financial Statements..................... 19 Item 19 Financial Statements and Exhibits........ 19 ___________________ (1) Items omitted are inapplicable. 3
ITEM 1 - DESCRIPTION OF BUSINESS 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") and engaging in activities necessary, suitable or convenient to accomplish, or in connection with or incidental to, the foregoing. The principal executive offices of the Company are located at: Cedar House, 41 Cedar Avenue, Hamilton HM EX, Bermuda, and its telephone number is (441) 295- 2244. In September 1995, the Company offered and sold to the public 11,731,613 warrants ("Warrants") at the initial public offering price of $5.00 per Warrant. The exercise price of a Warrant was $10.21. Prior to September 30, 1997 (the "Exercise Date"), the Company did not have any operations other than certain limited operations related to the acquisition of the Vessels, of which all three were delivered in the last half of 1997. The Company now owns three modern double hull 150,000 dead-weight tonne ("dwt") Suezmax tankers (the "Vessels"). The Vessels were built at Samsung Heavy Industries Co. Ltd. in South Korea (the "Builder"). On September 30, 1997, all of the outstanding Warrants of the Company were exercised at an exercise price of $10.21 per Warrant. The Company received a total of $119,779,768.73 by issuing a total of 11,731,613 new Common Shares (the "Shares"). There is a total of 11,813,850 Shares in issue. Expenses in the total amount of approximately $337,000 related to the exercise of the Warrants have been deducted from the proceeds of the exercise. On October 6, 1997, the Company paid to the Charterer for payment to the Builder a total of $119,490,000 for final payment of the three Vessels. 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. After the repurchase, a total of 9,706,606 Shares are in issue, down from 11,813,850 Shares. Pursuant to an agreement (the "Management Agreement") between the Company and its Manager, Ugland Nordic Shipping ASA (the "Manager"), the Manager provides certain management, administrative and advisory services to the Company. 4
Vessels owned by the Company Each Vessel acquired by the Company is a newly built, approximately 150,000 dwt double hull Suezmax oil tanker built at the shipyard of the Builder in South Korea. The purchase price of each Vessel is approximately $56.9 million per Vessel (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"). Each Vessel is registered in Bermuda and flies the British flag. Chartering Operations Commenced on September 30, 1997 By their terms, 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 these charters is from September 30, 1997 and will end approximately seven years after the such 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 holders of the Company's Shares in amounts substantially equal to the amounts received by it under the Charters, less expenses. In 1998, 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 1998, the Company received Additional Hire for the first quarter. Pursuant to the terms of the Charters, the Charterer's obligation to pay charterhire is absolute, regardless whether 5
there is loss or damage to a Vessel of any kind or whether such Vessel or any part thereof is rendered unfit for use or is requisitioned for hire or for title, and regardless of any other reason whatsoever. 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 following the merger between The British Petroleum Company p.l.c., the original guarantor, and Amoco Corp. The Charters will end approximately seven years after the Exercise Date, unless extended as noted above. At least six months prior to the end of the term (including any extension thereof) of a Charter, the holders of the Common Shares will be entitled to vote on a proposal to sell the related Vessel and to distribute the net proceeds of such sale to the holders of the Common Shares to the extent permitted under Bermuda law. The Board of Directors of the Company (the "Board") will make a recommendation as to that proposal, which recommendation may favor such sale or an alternative plan, such as the operation, rechartering or other disposition of the Vessel. The proposal to sell the Vessel 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. Industry Conditions; Highly Cyclical Nature The amount of Additional Hire payable under the Charters, if any, as well as the ability of the Manager to sell or recharter a Vessel upon expiration or termination of the related Charter and the amount of any proceeds therefrom, is dependent upon, among other things, economic conditions in the oil tanker industry. The oil tanker industry has been highly cyclical, experiencing volatility in profitability and vessel values resulting from changes in the supply of and demand for crude oil and in tanker capacity. The demand for tankers is influenced by global and regional economic conditions, developments in international trade, changes in seaborne and other transportation patterns, weather patterns, oil production, armed conflicts, port congestion, canal closures, embargoes and strikes, among other factors. In addition, the Company anticipates that the future demand for Suezmax oil tankers, such as the Vessels, also will be dependent upon continued economic growth in the United States and Canada, Continental Europe and the Far East. While many of the countries in each of these regions have experienced significant economic growth since 1993, there can be no assurance that this trend will continue. Adverse economic, political, social or other developments in these regions could have an adverse effect 6
on the Company's business and results of operations. In addition, even if demand for crude oil grows in these areas, demand for Suezmax tankers may not necessarily grow or even remain constant. Demand for crude oil is affected by, among other things, general economic conditions, commodity prices, environmental concerns, taxation, weather and competition from alternatives to oil. Demand for the seaborne carriage of oil depends partly on the distance between areas that produce crude oil and areas that consume it and their demand for oil. The supply of tanker capacity is a function of the delivery of new vessels and the number of older vessels scrapped, in lay-up, converted to other uses, reactivated or lost. Such supply may be affected by regulation of maritime transportation practices by governmental and international authorities. Many of the factors influencing the supply of and demand for vessel capacity are outside the control of the Company, and the nature, timing and degree of changes in industry conditions are unpredictable. Furthermore, the amount of Additional Hire will be determined quarterly with reference to two round-trip trade routes between the Reference Ports. Therefore, the demand for oil in the areas of the United States serviced by such routes could have a significant effect on whether any Additional Hire would be payable and, if so, the amount that would be payable. There can be no assurance that Additional Hire will be payable for any quarter. Additional Information BP Amoco p.l.c., the successor company following 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 "Exchange Act"). Competition The tanker industry is highly fragmented, with the largest tanker owner owning no more than 5% of the world tanker fleet (by dwt). International seaborne oil and petroleum products transportation services are mainly provided by two types of operators: 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 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 7
transport oil for third-party Charterers in direct competition with independent owners and operators in the tanker charter market. Environmental and Other Regulations The operation of the Vessels is 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 Amoco 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). 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 is 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. 8
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. 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 the vessels. Although compliance with the ISM Code is the responsibility of the Charter 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 Charters. Risk of Loss and Liability Insurance General. There are a number of risks that are associated with the operation of the 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. OPA, which imposes virtually unlimited liability upon owners, operators and demise charterers of any vessel trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for ship owners and operators trading in the United States market and has also caused insurers to consider reducing available liability coverage. Pursuant to the Charters, the Charterer bears all risks associated with the operation of the Vessels, including, without limitation, any total loss of one or more Vessels. The Charterer will also indemnify the Company, and BP Amoco p.l.c. guarantees such obligation, for all liabilities arising during the term of the Charters in connection with the operation of the Vessels, including under environmental protection laws and regulations, other than liabilities arising from the Company's gross negligence or willful misconduct. However, the operation of any ocean-going vessel has an inherent risk of marine disaster, such 9
as environmental mishaps, cargo and property losses or damage and business interruptions caused by mechanical failure, human error, political action in various countries, labor strikes, adverse weather conditions, loss of revenue during vessel off-hire periods and other circumstances or events. Any such circumstance or event could result in loss of revenues or increased costs. Pursuant to the Charters, the Charterer is the responsible party for securing all insurance coverage with respect to the Vessels. The Company expects that the arrangements made by the Charterer adequately protect the Company against the accident- related risks involved in the conduct of its business and provide appropriate levels of environmental damage and pollution insurance coverage, consistent with industry practice. Under the terms of the Charters, the Charterer may self-insure against certain risks. Hull and Machinery Insurance. The Charterer is entitled to self-insure the Marine (Hull and Machinery) risk on each Vessel. In event of loss, following full payments of charterhire under a Charter's "hell and high water" provisions, a lump sum payment will be made to the Company as additional charterhire on expiration of the Charter, based upon three independent shipbroker's evaluations of values of similar vessels at the expiry of the Charter. Protection and Indemnity Insurance. Protection and indemnity insurance covers the legal liability of the Charterer and the Company for its shipping activities. This includes the legal liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal. The Charterer obtained unlimited coverage through P&I Associations, with the exception of oil pollution liability, which is only available up to $500 million per Vessel per accident. Each of the Vessels was entered into a P&I Association that is a member of the International Group of P&I Associations. As a member of a mutual association, the Charterer (and, under certain circumstances, the Company) is subject to calls payable to the association based on its claim records as well as the claim record of all other members of the association. Excess Oil Pollution Insurance. In addition to the $500 million of oil pollution insurance currently available through the P&I Associations, the Charterer purchased from an insurer controlled by it $200 million of excess coverage for the Vessels for liabilities arising from oil pollution for a total coverage 10
of $700 million per Vessel per incident or such other limit as may be commercially available from time to time. Following termination or expiration of the Charters, the Company intends to maintain hull and machinery insurance, including insurance for actual or constructive loss, war risk insurance and protection and indemnity insurance subject to customary deductibles and limitations. Insurance underwriters may require additional premiums for hull and machinery insurance and war risk insurance prior to any Vessel entering certain geographical areas. Although historically shipowners have been able to obtain such insurance, there can be no assurance that the Company will be able to procure sufficient insurance to cover the repair or replacement of any Vessel which is damaged or destroyed, or to cover the Company's liability in the event of a catastrophic marine or ecological disaster. ITEM 2 - DESCRIPTION OF PROPERTY Other than the three Vessels, the Company has no interest in any property. ITEM 3 - LEGAL PROCEEDINGS To the best of the Company's knowledge, no material legal proceedings involving the registrant or any directors, officers or affiliate of the registrant are currently pending and no such proceedings are known to be contemplated by any governmental authorities. ITEM 4 - CONTROL OF REGISTRANT The Company has one class of common stock authorized and outstanding. As of the date of this report, 9,706,606 Shares, par value $0.01, were outstanding. The following table sets forth, as of April 21, 1999, information regarding ownership of the Company's Shares. Number of Shareholder Shares Owned Percentage Ugland Nordic Shipping ASA 2,043,771 21.06% Fidelity International Limited 1,188,000 12.24% Schneider Capital Management Corporation 562,300 5.79% ITEM 5 - 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 11
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 (Warrants before September 30, 1997), by quarter, in 1997 and 1998 are as follows: AMX AMX OSE OSE Low High Low High For the quarter ended: March 31, 1997 $ 3 3/4 $ 4 5/8 NOK 24.00 NOK 30.00 June 30, 1997 $ 3 5/8 $ 5 NOK 25.00 NOK 34.00 September 30, 1997 $ 5 $ 7 5/8 NOK 35.00 NOK 48.00 December 31, 1997 $16 3/8 $19 1/8 NOK 110.00 NOK 130.00 March 31, 1998 $14 7/8 $16 1/2 NOK 110.00 NOK 120.00 June 30, 1998 $14 3/4 $16 1/4 NOK 115.00 NOK 129.00 September 30, 1998 $11 3/4 $15 1/2 NOK 125.00 NOK 125.00 December 31, 1998 $10 3/4 $13 1/2 NOK 95.00 NOK 99.00 These bid quotations represent interdealer quotations, without retail mark-ups, mark-downs or commissions, and do not necessarily represent actual transactions. On December 31, 1998, the closing price of the Shares as quoted on the AMEX was $11 1/2 and as quoted on the OSE was NOK 95.00. On such date, there were 9,706,606 Shares issued and outstanding. ITEM 7 - 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 of there being enacted in Bermuda any legislation imposing tax computed on profits or income or computed on, any capital asset, gain or appreciation, then the imposition of any such tax shall not be applicable. The assurance will also provide that such taxes, and any tax in the nature of estate duty or inheritance tax, shall not be applicable to the shares, debentures or other obligations of the Company. There are no provisions of any reciprocal tax treaty between Bermuda and the United States affecting withholding. 12
ITEM 8 - SELECTED FINANCIAL INFORMATION The following balance sheet as of December 31, 1998 and Income Statement for the period January 1, 1998 through December 31, 1998, have been derived from the Financial Statements of the Company which are included herein and which have been audited by Deloitte & Touche, independent auditors, whose report thereon is also included herein. The balance sheet information provided below should be read in conjunction with the accompanying Financial Statements and the related notes thereto, and the discussion under Management's Discussion and Analysis of Financial Condition and Results of Operations herein. Year Ended December 31, 1998 1997 _____________ ____________ Income Statement Data Operating Revenues $ 16,006,199 $ 5,265,880 Commissions Paid (184,781) (47,081) Administration Expenses (412,779) (461,674) Interest Income 105,999 147,504 Accrued Interest (Bank loan) (43,781) 0 Bank changes (10,306) (330) ____________ ____________ Net Profit 8,629,512 3,196,492 Assets Bank deposits $ 3,637,758 $ 3,664,499 Bare-Boat -hire receivable 0 1,499,380 Prepaid finance costs 86,875 0 Prepaid insurance 83,333 95,836 ____________ ____________ Total current assets 3,807,966 5,259,715 Long term assets Vessels 162,237,124 169,068,163 ____________ ____________ Total long-term assets 162,237,124 169,068,163 TOTAL ASSETS 166,045,090 174,327,878 ____________ ____________ 13
LIABILITIES AND SHAREHOLDERS EQUITY 1998 1997 ____________ _____________ Current liabilities Dividend payable 0 1,181,385 Prepaid hire 0 3,645,000 Accounts payable 675,384 0 Accrued interest on Bank loan 43,781 0 ____________ ____________ Total Current Liabilities 719,165 4,826,385 Long-term liabilities Mortgage Loan 30,000,000 0 ____________ ____________ Total Long-term liabilities 30,000,000 0 ____________ ____________ Shareholders Equity Share Capital 97,066 118,138 Other Shareholders Equity 135,228,859 169,383,355 ____________ ____________ Total Shareholders Equity 135,325,925 169,501,493 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 166,045,090 174,327,878 ____________ ____________ ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company owns three modern double hull 150,000 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. The Charterer has agreed to charter each Vessel for a period of seven years from September 30, 1997. 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 14
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. In January 1999, the Brokers Panel in London determined that there would be no Additional Hire for the period October 1 to December 31, 1998. The total charterhire for 1998 was thus $16,006,199. Charterhire (time charter equivalent) in the first, second, third and fourth quarter of 1998 was $26,532, $22,000, $22,000 and $22,000 per day per Vessel, respectively. On January 4, 1999, the Company received $3,645,000 in Base Hire from the Charterer for the period from January 1 up to March 31, 1999. Results of Operations Year Ended December 31, 1998 Compared to Year Ended December 31, 1997. Operating Revenues Operating revenues increased for the year ended December 31, 1998 by $10,740,319, or 304%, to $16,006,199 (time charter equivalent of $23,117 per day per Vessel) compared to $5,265,880 for the year ended December 31, 1997. The increase in revenues was due to the receipt of charter hire from the Charterer for a full year. The average daily rates of charter hire earned by the Vessels remained the same at $13,500 per Vessel. The Company received $14,782,500 in Base Hire and Additional Hire for the period January 1 to March 31, 1998 of $1,233,699 ($4,532 per day per Vessel). Operating Expenses Because the Company owned the Vessels for a full year, depreciation in the year ended December 31, 1998 increased by $5,123,232, or 300%, to $6,831,039 from $1,707,807 for the year ended December 31, 1997. General and administrative expenses increased for the year ended December 31, 1998 by $1,436,703 to $1,798,284 from $361,581 for the year ended December 31, 1997. Net Operating Income As a result of the foregoing factors, net operating income increased by $5,432,831 or 170% to $8,629,323 for the year ended December 31, 1998 compared to $3,196,492 for the year ended December 31, 1997. 15
Dividend Payment Total dividend paid out in 1998 was $16,893,806.10, or $1.43 per Share. The dividend payments in 1998 have been as follows: 1. quarter $0.40 per share 2. quarter $0.41 per share 3. quarter $0.32 per share 4. quarter $0.30 per share Total dividend for the year 1998 derived from hire received in 1998 was $15,712,421.10 or $1.33 per Share. Income Taxes 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. Year Ended December 31, 1997 Results of Operations The Company had no revenue for the period from January 1, 1997 through September 30, 1997. After September 30, 1997, its revenues consisted of the charter hire payable under the Charters. The Company's revenues from the charter hire for the period September 30 to December 1, 1997 came from the minimum hire of $3,766,500 ($13,500 per day per Vessel) and the determined Additional Hire of $1,499,380 ($5,374 per day per Vessel). Total charter hire for the period from September 30 to December 31, 1997 was $5,265,880. Net costs including interest income during the report period were $2,069,388, of which three months depreciation of the Vessels constituted $1,707,807. 16
Year Ended December 31, 1996 Results of Operations The Company had no revenue for the period from January 1, 1996 through December 31, 1996. Expenses for the year ended December 31, 1996 were $430,000. Such expenses resulted from accrual of a portion of the management fee (the "Management Fee") paid to the Manager and the payment of the insurance premium in respect of the Company's directors' and officers' and general liability insurance. In September 1995 the Company prepaid the Management Fee for the period through and including September 30, 1997. The Company had no income tax liabilities for the year ended December 31, 1996. Liquidity and Capital Resources Total assets of the Company at December 31, 1998 were $166,045,090, compared to $174,327,878 at December 31, 1997. Cash held at December 31, 1998 was $3,637,758. Repurchase of Common Stock On December 28, 1998, the Company repurchased 2,107,244 Shares through a "Dutch Auction" self-tender offer at a price of $12.50 per Share. After the repurchase, a total of 9,706,606 Shares are in issue, down from 11,813,850 Shares. Payment for the repurchased Shares was made at the end of December 1998. The Company has drawn down upon a Loan of $30 million with Den norske Bank ASA, Oslo (DnB) to finance the repurchase of Shares. The total purchase price of the Shares including the costs associated with the transaction was $ 27.1 million. The balance of approximately $2.9 million will remain in the Company until it has been decided how these funds should be utilised. 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 is expected to increase by $0.09, from $1.20 to $1.29 per year, an increase of 7.5%. 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% p.a. including the margin of 0.525% for the next 6 years. The swap agreement terminates on the final repayment date of the Loan, i.e. the fourth quarter of the year 2004. 17
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT 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 both the Company and the Manager 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 Herbjorn Hansson 51 Director and President John D. Campbell 56 Director and Secretary Niels Erik Feilberg 37 Vice President and Treasurer Tharald Brovig 56 Director Hon. Sir David Gibbons 71 Director George C. Lodge 71 Director Axel Stove Lorentzen 46 Director Andreas Ove Ugland 44 Director The Manager Name Age Position Arve Andersson 44 Director Herbjorn Hansson 50 Director; President and Chief Executive Officer Axel Stove Lorentzen 46 Director Tharald Brovig 56 Director Njal Hansson 56 Director Christian Rytter Jr 43 Director Andreas Ove Ugland 44 Director, Chairman 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 18
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 Tanker Owners and independent operators, from 1975-1980. He was an officer of the Anders Jahre/Kosmos Group from 1980 to 1989, serving as Chief Financial Officer from 1983 to 1988. John D. Campbell has been Secretary of the Company and a director of the Company since July 1995. Mr. Campbell has been the Senior Partner of the law firm of Appleby, Spurling & Kempe, Bermuda counsel to the Company, since December 1987. Mr. Campbell has also served as a director of ADT Limited (new Tyes International Limited), from September 1984 to August 1991 and Sea Containers Limited since February 1980. 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. 19
Njal Hansson has been a director of the Manager since its organization in June 1989. Mr. Hansson is a private investor and owns the company Siv.ing, Njal Hansson A/S is a company engaged in the importing and distribution of consumer electronics in Norway. Mr. Hansson is the brother of Herbjon Hansson. Arve Andersson has been a director of the Manager since June 1996. Mr Andersson is a director of Andreas Ugland & Sons AS. 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, Hoegh 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. Christian Rytter Jr has been a director of the Manager since May 1996. Mr. Rytter is Managing Director of L.Giil- Johannessen AS and is also Chairman of Seabulk a.s. ITEM 11 - 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 $60,000 per annum. From the inception of the Company through December 31, 1998, an aggregate of $0 has been paid to the Company's directors and executive officers as a group for services rendered by them to the Company in all capacities. ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS The Manager owns 2,043,771 Shares in the Company as of the date hereof 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. ITEM 17 - FINANCIAL INFORMATION See pages F-1 through F-6, which are attached hereto and incorporated herein. 20
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS The following financial statements, together with the report of Deloitte & Touche LLP thereon, are filed as part of this annual report: Index to Financial Statements Page Independent Auditors' Report F-1 Financial Statements for the Year Ended December 31, 1998 and for the Period From January 1, 1998 Through December 31, 1998: Balance Sheets F-2 Statement of Operations F-3 Statements of Cash Flows F-4 Notes to Financial Statements F-5-6 21
Deloitte & Touche (LOGO) Radhusgt. 1, PO. Box 35 N-3101 Tonsberg, Norway Telephone: (47) 33 30 06 00 Facsimile: (47) 33 30 06 06 INDEPENDENT AUDITOR'S REPORT To the Board of Directors of Nordic American Tanker Shipping Limited Bermuda We have audited the accompanying balance sheets of Nordic American Tanker Shipping Limited as of December 31, 1998 and the related statements of operations, shareholders' equity and cash flows for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 Nordic American Tanker Shipping Limited as of December 31, 1998 and the results of its operations and its cash flows for the year ended December 31, 1998 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche March 24, 1999 Deloitte Touche Tohmatsu F-1
BALANCE SHEET AT DECEMBER 31. (all figures are in US dollars) ASSETS Current assets 1998 1997 Bank deposits Note 1 $3,637,758 $3,664,499 Bare-Boat -hire receivable 0 1,499,380 Prepaid finance costs Note 6 86,875 0 Prepaid insurance 83,333 95,836 ________ ________ Total current assets 3,807,966 5,259,715 Long term assets Vessels Note 3 162,237,124 169,068,163 ___________ ___________ Total long-term assets 162,237,124 169,068,163 TOTAL ASSETS 166,045,090 174,327,878 ___________ ___________ LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities 1998 1997 Dividend payable 0 1,181,385 Prepaid hire 0 3,645,000 Accounts payable Note 5 675,384 0 Accrued interest on Bank loan Note 6 43,781 0 ___________ ___________ Total Current Liabilities 719,165 4,826,385 Long-term liabilities Mortgage Loan Note 6 30,000,000 0 ___________ ___________ Total Long-term liabilities 30,000,000 0 ___________ ___________ Shareholders Equity Share Capital Note 7 97,066 118,138 Other Shareholders Equity Note 7 135,228,859 169,383,355 ___________ ___________ Total Shareholders Equity 135,325,925 169,501,493 F-2
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 166,045,090 174,327,878 ___________ ___________ F-3
PROFIT AND LOSS ACCOUNT (all figures are in US dollars) 1998 1997 Operating revenues $16,006,199 $5,265,880 Commissions paid (184,781) (47,081) Administrative expenses Note 2,4 (412,779) (461,674) Depreciation Note 3 (6,831,039) (1,707,807) ____________ ___________ Net operating income 8,577,600 3,049,318 Interest income 105,999 147,504 Accrued interest Bank Loan Note 6 (43,781) 0 Bank charges (10,306) (330) ____________ ___________ Net financial income 51,912 147,174 NET PROFIT BEFORE TAX 8,629,512 3,196,492 ____________ ___________ Tax expense 0 0 NET PROFIT FOR THE YEAR 8,629,512 3,196,492 ____________ ___________ F-4
STATEMENT OF CASH FLOW (all figures are in US dollars) 1998 1997 CASH FLOW FROM OPERATING ACTIVITIES Net profit (loss) $8,629,512 $3,196,492 Depreciation 6,831,039 1,707,807 Increase (decrease) in receivables and payables (2,682,212) 2,341,428 ____________ ___________ Net cash used in operating activities 12,778,339 7,245,727 ____________ ___________ CASH FLOW FROM INVESTING ACTIVITIES Investment in Vessels 0 (119,551,210) ____________ ___________ Cash flow used in investing activities 0 (119,551,210) ____________ ___________ CASH FLOW FROM FINANCING ACTIVITIES Proceeds from sale of common stock 0 119,442,862 Additional warrant issue costs (36,676) 0 Dividends paid (15,712,421) (3,544,155) Repurchase of B Stock 0 (12,000) Bank Loan 30,000,000 0 Repurchase of Common Stock (27,055,933) 0 ____________ ___________ Cash flow provided by financing activities (12,768,354) 115,886,707 ____________ ___________ NET (DECREASE) INCREASE IN CASH (26,691) 3,581,224 ____________ ___________ CASH AND CASH EQUIVALENT, BEGINNING OF YEAR 3,664,449 83,275 ____________ ___________ CASH AND CASH EQUIVALENT, END OF YEAR 3,637,758 3,664,499 ____________ ___________ F-5
NORDIC AMERICAN TANKER SHIPPING LIMITED NOTES TO FINANCIAL STATEMENTS PERIOD JANUARY 1, 1998 THROUGH DECEMBER 31, 1998 _________________________________________________ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash on Deposit - Cash and cash on deposit consists of all cash and demand deposits with a maturity of three months or less. Income and Expenses - The Company accounts for all income and expenses using the accrual method of accounting. Income taxes - The Company is not subject to taxation in the United States of America. 2. RELATED PARTY TRANSACTION The Company has entered into a management agreement with Ugland Nordic Shipping ASA (UNS) under which UNS will provide certain administrative, management and advisory services to the Company for an amount of $250,000 per year. In addition, a fee of $1.85 million was in 1995 paid by the Company to UNS on the date of the issuance of the warrants in consideration for certain of UNS' previous activities on behalf of the Company prior to the consummation of the offering. This fee was included as part of the offering costs in 1995. 3. DEPRECIATION Deprecitation 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. All vessels Total cost price in 1997 $ 170,775,970 Accumulated depreciation per January 1, 1998 $ 1,707,807 Depreciation January 1 through December 31, 1998 $ 6,831,039 ____________ Book value per December 31, 1998 $ 162,237,124 British Harrier Total cost price in 1997 $ 56,926,900 Accumulated depreciation per January 1, 1998 $ 569,269 F-6
Depreciation January 1 through December 31, 1998 $ 2,277,076 ____________ Book value per December 31, 1998 $ 54,080,555 British Hawk Total cost price in 1997 $ 56,926,900 Accumulated depreciation per January 1, 1998 $ 569,269 Depreciation January 1 through December 31, 1998 $ 2,277,076 ____________ Book value per December 31, 1998 $ 54,080,555 British Hunter Total cost price in 1997 $ 56,922,170 Accumulated depreciation per January 1, 1998 $ 569,269 Depreciation January 1 through December 31, 1998 $ 2,276,887 ____________ Book value per December 31, 1998 $ 54,076,014 4. ADMINISTRATIVE EXPENSES Management fee, Ugland Nordic Shipping ASA $ 250,000 Directors and officers insurance $ 112,503 Other fees and expenses $ 50,276 Total administrative expenses $ 412,779 5. ACCOUNTS PAYABLE The account payable of $675,384 is transaction costs from the repurchase of shares in 1998. The total cost was $715,383 of which $675,384 was outstanding as per December 31, 1998. 6. MORTGAGE LOAN, ACCRUED INTEREST, PREPAID FINANCE COSTS The Company has drawn upon a Loan of $ 30 mill with Den norske Bank, Oslo (DnB) to finance the repurchase of shares. 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% p.a. including the margin of 0.525% for the next 6 years. The swap agreement terminates on the final repayment date of the Loan, i.e. the 4th quarter of year 2004. The first fixture of the SWAP agreement will be in March 1999. The Company fixed the interest period for the first three months from December 1998 at LIBOR 5.3125%. Accrued interest at December 31, 1998 $30 mill, LIBOR 5.3125%, plus margin on Loan 0.525% for 9 F-7
days, $43,781. Prepaid finance costs In connection with the draw down of the Mortgage Loan of $30 mill, 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. STATEMENT OF SHAREHOLDERS EQUITY YEAR ENDED DECEMBER 31, 1998 AND 1997 Common Stock Class B Stock Issued Issued Other Shares Amount Shares Amount Equity __________ _______ _______ _______ ___________ BALANCE DECEMBER 31, 1996 82,237 822 12,000 12,000 51,586,857 __________________________________________________ Repurchase of B Stock -12,000 -12,000 Exercise of Warrants to Common Stock 11,731,613 117,316 119,662,453 Common Stock issue cost -336,907 Transfer from other equity 1) -1,529,048 __________ _______ _______ _______ ___________ BALANCE DECEMBER 31, 1997 11,813,850 118,138 0 0 169,383,355 __________ _______ _______ _______ ___________ Repurchase of Common Stock -2,107,244 -21,072 -26,319,478 Repurchase cost -715,383 Additional Warrant exercise cost -36,676 Transfer from other equity 1) -7,082,959 __________ _______ _______ _______ ___________ BALANCE DECEMBER 31, 1998 9,706,606 97,066 0 0 135,228,859 __________ _______ _______ _______ ___________ 1) This is part of the amount that the Company paid out of equity for dividends. As the Company distributes all available cash, its distributions may exceed its net profit. The Company has also paid additional capital transaction costs related to the warrant exercise and repurchase of shares in 1997 and 1998. * * * F-8
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. NORDIC AMERICAN TANKER SHIPPING LIMITED By: /s/ Herbjorn Hansson ________________________ Herbjorn Hansson President Dated: April 29, 1999 F-9 01318002.AW2