Nordic American Tankers (NAT) - 2019 Q4 - Annual Report

FORM 20-F Filing Information Overview of the company's annual report filing details for the fiscal year ended December 31, 2019 Filing Details This section outlines the company's Form 20-F annual report filing details for the fiscal year ended December 31, 2019, including its Bermuda incorporation, NYSE listing, and U.S. GAAP compliance - The filing is an Annual Report on Form 20-F for the fiscal year ended December 31, 2019[2] - Nordic American Tankers Limited is incorporated in Bermuda[2] - Common Shares ($0.01 par value) are traded on the New York Stock Exchange (NYSE) under the symbol NAT[3] Filing Key Metrics | Metric | Value | | :----- | :---- | | Outstanding Common Shares (as of Dec 31, 2019) | 147,230,634 | | Filer Status | Accelerated filer | | Accounting Standard | U.S. GAAP | Cautionary Statement Regarding Forward-Looking Statements This section provides a cautionary statement on forward-looking information, highlighting inherent uncertainties and factors that could cause actual results to differ Forward-Looking Statements Disclaimer This section emphasizes that forward-looking statements are subject to significant uncertainties and contingencies, with various factors potentially causing actual results to differ materially - Forward-looking statements are based on current views and assumptions, subject to significant uncertainties and contingencies[20][21] - Key factors that could cause actual results to differ include world economies, charter rate fluctuations, demand changes in the tanker market, operating expenses, financing availability, governmental regulations, and geopolitical conditions[22] PART I This part covers key company information, including financial data, risk factors, business overview, and management details ITEM 1. Identity of Directors, Senior Management and Advisers Information regarding the identity of directors, senior management, and advisers is not applicable in this section - Information for this item is not applicable[24] ITEM 2. Offer Statistics and Expected Timetable Information regarding offer statistics and expected timetable is not applicable - Information for this item is not applicable[24] ITEM 3. Key Information This section provides key financial data and a comprehensive overview of risk factors affecting the company and the tanker industry A. Selected Financial Data This section presents five-year selected financial data, highlighting fluctuations in voyage revenues, net operating income, net loss, and basic earnings per share Selected Financial Data (USD '000s) | Metric (USD '000s) | 2019 | 2018 | 2017 | 2016 | 2015 | | :------------------ | :--- | :--- | :--- | :--- | :--- | | Voyage Revenues | 317,220 | 289,016 | 297,141 | 357,451 | 445,738 | | Net Operating (Loss) Income | 31,971 | (38,616) | (175,690) | 53,341 | 128,093 | | Net (Loss) Income | (10,352) | (95,306) | (204,969) | (4,456) | 114,627 | | Basic Earnings (Loss) per Share | (0.07) | (0.67) | (1.97) | (0.05) | 1.29 | | Cash Dividends Declared per Share | 0.10 | 0.07 | 0.53 | 1.37 | 1.38 | | Net Cash Provided by (Used in) Operating Activities | 52,858 | (16,103) | 31,741 | 127,786 | 174,392 | | Total Assets | 1,030,903 | 1,071,111 | 1,141,063 | 1,349,904 | 1,239,194 | | Total Long-Term Debt | 375,364 | 417,836 | 388,855 | 442,820 | 324,568 | | Total Shareholders' Equity | 595,424 | 602,031 | 711,064 | 871,049 | 880,721 | B. Capitalization and Indebtedness Information regarding capitalization and indebtedness is not applicable - Information for this item is not applicable[28] C. Reasons for the offer and use of Proceeds Information regarding reasons for the offer and use of proceeds is not applicable - Information for this item is not applicable[29] D. Risk Factors The company faces risks from the cyclical tanker industry, global economic conditions, regulatory changes, operational challenges, debt covenants, cybersecurity, and complex tax regulations - The tanker industry is highly cyclical and volatile, with profitability, charter rates, and asset values influenced by supply and demand for tanker capacity and oil products[31] - Global economic conditions, political instability, terrorist attacks, and public health threats (e.g., COVID-19) can adversely impact business, operations, and financial results, including the ability to secure funding[46][56][60] - Compliance with numerous international and national environmental laws and regulations (e.g., OPA, MARPOL, IMO 2020) requires costly equipment and operational changes, potentially leading to significant liabilities for pollution incidents[70][82][83] - The company's reliance on spot charters makes it highly dependent on volatile spot market rates, which can adversely affect earnings and dividend payments[37][40] - Debt facilities contain restrictive covenants (e.g., minimum value-adjusted equity, liquidity, loan-to-vessel value ratio) that limit corporate activities and dividend payments, with potential for default if not met[125][128] - The company faces risks related to cybersecurity breaches, exchange rate fluctuations (especially USD to NOK), and complex U.S. federal income tax rules, including potential PFIC classification and taxation on U.S. source income[67][137][139][141] ITEM 4. Information on the Company This section provides a comprehensive overview of the company's history, business operations, fleet, market strategy, and the extensive regulatory environment governing the shipping industry A. History and Development of the Company This section outlines the company's history since 1995, fleet growth to 23 Suezmax vessels, its 'Nordic American System', recent fleet modernization, and 2019 debt refinancing and equity issuance - Nordic American Tankers Limited was formed on June 12, 1995, and its fleet currently consists of 23 Suezmax tankers[159][160] - The company operates under the 'Nordic American System,' characterized by a homogenous Suezmax fleet, transparent operations, and a conservative risk profile, aiming for sustainability in varying market conditions[162][163] - In 2018, the company sold 10 pre-2000 built vessels and took delivery of three newbuildings, modernizing its fleet to an average age of about 11.7 years[160][168] - In February 2019, NAT entered into a new five-year senior secured credit facility for $306.1 million, refinancing previous debt and securing it with 20 vessels[171] - The company raised $17.9 million net proceeds by issuing 5,260,968 common shares through an at-the-market (ATM) program in 2019[172] B. Business Overview This section details NAT's Suezmax fleet, market employment strategy, technical management, international tanker market analysis, extensive regulatory environment, insurance coverage, and competitive strategy Our Fleet The company operates a homogenous fleet of 23 Suezmax crude oil tankers, primarily employed in the spot market, with one on a longer-term time charter - The fleet consists of 23 Suezmax crude oil tankers, primarily built in Korea, with homogenous freight capacity[175] - Most vessels are employed in the spot market, with one on a longer-term time charter expiring in 2021 or later[175] Fleet Composition | Vessel | Built in | Deadweight Tons | Delivered to NAT in | | :--------------- | :------- | :-------------- | :---------------- | | Nordic Freedom | 2005 | 159,331 | 2005 | | Nordic Moon | 2002 | 160,305 | 2006 | | Nordic Apollo | 2003 | 159,998 | 2006 | | Nordic Cosmos | 2003 | 159,999 | 2006 | | Nordic Grace | 2002 | 149,921 | 2009 | | Nordic Mistral | 2002 | 164,236 | 2009 | | Nordic Passat | 2002 | 164,274 | 2010 | | Nordic Vega | 2010 | 163,940 | 2010 | | Nordic Breeze | 2011 | 158,597 | 2011 | | Nordic Zenith | 2011 | 158,645 | 2011 | | Nordic Sprinter | 2005 | 159,089 | 2014 | | Nordic Skier | 2005 | 159,089 | 2014 | | Nordic Light | 2010 | 158,475 | 2015 | | Nordic Cross | 2010 | 158,475 | 2015 | | Nordic Luna | 2004 | 150,037 | 2016 | | Nordic Castor | 2004 | 150,249 | 2016 | | Nordic Sirius | 2000 | 150,183 | 2016 | | Nordic Pollux | 2003 | 150,103 | 2016 | | Nordic Star | 2016 | 159,000 | 2016 | | Nordic Space | 2017 | 159,000 | 2017 | | Nordic Aquarius | 2018 | 157,000 | 2018 | | Nordic Cygnus | 2018 | 157,000 | 2018 | | Nordic Tellus | 2018 | 157,000 | 2018 | Employment of Our Fleet The company primarily employs its vessels in the spot market or on shorter-term time charters, with distinct revenue recognition and expense responsibilities for each type - Vessels are primarily employed in the spot market or on shorter-term time charters, with large international oil companies as key customers[178] - Spot charters involve the company paying voyage expenses and bearing market risk, with revenues recognized on a load-to-discharge basis[179] - Time charters make the charterer responsible for voyage expenses, while the company covers vessel operating expenses; revenues are recognized daily[181] Technical Management Technical management services for the company's vessels are provided by external firms, including V.Ships Norway AS, Columbia Shipmanagement Ltd, and Hellespont Ship Management GmbH & Co KG - Technical management is handled by V.Ships Norway AS, Columbia Shipmanagement Ltd, Cyprus, and Hellespont Ship Management GmbH & Co KG, Germany[182] The International Tanker Market The international tanker market saw significant improvement in 2019, with Suezmax earnings up 76.9%, driven by demand and geopolitical events, with a volatile 2020 outlook influenced by COVID-19 - The 2019 tanker market saw significant improvement, with Suezmax earnings averaging $30,600/day, a 76.9% increase from 2018[186] - Key drivers for 2019 rate increases included good demand growth, slowing delivery pace, the attack on a Saudi oil installation, and US sanctions on Cosco VLCCs[186][194] - The total crude oil and product tanker fleet grew 5.7% in 2019, with the Suezmax orderbook at 8.3% of the fleet at the beginning of 2020, the lowest since 1996[187][191] - The 2020 tanker market outlook is volatile; Q1 2020 Suezmax earnings decreased from Q4 2019, but March 2020 saw significant increases due to slumping oil prices, higher output, and demand for floating storage driven by the COVID-19 pandemic[195][197] Environmental and Other Regulations in the Shipping Industry The shipping industry is heavily regulated by international and national laws, imposing stringent standards for emissions, ballast water, safety, and security, requiring significant compliance expenditures and risk management systems - The company's operations are subject to extensive international conventions and treaties (e.g., MARPOL, SOLAS, BWM Convention) and national laws (e.g., U.S. OPA, CERCLA, CWA) related to safety, health, and environmental protection[198][201][219][229] - IMO 2020 regulations, effective January 1, 2020, mandate a 0.50% global sulfur cap on emissions, requiring the use of low-sulfur fuels or exhaust gas cleaning systems, leading to increased fuel costs[204] - The BWM Convention, effective September 8, 2017, requires ships to manage ballast water to prevent invasive species, with all ships needing to meet the D-2 standard by September 8, 2024, potentially incurring substantial compliance costs[219][220] - U.S. regulations like OPA and CERCLA impose strict, joint, and several liability for oil and hazardous substance discharges, with statutory caps that do not apply in cases of gross negligence or willful misconduct[229][230][231][232] - The ISM Code requires extensive safety management systems, and the ISPS Code mandates security measures to protect against terrorism, with non-compliance potentially leading to increased liability or denial of port access[212][252] - Emerging cybersecurity regulations for the maritime industry will require cyber-risk management systems by 2021, potentially leading to additional expenses[218] Risk of Loss and Liability Insurance The company maintains comprehensive insurance coverage, including marine hull and machinery, war risk, and P&I insurance, to mitigate operational risks and potential liabilities, with P&I pollution coverage of $1 billion per vessel per incident - The company maintains marine hull and machinery, war risk, and protection and indemnity (P&I) insurance to cover operational risks[259][260] - P&I insurance covers third-party liabilities, including pollution risks, with coverage of $1 billion per vessel per incident[260] - The International Group of P&I Associations provides a pooling mechanism for claims exceeding $10 million, up to approximately $8.0 billion[260] Competition The company operates in a highly competitive Suezmax tanker market, competing on factors such as price, vessel characteristics, and operator reputation against major oil companies and independent tanker companies - The company operates in a highly competitive Suezmax tanker market, competing on price, vessel location, size, age, condition, and reputation[261] - Competitors include major oil companies and independent tanker companies, some with substantially greater resources[261] Permits and Authorizations The company holds all necessary governmental and quasi-governmental permits, licenses, and certificates for its vessels, while acknowledging potential future regulatory impacts - The company holds all necessary permits, licenses, and certificates for its vessels to operate[263] - Additional laws and regulations could limit business or increase operating costs[263] Seasonality Historically, tanker charter rates exhibited seasonality, increasing in winter due to higher oil demand, and while less dependent on heating oil, seasonal variations still influence spot market rates - Historically, tanker charter rates increased in winter and eased in summer due to seasonal oil demand[264] - The industry is less dependent on heating oil, but seasonal variations still impact spot market rates[264] C. Organizational Structure Nordic American Tankers Limited, incorporated in Bermuda, owns vessels directly and through its subsidiary NAT Bermuda Holdings Ltd, with other subsidiaries providing management services - The company was incorporated in Bermuda on June 12, 1995[265] - Three vessels are owned directly by the parent company, and twenty vessels are owned through its wholly-owned subsidiary, NAT Bermuda Holdings Ltd (NATBH)[265] - Scandic American Shipping Ltd (Manager) and NAT Chartering (NATC) are wholly-owned subsidiaries providing technical and commercial management services[266][267] D. Property, Plant and Equipment The company's primary property, plant, and equipment consist of its fleet of vessels, which are mortgaged as collateral under its Credit Facility and financing agreements - The company's vessels are its primary property, plant, and equipment[268] - Vessels are mortgaged as collateral under the Credit Facility and financing agreements with Ocean Yield[268] ITEM 4A. Unresolved Staff Comments There are no unresolved staff comments to report - There are no unresolved staff comments[269] ITEM 5. Operating and Financial Review and Prospects This section provides a detailed analysis of the company's operating results, liquidity, and capital resources for 2019, 2018, and 2017, covering revenue, expenses, financing, cash flow, and critical accounting estimates A. Operating Results In 2019, Net Operating Income significantly improved to $32.0 million from a $38.6 million loss in 2018, driven by a 41.5% increase in Net Voyage Revenue and a 65.4% rise in TCE rate, with no vessel impairment loss Operating Results (USD '000s) | Metric | 2019 | 2018 | Variance (YoY) | | :-------------------------- | :--- | :--- | :------------- | | Voyage Revenue | 317,220 | 289,016 | 9.8% | | Voyage Expenses | (141,770) | (165,012) | (14.1%) | | Vessel Operating Expenses | (66,033) | (80,411) | (17.9%) | | General and Administrative Expenses | (13,481) | (12,727) | 5.9% | | Depreciation Expenses | (63,965) | (60,695) | 5.4% | | Net Operating (Loss) Income | 31,971 | (38,616) | (182.8%) | | Interest Expenses | (38,390) | (34,549) | 11.1% | | Other Financial Expenses | (4,231) | (14,808) | (71.4%) | | Net (Loss) Income | (10,352) | (95,306) | (89.1%) | Time Charter Equivalent (TCE) Rate | Metric | 2019 | 2018 | Variance (YoY) | | :-------------------- | :------- | :------- | :------------- | | Net Voyage Revenue (USD '000s) | 175,450 | 124,004 | 41.5% | | Vessel Calendar Days | 8,395 | 9,747 | (13.9%) | | Total TCE days | 8,102 | 9,470 | (14.4%) | | TCE Rate per day (USD) | 21,655 | 13,095 | 65.4% | - The increase in TCE rate by $8,560 (65.4%) was a primary driver for the 41.5% increase in net voyage revenues in 2019[277][278] - No impairment loss on vessels was recorded in 2019, compared to a $2.2 million loss in 2018 and $110.5 million in 2017[279][291] B. Liquidity and Capital Resources The company's liquidity strategy involves equity financing and debt facilities, including a new $306.1 million Senior Secured Credit Facility in 2019 and $119.9 million in newbuilding financing, with operating cash flows significantly improving to $52.9 million in 2019 - A new five-year $306.1 million Senior Secured Credit Facility was entered into on February 12, 2019, refinancing previous debt and maturing in February 2024[299] - The 2019 Credit Facility requires maintaining a minimum liquidity of $30.0 million and a loan-to-vessel value ratio of maximum 70%[299] - Three newbuildings delivered in 2018 were financed through Ocean Yield ASA, with $119.9 million outstanding as of December 31, 2019[302][303] Cash and Cash Equivalents (USD '000s) | Period | Amount | | :----- | :----- | | Dec 31, 2019 | 48,847 | | Dec 31, 2018 | 49,327 | Cash Flows (USD '000s) | Activity | 2019 | 2018 | Change | | :------------------------------------ | :----- | :----- | :----- | | Net Cash Provided by / (Used In) Operating Activities | 52,858 | (16,103) | +68,961 | | Net Cash (Used In) / Provided by Investing Activities | (2,319) | 85,054 | -87,373 | | Net Cash (Used In) / Provided by Financing Activities | (38,251) | (78,034) | +39,783 | - The company raised $17.9 million in net proceeds from an At-the-Market (ATM) program in 2019[306] C. Research and Development, Patents and Licenses, Etc. Information regarding research and development, patents, and licenses is not applicable - Information for this item is not applicable[312] D. Trend Information The oil tanker industry is highly cyclical, with charter hire rates and vessel values experiencing volatility due to changes in crude oil supply and demand - The oil tanker industry is highly cyclical, with volatile charter rates and vessel values driven by supply and demand for crude oil and tanker capacity[313] E. Off Balance Sheet Arrangements As of December 31, 2019, the company does not have any off-balance sheet arrangements - The company had no off-balance sheet arrangements as of December 31, 2019[314] F. Tabular Disclosure of Contractual Obligations As of December 31, 2019, the company's total contractual obligations amounted to $543.4 million, primarily consisting of its Senior Secured Credit Facility and 2018 Newbuildings financing Contractual Obligations as of December 31, 2019 (USD '000s) | Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :-------------------------------- | :---- | :--------------- | :-------- | :-------- | :---------------- | | Senior Secured Credit Facility (1) | 291,798 | 18,749 | 30,610 | 242,439 | - | | Interest Payments (2) | 82,255 | 21,690 | 39,624 | 20,941 | - | | Financing of 2018 Newbuildings (3) | 119,867 | 7,630 | 16,287 | 17,849 | 78,101 | | Interest Payments 2018 Newbuildings (4) | 47,517 | 7,674 | 13,739 | 11,526 | 14,578 | | Operating Lease Liabilities (5) | 1,937 | 500 | 638 | 587 | 212 | | Total | 543,374 | 56,243 | 100,898 | 293,342 | 92,891 | G. Safe Harbor This section refers to the 'Cautionary Statement Regarding Forward Looking Statements' for safe harbor provisions - Refers to the 'Cautionary Statement Regarding Forward Looking Statements' for safe harbor information[320] H. Critical Accounting Estimates The company's critical accounting estimates include revenues, voyage expenses, vessel impairment, vessels, and drydocking, with specific policies for revenue recognition, impairment assessment, depreciation, and capitalization of drydocking costs - The company adopted ASC 606 Revenue from Contracts with Customers in 2018, changing spot charter revenue recognition from a discharge-to-discharge to a load-to-discharge basis[322][325] - Vessel impairment is assessed on an individual vessel basis by comparing estimated undiscounted future cash flows to the carrying amount. No impairment loss was recorded in 2019[326][327] - Key assumptions for impairment estimates include charter rates (broker estimates for 2 years, 15-year historical average thereafter), fleet utilization, operating expenses, and a residual scrap value of $8.0 million per vessel[327][329][331] - Vessels are depreciated on a straight-line basis over an estimated useful life of 25 years, with a residual value of $8.0 million per vessel[339][340] - Eligible drydocking costs are capitalized and amortized on a straight-line basis from completion of a drydocking to the estimated completion of the next, typically every 30 to 60 months[341] ITEM 6. Directors, Senior Management and Employees This section outlines the company's leadership, compensation practices, and board governance, including directors, senior management, equity incentive plans, director compensation, and adherence to Bermuda law and NYSE exemptions A. Directors and Senior Management The company's Board of Directors and senior management include Chairman, CEO, and President Herbjørn Hansson, along with other directors and the Chief Financial Officer, whose biographies highlight extensive industry experience Directors and Senior Management | Name | Age | Position | | :--------------- | :-- | :------------------------------------------ | | Herbjørn Hansson | 72 | Chairman, Chief Executive Officer, President and Director | | David Workman | 58 | Director | | Richard H. K. Vietor | 74 | Director | | Alexander Hansson | 38 | Director | | Jim Kelly | 66 | Vice Chairman, Director and Audit Committee Member | | Bjørn Giaever | 52 | Chief Financial Officer | - Mr. Ugland, a director and Vice Chairman, and Audit Committee Chairman, passed away on March 6, 2020[345] B. Compensation The company's compensation structure includes an Amended and Restated 2011 Equity Incentive Plan, reserving 1,000,000 stock options in 2019, with 989,000 granted to management and directors, and the Executive Pension Plan settled for $11.0 million - The 2011 Equity Incentive Plan was amended in October 2019 to reserve an additional 1,000,000 stock options[356] - In October 2019, 755,000 and 234,000 stock options were granted with vesting over two and three years, respectively, and an exercise price of $4.70 per share[356] - Directors received an aggregate of $311,000 in cash fees for 2019, with additional compensation for the Vice Chairman and Audit Committee members[358] - The Executive Pension Plan for the Chairman, President, and CEO was settled in December 2019 for a payment of $11.0 million[359] C. Board Practices Directors serve one-year terms, and the Audit Committee consists of a single independent director; as a foreign private issuer, the company is exempt from certain NYSE corporate governance requirements - Directors serve one-year terms, and the Audit Committee consists of a single independent director, Mr. Kelly, who is the audit committee financial expert[361] - As a foreign private issuer, the company is exempt from certain NYSE corporate governance requirements, including executive sessions for non-management directors, a nominating/corporate governance committee, and a minimum of three independent audit committee members[362][535] D. Employees As of December 31, 2019, the company had a total of 20 full-time employees - The company had 20 full-time employees as of December 31, 2019[364] E. Share Ownership Information regarding the total amount of common shares owned by officers and directors is provided in Item 7. Major Shareholders and Related Party Transactions - Share ownership information for officers and directors is detailed in Item 7. Major Shareholders and Related Party Transactions[365] ITEM 7. Major Shareholders and Related Party Transactions This section details the company's major shareholders and transactions with related parties, including beneficial ownership, legal services, asset use agreements, equity incentive plan allocations, and investment in Hermitage Offshore Services Ltd A. Major Shareholders As of the annual report date, the Hansson family beneficially owned 2.98% of the common shares, with other directors and officers each owning less than 1% of the 147,230,634 common shares outstanding Beneficial Ownership of Common Shares (as of report date) | Identity of Person | No. of Shares | Percent of Class | | :----------------- | :------------ | :--------------- | | Hansson family | 4,380,659 | 2.98% | | Jim Kelly | * | * | | Richard Vietor | * | * | | David Workman | * | * | | Bjørn Giæver | * | * | Less than 1% of common outstanding shares. - As of the date of the annual report, there were 147,230,634 Common Shares outstanding[371] B. Related Party Transactions Related party transactions included legal services ($0.1 million in 2019) and asset use payments ($0.3 million in 2019), with the company's ownership in Hermitage Offshore Services Ltd (HOS) decreasing to 3.2% and its management agreement terminated - Legal services from Langangen & Helset Advokatfirma AS (associated with a former board member) incurred costs of $0.1 million in 2019[372] - Payments for asset use to a company owned by a Board member amounted to $0.3 million in 2019[373] - The company's ownership in Hermitage Offshore Services Ltd (HOS) decreased to approximately 3.2% by December 31, 2019, resulting in HOS no longer being a related party[379] - The management agreement for administrative services to HOS was terminated as of June 30, 2019[380] C. Interests of Experts and Counsel Information regarding interests of experts and counsel is not applicable - Information for this item is not applicable[383] ITEM 8. Financial Information This section refers to Item 18 for consolidated financial statements and provides information on legal proceedings and the company's dividend policy, including historical dividend payments A. Consolidated Statements and other Financial Information The company is not currently a party to any material lawsuits and maintains a policy of declaring quarterly dividends, with total dividends in 2019 amounting to $14.3 million, or $0.10 per share - The company is not currently a party to any lawsuits that would materially adversely affect its financial position, results of operations, or liquidity[385] - The company's policy is to declare quarterly dividends to shareholders, subject to Board discretion, available distributable reserves, borrowing agreements, and Bermuda law[386] Cash Dividends per Share | Period | 2019 | 2018 | 2017 | 2016 | 2015 | | :--------- | :--- | :--- | :--- | :--- | :--- | | 1st Quarter | $0.04 | $0.03 | $0.20 | $0.43 | $0.22 | | 2nd Quarter | $0.03 | $0.01 | $0.20 | $0.43 | $0.38 | | 3rd Quarter | $0.01 | $0.02 | $0.15 | $0.25 | $0.40 | | 4th Quarter | $0.02 | $0.01 | $0.03 | $0.26 | $0.38 | | Total | $0.10 | $0.07 | $0.58 | $1.37 | $1.38 | *Includes $0.05 per share distributed as dividend-in-kind. - A dividend of $0.07 per share for Q4 2019 was declared and paid on March 16, 2020[388] B. Significant Changes There are no significant changes to report - Information for this item is not applicable[389] ITEM 9. The Offer and Listing The company's common shares have been primarily traded on the New York Stock Exchange (NYSE) under the symbol "NAT" since November 16, 2004 - The company's common shares are listed on the NYSE under the symbol "NAT" since November 16, 2004[392] ITEM 10. Additional Information This section provides additional information on the company's share capital, governing documents, material contracts, exchange controls, and a comprehensive overview of taxation under Bermuda and U.S. federal laws A. Share Capital Information regarding share capital is not applicable in this section - Information for this item is not applicable[392] B. Memorandum and Articles of Association The company's governing documents define its authorized capital (360,000,000 common shares at $0.01 par value), corporate powers, and governance, including Board structure, shareholder voting rights, dividend declaration, and an anti-takeover Shareholder Rights Agreement - Authorized capital consists of 360,000,000 common shares with a par value of $0.01 per share[393] - The Board of Directors must consist of at least three and no more than 11 directors, serving one-year terms[397] - Holders of common shares are entitled to one vote per share and can approve resolutions by a simple majority of votes cast[403] - The Board may declare and pay dividends or distributions out of contributed surplus[407] - A Shareholder Rights Agreement, adopted in June 2017, acts as an anti-takeover protection, imposing significant dilution penalties on any person or group acquiring 15% or more of outstanding common shares without Board approval[415][416] C. Material Contracts The 2019 Senior Secured Credit Facility, entered into on February 12, 2019, is identified as a material contract, with further details available in Item 5.B. Liquidity and Capital Resources - The 2019 Senior Secured Credit Facility, entered into on February 12, 2019, is a material contract[436] D. Exchange Controls The company is designated as a non-resident of Bermuda for exchange control purposes, allowing free transfer of shares and funds, and as an 'exempted company,' it is exempt from certain foreign ownership restrictions - The company is designated as a non-resident of Bermuda for exchange control purposes, allowing free transfer of shares between non-residents and unrestricted fund transfers[436][438] - As an 'exempted company,' it is exempt from Bermuda laws restricting foreign ownership but cannot participate in certain local business transactions without authorization[442] E. Taxation The company benefits from a Bermuda tax exemption until March 31, 2035, expects U.S. federal income tax exemption on U.S.-Source Shipping Income under Section 883, and believes it is not a Passive Foreign Investment Company (PFIC) for taxable years after 2004 - The company has a Bermuda tax exemption on profits, income, and capital gains until March 31, 2035[444] - The company expects to be exempt from U.S. federal income taxation on its U.S.-Source Shipping Income under Section 883 of the Code, believing it satisfies the Publicly-Traded Test[451][456][458] - The company believes it ceased to be a Passive Foreign Investment Company (PFIC) after 2004, based on its time and voyage chartering activities being characterized as services income[475] - U.S. Holders may treat dividends as 'qualified dividend income' subject to preferential tax rates if the company is not a PFIC. Special rules apply for PFIC status, including QEF and mark-to-market elections[469][476] - Non-U.S. Holders are generally not subject to U.S. federal income or withholding tax on dividends or gains, unless effectively connected with a U.S. trade or business[491][492] F. Dividends and Paying Agents Information regarding dividends and paying agents is not applicable in this section - Information for this item is not applicable[502] G. Statement by Experts Information regarding statements by experts is not applicable - Information for this item is not applicable[503] H. Documents on Display The company's SEC filings are available for inspection at the SEC's public reference facilities and on its website, with shareholders able to request copies at no cost - SEC filings are available on the SEC's website (www.sec.gov) and the **company's website (www.nat.bm)**[505](index=505&type=chunk) - Shareholders can request copies of filings at no cost[506] I. Subsidiary Information Information regarding subsidiary information is not applicable - Information for this item is not applicable[506] ITEM 11. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from variable interest rates and tanker spot market volatility, with a 100 basis point LIBOR increase impacting interest expense by $4.4 million and a $1,000 spot rate decrease reducing voyage revenue by $8.4 million in 2019 - The company is exposed to market risk from changes in interest rates on its variable-rate borrowings (LIBOR plus a margin)[507][508] - A 100 basis point increase in LIBOR would have increased interest expense by approximately $4.4 million in 2019[508] - The company is exposed to volatility in the spot market, with a $1,000 per day per vessel decrease in the spot rate estimated to reduce voyage revenue by approximately $8.4 million in 2019[509][510] ITEM 12. Description of Securities Other Than Equity Securities Information regarding the description of securities other than equity securities is not applicable - Information for this item is not applicable[511] PART II This part addresses defaults, controls and procedures, audit committee expertise, code of ethics, and principal accountant fees ITEM 13. Defaults, Dividend Arrearages and Delinquencies Information regarding defaults, dividend arrearages, and delinquencies is not applicable - Information for this item is not applicable[513] ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds Information regarding material modifications to the rights of security holders and use of proceeds is not applicable - Information for this item is not applicable[515] ITEM 15. Controls and Procedures This section details the company's disclosure controls and internal control over financial reporting, both deemed effective as of December 31, 2019, with an unqualified audit opinion and no material changes A. Disclosure Controls and Procedures. Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019 - Management concluded that disclosure controls and procedures were effective as of December 31, 2019[516] B. Management's Annual Report on Internal Control Over Financial Reporting. Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework - Management concluded that internal control over financial reporting was effective as of December 31, 2019[519] C. Attestation Report of the Registered Public Accounting Firm. KPMG AS issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2019 - KPMG AS issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2019[521] D. Changes in Internal Control Over Financial Reporting. There were no material changes in internal controls over financial reporting during the year covered by this annual report - No material changes in internal controls over financial reporting occurred during the year[522] ITEM 16. Reserved This item is reserved and contains no information - This item is reserved[523] ITEM 16A. Audit Committee Financial Expert Mr. Kelly, Chairman of the Audit Committee, is designated as an 'audit committee financial expert' and is independent under NYSE rules and SEC standards - Mr. Kelly, Chairman of the Audit Committee, is designated as an 'audit committee financial expert' and is independent[523] ITEM 16B. Code of Ethics The company has adopted a code of ethics applicable to all employees, including senior officers, with no substantive amendments or waivers made during 2019 - The company has adopted a code of ethics applicable to all employees, including senior officers[524] - No substantive amendments or waivers to the code of ethics were made or granted during the year ended December 31, 2019[524] ITEM 16C. Principal Accountant Fees and Services This section details the audit fees paid to KPMG AS for 2019 and 2018, and outlines the Audit Committee's policy for pre-approving all audit and non-audit services A. Audit Fees The aggregate fees billed by KPMG AS for audit services were $853,439 for 2019 and $901,429 for 2018 Audit Fees Billed by KPMG AS | Fiscal Year Ended December 31, | Amount | | :----------------------------- | :----- | | 2019 | $853,439 | | 2018 | $901,429 | B. Audit-Related Fees There were no audit-related fees incurred for 2019 or 2018 - No audit-related fees were incurred for 2019 or 2018[526] C. Tax Fees There were no tax fees incurred - No tax fees were incurred[526] D. All Other Fees There were no other fees incurred - No other fees were incurred[527] E. Audit Committee's Pre-Approval Policies and Procedures The Audit Committee pre-approves all audit, audit-related, and non-audit services, along with their associated fees, to be performed by the independent auditors - The Audit Committee pre-approves all audit, audit-related, and non-audit services and associated fees[529] F. Not applicable. This item is not applicable - This item is not applicable[530] ITEM 16D. Exemptions from the Listing Standards for Audit Committees There are no exemptions from the listing standards for audit committees - Information for this item is not applicable[531] ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Persons. Information regarding purchases of equity securities by the issuer and affiliated persons is not applicable - Information for this item is not applicable[532] ITEM 16F. Change in Registrant`s Certifying Accountant. There has been no change in the registrant's certifying accountant - Information for this item is not applicable[533] ITEM 16G. Corporate Governance As a foreign private issuer, the company is exempt from certain NYSE corporate governance standards, leading to differences in board structure and committee composition - As a foreign private issuer, the company is exempt from certain NYSE corporate governance standards[534] - Differences from NYSE standards include not regularly holding executive sessions for non-management directors, absence of a nominating/corporate governance committee, an Audit Committee with two independent members, and not adopting formal corporate governance guidelines[535] ITEM 16H. Mine Safety Disclosure Information regarding mine safety disclosure is not applicable - Information for this item is not applicable[536] PART III This part contains the company's audited consolidated financial statements and a list of all exhibits filed with the annual report ITEM 17. Financial Statements This item refers to Item 18 for the detailed financial statements - Refers to Item 18 for detailed financial statements[538] ITEM 18. Financial Statements This section presents the audited consolidated financial statements for 2019, 2018, and 2017, prepared under U.S. GAAP, including statements of operations, comprehensive loss, balance sheets, shareholders' equity, cash flows, and detailed notes Consolidated Statements of Operations The Consolidated Statements of Operations show a significant improvement in Net Operating Income to $32.0 million in 2019, with Net Loss reducing to $10.4 million and Basic and Diluted Loss per Share improving to ($0.07) Consolidated Statements of Operations (USD '000s) | Metric | 2019 | 2018 | 2017 | | :------------------------------------ | :--- | :--- | :--- | | Voyage Revenues | 317,220 | 289,016 | 297,141 | | Voyage Expenses | (141,770) | (165,012) | (142,465) | | Vessel Operating Expenses | (66,033) | (80,411) | (87,663) | | Net Operating Income (Loss) | 31,971 | (38,616) | (175,690) | | Net Loss | (10,352) | (95,306) | (204,969) | | Basic and Diluted Loss per Share | (0.07) | (0.67) | (1.97) | | Cash Dividends per Share | 0.10 | 0.07 | 0.53 | Consolidated Statements of Comprehensive Loss The Consolidated Statements of Comprehensive Loss show a total comprehensive loss of $10.4 million in 2019, a significant reduction from $95.4 million in 2018 and $205.1 million in 2017 Consolidated Statements of Comprehensive Loss (USD '000s) | Metric | 2019 | 2018 | 2017 | | :-------------------------- | :--- | :--- | :--- | | Net Loss | (10,352) | (95,306) | (204,969) | | Other Comprehensive Loss | (78) | (132) | (150) | | Total Comprehensive Loss | (10,430) | (95,438) | (205,119) | Consolidated Balance Sheets As of December 31, 2019, total assets were $1,030.9 million, a decrease from 2018, primarily due to reduced vessel carrying values, with total liabilities also decreasing and total shareholders' equity at $595.4 million Consolidated Balance Sheets (USD '000s) | Asset/Liability/Equity | Dec 31, 2019 | Dec 31, 2018 | | :----------------------------- | :----------- | :----------- | | Cash and Cash Equivalents | 48,847 | 49,327 | | Total Current Assets | 129,372 | 112,945 | | Vessels | 899,997 | 953,758 | | Total Assets | 1,030,903 | 1,071,111 | | Total Current Liabilities | 59,028 | 36,290 | | Long-Term Debt | 375,364 | 417,836 | | Deferred Compensation Liability | 153 | 14,954 | | Total Liabilities | 435,479 | 469,080 | | Total Shareholders' Equity | 595,424 | 602,031 | Consolidated Statements of Shareholders' Equity Total shareholders' equity decreased to $595.4 million in 2019, influenced by a net loss and dividends, partially offset by $17.9 million from common shares issued through an ATM program Consolidated Statements of Shareholders' Equity (USD '000s) | Metric | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | | :------------------------------------ | :----------- | :----------- | :----------- | | Total Shareholders' Equity | 595,424 | 602,031 | 711,064 | | Common Stock | 1,472 | 1,420 | 1,420 | | Additional Paid-In Capital | 38,499 | 123,852 | 123,439 | | Contributed Surplus | 567,202 | 786,881 | 796,817 | | Accumulated Deficit | (10,352) | (308,803) | (209,425) | | Net Loss | (10,352) | (95,306) | (204,969) | | Dividends Distributed | (14,255) | (9,936) | (59,136) | | Common Shares Issued, net | 17,922 | - | 103,748 | - A reduction of $103.4 million in Share Premium Fund was credited to Contributed Surplus in 2019, making funds eligible for distribution[671] - The company's Board of Directors transferred $308.8 million from Contributed Surplus to cover Accumulated Deficits as of December 31, 2018[674] Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $52.9 million in 2019, while investing cash flows decreased due to no vessel sales, and financing cash flows decreased due to new borrowings and equity issuance Consolidated Statements of Cash Flows (USD '000s) | Activity | 2019 | 2018 | 2017 | | :------------------------------------ | :--- | :--- | :--- | | Net Cash Provided by / (Used In) Operating Activities | 52,858 | (16,103) | 31,741 | | Net Cash (Used In) / Provided by Investing Activities | (2,319) | 85,054 | (46,526) | | Net Cash (Used In) / Provided by Financing Activities | (38,251) | (78,034) | (18,962) | | Net Increase / (Decrease) in Cash, Cash Equivalents, and Restricted Cash | 12,288 | (9,083) | (33,747) | | Cash, Cash Equivalents, and Restricted Cash at End of Year | 61,638 | 49,327 | 58,359 | - Cash provided by operating activities increased significantly in 2019 due to higher market rates and positive changes in working capital[308] - Investing cash flows decreased in 2019 due to no vessel disposals, compared to ten vessel disposals in 2018[309] - Financing cash flows decreased in 2019, with new borrowings and equity issuance partially offsetting debt repayments and increased dividends[310] Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies, critical estimates, revenue recognition changes (ASC 606), lease accounting (ASC 842), vessel impairment, debt facilities, and subsequent events, including the potential impact of COVID-19 - The company adopted ASC 606 (Revenue from Contracts with Customers) effective January 1, 2018, changing spot charter revenue recognition to a load-to-discharge basis[580][614] - ASC 842 (Leases) was adopted effective January 1, 2019, resulting in the recognition of a $1.9 million lease liability and a corresponding right-of-use asset for leased office space[610][611] - Vessels are stated at historical cost and depreciated over an estimated useful life of 25 years with a residual value of $8.0 million per vessel. No impairment loss was recorded in 2019[589][590][622][624] - The 2019 Senior Secured Credit Facility ($291.8 million outstanding) and 2018 Newbuildings financing ($119.9 million outstanding) are detailed, including covenants and amortization schedules[650][653][655] - Subsequent events include a $0.07 per share dividend for Q4 2019 (paid March 2020), a share buy-back program of up to 4.5 million shares (March 2020), and a $0.14 per share dividend for Q1 2020 (payable June 2020)[684][685] - The company has not yet experienced material negative impacts from COVID-19, but future financial effects cannot be reasonably estimated[686] ITEM 19. Exhibits This section lists all documents filed as exhibits to the annual report, including governing documents, management agreements, credit facilities, and certifications - The exhibits include governing documents (Memorandum of Association, By-Laws), Shareholder Rights Agreement, management agreements, credit facilities, and certifications[541][542]