Company Quick10K Filing
DHT Holdings
20-F 2019-12-31 Filed 2020-03-25
20-F 2018-12-31 Filed 2019-03-28
20-F 2017-12-31 Filed 2018-04-24
20-F 2016-12-31 Filed 2017-03-23
20-F 2015-12-31 Filed 2016-03-21
20-F 2014-12-31 Filed 2015-03-19
20-F 2013-12-31 Filed 2014-03-03
20-F 2012-12-31 Filed 2013-04-29
20-F 2011-12-31 Filed 2012-03-19
20-F 2010-12-31 Filed 2011-03-31
20-F 2009-12-31 Filed 2010-03-25

DHT 20F Annual Report

Item 17 O Item 18 O
Part I
Part II
Part III
Item 17. Financial Statements 74 Item 18. Financial Statements 74 Item 19. Exhibits 75
Part I
Item 1. Identity of Directors, Senior Management and Advisors
Item 2. Offer Statistics and Expected Time Table
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Stockholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
Note 1 - General Information
Note 2 - Significant Accounting Principles
Note 3 - Segment Information
Note 4 - Charter Arrangements
Note 5 - Earnings per Share
Note 6 - Vessels and Subsidiaries
Note 7 - Accounts Payable and Accrued Expenses
Note 8 - Financial Instruments
Note 9 - Financial Risk Management, Objectives and Policies
Note 10 - Stockholders' Equity and Dividend Payment
Note 11 - General & Administrative Expenses
Note 12 - Related Parties
Note 13 - Pensions
Note 14 - Tax
Note 15 - Condensed Financial Information of Dht Holdings, Inc. (Parent Company Only)
Note 16 - Events After The Balance Sheet Date
EX-8.1 ex8-1.htm
EX-12.1 ex12-1.htm
EX-12.2 ex12-2.htm
EX-13.1 ex13-1.htm
EX-23.1 ex23-1.htm
EX-23.2 ex23-2.htm

DHT Holdings Earnings 2013-12-31

Balance SheetIncome StatementCash Flow

20-F 1 form20f.htm ANNUAL REPORT form20f.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549 

FORM 20-F

(Mark One)
o
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, 2013

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________________ to _________________

OR
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report ________________

Commission file number:  001-32640

DHT HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
Republic of the Marshall Islands
(Jurisdiction of incorporation or organization)
Clarendon House
2 Church Street, Hamilton HM 11
Bermuda
(Address of principal executive offices)
Eirik Ubøe
Tel:  +1 (441) 299-4912
Clarendon House
2 Church Street, Hamilton HM 11
Bermuda
(Insert name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.01 per share
New York 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.

29,040,974 shares of common stock, par value $0.01 per share and 97,579 shares of Series B Participating Preferred Stock, par value $0.01 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨
No x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ¨
No x

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  o
Accelerated Filer  x
Non-accelerated Filer  o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 
International Financial Reporting Standards as issued by the
 
U.S. GAAP o
International Accounting Standards Board x
Other o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o
Item 18 o

If this report is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o
No x

 
 


 

 
 



 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 


 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 


 
 


INTRODUCTION AND USE OF CERTAIN TERMS

Explanatory Note

Unless we specify otherwise, all references in this report to “we,” “our,” “us,” “company”, “DHT” and “DHT Holdings” refer to DHT Holdings, Inc. and its subsidiaries and references to DHT Holdings, Inc. “common stock” are to our common registered shares and references to DHT Holdings, Inc., “Series A Participating Preferred Stock” is to our Series A Participating Preferred Stock, par value $0.01 per share and “Series B Participating Preferred Stock” is to our Series B Participating Preferred Stock, par value $0.01 per share.  All references in this report to “DHT Maritime” or “Maritime” refer to DHT Maritime, Inc., a wholly-owned subsidiary of DHT Holdings.  Our functional currency is the U.S. dollar.  All of our revenues and most of our operating costs are in U.S. dollars.  All references in this report to “$” and “dollars” refer to U.S. dollars.

Presentation of Financial Information

DHT Holdings prepares its consolidated financial statements in accordance with International Financial Reporting Standards, or “IFRS,” as issued by the International Accounting Standards Board, or “IASB.”

Certain Industry Terms

The following are definitions of certain terms that are commonly used in the tanker industry and in this report:

Term
Definition
   
ABS
American Bureau of Shipping, an American classification society.
   
Aframax
A medium size crude oil tanker of approximately 80,000 to 120,000 dwt. Aframaxes operate on many different trade routes, including in the Caribbean, the Atlantic, the North Sea and the Mediterranean. They are also used in ship-to-ship transfer of cargo in the US Gulf, typically from VLCCs for discharge in ports from which the larger tankers are restricted. Modern Aframaxes can generally transport from 500,000 to 800,000 barrels of crude oil.
   
annual survey
The inspection of a vessel pursuant to international conventions by a classification society surveyor, on behalf of the flag state, that takes place every year.
   
bareboat charter
A charter under which a charterer pays a fixed daily or monthly rate for a fixed period of time for use of the vessel. The charterer pays all voyage and vessel operating expenses, including vessel insurance. Bareboat charters are usually for a long term. Also referred to as a “demise charter.”
   
bunker
Fuel oil used to operate a vessel’s engines, generators and boilers.
   
charter
Contract for the use of a vessel, generally consisting of either a voyage, time or bareboat charter.
   
charterer
The company that hires a vessel pursuant to a charter.
   
charter hire
Money paid by a charterer to the ship-owner for the use of a vessel under a time charter or bareboat charter.
   
classification society
An independent society that certifies that a vessel has been built and maintained according to the society’s rules for that type of vessel and complies with the applicable rules and regulations of the country in which the vessel is registered, as well as the international conventions which that country has ratified. A vessel that receives its certification is referred to as being “in class” as of the date of issuance.
   
Contract of Affreightment
A contract of affreightment, or “COA,” is an agreement between an owner and a charterer that obligates the owner to provide a vessel to the charterer to move specific quantities of cargo over a stated time period, but without designating specific vessels or voyage schedules, thereby providing the owner greater operating flexibility than with voyage charters alone.
 
 
 
 
Term Definition
   
double hull
A hull construction design in which a vessel has an inner and outer side and bottom separated by void space, usually two meters in width.
   
drydocking
The removal of a vessel from the water for inspection and/or repair of those parts of a vessel which are below the water line. During drydockings, which are required to be carried out periodically, certain mandatory classification society inspections are carried out and relevant certifications issued. Drydockings are generally required once every 30 to 60 months.
   
dwt
Deadweight tons, which refers to the carrying capacity of a vessel by weight.
   
freight revenue
Money paid by a charterer to the ship-owner for the use of a vessel under a voyage charter.
   
hull
Shell or body of a ship.
   
IMO
International Maritime Organization, a United Nations agency that issues international regulations and standards for shipping.
   
interim survey
An inspection of a vessel by classification society surveyors that must be completed at least once during each five year period. Interim surveys performed after a vessel has reached the age of 15 years require a vessel to be drydocked.
   
lightering
Partially discharging a tanker’s cargo onto another tanker or barge.
   
LOOP
Louisiana Offshore Oil Port, Inc.
   
Lloyds
Lloyds Register, a U.K. classification society.
   
metric ton
A metric ton of 1,000 kilograms.
   
newbuilding
A new vessel under construction or just completed.
   
off hire
The period a vessel is unable to perform the services for which it is required under a time charter. Off hire periods typically include days spent undergoing repairs and Drydocking, whether or not scheduled.
   
OPA
U.S. Oil Pollution Act of 1990, as amended.
   
OPEC
Organization of Petroleum Exporting Countries, an international organization of oil-exporting developing nations that coordinates and unifies the petroleum policies of its member countries.
   
petroleum products
Refined crude oil products, such as fuel oils, gasoline and jet fuel.
   
Protection and Indemnity
(or “P&I”) Insurance
Insurance obtained through mutual associations, or “clubs,” formed by ship-owners to provide liability insurance protection against a large financial loss by one member through contribution towards that loss by all members. To a great extent, the risks are reinsured.
   
scrapping
The disposal of vessels by demolition for scrap metal.
   
special survey
An extensive inspection of a vessel by classification society surveyors that must be completed at least once during each five year period. Special surveys require a vessel to be drydocked.
 
 
 
 
Term Definition
   
spot market
The market for immediate chartering of a vessel, usually for single voyages.
   
Suezmax
A crude oil tanker of approximately 130,000 to 170,000 dwt. Modern Suezmaxes can generally transport about one million barrels of crude oil and operate on many different trade routes, including from West Africa to the United States.
   
tanker
A ship designed for the carriage of liquid cargoes in bulk with cargo space consisting of many tanks. Tankers carry a variety of products including crude oil, refined petroleum products, liquid chemicals and liquefied gas.
   
TCE
Time charter equivalent, a standard industry measure of the average daily revenue performance of a vessel. The TCE rate achieved on a given voyage is expressed in $/day and is generally calculated by subtracting voyage expenses, including bunker and port charges, from voyage revenue and dividing the net amount (time charter equivalent revenues) by the round-trip voyage duration.
   
time charter
A charter under which a customer pays a fixed daily or monthly rate for a fixed period of time for use of the vessel. Subject to any restrictions in the charter, the customer decides the type and quantity of cargo to be carried and the ports of loading and unloading. The customer pays the voyage expenses such as fuel, canal tolls, and port charges. The ship-owner pays all vessel operating expenses such as the management expenses, crew costs and vessel insurance.
   
time charterer
The company that hires a vessel pursuant to a time charter.
   
vessel operating expenses
The costs of operating a vessel that are incurred during a charter, primarily consisting of crew wages and associated costs, insurance premiums, lubricants and spare parts, and repair and maintenance costs. Vessel operating expenses exclude fuel and port charges, which are known as “voyage expenses.” For a time charter, the ship-owner pays vessel operating expenses. For a bareboat charter, the charterer pays vessel operating expenses.
   
VLCC
VLCC is the abbreviation for “very large crude carrier,” a large crude oil tanker of approximately 200,000 to 320,000 dwt. Modern VLCCs can generally transport two million barrels or more of crude oil. These vessels are mainly used on the longest (long haul) routes from the Arabian Gulf to North America, Europe, and Asia, and from West Africa to the United States and Far Eastern destinations.
   
voyage charter
A charter under which a ship-owner hires out a ship for a specific voyage between the loading port and the discharging port. The ship-owner is responsible for paying both ship operating expenses and voyage expenses. Typically, the customer is responsible for any delay at the loading or discharging ports. The ship-owner is paid freight on the basis of the cargo movement between ports. Also referred to as a spot charter.
   
voyage charterer
The company that hires a vessel pursuant to a voyage charter.
   
voyage expenses
Expenses incurred due to a vessel traveling to a destination, such as fuel cost and port charges.
   
Worldscale
Industry name for the Worldwide Tanker Nominal Freight Scale, which is published annually by the Worldscale Association as a rate reference for shipping companies, brokers and their customers engaged in the bulk shipping of oil in the international markets. Worldscale is a list of calculated rates for specific voyage itineraries for a standard vessel, as defined, using defined voyage cost assumptions such as vessel speed, fuel consumption and port costs. Actual market rates for voyage charters are usually quoted in terms of a percentage of Worldscale.
 
 
 
 
Term Definition
   
Worldscale Flat Rate
Base rates expressed in U.S. dollars per ton which apply to specific sea transportation routes, calculated to give the same return as Worldscale 100.
   
Worldscale Points
The freight rate negotiated for spot voyages expressed as a percentage of the Worldscale Flat Rate.
 
 
 

 

 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements and information relating to us that are based on beliefs of our management as well as assumptions made by us and information currently available to us, in particular under the headings “Item 4.  Information on the Company” and “Item 5.  Operating and Financial Review and Prospects.”  When used in this report, words such as “believe,” “intend,” “anticipate,” “estimate,” “project,” “forecast,” “plan,” “potential,” “will,” “may,” “should” and “expect” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.  These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties.  Given these uncertainties, you should not place undue reliance on these forward-looking statements.  We discuss many of these risks in this report in greater detail under the subheadings “Item 3.  Key Information─Risk Factors” and “Item 5.  Operating and Financial Review and Prospects─Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  These forward-looking statements represent our estimates and assumptions only as of the date of this report and are not intended to give any assurance as to future results.  Factors that might cause future results to differ include, but are not limited to, the following:

 
future payments of dividends and the availability of cash for payment of dividends;
 
   
 
future operating or financial results, including with respect to the amount of charter hire and freight revenue that we may receive from operating our vessels;
 
   
 
statements about future, pending or recent acquisitions, business strategy, areas of possible expansion and expected capital spending or operating expenses;
 
   
 
statements about tanker industry trends, including charter rates and vessel values and factors affecting vessel supply and demand;
 
   
 
expectations about the availability of vessels to purchase, the time which it may take to construct new vessels or vessels’ useful lives;
 
   
 
expectations about the availability of insurance on commercially reasonable terms;
 
   
 
DHT’s and its subsidiaries’ ability to comply with operating and financial covenants and to repay their debt under the secured credit facilities;
 
   
 
our ability to obtain additional financing and to obtain replacement charters for our vessels;
 
   
 
assumptions regarding interest rates;
     
 
changes in production of or demand for oil and petroleum products, either globally or in particular regions;
 
   
 
greater than anticipated levels of newbuilding orders or less than anticipated rates of scrapping of older vessels;
 
   
 
changes in trading patterns for particular commodities significantly impacting overall tonnage requirements;
 
   
 
changes in the rate of growth of the world and various regional economies;
 
   
 
risks incident to vessel operation, including discharge of pollutants; and
 
   
 
unanticipated changes in laws and regulations.

We undertake no obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise, except as required by law.  In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur, and our actual results could differ materially from those anticipated in these forward-looking statements.
 
 

 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

OFFER STATISTICS AND EXPECTED TIME TABLE

Not applicable.

KEY INFORMATION

 
A.
SELECTED FINANCIAL DATA

The following selected consolidated financial and other data summarize historical financial and other information for DHT Holdings for the period from January 1 through December 31, 2013, 2012, 2011, 2010 and 2009.  This information should be read in conjunction with other information presented in this report, including “Item 5.  Operating and Financial Review and Prospects—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 
 
Year Ended
December 31,
 
 
Year Ended
December 31,
 
 
Year Ended
December 31,
 
 
Year Ended
December 31,
 
 
Year Ended
December 31,
 
 
 
2013
 
 
2012
 
 
2011
 
 
2010
 
 
2009
 
 
 
(in thousands, except per share data and fleet data)
 
Statement of operations data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shipping revenues
 
$
87,012
 
 
$
97,194
 
 
$
100,123
 
 
$
89,681
 
 
$
102,576
 
Voyage expenses
 
 
25,400
 
 
 
10,822
 
 
 
1,286
 
 
 
-
 
 
 
-
 
Total operating expenses (1)
 
 
60,605
 
 
 
175,876
 
 
 
132,391
 
 
 
66,482
 
 
 
61,384
 
Operating income
 
 
1,007
 
 
 
(89,504
)
 
 
(33,554
)
 
 
23,199
 
 
 
41,192
 
Net income / (loss) after tax
 
 
(4,126
)
 
 
(94,054
)
 
 
(40,272
)
 
 
6,377
 
 
 
16,846
 
Net income per share – basic and diluted (2)
 
$
(0.24
)
 
$
(7.83
)
 
$
(7.70
)
 
$
1.57
 
 
$
4.36
 
Balance sheet data (at end of year):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vessels
 
 
263,142
 
 
 
310,023
 
 
 
454,542
 
 
 
412,744
 
 
 
441,036
 
Total assets
 
 
446,599
 
 
 
399,759
 
 
 
504,557
 
 
 
480,855
 
 
 
517,971
 
Total current liabilities
 
 
5,800
 
 
 
16,125
 
 
 
33,959
 
 
 
15,602
 
 
 
25,927
 
Total non-current liabilities
 
 
156,046
 
 
 
202,637
 
 
 
264,150
 
 
 
268,912
 
 
 
300,120
 
Common stock
 
 
290
 
 
 
91
 
 
 
54
 
 
 
41
 
 
 
41
 
Total stockholders’ equity
 
 
284,753
 
 
 
180,997
 
 
 
206,448
 
 
 
196,341
 
 
 
191,924
 
Weighted average number of shares (basic) (2)
 
 
17,541,310
 
 
 
12,012,133
 
 
 
5,229,019
 
 
 
4,064,689
 
 
 
3,860,117
 
Weighted average number of shares (diluted) (2)
 
 
17,555,110
 
 
 
12,012,133
 
 
 
5,230,157
 
 
 
4,064,967
 
 
 
3,860,117
 
Dividends declared per share (3)
 
$
0.08
 
 
$
0.86
 
 
$
3.96
 
 
$
3.60
 
 
$
6.60
 
Cash flow data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
 
23,902
 
 
 
21,192
 
 
 
44,331
 
 
 
34,266
 
 
 
54,604
 
Net cash (used in) investing activities
 
 
(16,945)
 
 
 
9,820
 
 
 
(123,204
)
 
 
(5,620
)
 
 
(5,411
)
Net cash provided by/(used in) financing activities
 
 
47,806
 
 
 
(2,333
)
 
 
62,926
 
 
 
(42,741
)
 
 
(35,549
)
Fleet data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of tankers owned and chartered in (at end of period)
 
 
8
 
 
 
9
 
 
 
12
 
 
 
9
 
 
 
9
 
Revenue days (4)
 
 
2,986
 
 
 
3,772
 
 
 
3,949
 
 
 
3,229
 
 
 
3,138
 
 
 

 
(1)
2012 and 2011 include a non-cash impairment charge of $100.5 million and $56.0 million, respectively, and 2013 and 2012 include loss from sale of vessels of $0.7 million and $2.2 million, respectively.
 
 
(2)
Number of shares for each of the years from 2009 to 2012 has been adjusted for the reverse stock split at a ratio of 12-for-1 that became effective after the close of trading on July 16, 2012 and the number of shares for 2012 assumes the full exchange of all issued and outstanding shares of our Series A Participating Preferred Stock, par value $0.01 per share, into common stock.
 
 
(3)
Dividend per common stock. For 2013 and 2012, we also declared a dividend of $0.78 and $7.08 per share of Series A Participating Preferred Stock, respectively. Dividends for the years from 2009 to 2011 have been adjusted for the reverse stock split at a ratio of 12-for-1 that became effective after the close of trading on July 16, 2012.
 
 
(4)
Revenue days consist of the aggregate number of calendar days in a period in which our vessels are owned by us or chartered in by us less days on which a vessel is off hire. Off hire days are days a vessel is unable to perform the services for which it is required under a time charter or according to pool rules. Off hire days include days spent undergoing repairs and drydockings, whether or not scheduled.

 
B.
CAPITALIZATION AND INDEBTEDNESS

Not applicable.

 
C.
REASONS FOR THE OFFER AND USE OF THE PROCEEDS

Not applicable.

 
D.
RISK FACTORS

If the events discussed in these Risk Factors occur, our business, financial condition, results of operations or cash flows could be materially, adversely affected.  In such a case, the market price of our common stock could decline.

RISKS RELATING TO OUR COMPANY

A renewed contraction or worsening of the global credit markets and the resulting volatility in the financial markets could have a material adverse impact on credit availability, world oil demand and demand for our vessels, which could adversely affect our results of operations, financial condition and cash flows, and could cause the market price of our common stock to decline.

Since 2008, a number of major financial institutions have experienced serious financial difficulties and, in some cases, have entered into restructurings, bankruptcy proceedings or are in regulatory enforcement actions.  These difficulties have resulted, in part, from declining markets for assets held by such institutions, particularly the reduction in the value of their mortgage and asset-backed securities portfolios.  These difficulties have been compounded by a general decline in the willingness by banks and other financial institutions to extend credit due to historically volatile asset values of vessels.  While we have seen improvement in the health of financial institutions and the willingness of financial institutions to extend credit to companies in the shipping industry, there is no guarantee that credit will be available to us going forward.  As the shipping industry is highly dependent on the availability of credit to finance and expand operations, we may be adversely affected by this decline.

There is still considerable instability in the world economy that could initiate a new economic downturn and result in tightening in the credit markets, low levels of liquidity in financial markets and volatility in credit and equity markets.  A renewal of the financial crisis that affected the banking system and the financial markets over the past six years may adversely impact our business and financial condition in ways that we cannot predict.  In addition, the uncertainty about current and future global economic conditions caused by a renewed financial crisis may cause our customers to defer projects in response to tighter credit, decreased cash availability and declining confidence, which may negatively impact the demand for our vessels.

We are subject to certain risks with respect to our newbuilding agreements and failure of our counterparty to meet their obligations could cause us to suffer losses or otherwise adversely affect our business.

We have entered into agreements with Hyundai Heavy Industries Co. Ltd. (“HHI”) to construct six VLCC newbuildings. Our newbuilding agreements subject us to counterparty risk with HHI.  The ability of HHI to perform its obligations under the newbuilding agreements will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the overall financial condition of the counterparty and various expenses. Should HHI fail to honor its obligations under its agreements with us, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Also, if we are unable to enforce certain refund guarantees related to the newbuilding agreements with HHI with third party banks for any reason, we may lose all or part of our advance deposits in the newbuildings, which would have a material adverse effect on our results of operations, financial condition and cash flows.

We may not pay dividends in the future.

The timing and amount of future dividends for our common stock or preferred stock, if any, could be affected by various factors, including our earnings, financial condition and anticipated cash requirements, the loss of a vessel, the acquisition of one or more vessels, required capital expenditures, reserves established by our board of directors, increased or unanticipated expenses, including insurance premiums, a change in our dividend policy, increased borrowings, increased interest payments to service our borrowings, prepayments under credit agreements in order to stay in compliance with covenants in the secured credit facilities, future issuances of securities or the other risks described in this section of this report, many of which may be beyond our control.
 
 

 
In addition, our dividends are subject to change at any time at the discretion of our board of directors and our board of directors may elect to change our dividends by establishing a reserve for, among other things, the repayment of the secured credit facilities or to help fund the acquisition of a vessel.  Our board of directors may also decide to establish a reserve to repay indebtedness if, as the maturity dates of our indebtedness approach, we are no longer able to generate cash flows from our operating activities in amounts sufficient to meet our debt obligations and it becomes clear that refinancing terms, or the terms of a vessel sale, are unacceptable or inadequate.  If our board of directors were to establish such a reserve, the amount of cash available for dividend payments would decrease by the amount of the reserve.  In addition, our ability to pay dividends is limited by Marshall Islands law.  Marshall Islands law generally prohibits the payment of dividends other than from surplus and while a company is insolvent or if a company would be rendered insolvent by the payment of such dividends.

Restrictive covenants in the secured credit facilities may impose financial and other restrictions on us and our subsidiaries.

We are a holding company and have no significant assets other than cash and the equity interests in our subsidiaries except that as of December 31, 2013, DHT Holdings had made total payments of $37.1 million related to advances for vessels under construction.  Our subsidiaries own all of our vessels.  As of February 10, 2014, our subsidiaries have entered into four secured credit facilities (the “secured credit facilities”), each secured by mortgages over certain vessels owned by our subsidiaries.  The secured credit facilities impose certain operating and financial restrictions on us and our subsidiaries.  These restrictions may limit our and our subsidiaries’ ability to, among other things:  pay dividends, incur additional indebtedness, change the management of vessels, permit liens on their assets, sell vessels, merge or consolidate with, or transfer all or substantially all of their assets to, another person, enter into certain types of charters and enter into a line of business.

Therefore, we may need to seek permission from the lenders under the respective secured credit facilities in order to engage in certain corporate actions.  The lenders’ interests may be different from ours and we cannot guarantee that we will be able to obtain their permission when needed.

If we fail to comply with certain covenants, including as a result of declining vessel values, or are unable to meet our debt obligations under the secured credit facilities, our lenders could declare their debt to be immediately due and payable and foreclose on our vessels.

Our obligations under the secured credit facilities include financial and operating covenants, including requirements to maintain specified “value-to-loan” ratios.  Such ratios are summarized as follows:

 
DHT Phoenix, Inc.’s secured credit facility with DVB Bank, as amended the “DHT Phoenix Credit Facility”, requires that until and including December 31, 2014, the charter-free market value of the vessel that secures DHT Phoenix, Inc.’s obligations under the credit facility be no less than 120% of its borrowings under the credit facility plus the actual or notional cost of terminating any interest rates swaps and no less than 130% at any other time;
     
 
DHT Eagle, Inc.’s secured credit facility with DNB Bank ASA (“DNB”), as amended the “DHT Eagle Credit Facility”, requires that until and including December 31, 2014, the charter-free market value of the vessel that secures DHT Eagle, Inc.’s obligations under the credit facility be no less than 120% of its borrowings under the credit facility plus the actual or notional cost of terminating any interest rates swaps and no less than 130% at any other time; and
     
 
the DHT Falcon and DHT Hawk Credit Facility (as defined below) requires that, at all times, the charter-free market value of the vessels that secure DHT Falcon Limited and DHT Hawk Limited’s obligations under the credit facility be no less than 135% of the borrowings under the credit facility.

 
Though we are currently compliant with such ratios under the secured credit facilities, vessel values have generally experienced a significant decline over the last few years.  If vessel values continue to decline further, we could be required to make additional repayments under certain of the secured credit facilities in order to remain in compliance with the value-to-loan ratios.

If we breach these or other covenants contained in the secured credit facilities or we are otherwise unable to meet our debt obligations for any reason, our lenders could declare their debt, together with accrued interest and fees, to be immediately due and payable and foreclose on those of our vessels securing the applicable facility, which could result in the acceleration of other indebtedness we may have at such time and the commencement of similar foreclosure proceedings by other lenders.
 
 

 
We cannot assure you that we will be able to refinance our indebtedness incurred under the secured credit facilities.

In the event that we are unable to service our debt obligations out of our operating activities, we may need to refinance our indebtedness and we cannot assure you that we will be able to do so on terms that are acceptable to us or at all.  The actual or perceived tanker market rate environment and prospects and the market value of our fleet, among other things, may materially affect our ability to obtain new debt financing.  If we are unable to refinance our indebtedness, we may choose to issue securities or sell certain of our assets in order to satisfy our debt obligations.

We cannot assure you that we will be able to obtain financing with respect to our newbuildings.

We will need to secure debt or equity financing to fully fund the remaining balance of our obligations related to our newbuildings ordered at HHI. If the required financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due, which could cause us to default on the newbuilding agreements with HHI and could prevent HHI from delivering the newbuildings, which would have an adverse effect on our operations, financial condition and cash flows.

We are dependent on performance by our charterers.

As of December 31, 2013, six of our eight vessels currently in operation are on charters for periods of up to 18 months of which five vessels are on fixed rate charter and one vessel is on a charter with earnings related to an index.  In the past, a greater percentage of our vessels have been on charter.  We are dependent on the performance by the charterers of their obligations under the charters.  Any failure by the charterers to perform their obligations could materially and adversely affect our business, financial position and cash available for the payment of dividends.  Our stockholders do not have any direct recourse against our charterers.

The indexes used to calculate the earnings for vessels on index based charters may in the future no longer correctly reflect the earnings potential of the vessels.

The indexes used to calculate the earnings for vessels on index based charters may in the future no longer correctly reflect the earnings potential of the vessels due to changing trading patterns or other factors not controlled by us.  If an index used to calculate the earnings for a vessel on an index based charter incorrectly reflect the earnings potential of a vessel on such charter, this could have an adverse affect on our results of operations and our ability to pay dividends.

We may have difficulty managing our planned growth.

We intend to continue to grow our fleet by acquiring additional vessels in the future.  Our future growth will primarily depend on:

 
locating and acquiring suitable vessels;
     
 
identifying and consummating vessel acquisitions, acquisitions of companies or joint ventures;
     
 
adequately employing any acquired vessels;
     
 
managing our expansion; and
     
 
obtaining required equity and debt financing on acceptable terms.

Growing any business by acquisition presents numerous risks, such as undisclosed liabilities and obligations, the possibility that indemnification agreements will be unenforceable or insufficient to cover potential losses and difficulties associated with imposing common standards, controls, procedures and policies, obtaining additional qualified personnel, managing relationships with customers and integrating newly acquired assets and operations into existing infrastructure.  We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant expenses and losses in connection with our future growth.

We may not be able to re-charter or employ our vessels profitably.

As of December 31, 2013, six of our vessels are currently on charters with five different charterers for periods of up to 18 months.  At the expiry of these charters, we may not be able to re-charter our vessels on terms similar to the terms of our charters.  We may also employ the vessels on the spot charter market, which is subject to greater rate volatility than the long-term time charter market.  If we receive lower charter rates under replacement charters or are unable to re-charter our vessels, the amounts that we have available, if any, to pay distributions to our stockholders may be significantly reduced or eliminated.

Our vessel that currently operates in a pool may cease operating in that pool.

One of our VLCCs currently participates in the Tankers International Pool.  In a pooling arrangement, the net revenues generated by all of the vessels in a pool are aggregated and distributed to pool members pursuant to a pre-arranged weighting system that recognizes each vessel’s earnings capacity based on its cargo capacity, speed and consumption, and actual on-hire performance.  Pooling arrangements are intended to maximize tanker utilization.  We cannot assure you that the vessel that currently participates in a pool will continue to participate in a pool or that any additional vessels we acquire would operate in pools.  In addition, the European Union has adopted rules which substantially reform the way it regulates traditional agreements for maritime services from an antitrust perspective.  These changes may alter the way the pools are operated.  If for any reason our vessel ceases to participate in a pooling arrangement or the pooling arrangement is significantly restricted, its utilization rate could fall and the net revenues paid to us by the pool could decrease, which could have an adverse affect on our results of operations and our ability to pay dividends.
 
 

 
Under the technical ship management agreements for our vessels, our operating costs could materially increase.

The technical management of our vessels is handled by a third party.  Under our technical ship management agreements, we pay the actual cost related to the technical management of our vessels, plus an additional management fee.  The amounts that we have available, if any, to pay distributions to our stockholders could be significantly impacted by changes in the cost of operating our vessels.

When a tanker changes ownership or technical management, it may lose customer approvals.

Most users of seaborne oil transportation services will require vetting of a vessel before it is approved to service their account.  This represents a risk to our company as it may be difficult to efficiently employ the vessel until such vettings are in place.  Most users of seaborne oil transportation services conduct inspection and assessment of vessels on request from owners and technical managers.  Such inspections must be carried out regularly for a vessel to have valid approvals from such users of seaborne oil transportation services.  Whenever a vessel changes ownership or its technical manager, it loses its approval status and must be re-inspected and re-assessed by such users of seaborne oil transportation services.

We are a holding company and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial and other obligations.

We are a holding company and have no significant assets other than cash and the share holdings in our subsidiaries.  Our ability to pay dividends depends on the performance of our subsidiaries and their ability to distribute funds to us.  Our ability or the ability of our subsidiaries to make these distributions are subject to restrictions contained in our subsidiaries’ financing agreements and could be affected by a claim or other action by a third party, including a creditor, or by Marshall Islands law which regulates the payment of dividends by companies.  If we are unable to obtain funds from our subsidiaries, we may not be able to pay dividends.

Certain adverse U.S. federal income tax consequences could arise for U.S. stockholders.

A non-U.S. corporation will be treated as a “passive foreign investment company” (a “PFIC”) for U.S. federal income tax purposes if either (i) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (ii) at least 50% of the average value of the corporation’s assets are “passive assets”, or assets that produce or are held for the production of “passive income”. “Passive income” includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income”.

We believe it is more likely than not that the gross income we derive or are deemed to derive from our time chartering activities is properly treated as services income, rather than rental income. Assuming this is correct, our income from our time chartering activities would not constitute “passive income”, and the assets we own and operate in connection with the production of that income would not constitute passive assets. Consequently, based on our actual and projected income, assets and activities, we believe that it is more likely than not that we are not currently a PFIC and will not become a PFIC in the foreseeable future.

There is substantial legal authority supporting the position that we are not a PFIC consisting of case law and U.S. Internal Revenue Service (the “IRS”) pronouncements concerning the characterization of income derived from time charters as services income for other tax purposes. Nonetheless, it should be noted that there is legal uncertainty in this regard because the U.S. Court of Appeals for the Fifth Circuit has held that, for purposes of a different set of rules under the U.S. Internal Revenue Code of 1986, as amended (the “Code”) income derived from certain time chartering activities should be treated as rental income rather than services income. However, the IRS has stated that it disagrees with the holding of this Fifth Circuit case, and that income derived from time chartering activities should be treated as services income. We have not sought, and we do not expect to seek, an IRS ruling on this matter. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. No assurance can be given that this result will not occur. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any taxable year, no assurance can be given that the nature of our operations will not change in the future, or that we will be able to avoid PFIC status in the future.

If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. stockholders will face adverse U.S. federal income tax consequences.  In particular, U.S. stockholders who are individuals would not be eligible for the maximum 20% preferential tax rate on qualified dividends.  In addition, under the PFIC rules, unless U.S. stockholders make certain elections available under the Code, such stockholders would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income upon the receipt of excess distributions and upon any gain from the disposition of our common stock, with interest payable on such tax liability as if the excess distribution or gain had been recognized ratably over the stockholder’s holding period of such stock.  The maximum 20% preferential tax rate for individuals would not be available for this calculation.

Our operating income could fail to qualify for an exemption from U.S. federal income taxation, which will reduce our cash flow.

Under the Code, 50% of our gross income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as U.S. source gross transportation income and is subject to a 4% U.S. federal income tax without allowance for any deductions, unless we qualify for exemption from such tax under Section 883 of the Code.  Based on our review of the applicable Securities and Exchange Commission documents, we believe that we currently qualify for this statutory tax exemption and we will take this position for U.S. federal income tax return reporting purposes.
 
 
 
 
However, there are factual circumstances that could cause us to lose the benefit of this tax exemption in the future, and there is a risk that those factual circumstances could arise in 2014 or future years. For instance, we might not qualify for this exemption if our common stock no longer represents more than 50% of the total combined voting power of all classes of our stock entitled to vote or of the total value of our outstanding stock. In addition, we might not qualify if holders of our common stock owning a 5% or greater interest in our stock were to collectively own 50% or more of the outstanding shares of our common stock on more than half the days during the taxable year.

If we are not entitled to this exemption for a taxable year, we would be subject in that year to a 4% U.S. federal income tax on our U.S. source gross transportation income.  This could have a negative effect on our business and would result in decreased earnings available for distribution to our stockholders.
 
We may be subject to taxation in Norway, which could have a material adverse effect on our results of operations and would subject dividends paid by us to Norwegian withholding taxes.

If we were considered to be a resident of Norway or to have a permanent establishment in Norway, all or a part of our profits could be subject to Norwegian corporate tax. We operate in a manner so that we do not have a permanent establishment in Norway and so that we are not deemed to reside in Norway, including by having our principal place of business outside Norway. Material decisions regarding our business or affairs are made, and our board of directors meetings are held, outside Norway and generally at our principal place of business. However, because one of our directors resides in Norway and we have entered into a management agreement with our Norwegian subsidiary, DHT Management AS, the Norwegian tax authorities may contend that we are subject to Norwegian corporate tax. If the Norwegian tax authorities make such a contention, we could incur substantial legal costs defending our position and, if we were unsuccessful in our defense, our results of operations would be materially and adversely affected. In addition, if we are unsuccessful in our defense against such a contention, dividends paid to you would be subject to Norwegian withholding taxes.

The enactment of proposed legislation could affect whether dividends paid by us constitute “qualified dividend income” eligible for the preferential rates.

Legislation has been proposed in the U.S. Senate that would deny the preferential rates of U.S. federal income tax currently imposed on “qualified dividend income” with respect to dividends received from a non-U.S. corporation, unless the non-U.S. corporation either is eligible for benefits of a comprehensive income tax treaty with the United States or is created or organized under the laws of a foreign country which has a comprehensive income tax system. Because the Marshall Islands has not entered into a comprehensive income tax treaty with the United States and imposes only limited taxes on corporations organized under its laws, it is unlikely that we could satisfy either of these requirements. Consequently, if this legislation were enacted in its current form the preferential rates of U.S. federal income tax discussed in “Item 10.  Additional Information─Taxation─ U.S. Federal Income Tax Considerations─U.S. Federal Income Taxation of ‘U.S. Holders’-Distributions on our Common Stock” may no longer be applicable to dividends received from us. We are unable to predict with certainty whether or in what form the proposed legislation will be enacted.

RISKS RELATING TO OUR INDUSTRY

Vessel values and charter rates are volatile.  Significant decreases in values or rates could adversely affect our financial condition and results of operations.

The tanker industry historically has been highly cyclical.  If the tanker industry is depressed at a time when we may want to charter or sell a vessel, our earnings and available cash flow may decrease.  Our ability to charter our vessels and the charter rates payable under any new charters will depend upon, among other things, the conditions in the tanker market at that time.  Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products.

The highly cyclical nature of the tanker industry may lead to volatile changes in charter rates from time to time, which may adversely affect our earnings.

Factors affecting the supply and demand for tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable and may adversely affect the values of our vessels and result in significant fluctuations in the amount of revenue we earn, which could result in significant fluctuations in our quarterly or annual results.  The factors that influence the demand for tanker capacity include:

 
demand for oil and oil products, which affect the need for tanker capacity;
     
 
global and regional economic and political conditions which, among other things, could impact the supply of oil as well as trading patterns and the demand for various types of vessels;
 
 
 
 
 
changes in the production of crude oil, particularly by OPEC and other key producers, which impact the need for tanker capacity;
     
 
developments in international trade;
     
 
changes in seaborne and other transportation patterns, including changes in the distances that cargoes are transported;
     
 
environmental concerns and regulations;
     
 
weather; and
     
 
competition from alternative sources of energy.

The factors that influence the supply of tanker capacity include:

 
the number of newbuilding deliveries;
     
 
the scrapping rate of older vessels;
     
 
the number of vessels that are out of service; and
     
 
environmental and maritime regulations.

An oversupply of new vessels may adversely affect charter rates and vessel values.

If the capacity of new ships delivered exceeds the capacity of tankers being scrapped and lost, tanker capacity will increase.  As of February 2014, the newbuilding order book for VLCC, Suexmax and Aframax vessels equaled approximately 10% of the existing world tanker fleet for these classes of vessels measured in dwt.  We cannot assure you that the order book will not increase further in proportion to the existing fleet.  If the supply of tanker capacity increases and the demand for tanker capacity does not increase correspondingly, charter rates could materially decline and the value of our vessels could be adversely affected.

Terrorist attacks and international hostilities can affect the tanker industry, which could adversely affect our business.

Terrorist attacks, the outbreak of war or the existence of international hostilities could damage the world economy, adversely affect the availability of and demand for crude oil and petroleum products and adversely affect our ability to re-charter our vessels on the expiration or termination of the charters and the charter rates payable under any renewal or replacement charters.  We conduct our operations internationally, and our business, financial condition and results of operations may be adversely affected by changing economic, political and government conditions in the countries and regions where our vessels are employed.  Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political instability, terrorist or other attacks, war or international hostilities.

Acts of piracy on ocean-going vessels could adversely affect our business and results of operations.

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the Gulf of Aden off the coast of Somalia and the South China Sea.  For example, in November 2008, the M/V Sirius Star, a tanker not affiliated with us, was captured by pirates in the Indian Ocean while carrying crude oil estimated to be worth $100 million at the time of its capture.  If these pirate attacks result in regions in which our vessels are deployed being characterized as “war risk” zones by insurers, as the Gulf of Aden temporarily was categorized in May 2008, premiums payable for insurance coverage could increase significantly and such coverage may be more difficult to obtain.  In addition, crew costs, including costs in connection with employing onboard security guards, could increase in such circumstances.  We may not be adequately insured to cover losses from these incidents, including the payment of any ransom we may be forced to make, which could have a material adverse effect on us.  In addition, any of these events may result in a loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.
 
 

 
Our vessels may call on ports located in countries that are subject to restrictions imposed by the U.S. government, which could negatively affect the trading price of our shares of common stock.

From time to time on charterers’ instructions, our vessels have called and may again call on ports located in countries subject to sanctions and embargoes imposed by the U.S. government, the UN or the EU and countries identified by the U.S. government, the UN or the EU as state sponsors of terrorism.  The U.S., UN- and EU- sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time.  For example, in 2010, the United States enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or “CISADA,” which expanded the scope of the Iran Sanctions Act (as amended, the “ISA”) by amending existing sanctions under the ISA and creating new sanctions.  Among other things, CISADA introduced additional prohibitions and limits on the ability of companies (both U.S. and non-U.S.) and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products.  In 2011, the President of the United States issued Executive Order 13590, which expanded on the existing energy-related sanctions available under the ISA.  In 2012, the President signed additional relevant executive orders, including Executive Order 13608, which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions.  The Secretary of the Treasury may prohibit any transactions or dealings, including any U.S. capital markets financing, involving any person found to be in violation of Executive Order 13608.  Also in 2012, the U.S. enacted the Iran Threat Reduction and Syria Human Rights Act of 2012 (the “ITRA”) which again created new sanctions and strengthened existing sanctions under the ISA.  Among other things, the ITRA intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran’s petroleum or petrochemical sector.  The ITRA also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the ISA on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used.  Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person’s vessels from U.S. ports for up to two years.  The ITRA also includes a requirement that issuers of securities must disclose to the SEC in their annual and quarterly reports filed after February 6, 2013 if the issuer or “any affiliate” has “knowingly” engaged in certain sanctioned activities involving Iran during the timeframe covered by the report.  At this time, we are not aware of any such sanctionable activity, conducted by ourselves or by any affiliate, that is likely to prompt an SEC disclosure requirement.  Finally, in January 2013, the U.S. enacted the Iran Freedom and Counter-Proliferation Act of 2012 (the “IFCPA”) which expanded the scope of U.S. sanctions on any person that is part of Iran’s energy, shipping or shipbuilding sector and operators of ports in Iran, and imposes penalties on any person who facilitates or otherwise knowingly provides significant financial, material, technological or other support to these entities.

During 2011, vessels in our fleet made a total of 3 calls to ports in Iran, representing approximately 0.85% of our approximately 351 calls on worldwide ports during the same period.  The last call to a port in Iran made by a vessel in our fleet was in September 2011.  During 2012 and 2013, vessels in our fleet did not make any calls to ports in Iran and we have, since November 2011, had a policy of instructing all charterers of our vessels that calls on ports in Iran are not permitted.  To our knowledge, none of our vessels made port calls to Syria, Sudan or Cuba during the period from 2011 to 2013.  Of the 6 port calls made to ports in Iran from January 2010 through December 2012, all were made at the direction of our charterers or pooling arrangement administrators, of which we had no advance knowledge.  The gross operating revenue derived by us attributable to the voyages with calls to Iran during the last three fiscal years was $1,581,493 for 2011, $0 for 2012 and $0 for 2013, accounting for approximately 1.6%, 0% and 0%, respectively, of the aggregate gross operating revenue earned by us during those periods.  These gross operating revenue figures are determined by multiplying the daily time charter hire paid to us with respect to the relevant vessel, by the duration in days of the applicable voyage from which the vessel commenced loading Iranian oil and until the cargo was fully discharged plus any profit share, as applicable, and in the case of one of the port calls, which was solely for purposes of bunkering, by multiplying the daily time charter hire paid to us with respect to the relevant vessel, by the duration in days spent by that vessel in Iranian waters.

We monitor compliance of our vessels with applicable restrictions through, among other things, communication with our charterers and administrators regarding such legal and regulatory developments as they arise.  Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations.  Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our company.  Additionally, some investors may decide to divest their interest, or not to invest, in our company simply because we do business with companies that do business in sanctioned countries.  Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation.  Investor perception of the value of our common stock may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest or governmental actions in these and surrounding countries.
 
 

 
Political decisions may affect the vessels trading patterns and could adversely affect our business and operation results.

Our vessels are trading globally, and the operation of our vessels is therefore exposed to political risks.  The political disturbances in Egypt, Iran and the Middle East in general may potentially result in a blockage of the Strait of Hormuz or a closure of the Suez Canal.  Geopolitical risks are outside of our control, and could potentially limit or disrupt our access to markets and operations and may have an adverse affect on our business.

The value of our vessels may be depressed at a time when and in the event that we sell a vessel.

Tanker values have generally experienced high volatility.  Investors can expect the fair market value of our tankers to fluctuate, depending on general economic and market conditions affecting the tanker industry and competition from other shipping companies, types and sizes of vessels and other modes of transportation.  In addition, as vessels age, they generally decline in value.  These factors will affect the value of our vessels for purposes of covenant compliance under the secured credit facilities and at the time of any vessel sale.  If for any reason we sell a tanker at a time when tanker prices have fallen, the sale may be at less than the tanker’s carrying amount on our financial statements, with the result that we would also incur a loss on the sale and a reduction in earnings and surplus, which could reduce our ability to pay dividends.

The carrying values of our vessels may not represent their charter free market value at any point in time.  The carrying values of our vessels held and used by us are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying value of a particular vessel may not be fully recoverable.

Vessel values may be depressed at a time when our subsidiaries are required to make a repayment under the secured credit facilities or when the secured credit facilities mature, which could adversely affect our liquidity and our ability to refinance the secured credit facilities.

In the event of the sale or loss of a vessel, each of the secured credit facilities requires us and our subsidiaries to prepay the facility in an amount proportionate to the market value of the sold or lost vessel compared with the total market value of all of our vessels financed under such credit facility before such sale or loss.  If vessel values are depressed at such a time, our liquidity could be adversely affected as the amount that we and our subsidiaries are required to repay could be greater than the proceeds we receive from a sale.  In addition, declining tanker values could adversely affect our ability to refinance our secured credit facilities as they mature, as the amount that a new lender would be willing to lend on the same terms may be less than the amount we owe under the expiring secured credit facilities.

We operate in the highly competitive international tanker market which could affect our financial position.

The operation of tankers and transportation of crude oil are extremely competitive.  Competition arises primarily from other tanker owners, including major oil companies, as well as independent tanker companies, some of whom have substantially larger fleets and substantially greater resources than we do.  Competition for the transportation of oil and oil products can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to charterers.  We will have to compete with other tanker owners, including major oil companies and independent tanker companies, for charters.  Due in part to the fragmented tanker market, competitors with greater resources may be able to offer better prices than us, which could result in our achieving lower revenues from our vessels.

Compliance with environmental laws or regulations may adversely affect our business.

Our operations are affected by extensive and changing international, national and local environmental protection laws, regulations, treaties, conventions and standards in force in international waters, the jurisdictional waters of the countries in which our vessels operate, as well as the countries of our vessels’ registration.  Many of these requirements are designed to reduce the risk of oil spills and other pollution, and our compliance with these requirements can be costly.

These requirements can affect the resale value or useful lives of our vessels, require a reduction in carrying capacity, ship modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in, certain ports.  Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations, in the event that there is a release of petroleum or other hazardous substances from our vessels or otherwise in connection with our operations.  We could also become subject to personal injury or property damage claims relating to the release of or exposure to hazardous materials associated with our current or historic operations.  Violations of or liabilities under environmental requirements also can result in substantial penalties, fines and other sanctions, including in certain instances, seizure or detention of our vessels.
 
 

 
We could incur significant costs, including cleanup costs, fines, penalties, third-party claims and natural resource damages, as the result of an oil spill or other liabilities under environmental laws.  The U.S. Oil Pollution Act of 1990, as amended, or the “OPA,” affects all vessel owners shipping oil to, from or within the United States.  The OPA allows for potentially unlimited liability without regard to fault for owners, operators and bareboat charterers of vessels for oil pollution in U.S. waters.  Similarly, the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended, which has been adopted by most countries outside of the United States, imposes liability for oil pollution in international waters.  The OPA expressly permits individual states to impose their own liability regimes with regard to hazardous materials and oil pollution incidents occurring within their boundaries.  Coastal states in the United States have enacted pollution prevention liability and response laws, many providing for unlimited liability.

The OPA provides for the scheduled phase-out of all non double-hull tankers that carry oil in bulk in U.S. waters.  The International Maritime Organization, or the “IMO,” and the European Union also have adopted separate phase-out schedules applicable to single-hull tankers operating in international and EU waters.  These regulations will reduce the demand for single-hull tankers, force the remaining single-hull vessels into less desirable trading routes, increase the number of ships trading in routes open to single-hull vessels and could increase demands for further restrictions in the remaining jurisdictions that permit the operation of these vessels.  As a result, single-hull vessels are likely to be chartered less frequently and at lower rates.  Although all of our tankers are double-hulled, we cannot assure you that these regulatory programs will not apply to vessels acquired by us in the future.

In addition, in complying with the OPA, IMO regulations, EU directives and other existing laws and regulations and those that may be adopted, ship-owners may incur significant additional costs in meeting new maintenance and inspection requirements, developing contingency arrangements for potential spills and obtaining insurance coverage.  Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become more strict in the future and require us to incur significant capital expenditures on our vessels to keep them in compliance, or even to scrap or sell certain vessels altogether.  For example, various jurisdictions are considering imposing more stringent requirements on air emissions, including greenhouse gases, and on the management of ballast waters to prevent the introduction of non-indigenous species that are considered to be invasive.  In recent years, the IMO and EU have both accelerated their existing non-double-hull phase-out schedules in response to highly publicized oil spills and other shipping incidents involving companies unrelated to us.  Future accidents can be expected in the industry, and such accidents or other events could be expected to result in the adoption of even stricter laws and regulations, which could limit our operations or our ability to do business and which could have a material adverse effect on our business and financial results.

The shipping industry has inherent operational risks, which could impair the ability of charterers to make payments to us.

Our tankers and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, human error, war, terrorism, piracy, environmental accidents and other circumstances or events.  In addition, transporting crude oil across a wide variety of international jurisdictions creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts, the potential for changes in tax rates or policies, and the potential for government expropriation of our vessels.  Any of these events could impair the ability of charterers of our vessels to make payments to us under our charters.

Our insurance coverage may be insufficient to make us whole in the event of a casualty to a vessel or other catastrophic event, or fail to cover all of the inherent operational risks associated with the tanker industry.

In the event of a casualty to a vessel or other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred, less the agreed deductible that may apply.  DHT Management AS, a subsidiary of ours, will be responsible for arranging insurance against those risks that we believe the shipping industry commonly insures against, and we are responsible for the premium payments on such insurance.  This insurance includes marine hull and machinery insurance, protection and indemnity insurance, which includes pollution risks and crew insurance, and war risk insurance.  We may also enter into loss of hire insurance, in which case DHT Management AS is responsible for arranging such loss of hire insurance, and we are responsible for the premium payments on such insurance.  This insurance generally provides coverage against business interruption for periods of more than 30 days per incident (up to a maximum of 120 days) per incident per year, following any loss under our hull and machinery policy.  We will not be reimbursed under the loss of hire insurance policies, on a per incident basis, for the first 30 days of off hire.  Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1 billion per vessel per occurrence.  We cannot assure you that we will be adequately insured against all risks.  If insurance premiums increase, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet.  Additionally, our insurers may refuse to pay particular claims.  Any significant loss or liability for which we are not insured could have a material adverse effect on our financial condition.  In addition, the loss of a vessel would adversely affect our cash flows and results of operations.
 
 

 
Maritime claimants could arrest our tankers, which could interrupt charterers’ or our cash flow.

Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages.  In many jurisdictions, a maritime lien-holder may enforce its lien by arresting a vessel through foreclosure proceedings.  The arrest or attachment of one or more of our vessels could interrupt the charterers’ or our cash flow and require us to pay a significant amount of money to have the arrest lifted.  In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel that is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner.  Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another vessel in our fleet.

Governments could requisition our vessels during a period of war or emergency without adequate compensation.

A government could requisition one or more of our vessels for title or for hire.  Requisition for title occurs when a government takes control of a vessel and becomes her owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates.  Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances.  Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain.  Government requisition of one or more of our vessels may negatively impact our revenues and reduce the amount of cash we have available for distribution as dividends to our stockholders.

RISKS RELATING TO OUR CAPITAL STOCK

The market price of our common stock may be unpredictable and volatile.

The market price of our common stock may fluctuate due to factors such as actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry, mergers and strategic alliances in the tanker industry, market conditions in the tanker industry, changes in government regulation, shortfalls in our operating results from levels forecast by securities analysts, announcements concerning us or our competitors and the general state of the securities market.  The tanker industry has been unpredictable and volatile.  The market for common stock in this industry may be equally volatile.  Therefore, we cannot assure you that you will be able to sell any of our common stock you may have purchased at a price greater than or equal to the original purchase price.

Future sales of our common stock could cause the market price of our common stock to decline.

The market price of our common stock could decline due to sales of our shares in the market or the perception that such sales could occur.  This could depress the market price of our common stock and make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate, or at all.
 
 

 
We have shares of common stock that are available for resale.

In November 2013 and February 2014, we issued 53,457,900 shares of our common stock (including shares issued upon the mandatory exchange of our Series B Participating Preferred Stock).  We placed these shares directly to institutional investors that we believe, based upon representations and statements to us, have a long-term investment horizon and who acquired our stock without an intention to distribute.  Nevertheless, these shares, taken together with the shares we issued in 2012 to an institutional investor, may create an excess supply of our stock if any significant resale were to occur.

We are incorporated in the Marshall Islands, which does not have a well-developed body of corporate law.

Our corporate affairs are governed by our amended and restated articles of incorporation and amended and restated bylaws and by the Marshall Islands Business Corporations Act, or the “BCA.”  The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States.  However, there have been few judicial cases in the Marshall Islands interpreting the BCA, and the rights and fiduciary responsibilities of directors under the laws of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in the United States.  Therefore, the rights of stockholders of the Marshall Islands may differ from the rights of stockholders of companies incorporated in the United States.  While the BCA provides that it is to be interpreted according to the laws of the State of Delaware and other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands and we cannot predict whether Marshall Islands courts would reach the same conclusions that any particular U.S. court would reach or has reached.  Thus, you may have more difficulty in protecting your interests in the face of actions by the management, directors or controlling stockholders than would stockholders of a corporation incorporated in a U.S. jurisdiction which has developed a relatively more substantial body of case law.

Our amended and restated bylaws restrict stockholders from bringing certain legal action against our officers and directors.

Our amended and restated bylaws contain a broad waiver by our stockholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors.  The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director.  This waiver limits the right of stockholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

We have anti-takeover provisions in our amended and restated bylaws that may discourage a change of control.

Our amended and restated bylaws contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors.  These provisions provide for:

 
a classified board of directors with staggered three-year terms, elected without cumulative voting;
     
 
directors only to be removed for cause and only with the affirmative vote of holders of at least a majority of the common stock issued and outstanding;
     
 
advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at annual meetings;
     
 
a limited ability for stockholders to call special stockholder meetings; and
     
 
our board of directors to determine the powers, preferences and rights of our preferred stock and to issue the preferred stock without stockholder approval.

These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many stockholders.  As a result, stockholders may be limited in their ability to obtain a premium for their shares.
 
 
 
 
INFORMATION ON THE COMPANY

 
A.
HISTORY AND DEVELOPMENT OF THE COMPANY

General Information

The company was incorporated under the name of Double Hull Tankers, Inc., or “Double Hull,” in April 2005 under the laws of the Marshall Islands.  In June 2008, Double Hull’s stockholders voted to approve an amendment to Double Hull’s articles of incorporation to change its name to DHT Maritime, Inc.  On February 12, 2010, DHT Holdings, Inc. was incorporated under the laws of the Marshall Islands, and DHT Maritime became a wholly-owned subsidiary of DHT Holdings in March 2010.  Shares of DHT Holdings, Inc. common stock trade on the NYSE under the ticker symbol “DHT.”

In February 2013, we relocated our principal executive offices from Jersey, Channel Islands to Bermuda.  Our principal executive offices are currently located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda and our telephone number at that address is +1 (441) 299-4912.  Our website address is www.dhtankers.com.  The information on our website is not a part of this report.  We own each of the vessels in our fleet through wholly-owned subsidiaries incorporated under the laws of the Marshall Islands or the Hong Kong Special Administrative Region of the People’s Republic of China.

 
B.
BUSINESS OVERVIEW

We operate a fleet of crude oil tankers.  As of February 27, 2014, our fleet consisted of ten double-hull crude oil tankers currently in operation, of which all are wholly-owned by the company.  The fleet in operation consists of six very large crude carriers or “VLCCs,” which are tankers ranging in size from 200,000 to 320,000 deadweight tons, two Suezmax tankers or “Suezmaxes,” which are tankers ranging in size from 130,000 to 170,000 dwt and two Aframax tankers or “Aframaxes,” which are tankers ranging in size from 80,000 to 120,000 dwt.  Six of the vessels are operating with spot market exposure, either directly, on index based time charters or in tanker pools. Our fleet principally operates on international routes and our fleet currently in operation had a combined carrying capacity of 2,380,270 dwt and an average age of approximately 11.0 years as of the date of this report.

Also as of February 27, 2014, we have agreements for six newbuilding VLCCs to be constructed at HHI, of which all will be wholly-owned by the company.  We estimate the newbuilding VLCCs to be delivered will have a combined carrying capacity of approximately 1,800,000 dwt.  Our principal capital expenditures during the last three fiscal years and through the date of this report comprise the acquisition of four VLCCs for a total of $220.0 million and pre-delivery installments related to the six VLCC newbuildings ordered at HHI totaling $114.0 million. Our principal divestitures during the same period comprise the sale of two Aframax tankers and one VLCC tanker for a total of $38.3 million.

RECENT DEVELOPMENTS

The Private Placement

In November 2013, we sold approximately $110 million of our equity to institutional investors pursuant to a private placement (the “Private Placement”).  The Private Placement was pursuant to a Stock Purchase Agreement (the “Stock Purchase Agreement”) among the Company and the investors named therein, dated November 24, 2013.  The equity included 13,400,000 shares of common stock and 97,579 shares of Series B Participating Preferred Stock.  The Private Placement generated net proceeds to us of approximately $106.7 million (after placement agent expenses, but before other transaction expenses).

On January 20, 2014, our shareholders approved an amendment to our articles of incorporation to increase the authorized number of shares of our common stock to 150,000,000 shares (the “Amendment”).  As a result of this approval and pursuant to the terms of the Series B Participating Preferred Stock, on February 4, 2014, each share of our Series B Participating Preferred Stock was mandatorily exchanged into 100 shares of our common stock.
 
 

 
HHI Ship Construction Agreements

We have entered into the following agreements with Hyundai Heavy Industries Co. Ltd. (“HHI”) for the construction of six VLCCs (collectively, the “HHI Agreements”):

 
on December 2, 2013 we entered into agreements for the construction of two VLCCs with a contract price of $92.7 million each, including certain additions and upgrades to the standard specification, an estimated capacity of 300,000 dwt and are expected to be delivered in April and July 2016, respectively;
     
 
on January 8, 2014, we exercised an option and entered into a new agreement with HHI to construct a VLCC with a contract price of $92.7 million, including certain additions and upgrades to the standard specification, an estimated capacity of 300,000 dwt and an expected delivery date of September 2016; and
     
 
on February 14, 2014, we entered into agreements for the construction of three VLCCs at a contract price of $97.3 million each, including $2.3 million in additions and upgrades to the standard specification, for delivery in September, October and November 2016.

Gulf Ship Purchase Agreements

On January 22, 2014, we announced that we reached an agreement to acquire a VLCC built in 2006 from Gulf Eyadah Corporation for $47.5 million and an agreement to acquire a VLCC built in 2007 from Gulf Sheba Shipping Ltd (together, with Gulf Eyadah Corporation, the “Gulf Companies”) for $50.5 million (the agreements with the Gulf Companies together, the “Ship Purchase Agreements”).  Both VLCCs were delivered during February 2014.

DHT Falcon and DHT Hawk Credit Facility

On February 10, 2014 we entered into a secured credit agreement to fund the acquisition of the VLCCs pursuant to the Ship Purchase Agreements through a secured credit agreement totaling $49.0 million (the “DHT Falcon and DHT Hawk Credit Facility”) between DNB, as lender, DHT Falcon Limited and DHT Hawk Limited (each a direct wholly owned subsidiary of us, and collectively, the “Borrowers”), and us, as guarantor.    Borrowings bear interest at a rate equal to a margin of 325 basis points plus LIBOR and are repayable in 20 quarterly installments of $1.0 million each from May 2014 to February 2019 with a final payment of $29.0 million in February 2019.

Registered Direct Offering

In February 2014, we sold 30,300,000 shares of common stock for aggregate proceeds of approximately $227 million to investors pursuant to a registered direct offering (“the Registered Direct Offering”).  The Registered Direct Offering generated net proceeds to us of approximately $217.0 million (after placement agent expenses, but before other transaction expenses).

OSG Claim Assignment Agreements

DHT Maritime-DHT Holdings Assignment Agreement

On November 14, 2012, OSG and certain of its affiliates filed bankruptcy petitions under chapter 11 of title 11 of the United States Code (“chapter 11”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).  On December 6, 2012, OSG and its affiliated debtors filed motions to reject the bareboat charters for our two Suezmax vessels, Overseas Newcastle (now DHT Target) and Overseas London (now DHT Trader).  The Bankruptcy Court approved the rejection motions and the vessels were redelivered to us and the charters terminated on December 22, 2012 and January 15, 2013, respectively.
 
 

 
DHT Maritime, London Tanker Corporation (“LTC”) and Newcastle Tanker Corporation (“NTC”) held claims against two OSG subsidiaries, Alpha Suezmax Corporation (“Alpha”) and Dignity Chartering Corporation (“Dignity” and, together with Alpha and OSG, the “Debtors”), for damages arising from the Debtors’ rejection of the bareboat charter agreements for the Overseas Newcastle and Overseas London, respectively, and against OSG on account of its guarantees of the obligations of Alpha and Dignity, respectively, under each of the bareboat charter agreements (collectively, the “Claims”).  DHT Maritime and DHT Holdings entered into an assignment agreement and a joinder to that assignment agreement with LTC and NTC, each effective as of January 22, 2013, whereby DHT Maritime, LTC and NTC (collectively, the “Sellers”) agreed to sell, and DHT Holdings agreed to purchase, the undivided 100% interest in the Sellers’ right to and title and interest in, among others, (i) the Claims; (ii) all rights to receive any cash, interest, fees, expenses, damages penalties and other amounts or property in respect of the Claims, including any securities and other distributions made by the Debtors in respect of the Claims under or pursuant to any plan of reorganization or liquidation in the Debtors’ chapter 11 cases in the Bankruptcy Court or otherwise; (iii) any cause of action or claim of any nature whatsoever  arising out of the Claims; (iv) any voting right arising out of the Claims; and (v) all proceeds of any kind under or in respect of the foregoing, including all cash, securities or other property distributed or payable on account thereof, or exchanged in return therefor (the “Transferred Rights”) for a purchase price of $10 million.

DHT Holdings-Citigroup Assignment Agreements

In March 2013, DHT Holdings filed proofs of the Claims in the aggregate amount of approximately $51.84 million plus attorneys’ fees  in the Bankruptcy Court and entered into assignment agreements whereby DHT Holdings agreed to sell, and Citigroup Financial Products Inc. (“Citigroup”) agreed to purchase, an undivided 100% interest in DHT Holdings’ right to and title and interest in the Transferred Rights at an aggregate purchase price equal to 33.25% of the amount of the Claims ultimately to be allowed by final order of the Bankruptcy Court.  DHT Holdings received an aggregate initial payment of approximately $6.89 million. We and certain of our affiliates and OSG and certain of its affiliates agreed to a total claims amount of $46.0 million in full settlement of the Claims, and in January 2014 received an additional and final payment of approximately $8.5 million from Citigroup. Court approval with respect to the final payment was granted by the U.S. Bankruptcy Court in December 2013.  As a result, we recorded the total aggregate amount of approximately $15.4 million received from Citigroup as revenue in the fourth quarter 2013 financial statements.

Also, we and certain of our affiliates and OSG and certain of its affiliates have separately agreed to settle six further claims in the amount of $3.4 million plus attorneys’ fees filed by various of our affiliates against various affiliates of OSG, and OSG as guarantor of each claim on or about May 30, 2013, for a total claim amount of $1.5 million in full settlement of such claims.  These claims have not been assigned to a third party and the amount, timing and form of any recovery remain pending.

CHARTER ARRANGEMENTS

The following summary of the material terms of the employment of our vessels does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the charters.  Because the following is only a summary, it does not contain all information that you may find useful.

Vessel employment

The following table presents certain features of our vessel employment as of February 27, 2014:

Vessel
Type of Employment
Charter
Rate
($/Day)
Expiry
Extension Period*
Charter Rate in Extension Period ($/day)
VLCC
DHT Ann
 Time Charter
 Market related***
 July 7, 2015
 
 
 DHT Chris
 Time Charter
 $16,843
 March 31, 2014
  + 9 months****
  Market related***
 DHT Eagle
 Spot
 
 
 
 
 DHT Phoenix
 Pool**
 
 
 
 
 DHT Hawk
 Spot
 
 
 
 
 DHT Falcon
 Spot
 
 
 
 
 Suezmax
 DHT Target
 Time Charter
 $12,738
 March 24, 2014
 + 6 months****
 $14, 713
 DHT Trader
 Time Charter
 $14,409
 August 27, 2014
 
 
 Aframax
 DHT Cathy
 Time Charter
 $12,838
 February 15, 2015
 
 
 DHT Sophie
 Time Charter
 $12,800
 April 8, 2014
 + 8 months
 $13,282

*
At charterer’s option
**
Tankers International Pool
***
Earnings calculated on daily basis based on index
****  The extension period has been declared by the charterer but the extension period has not commenced. 
 
 

 
In May 2011, we acquired the DHT Eagle and entered into a time charter to a subsidiary of Frontline Ltd. with expiry in May 2013.  The charter rate at commencement of the charter was $32,500 per day less commission payable monthly in advance.  In December 2011, the charter was amended whereby the charter hire payable monthly shall be $26,000 per day for the remaining period of the charter commencing January 1, 2012.  The difference of $6,500 per day was paid in arrears with one lump sum payment related to the period from January 1, 2012 to December 20, 2012 that was paid in December 2012 and a second lump sum payment at the end of the charter period in the second quarter of 2013.

Allocation of Pool Revenues

Earnings generated by all vessels operating in a pool are expressed on a TCE basis and then pooled and allocated based on a pre-arranged weighting system that recognizes each vessel’s earnings capacity based on its cargo capacity, speed and consumption and actual on-hire performance.  Earnings from vessels operating on voyage charters in the spot market and on COAs within the pool need to be converted into TCE revenues (by subtracting voyage expenses such as fuel and port charges) while vessels operating on time charters within a pool do not need to be converted.  For vessels operating on voyage charters in the spot market and on COAs, aggregated voyage expenses are deducted from aggregated revenues to result in an aggregate net revenue amount, which is the TCE amount.  These aggregate net revenues are combined with aggregate time charter revenues to determine aggregate pool TCE revenue.  Aggregate pool TCE revenue is then allocated to each vessel in accordance with the allocation formula.  The amount of TCE revenue earned by our vessels that operate in pools is equal to the pool earnings for those vessels, as reported to each charterer by the respective pool manager.

Former OSG Charter Arrangements

In connection with the chapter 11 filing by Overseas Shipping Group, Inc. (“OSG”) and certain of its affiliates that commenced on November 14, 2012, OSG rejected our two Suezmax long-term bareboat charters.  In addition, remaining time charters with OSG affiliates for the initial vessels we acquired simultaneously with the closing of our initial public offering in 2005 (the “Initial Vessels”) expired as anticipated or otherwise agreed to during 2012.  Consequently, we no longer have any vessels on charter to OSG or any of its affiliates.  For purposes of providing comprehensive information on the factors that affected our operations and business during the period covered by this report, we have summarized the material terms of those expired or terminated charter arrangements with OSG.

General — Time Charters

Effective October 18, 2005, certain of our wholly-owned subsidiaries time chartered our Initial Vessels to charterers, which were wholly-owned subsidiaries of OSG, for a period of five to six and one-half years.  Each time charter was renewable by the charterer on one or more successive occasions for periods of one, two or three years, up to an aggregate of four, six or eight years, depending on the vessel.  On November 26, 2008, we entered into an agreement with OSG whereby OSG exercised its option to extend the charters for the Initial Vessels upon expiry of the vessels’ initial charter periods.  For the Overseas Rebecca and the Overseas Ania, the charters were extended for 18 months after the initial charter periods expire in October 2010 at the basic charter rate.  With regards to the remaining five vessels, the charters were extended for 12 months after the initial charter periods expired between April 2011 and April 2012, with the basic charter hire rate for the declared extension periods being either the basic charter rate stipulated in the applicable charter or, if the one-year time charter rate was lower, a base rate which was no more than $5,000 per day below the basic charter rate stipulated in the charters.  We guaranteed the obligations of each of our subsidiaries under the time charters, and OSG guaranteed each charterer’s obligation to make charter payments to us.

Under the time charters with OSG, we were required to keep the vessels seaworthy, and to crew, operate and maintain them, including ensuring (i) that the vessels were approved for trading (referred to in the industry as “vetting approvals”) by a minimum of four major oil companies and (ii) that we did not lose any vetting approvals that were required to maintain the vessels’ trading patterns.  Tanker Management, a subsidiary of OSG, performed those duties for us under technical ship management agreements.  If structural changes or new equipment were required due to changes mandated by legislation or regulation, the vessel classification society or the standards of an oil company for which vetting approval is required, the charterers were required to pay the first $50,000 per year per vessel for all such changes.  To the extent the cost of all such changes exceeded $50,000, the excess cost would have been apportioned to us and the charterer of the vessel on the basis of the ratio of the remaining charter period and the remaining useful life of the vessel (calculated as 25 years from the year built), with the charterers paying 50% of the apportioned cost.
 
 

 
Basic Hire for Former OSG Time Charters

Under each time charter, the daily charter rate for each such vessel, which we refer to as “basic hire,” was payable to us monthly in advance.  The basic hire under the charters for each vessel type during each year of the initial fixed term of the charter and the extension periods agreed to on November 26, 2008 was as follows:

End of Charter
period (1)
 
VLCCs (2)
USD/day
   
Aframaxes (2)
USD/day
   
Aframaxes
USD/day
 
 
 
Ann
   
Chris
   
Regal
   
Cathy
   
Sophie
   
Ania & Rebecca
(3)
 
Oct. 17, 2006
 
 
37,200
 
 
 
37,200
 
 
 
37,200
 
 
 
24,500
 
 
 
24,500
 
 
 
18,500
 
Oct. 17, 2007
 
 
37,400
 
 
 
37,400
 
 
 
37,400
 
 
 
24,700
 
 
 
24,700
 
 
 
18,700
 
Oct. 17, 2008
 
 
37,500
 
 
 
37,500
 
 
 
37,500
 
 
 
24,800
 
 
 
24,800
 
 
 
18,800
 
Oct. 17, 2009
 
 
37,600
 
 
 
37,600
 
 
 
37,600
 
 
 
24,900
 
 
 
24,900
 
 
 
18,900
 
Oct. 17, 2010
 
 
37,800
 
 
 
37,800
 
 
 
37,800
 
 
 
25,100
 
 
 
25,100
 
 
 
19,100
 
Jan. 17, 2011
 
 
38,100
 
 
 
38,100
 
 
 
38,100
 
 
 
25,400
 
 
 
25,400
 
 
 
19,400
 
Apr. 17, 2011
 
 
38,100
 
 
 
38,100
 
 
 
38,100
 
 
 
25,400
 
 
 
25,400
 
 
 
19,400
 
Jul. 17, 2011
 
 
38,100
 
 
 
38,100
 
 
 
33,100
(4)
 
 
25,400
 
 
 
25,400
 
 
 
19,400
 
Oct. 17, 2011
 
 
38,100
 
 
 
38,100
 
 
 
33,100
(4)
 
 
25,400
 
 
 
20,400
(4)
 
 
19,400
 
Jan. 17, 2012
 
 
38,500
 
 
 
33,500
(4)
 
 
33,100
(4)
 
 
25,700
 
 
 
20,400
(4)
 
 
19,700
 
Apr. 17, 2012
 
 
38,500
 
 
 
33,500
(4)
 
 
33,100
(4)(6)
 
 
20,700
(4)
 
 
20,400
(4)
 
 
19,700
 
Jul. 17, 2012
 
 
33,500
(4)
 
 
33,500
(4)
 
 
 
 
 
 
20,700
(4)
 
 
 20,400
(4)
 
 
 
 
Oct. 17, 2012
 
 
33,500
(4)
 
 
33,500
(4)
 
 
 
 
 
 
 20,700
(4)
 
 
 
 
 
 
 
 
Jan. 17, 2013
 
 
33,500
(4)(5)
 
 
 
 
 
 
 
 
 
 
20,700
(4)
 
 
 
 
 
 
 
 

(1)
The charters, including the extension options agreed to on November 26, 2008 and as otherwise subsequently agreed to, expired and the vessels were redelivered as follows for the DHT Ann, DHT Chris, DHT Regal, DHT Cathy, DHT Sophie, Overseas Ania and Overseas Rebecca:  December 26, 2012; September 17, 2013; March 24, 2012; December 30, 2012; June 20, 2012; May 19, 2012 and April 29, 2012, respectively.
(2)
With regards to the 12-month extensions agreed to on November 26, 2008, the table shows the minimum basic hire rate that was achievable for the declared extension periods which is about $5,000 per day below the basic charter rate stipulated in the charters.  If the one-year time charter rate is higher than the rate which is about $5,000 below the basic charter hire rate stipulated in the charters, the basic charter hire rate can be up to $5,000 higher than the minimum basic charter hire rate depending on the one-year time charter rate at the time.
(3)
The Overseas Rebecca and Overseas Ania were sold in 2012.
(4)
Represents the extension periods agreed to on November 26, 2008.
(5)
Represents the extension period agreed to on November 26, 2008 and subsequently adjusted in accordance with our agreement with OSG in November 2012 to have the vessel redelivered on December 26, 2012.
(6)
The DHT Regal was sold in 2013.

Additional Hire for Former OSG Time Charters

Pursuant to the charter arrangements for our Initial Vessels, the parent of each of the charterers, OIN, agreed to pay us quarterly in arrears a payment, which was in addition to the basic hire we received under our charters, which we refer to as “additional hire.”  OIN paid us additional hire on a quarterly basis equal to 40% of the excess, if any, of the aggregate charter hire earned (or deemed earned in the event that a vessel was operated in the spot market outside a pool) by the charterers on all of our vessels above the aggregate basic hire paid by the charterers to us in respect of all of our vessels during the calculation period.  OSG guaranteed the additional hire payments due to us under the charter framework agreement.  Additional hire was calculated on a TCE basis, regardless of whether the charterers operated our vessels in a pool, on time charters or in the spot market.  However, the manner in which charter hire was calculated for a given period depended on whether our vessels were operated in a pool or in the time or spot charter market.  We were last paid additional hire as part of the aforementioned profit-sharing model in 2009.
 
 

 
General — Bareboat Charters

On December 4, 2007, one of our Suezmaxes, the Overseas Newcastle (now the DHT Target), was bareboat chartered to a subsidiary of OSG for a term of seven years at a basic bareboat charter rate of $26,343 per day for the first three years of the charter term, and $25,343 per day for the last four years of the charter term.  According to the terms of the bareboat charter, we were to be paid this basic hire even for the days on which the vessel was not able to be in service.  In addition to the bareboat charter rate, we, through the profit sharing element of this charter agreement, were to earn 33% of the vessel’s earnings above the time charter equivalent rate of $35,000 per day for the first three years of the charter term and above $34,000 per day for the last four years of the charter term, calculated on a four-quarter rolling average.  On January 28, 2008, our other Suezmax, the Overseas London (now the DHT Trader), was bareboat chartered to a subsidiary of OSG for a term of 10 years at a basic bareboat charter rate of $26,630 per day for the term of the charter.  According to the terms of the bareboat charter, we were to be paid this basic hire even for the days on which the vessel is not able to be in service.  There was no profit sharing element under this bareboat charter.

In connection with OSG’s chapter 11 bankruptcy proceedings that commenced in November 2012, OSG and its affiliates rejected the bareboat charters for the two Suezmaxes.  The vessels were redelivered to us and the charters terminated on December 22, 2012 and January 15, 2013, respectively.

TECHNICAL SHIP MANAGEMENT AGREEMENTS

The following summary of the material terms of our technical ship management agreements does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the technical ship management agreements.

During 2013, we used one technical ship management provider:   Goodwood Ship Management Pte Ltd in Singapore (“Goodwood”).   Under the current technical ship management agreements with Goodwood, the ship managers are responsible for the technical operation and upkeep of the vessels, including crewing, maintenance, repairs and dry-dockings, maintaining required vetting approvals and relevant inspections, and to ensure our fleet complies with the requirements of classification societies as well as relevant governments, flag states, environmental and other regulations and each vessel subsidiary pays the actual cost associated with the technical management and an annual management fee for the relevant vessel.

We may obtain loss of hire insurance that will generally provide coverage against business interruption for periods of more than 30 days per incident (up to a maximum of 120 days per incident per year) following any loss under our hull and machinery policy (mechanical breakdown, grounding, collision or other incidence of damage that does not result in a total loss or constructive total loss of the vessel).

Each technical ship management agreement with Goodwood is cancelable by us or Goodwood for any reason at any time upon 60 days’ prior written notice to the other.  Upon termination we are required to cover actual crew support cost and severance cost and pay management fee for a further three months.  We will be required to obtain the consent of any applicable charterer and our lenders before we appoint a new manager; however, such consent may not to be unreasonably withheld.

We place the insurance requirements related to the fleet with mutual clubs and underwriters through insurance brokers.  Such requirements are, but not limited to, marine hull and machinery insurance, protection and indemnity insurance (including pollution risks and crew insurances), war risk insurance, charterer’s liability insurance and when viewed as appropriate, loss of hire insurance.  Each vessel subsidiary pays the actual cost associated with the insurance placed for the relevant vessel.
 
 

 
OUR FLEET

The following chart summarizes certain information about the vessels in our fleet as of December 31, 2013:

Vessel
 
Year
Built
 
Dwt
 
Flag
 
Yard
Classification Society
Percent of Ownership
VLCC
 
 
 
 
 
 
 
 
 
 
DHT Ann (1)
 
2001
 
309,327
 
Marshall Islands
 
HHI
Lloyds
100%
DHT Chris (1)
 
2001
 
309,285
 
Marshall Islands
 
HHI
Lloyds
100%
DHT Phoenix (4)
 
1999
 
307,151
 
Marshall Islands
 
Daewoo Heavy Industries
Lloyds
100%
DHT Eagle (5)
 
2002
 
309,064
 
Marshall Islands
 
Samsung Heavy Industries
ABS
100%
Suezmax
 
     
 
         
DHT Target (2)
 
2001
 
164,626
 
Marshall Islands
 
HHI
ABS
100%
DHT Trader (3)
 
2000
 
152,923
 
Marshall Islands
 
HHI
ABS
100%
Aframax
 
     
 
         
DHT Cathy (1)
 
2004
 
115,000
 
Marshall Islands
 
HHI
ABS
100%
DHT Sophie (1)
 
2003
 
115,000
 
Marshall Islands
 
HHI
ABS
100%

(1)
Acquired on October 18, 2005.
 
 
(2)
Acquired on December 4, 2007.  Formerly named Overseas Newcastle.
 
 
(3)
Acquired on January 28, 2008.  Formerly named Overseas London.
 
 
(4)
Acquired on March 2, 2011 and employed in the Tankers International Pool as of April 14, 2011.
 
 
(5)
Acquired on May 27, 2011 and time chartered for a period of two years to Key Chartering, a subsidiary of Frontline Ltd., as of May 28, 2011.

In January 2014 we agreed to acquire two VLCCs built in 2006 and 2007 for $47.5 million and for $50.5 million, respectively, from the Gulf Companies.  Both vessels were delivered during February 2014.  The following chart summarizes certain information about the two acquired VLCCs:

Vessel
 
Year
Built
 
Dwt
 
Flag
 
Yard
Classification Society
Percent of Ownership
VLCC
 
 
 
 
 
 
 
 
 
 
DHT Falcon(1)
 
2006
 
298,971
 
Hong Kong
 
NACKS*
Lloyds
100%
DHT Hawk(1)
 
2007
 
298,293
 
Hong Kong
 
NACKS*
Lloyds
100%


(1)
Acquired on February 17, 2014.
*Nantong Cosco KHI Engineering Co. Ltd

Additionally, we have entered into the HHI Agreements for the construction of six VLCCs:

 
on December 2, 2013 we entered into agreements for the construction of two VLCCs with a contract price of $92.7 million each, including certain additions and upgrades to the standard specification, an estimated capacity of 300,000 dwt and are expected to be delivered in April and July 2016, respectively;
     
 
on January 8, 2014, we exercised an option and entered into a new agreement with HHI to construct a VLCC with a contract price of $92.7 million, including certain additions and upgrades to the standard specification, an estimated capacity of 300,000 dwt and an expected delivery date of September 2016; and
     
 
on February 14, 2014, we entered into agreements for the construction of three VLCCs at a contract price of $97.3 million each, including $2.3 million in additions and upgrades to the standard specification, for delivery in September, October and November 2016.
 
 

 
RISK OF LOSS AND INSURANCE

Our operations may be affected by a number of risks, including mechanical failure of the vessels, collisions, property loss to the vessels, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes.  In addition, the operation of any ocean-going vessel is subject to the inherent possibility of catastrophic marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade.

DHT Management AS is responsible for arranging the insurance of our vessels on terms in line with standard industry practice.  We are responsible for the payment of premiums.  DHT Management AS has arranged for marine hull and machinery and war risks insurance, which includes the risk of actual or constructive total loss, and protection and indemnity insurance with mutual assurance associations.  DHT Management AS may also arrange for loss of hire insurance in respect of each of our vessels, subject to the availability of such coverage at commercially reasonable terms.  Loss of hire insurance generally provides coverage against business interruption following any loss under our hull and machinery policy.  Currently, we have obtained loss of hire insurance that generally provides coverage against business interruption for periods of more than 30 days (up to a maximum of 120 days) following any loss under our hull and machinery policy (mechanical breakdown, grounding, collision or other incidence of damage that does not result in a total loss of the vessel).  Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1 billion per vessel per occurrence.  Protection and indemnity associations are mutual marine indemnity associations formed by ship-owners to provide protection from large financial loss to one member by contribution towards that loss by all members.

We believe that our anticipated insurance coverage will be adequate to protect us against the accident-related risks involved in the conduct of our business and that we will maintain appropriate levels of environmental damage and pollution insurance coverage, consistent with standard industry practice.  However, there is no assurance that all risks are adequately insured against, that any particular claims will be paid or that we will be able to obtain adequate insurance coverage at commercially reasonable rates in the future following termination of the technical ship management agreements and bareboat charters.

INSPECTION BY A CLASSIFICATION SOCIETY

Every commercial vessel’s hull and machinery is evaluated by a classification society authorized by its country of registry.  The classification society certifies that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member.  Each vessel is inspected by a surveyor of the classification society in three surveys of varying frequency and thoroughness:  every year for the annual survey, every two to three years for intermediate surveys and every four to five years for special surveys.  Should any defects be found, the classification surveyor will issue a “recommendation” for appropriate repairs which have to be made by the ship-owner within the time limit prescribed.  Vessels may be required, as part of the annual and intermediate survey process, to be drydocked for inspection of the underwater portions of the vessel and for necessary repair stemming from the inspection.  Special surveys always require drydocking.

Each of our vessels has been certified as being “in class” by a member society of the International Association of Classification Societies, indicated in the table on page 24 of this report.

ENVIRONMENTAL REGULATION

Government regulation significantly affects the ownership and operation of our tankers.  They are subject to international conventions, national, state and local laws and regulations in force in the countries in which our tankers may operate or are registered.  Under our technical ship management agreements, Goodwood has assumed technical management responsibility for the vessels in our fleet, including compliance with all government and other regulations.  If our technical ship management agreements with Goodwood terminate, we would attempt to hire another party to assume this responsibility, including compliance with the regulations described herein and any costs associated with such compliance.  However, in such event, we may be unable to hire another party to perform these and other services, and we may incur substantial costs to comply with environmental requirements.

A variety of governmental and private entities subject our tankers to both scheduled and unscheduled inspections.  These entities include the local port authorities (U.S. Coast Guard, harbor master or equivalent), classification societies, flag state administration (country of registry) and charterers, particularly terminal operators and oil companies.  Certain of these entities require us to obtain permits, licenses and certificates for the operation of our tankers.  Failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of our tankers.

We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements on all tankers and may accelerate the scrapping of older tankers throughout the industry.  Increasing environmental concerns have created a demand for tankers that conform to the stricter environmental standards.  Under our technical ship management agreements, Goodwood is required to maintain operating standards for our tankers emphasizing operational safety, quality maintenance, continuous training of our officers and crews and compliance with U.S. and international regulations.  We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations; however, because such laws and regulations are frequently changed and may impose increasingly stringent requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our tankers.  In addition, a future serious marine incident that results in significant oil pollution or otherwise causes significant adverse environmental impact, such as the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, could result in additional legislation or regulation that could negatively affect our profitability.
 
 

 
INTERNATIONAL MARITIME ORGANIZATION

Under IMO regulations and subject to limited exceptions, a tanker must be of double-hull construction, be of a mid-deck design with double-side construction or be of another approved design ensuring the same level of protection against oil pollution.  In September 1997, the IMO adopted Annex VI to the International Convention for the Prevention of Pollution from Ships to address air pollution from ships.  Annex VI, which became effective in May 2005, sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons.  Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas, known as emission control areas, or “ECAs”, to be established with more stringent controls on sulfur emissions.  All of our vessels are currently compliant with these regulations.  In July 2010, the IMO amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide particulate matter and ozone depleting substances came into effect.  The new standards seek to reduce air pollution from vessels by, among other things, establishing a series of progressive standards to further limit the sulfur content of fuel oil, which would be phased in by 2020, and by establishing new tiers of nitrogen oxide emission standards for new marine diesel engines, depending on their date of installation.  The United States ratified these Annex VI amendments in 2008, thereby rendering its emissions standards equivalent to IMO requirements.  Please see the discussion of the U.S. Clean Air Act under “U.S. Requirements” below for information on the ECA designated in North America and the Hawaiian Islands.

Under the International Safety Management Code, or “ISM Code,” promulgated by the IMO, the party with operational control of a vessel is required to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies.  Goodwood will rely upon its respective safety management systems.

The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate.  This certificate evidences compliance by a vessel’s management with code requirements for a safety management system.  No vessel can obtain a certificate unless its operator has been awarded a document of compliance, issued by each flag state, under the ISM Code.  All requisite documents of compliance have been obtained with respect to the operators of all our vessels and safety management certificates have been issued for all our vessels for which the certificates are required by the IMO.  These documents of compliance and safety management certificates are renewed as required.

Noncompliance with the ISM Code and other IMO regulations may subject the ship-owner or charterer to increased liability, lead to decreases in available insurance coverage for affected vessels and result in the denial of access to, or detention in, some ports.  For example, the U.S. Coast Guard and European Union authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and European Union ports.

Many countries have ratified and follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969, or the “1969 Convention.”  Some of these countries have also adopted the 1992 Protocol to the 1969 Convention, or the “1992 Protocol.”  Under both the 1969 Convention and the 1992 Protocol, a vessel’s registered owner is strictly liable, subject to certain affirmative defenses, for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses.  These conventions also limit the liability of the shipowner under certain circumstances to specified amounts that have been revised from time to time and are subject to exchange rates.

In addition, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments, or BWM Convention, in February 2004.  The BWM Convention provides for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits.  The BWM Convention will not become effective until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping.  The Convention has not yet entered into force because a sufficient number of states have failed to adopt it.  However, the IMO’s Marine Environment Protection Committee passed a resolution in March 2010 encouraging the ratification of the Convention and calling upon those countries that have already ratified to encourage the installation of ballast water management systems.  If mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance could increase for ocean carriers, and these costs may be material.

IMO regulations also require owners and operators of vessels to adopt Shipboard Oil Pollution Emergency Plans, or “SOPEPs.”  Periodic training and drills for response personnel and for vessels and their crews are required.  In addition to SOPEPs, Goodwood has adopted Shipboard Marine Pollution Emergency Plans for our vessels, which cover potential releases not only of oil but of any noxious liquid substances.
 
U.S. REQUIREMENTS

The United States regulates the tanker industry with an extensive regulatory and liability regime for environmental protection and cleanup of oil spills, consisting primarily of the OPA, and the Comprehensive Environmental Response, Compensation, and Liability Act, or “CERCLA.”  OPA affects all owners and operators whose vessels trade with the United States or its territories or possessions, or whose vessels operate in the waters of the United States, which include the U.S. territorial sea and the 200 nautical mile exclusive economic zone around the United States.  CERCLA applies to the discharge of hazardous substances (other than oil) whether on land or at sea.  Both OPA and CERCLA impact our business operations.

Under OPA, vessel owners, operators and bareboat or demise charterers are “responsible parties” who are liable, without regard to fault, for all containment and clean-up costs and other damages, including property and natural resource damages and economic loss without physical damage to property, arising from oil spills and pollution from their vessels.
 
Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to the greater of $2,000 per gross ton or $17.088 million for any double-hull tanker, such as our vessels, that is over 3,000 gross tons (subject to periodic adjustment for inflation).  CERCLA, which applies to owners and operators of vessels, contains a similar liability regime and provides for cleanup, removal and natural resource damages.  Liability under CERCLA for a release or incident involving a release of hazardous substances is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $0.5 million for any other vessel.  These OPA and CERCLA limits of liability do not apply if an incident was directly caused by violation of applicable U.S. federal safety, construction or operating regulations or by a responsible party’s gross negligence, willful misconduct, refusal to report the incident or refusal to cooperate and assist in connection with oil removal activities.
 
 

 
OPA specifically permits individual U.S. coastal states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills.

OPA also requires owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential strict liability under the Act.  The U.S. Coast Guard has enacted regulations requiring evidence of financial responsibility consistent with the aggregate limits of liability described above for OPA and CERCLA.  Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance, guaranty or an alternative method subject to approval by the Director of the U.S. Coast Guard National Pollution Funds Center.  Under OPA regulations, an owner or operator of more than one tanker is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal only to the financial responsibility requirement of the tanker having the greatest maximum strict liability under OPA and CERCLA.  Goodwood has provided the requisite guarantees and received certificates of financial responsibility from the U.S. Coast Guard for each of our tankers required to have one.

We have arranged insurance for each of our tankers with pollution liability insurance in the amount of $1 billion.  However, a catastrophic spill could exceed the insurance coverage available, in which event there could be a material adverse effect on our business and on Goodwood’s business, which could impair Goodwood’s ability to manage our vessels.

Under OPA, oil tankers as to which a contract for construction or major conversion was put in place after June 30, 1990 are required to have double hulls.  In addition, oil tankers without double hulls will not be permitted to come to U.S. ports or trade in U.S. waters starting in 2015.  All of our vessels have double hulls.

OPA also amended the federal Water Pollution Control Act, or “Clean Water Act,” to require owners and operators of vessels to adopt vessel response plans for reporting and responding to oil spill scenarios up to a “worst case” scenario and to identify and ensure, through contracts or other approved means, the availability of necessary private response resources to respond to a “worst case discharge.”  In addition, periodic training programs and drills for shore and response personnel and for vessels and their crews are required.

Vessel response plans for our tankers operating in the waters of the United States have been approved by the U.S. Coast Guard.  In addition, the U.S. Coast Guard has proposed similar regulations requiring certain vessels to prepare response plans for the release of hazardous substances.

The U.S. Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges.  The CWA also imposes substantial liability for the costs of removal and remediation and damages and complements the remedies available under OPA and CERCLA.  Furthermore, most U.S. states that border a navigable waterway have enacted laws that impose strict liability for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance.  These laws may be more stringent than U.S. federal law.

The EPA regulates the discharge of ballast water and other substances in U.S. waters under the CWA.  Effective February 6, 2009, EPA regulations require vessels 79 feet in length or longer (other than commercial fishing and recreational vessels) to comply with a Vessel General Permit authorizing ballast water discharges and other discharges incidental to the operation of vessels.  The original Vessel General Permit requirements, which remained in effect until December 2013, imposed technology and water-quality based effluent limits for certain types of discharges and establishes specific inspection, monitoring, recordkeeping and reporting requirements to ensure the effluent limits are met.  The EPA has issued a new Vessel General Permit, which became effective in December 2013, that contains more stringent requirements, including numeric ballast water discharge limits (that generally align with the most recent U.S. Coast Guard standards issued in 2012), requirements to ensure ballast water treatment systems are functioning correctly, and more stringent limits for oil to sea interfaces and exhaust gas scrubber wastewater.  U.S. Coast Guard regulations adopted under the U.S. National Invasive Species Act, or NISA, also impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering or operating in U.S. waters, including limits regarding ballast water releases.  Compliance with the EPA and the U.S. Coast Guard regulations could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, and/or otherwise restrict our vessels from entering U.S. waters.
 
The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants.  Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas and emission standards for so-called “Category 3” marine diesel engines operating in U.S. waters.  The marine diesel engine emission standards are currently limited to new engines beginning with the 2004 model year.  In April 2010, the EPA adopted new emission standards for Category 3 marine diesel engines equivalent to those adopted in the amendments to Annex VI to MARPOL.  The emission standards apply in two stages:  near-term standards for newly-built engines apply as of 2011, and long-term standards requiring an 80% reduction in nitrogen dioxides (NOx) will apply beginning in 2016.  Compliance with these standards may cause us to incur costs to install control equipment on our vessels.
 
 

 
The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards.  Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment.  As indicated above, our vessels operating in covered port areas are already equipped with vapor recovery systems that satisfy these existing requirements.  Under regulations that became effective in July 2009, vessels sailing within 24 miles of the California coastline whose itineraries call for them to enter any California ports, terminal facilities, or internal or estuarine waters must use marine gas oil with a sulfur content equal to or less than 1.5% and marine diesel oil with a sulfur content equal to or less than 0.5%.  Effective January 1, 2014, all marine fuels must have sulfur content equal to or less than 0.1% (1,000 ppm).

The MEPC has designated the area extending 200 miles from the United States and Canadian territorial sea baseline adjacent to the Atlantic/Gulf and Pacific coasts and the eight main Hawaiian Islands as an ECA under the MARPOL Annex VI amendments.  The new ECA entered into force in August 2012, whereupon fuel used by all vessels operating in the ECA cannot exceed 1.0% sulfur, dropping to 0.1% sulfur in 2015.  From 2016, NOx after-treatment requirements will also apply.  Additional ECAs include the Baltic Sea, North Sea and Caribbean Sea.  If other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the EPA or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.

EUROPEAN UNION TANKER RESTRICTIONS

The European Union has adopted legislation that will:  (1) ban manifestly sub-standard vessels (defined as those over 15 years old that have been detained by port authorities at least twice in a six-month period) from European waters and create an obligation of port states to inspect vessels posing a high risk to maritime safety or the marine environment; and (2) provide the European Union with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies.  In addition, European Union regulations enacted in 2003 now prohibit all single hull tankers from entering into its ports or offshore terminals.

The European Union has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines.  The EU Directive 2005/EC/33 (amending Directive 1999/32/EC) introduced parallel requirements in the European Union to those in MARPOL Annex VI in respect of the sulfur content of marine fuels.  In addition, it has introduced a 0.1% maximum sulfur requirement for fuel used by ships at berth in EU ports, effective January 1, 2010.

The sinking of the oil tanker Prestige in 2002 has led to the adoption of other environmental regulations by certain European Union Member States.  It is difficult to predict what legislation or additional regulations, if any, may be promulgated by the European Union in the future.

GREENHOUSE GAS REGULATION

Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or UNFCCC, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions.  A new treaty could be adopted in the future, however, that includes restrictions on shipping emissions.  For example, the MEPC of IMO adopted two new sets of mandatory requirements to address greenhouse gas emissions from ships at its July 2011 meeting.  The Energy Efficiency Design Index requires a minimum energy efficiency level per capacity mile and will be applicable to new vessels, and the Ship Energy Efficiency Management Plan applies to currently operating vessels.  The requirements entered into force in January 2013 and could cause us to incur additional compliance costs.  In addition, the IMO is evaluating mandatory measures to reduce greenhouse gas emissions from international shipping, which may include market-based instruments or a carbon tax.  The European Union is considering an expansion of the existing European Union emissions trading scheme to include emissions of greenhouse gases from marine vessels.

In the United States, the EPA promulgated regulations in May 2010 that regulate certain emissions of greenhouse gases.  Although these regulations do not cover greenhouse gas emissions from vessels, the EPA may decide in the future to regulate such emissions and has already been petitioned by the California Attorney General and a coalition of environmental groups to regulate greenhouse gas emissions from ocean going vessels.  Other federal and state regulations relating to the control of greenhouse gas emissions may follow.  Any passage of climate control legislation or other regulatory initiatives by the IMO, EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions of greenhouse gases could require us to make significant financial expenditures that we cannot predict with certainty at this time.
 
 

 
VESSEL SECURITY REGULATIONS

As of July 1, 2004, all ships involved in international commerce and the port facilities that interface with those ships must comply with the new International Code for the Security of Ships and of Port Facilities, or “ISPS Code.”  The ISPS Code, which was adopted by the IMO in December 2002, provides a set of measures and procedures to prevent acts of terrorism, which threaten the security of passengers and crew and the safety of ships and port facilities.  All of our vessels have obtained an International Ship Security Certificate, or “ISSC,” from a recognized security organization approved by the vessel’s flag state and each vessel has developed and implemented an approved Ship Security Plan.

LEGAL PROCEEDINGS

The nature of our business, which involves the acquisition, chartering and ownership of our vessels, exposes us to the risk of lawsuits for damages or penalties relating to, among other things, personal injury, property casualty and environmental contamination.  Under rules related to maritime proceedings, certain claimants may be entitled to attach charter hire payable to us in certain circumstances.  There are no actions or claims pending against us as of the date of this report.

 
C.
ORGANIZATIONAL STRUCTURE

The following table sets forth our significant subsidiaries and the vessels owned or operated by each of those subsidiaries as of December 31, 2013.

Subsidiary
 
Vessel
 
State of Jurisdiction or Incorporation
 
Percent of Ownership
Ann Tanker Corporation
 
DHT Ann
 
Marshall Islands
 
100 %
Cathy Tanker Corporation
 
DHT Cathy
 
Marshall Islands
 
100 %
Chris Tanker Corporation
 
DHT Chris
 
Marshall Islands
 
100 %
DHT Chartering, Inc.
 
 
 
Marshall Islands
 
100 %
DHT Eagle, Inc.
 
DHT Eagle
 
Marshall Islands
 
100 %
DHT Management AS(1)
 
 
 
Norway
 
100 %
DHT Maritime, Inc.
 
 
 
Marshall Islands
 
100 %
DHT Phoenix, Inc.
 
DHT Phoenix
 
Marshall Islands
 
100 %
London Tanker Corporation
 
DHT Trader
 
Marshall Islands
 
100 %
Newcastle Tanker Corporation
 
DHT Target
 
Marshall Islands
 
100 %
Sophie Tanker Corporation
 
DHT Sophie
 
Marshall Islands
 
100 %

(1)
Formerly Tankers Services AS.

In connection with the acquisitions of the DHT Hawk and DHT Falcon in February 2014, we established two wholly-owned Hong Kong corporations: DHT Hawk Limited and DHT Falcon Limited, which own and operate the DHT Hawk and DHT Falcon, respectively.

With regards to the six newbuildings ordered at HHI, we will establish separate companies for each newbuilding.

 
D.
PROPERTY, PLANT AND EQUIPMENT

Refer to “Item 4. Information on the Company─Business Overview─Our Fleet” above for a discussion of our property, plant and equipment.

UNRESOLVED STAFF COMMENTS

None.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our consolidated financial statements, and the related notes included elsewhere in this report.  This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements based on assumptions about our future business.  Please see “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the risks, uncertainties and assumptions relating to these statements.  Our actual results may differ from those contained in the forward-looking statements and such differences may be material.
 
 

 
BUSINESS

We currently operate a fleet of ten crude oil tankers, all of which are wholly-owned by the company.  The fleet consists of six VLCCs, two Suezmax tankers and two Aframax tankers.  VLCCs are tankers ranging in size from 200,000 to 320,000 deadweight tons, or “dwt,” Suezmaxes are tankers ranging in size from 130,000 to 200,000 dwt and Aframaxes are tankers ranging in size from 80,000 to 120,000 dwt.  As of the date of this report, six of the vessels are on time charters and four are operating in the spot market.  The fleet operates on international routes and has a combined carrying capacity of 2,380,270 dwt and an average age of approximately 11.0 years.

We have entered into agreements with a technical manager, which is generally responsible for the technical operation and upkeep of our vessels, including crewing, maintenance, repairs and dry-dockings, maintaining required vetting approvals and relevant inspections, and to ensure our fleet complies with the requirements of classification societies as well as relevant governments, flag states, environmental and other regulations.  Under the technical ship management agreements, each vessel subsidiary pays the actual cost associated with the technical management and an annual management fee for the relevant vessel. For vessels chartered on a bareboat basis, the charterer generally is responsible for paying all operating costs.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The principal factors that affect our results of operations and financial condition include:

 
with respect to vessels on charter, the charter rate that we are paid;
     
 
with respect to the vessels operating in the spot market, the revenues earned by such vessels and cost of bunkers;
     
 
our vessels’ operating expenses;
     
 
our insurance premiums and vessel taxes;
     
 
the required maintenance capital expenditures related to our vessels;
     
 
the required capital expenditures related to newbuilding orders;
     
 
our ability to access capital markets to finance our fleet expansion;
     
 
our vessels’ depreciation and potential impairment charges;
     
 
our general and administrative and other expenses;
     
 
our interest expense including any interest swaps we may enter;
     
 
general market conditions when charters expire; and
     
 
prepayments under our credit facilities to remain in compliance with covenants.

Our revenues are principally derived from time charter hire and revenues earned by vessels operating in the spot market.  Freight rates are sensitive to patterns of supply and demand.  Rates for the transportation of crude oil are determined by market forces, such as the supply and demand for oil, the distance that cargoes must be transported and the number of vessels available at the time such cargoes need to be transported.  The demand for oil shipments is, amongst other, affected by the state of the global economy.  The number of vessels is affected by the construction of new vessels and by the retirement of existing vessels from service.  The tanker industry has historically been cyclical, experiencing volatility in freight rates, profitability and vessel values.

Our expenses consist primarily of vessel operating expenses, interest expense, depreciation expense, impairment charges, insurance premium expenses, vessel taxes, financing expenses and general and administrative expenses.

With respect to vessels on time charters, the charterers generally pay us charter hire monthly in advance.  With respect to the vessels operating in the spot market though pools, distributions of earnings are evaluated monthly and distributions are made monthly.  With respect to vessels operating directly in the spot market, our customers typically pay us the freight upon discharge of the cargo.  We fund daily vessel operating expenses under our technical ship management agreements monthly in advance.  We are required to pay interest under our secured credit facilities quarterly in arrears, insurance premiums either annually or more frequently (depending on the policy) and our vessel taxes annually.
 
 

 
OUTLOOK FOR 2014

Five years into the trough that commenced in 2008, we believe that 2013 represented a turning point.   The limited fleet growth in 2013 and expected limited fleet growth in 2014 and 2015 combined with continued demand growth is indicating a recovery in freight rates.  We expect the freight market for 2014 to be volatile but on average to be better than 2013.
 
We will continue to focus on prudent capital management and robust cash break-even levels for our fleet in combination with quality operations.  As of February 27, 2014, six of our vessels are operating with spot market exposure, either directly, on index based time charters or in tanker pools.  As we expect the market recovery to continue, we intend to increase our market exposure through the year.   The consequence of more spot market exposure activity could result in increased volatility in our revenues.
 
In line with our stated strategy, we started expanding the Company towards the end of 2013 and expect to continue expanding through 2014 with investments in additional vessels, potential corporate transactions and capital raises.
 
CRITICAL ACCOUNTING POLICIES

Our financial statements for the fiscal years 2013, 2012 and 2011 have been prepared in accordance with International Financial Reporting Standards, or “IFRS,” as issued by the International Accounting Standards Board, or the “IASB,” which require us to make estimates in the application of our accounting policies based on the best assumptions, judgments and opinions of management.  Following is a discussion of the accounting policies that involve a higher degree of judgment and the methods of their application.  For a complete description of all of our material accounting policies, see Note 2 to our consolidated financial statements for December 31, 2013, included as Item 18 of this report.

Revenue Recognition

During 2013, our vessels generated revenues from time charters, bareboat charters, by operating in pools and by operating in the spot market (voyage charters).  Revenues from time charters and bareboat charters are accounted for as operating leases and are recognized on a straight line basis over the periods of such charters, as service is performed.

For vessels operating in commercial pools, revenues and voyage expenses are pooled and the resulting net pool revenues, calculated on a time charter equivalent basis, are allocated to the pool participants according to an agreed formula.  Formulae used to allocate net pool revenues allocate net revenues to pool participants on the basis of the number of days a vessel operates in the pool with weighting adjustments made to reflect differing capacities and performance capabilities.  Net revenues generated from pools are recorded based on the net method.  These pools generate a majority of their revenue from voyage charters.

Within the shipping industry, there are two methods used to account for voyage revenues:  (i) ratably over the estimated length of each voyage and (ii) completed voyage.  The recognition of voyage revenues ratably over the estimated length of each voyage is the most prevalent method of accounting for voyage revenues and the method used by the pools in which we participate.  Under each method, voyages may be calculated on either a load-to-load or discharge-to-discharge basis.  In applying its revenue recognition method, management of each of the pools believes that the discharge-to-discharge basis of calculating voyages more accurately estimates voyage results than the load-to-load basis.  Since, at the time of discharge, management of each of the pools generally knows the next load port and expected discharge port, the discharge-to-discharge calculation of voyage revenues can be estimated with a greater degree of accuracy.  Revenues from time charters performed by vessels in the pools are accounted for as operating leases and are recognized on a straight line basis over the periods of such charters, as service is performed.  Each of the pools does not begin recognizing voyage revenue until a charter has been agreed to by both the pool and the customer, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.

We acquired our two Suezmax tankers on December 4, 2007 and January 28, 2008, respectively.  These vessels were on bareboat charters with subsidiaries of OSG until they were prematurely redelivered in December 2012 and January 2013, respectively, in connection with OSG’s chapter 11 bankruptcy proceedings.  Revenues from the bareboat charters were accounted for as operating leases and were recognized on a straight line basis over the periods of such charters, as the service was performed.

Vessel Lives

Commencing with the third quarter of 2012, we have assumed an estimated useful life of 20 years for our vessels, down from 25 years, as we believe this is a more reasonable estimate of useful life for our vessels in the current market environment.  The actual life of a vessel may be different and the useful lives of the vessels are reviewed at fiscal year end, with the effect of any changes in estimate accounted for on a prospective basis.  New regulations, further market deterioration or other future events could reduce the economic lives assigned to our vessels and result in higher depreciation expense and impairment losses in future periods.
 
 

 
With respect to our initial vessels (those we acquired at the time of our initial public offering in 2005), the carrying value of each vessel represents its original cost at the time it was delivered from the shipyard less depreciation calculated using an estimated useful life of 20 years from the date such vessel was originally delivered from the shipyard plus the cost of drydocking less impairment, if any.  The depreciation per day is calculated based on the vessel’s original cost less a residual value which is equal to the product of the vessel’s lightweight tonnage and an estimated scrap rate per ton.  Capitalized drydocking costs are depreciated on a straight-line basis from the completion of a drydocking to the estimated completion of the next drydocking.  The vessels are required by their respective classification societies to go through a dry dock at regular intervals.  In general, vessels below the age of 15 years are docked every 5 years and vessels older than 15 years are docked every 2 1/2 years.

With respect to our two Suezmax tankers and our two VLCCs acquired following our IPO, the carrying value of each vessel represents the cost to us when the vessel was acquired less depreciation calculated using an estimated useful life of 20 years from the date such vessel was originally delivered from the shipyard less impairment.

Carrying Value and Impairment

The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of constructing new vessels.  Historically, both charter rates and vessel values have been cyclical.  The carrying amounts of vessels held and used by us are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a particular vessel may not be fully recoverable.  In such instances, the vessel is considered impaired and is written down to its recoverable amount.  In evaluating impairment under IFRS, we consider the higher of (i) fair market value less cost of disposal and (ii) the present value of the future cash flows of a vessel, or “value in use.”  The fair market value of our vessels is monitored by obtaining  charter-free broker valuations as of specific dates.  This assessment has been made at the individual vessel level.

In developing estimates of future cash flows, we must make significant assumptions about future charter rates, future use of vessels, ship operating expenses, drydocking expenditures, utilization rate, fixed commercial and technical management fees, residual value of vessels, the estimated remaining useful lives of the vessels and the discount rate.  These assumptions, and in particular for estimating future charter rates, are based on historical trends, current market conditions, as well as future expectations.  Estimated outflows for ship operating expenses and drydocking expenditures are based on a combination of historical and budgeted costs and are adjusted for assumed inflation.  Utilization, including estimated off-hire time, is based on historical experience.

The more significant factors that could impact management’s assumptions regarding time charter equivalent rates include (i) unanticipated changes in demand for transportation of crude oil cargoes, (ii) changes in production of or demand for oil, generally or in specific regions, (iii) greater than anticipated levels of tanker newbuilding orders or lower than anticipated levels of tanker scrappings and (iv) changes in rules and regulations applicable to the tanker industry, including legislation adopted by international organizations such as IMO and the EU or by individual countries and vessels’ flag states.  Please see our risk factors under the headings “Vessel values and charter rates are volatile.  Significant decreases in values or rates could adversely affect our financial condition and results of operations” and “The highly cyclical nature of the tanker industry may lead to volatile changes in charter rates from time to time, which may adversely affect our earnings” in Item 3.D of this report for a discussion of additional risks relating to the volatility of charter rates.

Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate at the time they were made, such assumptions are highly subjective and likely to change, possibly materially, in the future.  Reasonable changes in the assumptions for the discount rate or future charter rates could lead to a value in use for some of our vessels that is equal to or less than the carrying amount for such vessels.  There can be no assurance as to how long charter rates and vessel values will remain at their current levels or whether or when they will improve by any significant degree.  Charter rates may remain at current levels for some time, which could adversely affect our revenue and profitability, and future assessments of vessel impairment.

When calculating the charter rate to use for a particular vessel class in its impairment testing, we rely on the contractual rates currently in effect for the remaining term of existing charters and estimated daily time charter equivalent rates for each vessel class for the unfixed days over the estimated remaining useful lives of each of the vessels.  The estimated daily time charter equivalent rates used for unfixed days are based on (i) the current one-year time charter rate for the first three years estimated by brokers and (ii) the 10-year historical average one-year time charter rate reduced by 10% (to reflect the age of the vessels) thereafter.
 
 

 
In 2013, the impairment tests performed did not result in any impairment charge. The impairment test as of December 31, 2013 was performed using an estimated WACC of 8.83% (2012: 8.39%). As DHT operates in a non-taxable environment, the WACC is the same on a before- and after-tax basis.  The charter rates used for the impairment test as of December 31, 2013 for the first three years were $27,000 per day, $18,000 per day and $14,500 per day (being the current one-year time charter rate for the first three years estimated by brokers), for VLCC, Suezmax and Aframax, respectively. Thereafter the charter rates used were $40,115 per day, $29,767 per day and $22,378 per day (being the 10-year historical average one-year time charter rate reduced by 10% (to reflect the age of the vessels), for VLCC, Suezmax and Aframax, respectively. For vessels on charter we assumed the contractual rate for the remaining term of the charter.  If the estimated WACC had been 1% higher, the impairment charge for as of December 31, 2013 would have been $2.9 million.  If the estimated future net cash flows after the expiry of fixed charter periods had been 10% lower, the impairment charge would have been $14.6 million. Also, had we used the one-, three- and five-year historical average one-year time charter rates instead, the impairment charge as of December 31, 2013 would have been $131.3 million, $102.8 million and $27.4 million, respectively.  Historical averages for periods 10 years and longer would not have resulted in any impairment charge.

During the third quarter of 2012, we adjusted the carrying value of our fleet through a non-cash impairment charge of $92.5 million in connection with the effect of the continued weak tanker market has on the value of our vessels and following OSG’s announcement regarding its solvency and anticipation of OSG’s rejection of the long-term bareboat charters for DHT Target (formerly Overseas Newcastle) and DHT Trader (formerly Overseas London).  The impairment test was performed on each individual vessel using an estimated weighted average cost of capital, or “WACC,” of 8.39%.  If the estimated WACC had been 1% higher, the impairment charge for that quarter would have been $103.5 million and if the estimated WACC had been 1% lower, the impairment charge for that quarter would have been $80.4 million.  If the estimated future net cash flows after the expiry of fixed charter periods had been 10% lower, the impairment charge would have been $129.8 million.  A key change from previous impairment tests was that we assumed an estimated useful life of 20 years, down from 25 years, and a reassessment of the long-term bareboat charters with OSG due to the announcement by OSG regarding its solvency.  Commencing with the third quarter of 2012, we have applied the estimated useful life of 20 years when calculating depreciation.

As a result of the decline in charter rates and vessel values during the fourth quarter of 2012, we performed an impairment test of our fleet using the value in use method as of December 31, 2012.  The impairment test resulted in an impairment charge during that quarter of $8.0 million.  This impairment charge related to a single vessel, the DHT Regal, which we had taken steps to sell and reflected the difference between the carrying value of the vessel as of December 31, 2012 and our estimate of the vessel’s fair market value less cost to sell.  In March 2013, we entered into an agreement to sell the DHT Regal for $23.0 million and the vessel was delivered to the buyers on April 29, 2013.

The following chart summarizes the charter rates used by us in our impairment testing as of December 31, 2013, together with the break even rates, for our fleet on a vessel class-by-class basis.

Vessel Class
Charter Rate Used First Three Years(1)
Charter Rate Used Thereafter(1)
Break Even Rate(2)
Actual Rate 4Q 2012 (3)
Charter Rate Used After Year 3 as Compared with Break Even Rate
 
(Dollars per day)
(Dollars per day)
(Dollars per day)
(Dollars per day)
(as percentage above)
VLCC
27,000
40,115
29,450
19,702
36.2%
Suezmax
18,000
29,767
23,200
14,306
28.3%
Aframax
14,500
22,378
19,000
12,639
17.8%

(1)
For vessels on charter we have assumed the contractual rate for the remaining term of the charter.  As for estimates for future charter rates, we have assumed a) the estimated current one-year time charter rate for the first three years and b) the 10-year historical average one-year time charter rate reduced by 10% (to reflect the age of the vessels) thereafter.
(2)
The break even rate is the rate that provides a discounted total cash flow equal to the carrying value of the vessel.
(3)
The actual rate is the average rate achieved by our vessels in the fourth quarter of 2013.

In addition, the following chart sets forth our fleet information, purchase prices, carrying values and estimated fair market values as of December 31, 2013.

                     
Estimated Fair Market Value* (12/31/2013)
Vessel
Built
Vessel Type
Purchase Date
Purchase Price
Carrying Value (12/31/2013)
 (Dollars in thousands)
 
 
 
 
 
 
 
 
DHT Ann**
 
2001
 
VLCC
 
Oct. 2005
 
   124,829
 
   39,575
     33,000
DHT Chris**
 
2001
 
VLCC
 
Oct. 2005
 
   124,829
 
   40,738
     33,000
DHT Cathy**
 
2004
 
Aframax
 
Oct. 2005
 
     70,833
 
   23,791
     22,000
DHT Sophie**
 
2003
 
Aframax
 
Oct. 2005
 
     68,511
 
   24,494
     19,000
DHT Target
 
2001
 
Suezmax
 
Dec. 2007
 
     92,700
 
   26,734
     25,000
DHT Trader
 
2000
 
Suezmax
 
Jan. 2008
 
     90,300
 
   26,090
     22,000
DHT Phoenix
 
1999
 
VLCC
 
Mar. 2011
 
    55,000
 
   33,287
     27,000
DHT Eagle
 
2002
 
VLCC
 
May 2011
 
    67,000
 
   48,433
     37,000

*
Estimated fair market value is provided for informational purposes only. These estimates are based solely on third-party broker valuations as of the balance sheet date and may not represent the price we would receive upon sale of the vessel.  As a result of the vessels’ increasing age and market development, further decline in vessel values could be expected in 2014.
**
Purchase price is pro rata share of en bloc purchase price paid for vessels in connection with our initial public offering (“IPO”) in October 2005.
 
 

 
With respect to most of our vessels, we believe the fair market value was less than their carrying value as of December 31, 2013 and that the aggregate amount of this deficit as of December 31, 2013 for our vessels was approximately $45.1 million.  However, when we consider the value of the discounted cash flows (value in use) we believe that the recoverable amount for each of our vessels (as measured by such vessel’s value in use) was equal to or exceeded the applicable carrying value as of December 31, 2013.  Please see our risk factor under the heading “The value of our vessels may be depressed at a time when and in the event that we sell a vessel” in Item 3.D of this report for a discussion of additional risks relating to fair market value in assessing the value of our vessels.

For comparative purposes, if the cash flows had not been discounted as permitted under U.S. GAAP (as opposed to IFRS), the aggregate value based on undiscounted cash flows in use as of December 31, 2013 would have been $208.5 million higher than the aggregate carrying value.

Stock Compensation

Employees of the company receive, amongst others, remuneration in the form of restricted common stock that is subject to vesting conditions.  Equity-settled share based payment is measured at the fair value of the equity instrument at the grant date and is expensed on a straight-line basis over the vesting period.  In March 2013 a total of 278,000 shares of restricted stock were awarded to management and the board of directors vesting with equal amounts in September 2013 and March 2014 subject to continued employment or office, as applicable. The calculated fair value at grant date was 90.0% of the share price at grant date.  In June 2013 a total of 155,000 shares of restricted stock were awarded to management vesting with equal amounts in December 2015, 2016 and 2017 subject to continued employment. The calculated fair value at grant date was 95.0% of the share price at grant date.  In June 2013 a total of 155,000 shares of restricted stock were awarded to management vesting subject to continued employment and market conditions and the calculated fair value at grant date was 85.9% of the share price at grant date calculated using a Monte Carlo Simulation.  The main inputs to the simulation were as follows: share price of $4.37, expected volatility of 64% based on historical volatility, life of 5 years and risk free rate of 1.11%. Expected dividends are not included as the holder is compensated for dividends paid during the vesting period. In June 2013 a total of 310,000 stock options were awarded to management vesting subject to continued employment on the exercise date. The calculated fair value at grant date was 30.0% for 155,000 of the stock options and 22.3% for 155,000 of the stock options, respectively calculated using a Black & Scholes option pricing model. The main inputs to the model were as follows: share price of $4.37, exercise price of $7.75 and $10.70, respectively, expected volatility of 59% based on historical volatility, option life of 5 years and risk free rate of 0.83%. Expected dividends are not included as the strike price is adjusted for dividends paid.  In March 2012 and September 2011, a total of 91,667 shares of restricted stock were awarded to management and the board of directors, subject to vesting conditions, of which 55,000 shares vest based on continued employment or office, as applicable, and 36,667 shares vest based on continued employment or office, as applicable, and market conditions (prior to the modification as further described below). The calculated fair value at grant date was 82.2% and 42.5%, respectively, of the share price at grant date calculated using an option pricing model which includes various assumptions including estimated volatility of 33%, based on historical volatility as well as assumed future dividends.  Restricted stock grant figures have been adjusted for the 12-for-1 reverse stock split that became effective as of the close of trading on July 16, 2012.
 
In March 2013, the vesting criteria for all outstanding restricted share grants that vest subject to continued employment with us and certain market conditions was changed to be subject to continued employment only. The change resulted in an increase in the fair value of the restricted shares.
 
 
 

 
RESULTS OF OPERATIONS

Income from Vessel Operations

Shipping revenues decreased by $10.2 million, or 10.5%, to $87.0 million in 2013 from $97.2 million in 2012.  The decrease in revenues was mainly due to a reduction in the fleet from 12 vessels as of January 1, 2012 to eight vessels as of May 2013 which resulted in total revenue days declining from 3,772 in 2012 to 2,986 in 2013 and vessels coming off fixed rate charters offset by the $15.4 million related to the sale of the claim against OSG recorded as shipping revenues in the fourth quarter 2013. Shipping revenues decreased by $2.9 million, or 2.9%, to $97.2 million in 2012 from $100.1 million in 2011.  This decrease is due to weaker freight markets, expiry of charters with rates higher than those available in the spot market and the sale of two vessels during the year, which resulted in total revenue days declining from 3,949 in 2011 to 3,772 in 2012.  In 2012 and 2013 there was no profit sharing under our profit-sharing arrangements.

Voyage expenses increased by $14.6 million to $25.4 million in 2013 from $10.8 million in 2012. The increase was due to more vessels operating in the spot market after coming off time charters and bareboat charters. Voyage expenses increased by $9.5 million to $10.8 million in 2012 from $1.3 million in 2011.  The increase is related to certain vessels operating in the spot market following expiry of charters during 2012.

Vessel operating expenses increased by $0.5 million to $24.9 million in 2013 from $24.4 million in 2012. The increase is related to the two Suezmax vessels ending their bareboat charters and now being operated by us offset by the reduction in size of the fleet. Vessel operating expenses decreased by $6.4 million in 2012, to $24.4 million from $30.8 million in 2011.  This decrease was due the sale of two vessels during 2012 as well as lower ongoing vessel expenses.  
 
There was no charter hire expense during 2013. Charter hire expense increased by $0.7 million to $6.9 million in 2012 from $6.2 million in 2011.  The increase in charter hire expenses relates to the charter of the Venture Spirit, which was redelivered to its owner in September 2012.

Depreciation and amortization expenses, including depreciation of capitalized dry docking costs decreased by $5.9 million to $26.2 million in 2013 from $32.1 million in 2012. The decline was due to the reduction in the fleet size and the impairment charge of $100.5 million in 2012. We had loss on sale of vessels of $0.7 million in 2013 compared to $2.2 million in 2012. Commencing with the third quarter of 2012 we changed the estimated useful life of the vessels for the calculation of depreciation from 25 years to 20 years. Depreciation and amortization increased by $1.8 million in 2012 to $32.1 million from $30.3 million in 2011, mainly as a result of the change in estimated useful life of the vessels for the calculation of depreciation from 25 years to 20 years partly offset by lower depreciation due to the sale of two vessels during the second quarter of 2012 and the $100.5 million impairment charge recorded in 2012.

There was no impairment charge in 2013. Impairment charge increased from $56 million in 2011 to $100.5 million in 2012.  Please refer to Item 5 – “Operating and Financial Review and Prospects – Critical Accounting Policies – Carrying Value and Impairment” for a discussion of the key reasons for the change in impairment charge from 2011 to 2012.

General and administrative expenses in 2013 was $8.8 million (of which $3.2 million was non-cash cost related to restricted share agreements for our management and board of directors), compared to $9.8 million in 2012 (of which $0.9 million was non-cash). The decrease was due to lower expenses related to incentive compensation in 2013.  General and administrative expenses increased by $0.6 million to $9.8 million in 2012 (of which $0.9 million was non-cash) from $9.2 million in 2011 (of which $0.9 million was non-cash).  The increase in 2012 was mainly due to a high level of activity during the year including the backstopped equity offering in May 2012 and the OSG chapter 11 filing.

General and administrative expenses for 2013, 2012 and 2011 include directors’ fees and expenses, the salary and benefits of our executive officers, legal fees, fees of independent auditors and advisors, directors and officers insurance, rent and miscellaneous fees and expenses.

Interest Expense and Amortization of Deferred Debt Issuance Cost

Net financial expenses were $4.9 million in 2013 compared to $4.4 million in 2012. The increase is mainly due to a gain on derivative financial instruments in 2012 offset by lower interest expenses in 2013 as a result of reduction in long term debt. Interest expense was unchanged at $7.3 million in 2012 compared to 2011.
 
 

 
LIQUIDITY AND SOURCES OF CAPITAL

We operate in a capital-intensive industry. Our use of cash relate to our operating expenses, charter hire expense, payments of interest, payments of insurance premiums, payments of vessel taxes, the payment of principal under our secured credit facilities, capital expenses related to periodic maintenance of our vessels and investment in vessels including newbuilding contracts.  In addition to investing cash generated from operations in vessels including newbuilding contracts, we also finance our vessel acquisitions with a mix of debt secured by the vessel and the sale of equity.  We fund our working capital requirements with cash from operations.  We collect our time charter hire from our vessels on charters monthly in advance and fund our estimated vessel operating costs monthly in advance.  We receive cash distributions related to the vessels operating in pools in arrears.  With respect to vessels operating in the spot market, the charterers typically pay us upon discharge of the cargo.

Since 2011, we have paid the dividends set forth in the table below.  The aggregate and per share dividend amounts set forth in the table below are not expressed in thousands.  Dividends are subject to the discretion of our board of directors.

Operating period
 
Total Payment
 
Per common share**
   
Per preferred share**
 
Record date
   
Payment date
 
Jan. 1-March 31, 2011
 
$
6.4 million
 
$
1.20
 
 
-
 
Apr. 29, 2011