Contents. In review. Performance Our organization and governance

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2 Contents In review 1 Company overview 1 Financial calendar 2 Goals and strategies 3 Corporate responsibility 4 Vision and values Performance Board of Directors report 12 Directors responsibility statement 13 Consolidated accounts 33 Parent company accounts 40 Auditor s report 42 Shares and shareholder matters Our organization and governance 44 Corporate governance 48 Presentation of the Board of Directors 50 Presentation of the Management Team 52 Company information

3 In review Company overview This is Aker Philadelphia Shipyard Aker Philadelphia Shipyard is a leading U.S. commercial shipyard constructing vessels for operation in the Jones Act market. It possesses a state-of-the-art shipbuilding facility and has earned a reputation as a preferred provider of ocean-going merchant vessels with a track record of delivering quality ships. Aker Philadelphia Shipyard ASA is headquartered in Oslo, Norway with an operating subsidiary in Philadelphia, Pennsylvania, USA. The company constructs merchant vessels for operation in the U.S. Jones act market (trade between U.S. ports). Aker Philadelphia Shipyard ASA was listed on Oslo Axess* in December Converto Capital Fund AS, an investment fund controlled by Aker ASA, is the majority shareholder, holding 71.2% of the shares. Elements contributing to success: State-of-the-art shipyard with modern equipment Access to global shipbuilding expertise through agreements with Hyundai Mipo Dockyard and Samsung Heavy Industries A solid track record demonstrated by the delivery of sixteen quality vessels (four containerships, twelve product tankers) Skilled workforce consisting of direct and contracted employees * Regulated and authorized market under the auspices of the Oslo Stock Exchange (Oslo Børs). Highlights Secured financing for construction of two product tankers Agreements reached between APSI and the Philadelphia Shipyard Development Corporation, Caterpillar Financial Services Corporation and Aker ASA, enable the yard to finance construction of two additional product tankers, Hulls 017 and 018. Successful completion of tanker series The Overseas Tampa was delivered in April, marking the successful conclusion of a historic shipbuilding program that began in It was the largest commercial ship construction effort in the United States since World War II. New contract signed Agreement signed with SeaRiver Maritime, Inc., the U.S. marine affiliate of Exxon Mobil Corporation, for two aframax tankers for use in transporting Alaskan North Slope crude oil from Prince William Sound to the U.S. West Coast. New union agreement New union agreement to extend into Financial calendar April Annual general meeting 3 May 1 st quarter interim results 10 August 2 nd quarter interim results 31 October 3 rd quarter interim results Aker Philadelphia Shipyard annual report

4 In review Goals and Strategies Goals and Strategies Be the premier provider of merchant vessels in the U.S. Jones Act market Zero Incidents We will make a personal commitment to embrace safety as our first core value We will never compromise safety We will communicate our safety goals and objectives We will focus on improving safety performance Improving Productivity We will maintain our culture of continuous improvement We will measure our performance and improvements for everything we do We will always strive to be better and never accept that things are good enough We will create accountability at all levels of the organization for our performance Deliver on Our Promises We will be genuine and transparent in our commitments to our stakeholders We will deliver on-time and to the expected standard for both internal and external customers We will be a trusted and preferred partner Market Leader We will evaluate existing and new market segments We will evaluate best in class designs from world class shipbuilding partners We will target taking a leading position within attractive market segments by weighing short-term benefits versus long-term opportunities and value creation 2 Aker Philadelphia Shipyard annual report 2011

5 In review Corporate responsibility Demonstrating corporate responsibility Aker Philadelphia Shipyard s overriding corporate responsibility is concern for the communities that we are a part of. We strive to provide products and services in a safe, environmentally sound, ethical, and socially responsible manner. Our commitment Aker Philadelphia Shipyard makes the following commitments to its customers, shareholders, employees, and the communities in which we operate. The way in which we achieve growth and profitability is as important as the achievements themselves. Aker Philadelphia Shipyard intends to be recognized for promoting sustainability and responsible operations that are driven by both financial performance and social responsibility. We meet the needs of today s customers without harming future generations. Our corporate values and ethical guidelines make responsibility an integral facet of our business. Constant awareness and responsive actions by Aker Philadelphia Shipyard instill confidence among employees, investors, customers, suppliers, cooperation partners, and the communities of which we are a part. Dedication, knowhow, and performance make our company the preferred partner. Aker Philadelphia Shipyard is committed to good corporate citizenship and operates according to fundamental standards for workplace safety, ethical conduct, and sound business practices. We are inspired by internationally promulgated standards and guidelines such as the UN s Global Compact, the Global Reporting Initiative (GRI), and OECD guidelines. The following five key points summarize how Aker Philadelphia Shipyard daily implements its corporate social responsibility policy. Expertise: On a daily basis, we share know-how and experience with our suppliers and employees. We continually hone our state-of-the-art expertise and find new, effective solutions in various operations and implement them in deliveries. People: A competent, motivated workforce, working toward common goals, is key. Diversity with regard to culture, religion, and ethnicity makes us stronger and more adaptive. We help each employee reach his or her full potential and take personal responsibility for health, safety, and the environment. Cooperation, quality-consciousness, and mutual respect further Aker Philadelphia Shipyard s commitment to protect individual rights and the interests of the company s stakeholders, our local communities, and the environment. Environment: We work systematically to reduce emissions and minimize environmental stress at Aker Philadelphia Shipyard and in our products and services. The greatest long-term service we can perform for the environment is to develop and deliver technologies, products, and solutions that are consistent with sustainable development. Integrity: Success at Aker Philadelphia Shipyard depends on a reliable, wellfunctioning business climate. Our six core values help ensure integrity and adherence to high ethical standards. Potential ethical dilemmas are discussed, sharpening awareness of our guidelines and generating improvements. We never stop building a culture that values honesty, openness, and transparency. We are trustworthy and reliable. Society: Through profitable investments, Aker Philadelphia Shipyard establishes good relations with the communities in which we operate. A safe workplace and the desirable economic ripple effects it propagates is an important contributor to the development of local and regional businesses. Aker Philadelphia Shipyard wants to be a good neighbor. Our customers can expect Outstanding health, safety, and environmental performance To be listened to and understood Competitive, on-time quality deliveries An open, long-term and mutually beneficial relationship High ethical standards and integrity Our shareholders can expect To be part of an active and valuecreating ownership, full of energy and determination A decisive management that closely supervises business activities, delivers solid profits, and inspires confidence Transparency accurate, consistent, and timely presentation of financial and other relevant information Sound corporate governance Our employees can expect A safe and inspiring working environment Challenging work assignments and opportunities for growth A working environment in which diversity is appreciated Competitive compensation, relative to the markets in which they work To be treated fairly and with respect The communities in which we operate can expect Local and regional value creation Respect for its inhabitants, laws, and culture Value-adding relationships with local partners, subcontractors, and suppliers Socially responsible business conduct, integrity, and high ethical standards Openness an open agenda, transparency, and reliability Aker Philadelphia Shipyard annual report

6 In review Vision and values Unity and commitment Aker Philadelphia Shipyard s business activities build on our six corporate values, which are shared by other Aker companies. Aker s corporate values support and guide dayto-day priorities and decision-making. Acting in accordance with our corporate values promotes sound attitudes and performance every day. Shared corporate values also reinforce the bonds among Aker companies. Our employees dedication and know-how allow Aker Philadelphia Shipyard to deliver on its commitments to customers, employees, and the communities in which we work. The values that we share have long traditions. They originated among Aker companies, and have steadily evolved over time, always reflecting the work of the generations at Aker. Although the companies that comprise Aker generally engage in distinctly different businesses, they share many common cultural features. An effective corporate culture must remain dynamic and responsive. Thus, it is with a combination of humility and pragmatism that Aker Philadelphia Shipyard works to strengthen and cultivate its shared values. Solid values are the foundation that enables Aker companies to achieve sustainable, longterm industrial development. People who speak the same language cooperate more easily within their business areas, throughout the company, and across Aker company borders. People and teams All our major achievements are team efforts Open and direct dialogue We encourage early and honest communication HSE mindset We take personal responsibility for HSE because we care Our values Hands-on management We know our business and get things done Customer drive Building customer trust is key to our business Delivering results We deliver consistently and strive to beat our goals Aker Philadelphia Shipyard Our values in context HSE mindset We take personal responsibility for HSE because we care We maintain an unrelenting goal of zero incidents in HSE matters We work safely in a manner that protects and promotes the health and well-being of our employees and the environment We obey HSE guidelines and rules in recognition that they are for the health and benefit of our employees, and are not intended to be restrictive or counterproductive Every employee works proactively to improve on his/her performance and the performance of those around them We build customer trust by delivering projects on time and on budget, and at the agreed levels of quality We recognize that Customer drive Building customer trust is key to our business every employee at Aker Philadelphia Shipyard is in a customer-supplier relationship We know our customer s business and we are a flexible, competent and reliable partner at every project phase We deliver on time and within budget, to our customer s satisfaction On all levels of a project, it is the final result that Delivering results We deliver consistently and strive to beat our goals counts, and we strive to deliver more than our stakeholders expect and do it right the first time We make optimal use of resources and adhere to proven, defined processes in order to produce a superior product We are proactive and energetic, and we strive to generate return on the assets entrusted to us by our stakeholders 4 Aker Philadelphia Shipyard annual report 2011

7 In review Vision and values We recognize our roles and responsibilities, take ownership and accept the consequences of our actions We act with a sense of ownership in our workplace Hands-on management We know our business and get things done We encourage an environment of risk taking within the context of accountability We are professional and proactive, and discover problems early on We are committed to honest and sincere communications among all employees, creating an Open and direct dialogue We encourage early and honest communication environment in which ideas are fostered and shared We speak our opinion and fight for our ideas, but once the relevant decisions are made, we work together and focus all of our energy on execution We convey information so that everyone in our company can better understand our business, our objectives and our performance We deal with errors and improvements frankly and constructively We believe a teamwork relationship among a diverse collection of employees is the way to productivity and continuous improvement People and teams All our major achievements are team efforts We work in an inclusive environment that embraces change, new ideas, respect for the individual and equal opportunity to succeed We are team players, willing to share and utilize common knowledge We empower people and provide opportunities for personal development in an energetic and challenging atmosphere Aker Philadelphia Shipyard annual report

8 Board of Directors report Board of Directors report 2011 Aker Philadelphia Shipyard ASA and its subsidiaries (referred to herein as AKPS or the Company ) is a leading shipbuilder in the U.S. Jones Act market. During 2011, Aker Philadelphia Shipyard, Inc. (referred to herein as APSI or the Shipyard ), the sole operating subsidiary of AKPS, delivered one product tanker, the Overseas Tampa, which represented the final tanker in the Shipyard s twelve-tanker series and the sixteenth new build to be delivered by the Shipyard since its inception. On 31 March 2011, APSI formally closed the transactions contemplated by the Authorization Agreement (the Authorization Agreement ) signed in mid-december 2010 between APSI and the Philadelphia Shipyard Development Corporation ( PSDC ). The closing of the transactions, in conjunction with construction loans provided by Caterpillar Financial Services Corporation ( Cat Financial ) and Aker ASA, secured the yard s ability to finance the construction of two product tankers, Hulls 017 and 018. Additionally, on 29 September 2011, APSI and SeaRiver Maritime, Inc. ( SeaRiver ), Exxon Mobil Corporation s U.S. maritime affiliate, executed definitive documentation for the construction of two aframax tankers, Hulls 019 and 020. The tankers are intended to be used to transport Alaskan North Slope crude oil from Prince William Sound, Alaska to the U.S West Coast. Construction of the first vessel is expected to begin by March 2012 and both vessels are scheduled for delivery in For the year ended 31 December 2011, AKPS realized operating revenues of USD 30.6 million, a decrease of 86% from 2010 and earnings before interest, taxes, depreciation, and amortization (EBITDA) of negative USD 3.2 million, compared to EBITDA of USD 18.9 million in The reduction in revenues and EBITDA is driven by the completion by APSI of its twelve-tanker series in the second quarter of 2011 and the construction by APSI of Hulls 017 and 018 for its own account, which defers all revenue recognition until sale and delivery of each vessel. Converto Capital Fund AS (formerly named Aker Capital Fund AS), an investment fund controlled by Aker ASA, is the majority shareholder in Aker Philadelphia Shipyard ASA owning 71.2% of its total outstanding shares as of 31 December Activities The main entities in the Aker Philadelphia Shipyard ASA Group are the Norwegian holding company, Aker Philadelphia Shipyard ASA, and the U.S. operating subsidiary, APSI, a leading U.S. commercial shipyard. Aker Philadelphia Shipyard ASA is located in Oslo, Norway, while APSI is located in Philadelphia, Pennsylvania, USA. As of 31 December 2011, APSI s workforce consisted of 646 people, with an approximate breakdown of 455 direct employees and 191 subcontracted personnel. AKPS s business strategy for APSI is to build merchant vessels for operation in the U.S. Jones Act market. The Company delivered the final vessel in its twelvetanker series for American Shipping Company ASA ( AMSC ) and Overseas Shipholding Group, Inc. ( OSG ) in April The Company is currently building two additional product tankers for its own account which will be followed by the two aframax vessels for SeaRiver. Cost efficient and cost competitive construction of new vessels is critical for the success of AKPS s business model. There are several factors that position AKPS to capitalize on this market: a state-of-the-art shipyard with modern equipment; access to global shipbuilding expertise with Hyundai Mipo Dockyard and Samsung Heavy Industries; and a solid track record as indicated through the delivery of four container vessels to Matson Navigation Company and twelve product tankers to AMSC and OSG. The Jones Act market U.S. coastwise law, commonly referred to as the Jones Act, requires all commercial vessels transporting merchandise between ports in the United States to be built, owned, operated and manned by U.S. citizens and to be registered under the U.S. flag. The Master Agreement, Shipyard Lease and Authorization Agreement with PSDC APSI currently operates its shipyard under a 99-year lease with PSDC, a governmentsponsored non-profit corporation. A Master Agreement, a Shipyard Lease and an Authorization Agreement govern APSI s relationship with PSDC and the various governmental parties that have contributed to the establishment of the Shipyard. Under the Master Agreement, the governmental parties have provided approximately USD 438 million for the renovation and modernization of the facility and training of the workforce. APSI was required to make certain qualified infrastructure investments totaling USD 135 million, which have been fully satisfied. APSI was also required to match government funding for certain training costs totaling USD 50 million, which has been fulfilled. Under the Shipyard Lease, PSDC has the right to recapture the Shipyard if APSI fails to maintain an average of at least 200 full-time employees at the Shipyard for 90 consecutive days, subject to the right of APSI to complete work-in-process projects and a one-time, limited cure right which allows APSI to restore the lease to a 5-year term under certain circumstances. With the current business plan, the Company considers it unlikely that this termination event will be triggered as long as there is ongoing shipbuilding activity at the Shipyard. Under the Authorization Agreement, APSI is obligated to construct Hulls 017 and 018 in accordance with their current production schedules. If those ships are not completed before certain agreed-upon 6 Aker Philadelphia Shipyard annual report 2011

9 Board of Directors report deadlines, as extended for events of force majeure, then PSDC may require APSI to pay liquidated damages of up to USD 35 million per ship. APSI s obligation to pay the liquidated damages is guaranteed to PSDC by Aker ASA. Strategy AKPS will, through its unique partnerships and experience obtained during construction of the series of product tankers, continue the development of APSI s position to be the most efficient shipyard in the U.S. Jones Act market for production of merchant vessels. AKPS expects its powerful resume to facilitate possibilities for profitable construction of vessels within existing and new market segments. AKPS will continue to monitor and evaluate how to derive the maximum benefit from its competitive advantage and market share. APSI will also pursue fabrication opportunities outside of traditional shipbuilding where its core competencies in steel fabrication, heavy lifting, and project management are advantageous. Key events 2011 On 18 January 2011, a new four-year collective bargaining agreement was ratified by the Philadelphia Metal Trades Council, which represents the eleven unions at the Shipyard. This new labor contract will extend until 31 January On 31 March 2011, PSDC and APSI closed the transactions contemplated by the Authorization Agreement dated 15 December 2010 and effective as of 18 February 2011 (the Authorization Agreement ). Pursuant to the Authorization Agreement, PSDC purchased certain shipyard assets from APSI for a purchase price of USD 42 million, payable in two equal tranches, with funds provided by the Commonwealth of Pennsylvania. APSI will lease back those same assets from PSDC subject to the terms of its shipyard lease and the Authorization Agreement. APSI will use the sale proceeds, in combination with construction period financing with private lenders described below and its own available funds, to construct Hulls 017 and 018. For accounting purposes the transaction will be accounted for as a sale/leaseback under a financial lease and no adjustments were made to the accounting value of the assets at closing. The proceeds from the sale must be used to construct Hull 017 and Hull 018. In conjunction with the closing, Aker ASA, which indirectly owns 71.2% of the shares of AKPS, agreed to make a USD 30 million subordinated construction loan to APSI with funding to be in two tranches of USD 15 million each. The loan is subject to customary disbursement conditions. Interest will be paid at maturity and the interest rate is on market terms. The loan is secured by a second lien on Hulls 017 and 018. Additionally, in conjunction with the transaction, PIDC Regional Center, LP XV (the Welcome Fund ) agreed to restructure its USD 20 million loan to, among other things, extend its maturity and secure it with a second lien on Hulls 017 and 018. In connection with the closing, the City of Philadelphia agreed to temporarily defer USD 8 million in tax payments due from APSI over three years, commencing in The full deferral is due in For additional details regarding the Authorization Agreement and related transactions described above, refer to note 24. The final product tanker in the 12-tanker series for AMSC and OSG was delivered in April 2011, and formally named the Overseas Tampa. On 1 June 2011, APSI entered into a loan agreement with Caterpillar Financial Services Corporation ( Cat Financial ) for credit facilities totaling USD 80 million to partially fund construction of Hulls 017 and 018. The loan is subject to customary disbursement conditions. Interest will be paid quarterly in arrears and the interest rate is on market terms. The loan is secured by a first lien on Hulls 017 and 018. The loan is also secured by a performance guaranty by Aker ASA. This loan completed all of the financing required to build those vessels. At 31 December 2011 Hull 017 was being constructed in the dock and Hull 018 was progressing in the shops. Additionally, on 29 September 2011, APSI and SeaRiver Maritime, Inc. ( SeaRiver ), Exxon Mobil Corporation s U.S. maritime affiliate, executed definitive documentation for the construction of two aframax tankers. The tankers are intended to be used to transport Alaskan North Slope crude oil from Prince William Sound, Alaska to the U.S West Coast. Construction of the first vessel is expected to begin by the end of Q and both vessels are scheduled for delivery in Review of the annual accounts AKPS prepares and presents its accounts according to International Financial Reporting Standards (IFRS) as adopted by the European Union. Aker Philadelphia Shipyard ASA was formed on 16 October 2007 to be the holding company of APSI which owns the shipyard located in Philadelphia, Pennsylvania, USA. In accordance with IFRS, AKPS has recognized the last nine tankers of the twelve-tanker order for AMSC and OSG as one single project. As such, revenue and expense for these tankers have been recognized on a total project basis. As of 31 December 2011, AKPS was 100% complete with the project. Order backlog APSI s order backlog was USD million as of 31 December 2011 including customer-provided materials of approximately USD 80 million. At the end of the year, the order backlog was comprised of work to be performed on the two aframax tankers to be built for SeaRiver. The net backlog increase of USD million over 2010 is due to the completion of the twelve-ship series for AMSC and OSG and the execution of shipbuilding contracts for the two vessel project for SeaRiver in Profit and loss accounts In 2011, AKPS had revenues of USD 30.6 million compared to USD in Revenues are recognized according to the percentage of completion method when firm contracts are in place, based primarily on the scope of completed work compared to estimated overall project scope. The recognized revenues in 2011 and 2010 represent revenues related to the product tankers built for AMSC and OSG. AKPS s operating profit before interest, taxes, depreciation, and amortization (EBITDA) was negative USD 3.2 million in 2011 compared to USD 18.9 million in These figures correspond to EBITDA margins of (10.6%) and 8.7%, respectively. Depreciation and amortization expense was USD 4.6 million in 2011 and USD 7.4 million in AKPS s operating profit before interest and taxes (EBIT) was negative USD 7.9 million in 2011, compared to an operating profit before interest and taxes of USD 11.5 million in The Aker Philadelphia Shipyard annual report

10 Board of Directors report Company performed procedures to determine if there was any impairment of property, plant and equipment. Based on the analysis no impairment has occurred as of 31 December 2011 (see note 1 of the consolidated financial statements). Net financial items were negative USD 1.6 million in 2011, compared to negative USD 0.8 million in The negative net financial items in 2011 are primarily attributable to losses on foreign currency forward contracts to economically hedge foreign exchange risk related to the construction of Hulls 017 and 018 and exchange rate losses on cash deposits which are held in Norwegian Kroner (NOK). The negative financial items in 2010 are primarily attributable to interest expense. These losses did not impact the overall cost of the two tankers being built for AKPS s own account. Interest cost related to construction financing is capitalized as a cost of the project and will therefore not appear under financial items. Income tax benefit for 2011 was USD 5.3 million, compared to income tax expense of USD 5.0 million in In 2011, AKPS s net loss was USD 4.2 million and its basic and diluted loss per share was USD The corresponding figures for 2010 were net income of USD 5.8 million and basic and diluted earnings per share of USD The decrease in revenues, EBITDA and net income year over year was driven by significantly less shipbuilding for external customers in 2011 than in 2010, as production in 2011 was mainly for AKPS s own account and production in 2010 was primarily for AMSC and OSG. AKPS s research and development is primarily related to two areas. The most important area is the development of the building methodology and working methods to ensure that APSI takes maximum benefit of the learning curve and produces each grand block and each vessel more efficiently than the previous. There is also work related to the development of new vessels, but APSI will not develop its own designs for other vessel types, but rather identify and license existing best in class designs and cooperate with the owners of such designs. Cash flow The Company s cash flow from operations is very dynamic, as it in part depends on payment for construction and delivery settlement for the vessels sold to external customers. Total net cash flow used in operating activities in 2011 was USD 25.2 million compared to total net cash flow provided by operating activities of USD 40.2 million in As noted previously, the significant changes year to year are caused by the timing of ship deliveries and the level of completion on vessels. Net cash flow used in investment activities was USD 2.4 million in 2011 and USD 0.7 million in These expenditures were primarily for infrastructure improvements and equipment replacements. Net cash flow provided by financing activities was USD 4.9 million in 2011 and USD 34.1 million was used in financing activities in The changes are caused by the timing of draw-downs on the construction financing and timing of vessel deliveries. Statement of financial position and liquidity As of 31 December 2011, AKPS had cash and cash equivalents of USD 18.9 million. The corresponding figure for 2010 was USD 41.7 million. The decrease was primarily driven by the internal funding used for construction on Hulls 017 and 018 and the restricted cash deposited in an escrow account in connection with the SeaRiver project. At year-end 2011, AKPS s net working capital was USD 30.7 million, compared to USD 25.4 million at 31 December Current assets excluding cash as of 31 December 2011 are mainly comprised of work-in-progress of USD 70.1 million compared to work-in-progress and vessels-under-construction receivables of USD 61.6 million at year end 2010 and prepayments and other receivables of USD 11.8 million in 2011 compared to USD 7.9 million in Non-current assets as of 31 December 2011 of USD 75.5 million are property, plant and equipment, restricted cash, and other non-current assets. As of 31 December 2010 non-current assets totaled USD 62.9 million and consisted of property, plant and equipment and other non-current assets. The increase is primarily due to the restricted cash of USD 20.0 million as discussed above. Current liabilities as of 31 December 2011 of USD 51.3 million are mostly related to construction financing, trade payables, accrued liabilities, deferred income from PSDC and current provisions (warranties). The corresponding figure for 2010 was USD 44.0 million. The increase is primarily driven by the deferred income from PSDC and increased trade and other payables. Interest-bearing debt increased to USD 52.1 million at 31 December 2011 compared to USD 47.3 million as of 31 December This increase was attributable to more construction financing drawn for Hulls 017 and 018 which was partially offset by repayment on other interest-bearing debt. At year-end 2011, total equity was USD 88.9 million and the equity ratio was 50% of total assets. Corresponding figures for 2010 were USD 93.1 million and 53% respectively. The decrease in equity was caused by the current year s loss. The Board deems that the Company, at the present time, is financially sound and has an appropriate financing structure. AKPS s capital expenditure financing contains defaults triggered by an AMSC insolvency event. AKPS closely monitors these links to AMSC and their potential impact on operations, including through frequent updates with AMSC s management. If an AMSC insolvency event occurs, then AKPS s capital expenditure credit facility would be in default, which would require the Company to seek waivers from its lender. As a condition to any such waiver, the lender might, among other things, require additional collateral or guarantees, increase the interest rate, and/or impose fees. There is no guarantee the lender would grant any such waiver, in which case the lender could demand immediate repayment of its loans, foreclose on its collateral and/or exercise its other rights and remedies. Risks Market risks The overall market risk is related to the Jones Act, but market experts believe that significant changes to the legislation are unlikely. AKPS is also exposed to market risk related to imbalance between supply and demand for vessels and the associated reduction in new projects. Sales risks AKPS is exposed to sales price risk with respect to the sale of Hulls 017 and 018. AKPS faces additional risks, including early termination of its facility lease at the end of its current backlog, if it is unable to secure new orders and/or financing for projects beyond Hulls 019 and Aker Philadelphia Shipyard annual report 2011

11 Board of Directors report Operational risks AKPS faces risks related to construction of vessels. The risks related to vessel construction are primarily the Shipyard s ability to meet the anticipated budgets and schedules as well as availability of skilled workers, and the risk of maintaining stable supplier networks and subcontractors. Although AKPS has been successful building ships that are identical to Hulls 017 and 018 over the past several years, the downscaling of its workforce over the past year increases the risk of not having sufficient skilled workers throughout the construction period. Hulls 019 and 020 are a different type of tanker and considerably larger than the tankers that the Shipyard has previously constructed. Therefore there exists some series change management risk as well as integration risk with the Company s new engineering and procurement partner, Samsung Heavy Industries. Financial risks AKPS s activities expose it to a variety of financial risks: market risk (including currency risk, commodity risk, and price risk), credit risk, liquidity risk and cash flow interest-rate risk. AKPS s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on AKPS s financial performance. AKPS uses derivative financial instruments to economically hedge certain risk exposures. Risk management is carried out under policies and protocols approved by the Board of Directors. These policies provide principles for overall financial risk management as well as policies covering specific areas such as foreign exchange risk, interest-rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments and investing excess liquidity. There is moderate exposure for future contracts related to the two tankers being built for the Company s own account. There is minimal exposure to future contracts for Hulls 019 and 020. The Company considers its net currency exposure to be moderate. AKPS operates in business areas that are capital intensive. The Company is dependent upon having access to construction financing facilities and other loans and debt facilities to the extent its own cash flow from operations and milestone payments from customers is insufficient to fund its operations and capital expenditures. In turn, AKPS must secure and maintain sufficient equity capital to support such borrowing facilities. Additionally, the challenging U.S. economy continues to put existing and future financing sources at risk. AKPS regularly monitors the financial health of its construction financing lenders as well as the financial health of the financial institutions which it uses for cash management services and in which it makes deposits and other investments. This risk is regarded as minimal by the Company. Through construction financing, the Company is exposed to fluctuations in interest rates. The interest risk related to external capital needed for vessels under construction is deemed moderate. The credit risk of ship owners and lessors is evaluated upon contract signing. Aker Philadelphia Shipyard annual report

12 Board of Directors report Typically, ship owners have financing approvals in place before contracts are entered into. At the completion of a vessel, transfer of ownership takes place upon settlement. Should a ship owner fail to pay, the Company may attempt to dispose of the vessel in the open-market to recover AKPS s construction costs. Credit risk associated with AKPS s receivables is regarded as limited. The going concern assumption In view of AKPS s current financial position and backlog, the Board confirms that the 2011 annual accounts have been prepared based on the assumption of a going concern. Parent company accounts and allocation of loss for the year The income/(loss) account of Aker Philadelphia Shipyard ASA shows a loss for the year 2011 of USD 0.2 million. The Board of Directors proposes that the loss for the year be allocated as shown below: Dividend payments Other equity Total allocated USD 0.0 million USD (0.2) million USD (0.2) million Unrestricted equity amounts to USD 14.1 million. The ultimate recovery of the investment in subsidiary and the long-term receivable from subsidiary is dependent upon APSI remaining a going concern. The parent company s only assets are cash, the investment in subsidiary (APSI) and the long-term receivable from subsidiary (APSI). Health, safety and environment Maintaining a healthy and safe workplace and being friendly to the environment is an important part of AKPS s strategy. AKPS develops policies to comply with or exceed all federal, state and local requirements. Compliance with environmental regulations is assured by establishing operating procedures for best management practices and is executed through management and supervision. At AKPS, the Union-Management Safety and Environmental Board reviews the various HSE programs, and makes recommendations on policies and procedures. The HSE system includes safety training of employees and subcontractors, safety inspections, industrial health and wellness programs, drug testing, emergency response and environmental programs. The Company expects to implement new initiatives to continuously improve its HSE mindset during In 2011, the frequency of lost-time incidents (incidents resulting in absence from work per one million hours) was 20.5, compared with 8.2 in The accidents came from a total of 534,367 hours worked by AKPS employees in 2011, compared with 1,466,248 hours worked by AKPS employees in AKPS continues to work proactively to further improve the safety and reduce the number of injuries at the Shipyard. The Company continues to believe that improvements will be made. To reduce the number of accidents and injuries, the Shipyard will continue to improve its in-house systems and procedures for exchanging knowledge gained from past accidents and potentially hazardous events. The Company is also working with outside parties to obtain and implement best practices to develop a zero incident culture. To this end, AKPS entered into a cooperative agreement with the Department of Labor s Occupational Safety and Health Administration (OSHA) in The agreement was designed to assist the Company in implementing a successful safety and health management system to protect its employees and to encourage the Company to participate in OSHA s Voluntary Protection Program. The Company has completed all of its applicable requirements regarding this agreement and will consider applying for OSHA s Voluntary Protection Program during AKPS takes its environmental responsibilities seriously. Environmental status reporting is an integral part of the Company s reporting system, on par with reporting on financial matters and operations. AKPS aims to comply with applicable environmental laws, rules, and regulations. This commitment extends to evaluating and adopting environmentally beneficial improvements in production processes, alternative materials, and services. AKPS promotes open communication on environmental issues with employees, neighbors, public authorities, and other interested parties. APSI gathers and sorts waste to promote environmentally responsible handling, disposal, and recovery of any residual value. Organization On 31 December 2011, AKPS had approximately 455 direct employees and 191 sub contractors. Employee turnover in 2011 was primarily related to the union workforce. Equal-opportunity employer AKPS seeks to be an attractive employer and maintains a human relations policy that is open and fair. AKPS is committed to providing equal employment opportunity to all employees and applicants for employment, regardless of race, color, ethnic background, gender, religion, age, marital status, sexual orientation, national origin, citizenship status, disability, veteran status, or any other legally protected status. Diversity strengthens AKPS s overall capacity and skills. In support of this diversity, APSI currently maintains an approximate 41% minority workforce. The maritime industry has traditionally been male-dominated. The entire industry faces the challenge of increasing the proportion of female employees. The Company has taken affirmative steps to address this challenge. For example, the Company encourages female applicants and has seen increased interest among potential female employees to pursue a career with the Company. To further this goal, the Company has recruited at schools and training programs with more women. The Company has also continued to train supervisors, managers and employees in our EEO Policy. At year-end 2011, there were no women in AKPS senior management, but women held key positions such as Project Cost Controller, Payroll/Benefits Supervisor and PR/Communications Specialist. In addition, three of the six members of the Board of Directors are women. Corporate governance AKPS s corporate governance policy exists to ensure an appropriate division of roles among the Company s owners, Board of Directors and Executive Management. Such a separation of roles ensures that goals and strategies are prepared, that adopted corporate strategies are implemented, and that the results achieved are subject to verification and follow-up. Applying these principles also contributes to satisfactory group-wide monitoring and verification of activities. An appropriate division of responsibilities and satisfactory controls will contribute to the greatest 10 Aker Philadelphia Shipyard annual report 2011

13 Board of Directors report possible value creation over time, to the benefit of shareholders and other interest groups. AKPS s Board of Directors adopted its corporate governance guidelines in AKPS s corporate governance guidelines are presented in greater detail on page 44 of this annual report. Outlook Aker Philadelphia Shipyard has built a strong foundation for its future through both its reputation for delivering on its promises and the efficient and innovative organization that has been developed. With the successful closing of the transactions with PSDC and SeaRiver, and the related financings by Cat Financial and Aker ASA, shipbuilding activities at APSI s shipyard are secured through late The challenging United States economy has created uncertainties which have delayed the decision making process for new builds and has created difficulties regarding financing of new build projects. However, AKPS remains committed to providing the Jones Act market with the most cost efficient and environmentally friendly merchant vessels possible and believes that it will be the supplier of choice when these vessels are ordered. Discussions with potential buyers of Hulls 017 and 018 are ongoing. AKPS continues to pursue prospects for new construction projects in all areas of the Jones Act market, including shuttle tankers, containerships, short-sea shipping vessels, offshore service vessels, barges, wind turbine installation vessels, and other large steel fabrication projects, in order to secure additional backlog in 2014 and onwards. AKPS considers each opportunity for the value it would create for AKPS and its shareholders. Oslo, Norway 22 February 2012 Board of Directors Aker Philadelphia Shipyard ASA James H. Miller Board Chairman Amy Humphreys Elin Karfjell Manuel N. Stamatakis Audun Stensvold Thorhild Widvey Kristian M. Rokke General Manager Aker Philadelphia Shipyard annual report

14 Directors responsibility statement Directors responsibility statement Today, the Board of Directors and the Chief Executive Officer reviewed and approved the Board of Directors report and the consolidated and separate annual financial statements for Aker Philadelphia Shipyard ASA, as of and for the year ending 31 December 2011 (annual report 2011). The Aker Philadelphia Shipyard ASA consolidated financial statements have been prepared in accordance with IFRS, as adopted by the European Union, and additional disclosure requirements in the Norwegian Accounting Act, and that should be used as of 31 December The separate financial statements for Aker Philadelphia Shipyard ASA have been prepared in accordance with the Norwegian Accounting Act and Norwegian Accounting Standards as of 31 December The Board of Directors report for AKPS and the parent company is in accordance with the requirements in the Norwegian Accounting Act and Norwegian accounting standard no. 16, as of 31 December To the best of our knowledge: The consolidated and separate annual financial statements for 2011 have been prepared in accordance with applicable accounting standards The consolidated and separate annual financial statements give a true and fair view of the assets, liabilities, financial position and profit as a whole as of 31 December 2011 for AKPS and the parent company The Board of Directors report for AKPS and the parent company includes a true and fair review of: The development and performance of the business and the position of AKPS and the parent company The principal risks and uncertainties AKPS and the parent company face Oslo, Norway 22 February 2012 Board of Directors Aker Philadelphia Shipyard ASA James H. Miller Board Chairman Amy Humphreys Elin Karfjell Manuel N. Stamatakis Audun Stensvold Thorhild Widvey Kristian M. Rokke General Manager 12 Aker Philadelphia Shipyard annual report 2011

15 Consolidated accounts Aker Philadelphia Shipyard ASA Consolidated Income Statement Amounts in USD thousands Note Operating revenues Cost of vessels (15 972) ( ) Wages and other personnel expenses, net 2 (3 546) (1 912) Other operating expenses 3 (14 334) (6 021) Operating (loss)/income before depreciation (3 245) Depreciation 6 (4 612) (7 398) Operating (loss)/income (7 857) Financial income Financial expenses 4 (1 906) (1 289) (Loss)/income before tax (9 493) Income tax benefit/(expense) (4 974) Net (loss)/income for the year * (4 208) Aker Philadelphia Shipyard ASA Consolidated Statement of Comprehensive Income Amounts in USD thousands (except shares and per share amounts) Net (loss)/income for the year (4 208) Other comprehensive income, net of income tax - - Total comprehensive (loss)/income for the year * (4 208) Average number of shares Basic (loss)/earnings per share (USD) 12 (0.41) 0.57 Diluted (loss)/earnings per share (USD) 12 (0.41) 0.57 * All attributable to equity holders of the parent company. Aker Philadelphia Shipyard annual report

16 Consolidated accounts Aker Philadelphia Shipyard ASA Consolidated Statement of Financial Position as of 31 December Amounts in USD thousands Note ASSETS Property, plant and equipment Restricted cash Other non-current assets Total non-current assets Vessels-under-construction receivables Work-in-process Prepayments and other receivables Income tax receivable Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Paid in capital Other equity Total equity attributable to equity holders of the parent company Total equity Interest-bearing long-term debt Other long-term liabilities Deferred tax liabilities Total non-current liabilities Construction loans 14, Interest-bearing short-term debt 14, Trade payables and accrued liabilities Income taxes payable Other provisions - warranties Total current liabilities Total liabilities Total equity and liabilities Oslo, Norway 22 February 2012 Board of Directors Aker Philadelphia Shipyard ASA James H. Miller Board Chairman Amy Humphreys Elin Karfjell Manuel N. Stamatakis Audun Stensvold Thorhild Widvey Kristian M. Rokke General Manager 14 Aker Philadelphia Shipyard annual report 2011

17 Consolidated accounts Aker Philadelphia Shipyard ASA Consolidated Statement of Changes in Equity Amounts in USD thousands Share Capital Share Premium Other Equity Total Equity Balance at 31 December Net income for the year Balance at 31 December Net loss for the year (4 208) (4 208) Balance at 31 December Aker Philadelphia Shipyard annual report

18 Consolidated accounts Aker Philadelphia Shipyard ASA Consolidated Cash Flow Statement Amounts in USD thousands Note (Loss)/income before tax (9 493) Unrealized foreign exchange loss/(gain) 4, (142) Depreciation Write-off of assets-under-construction Net financial expense (Increase)/decrease in: Vessels-under-construction receivables Work-in-process 8 (57 956) (9 634) Other current assets 9 (3 624) Other non-current assets 7,11 (17 492) 203 Increase/(decrease) in: Trade payables and accrued liabilities 18, (16 860) Other long-term liabilities (176) Income taxes paid 5 (2 813) (554) Interest paid, net of capitalized interest 4 (1 431) (1 471) Interest received Net cash flow (used in)/from operating activities (25 201) Investments in property, plant and equipment 6 (2 445) (679) Net cash flow used in investing activities (2 445) (679) Proceeds from interest-bearing long-term debt Repayment of interest-bearing long-term debt 14 (2 240) (2 175) Proceeds from construction loans Repayment of construction loans 14 (40 000) ( ) Net cash flow from/(used in) financing activities 4860 (34 075) Net change in cash and cash equivalents (22 786) Cash and cash equivalents as of 1 January Cash and cash equivalents as of 31 December Aker Philadelphia Shipyard annual report 2011

19 Consolidated accounts Aker Philadelphia Shipyard ASA Notes to the accounts Note 1: Accounting principles STATEMENT OF COMPLIANCE The consolidated financials statements of Aker Philadelphia Shipyard ASA and its subsidiaries (AKPS or the Company) have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union in effect at each financial reporting period. These accounts have been approved for issue by the Board of Directors on 22 February BACKGROUND AND BASIS FOR PREPARATION Aker Philadelphia Shipyard ASA was formed on 16 October 2007 to be the holding company of Aker Philadelphia Shipyard, Inc. (APSI or the Shipyard) which owns and operates a shipyard located in Philadelphia, Pennsylvania, USA. On 3 December 2008, APSI formed Aker Philadelphia Priming, Inc. (APPI), a wholly-owned subsidiary, to own and operate APSI s primeplating operations. On 30 December 2011, APPI was merged with and into APSI. On 24 March 2011, APSI formed APSI Shipholding 017, Inc. and APSI Shipholding 018, Inc., each a wholly-owned subsidiary, to hold the contracts for Hulls 017 and 018, respectively. AKPS is domiciled in Norway. APSI is domiciled in the Commonwealth of Pennsylvania, USA. The two subsidiaries of APSI are domiciled in the state of Delaware, USA. These consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value. The consolidated financial statements are presented in USD (thousands), except when indicated otherwise. USE OF ESTIMATES The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts in the financial statements. Although these estimates are based on management s best knowledge of current events and actions, actual results may ultimately differ from those estimates. Critical accounting estimates and assumptions are as follows: Revenue and Cost Recognition AKPS uses the percentage of completion method for accounting for customer projects in process. The use of the percentage of completion method requires AKPS to estimate the stage of completion of contract activity at each statement of financial position date and estimate the ultimate outcome of costs and profit on contracts. Revenue recognition and cost estimates depend upon variables such as steel prices, labor costs and availability, and other production inputs. AKPS must also evaluate and estimate the outcome of variation orders, contract claims and requests from customers to modify contractual terms which can involve complex negotiations with customers. Generally, estimates are subject to a greater level of uncertainty when a vessel design is new to AKPS than if a vessel is being constructed later in a series. As Hulls 017 and 018 currently have no third party customers, AKPS is not using the percentage of completion method for these vessels. Estimates of the Fair Value of its Cash Generating Unit AKPS has concluded that it has only one cash generating unit and must determine the fair value of its cash generating unit in order to perform impairment tests of its long-lived assets. Determining the fair value of the cash generating unit that includes AKPS s activities is subject to uncertainty and requires estimates of the recoverable amount which is the higher of the fair value less costs to sell and value in use. The estimated recoverable amount is determined based upon the present value of the future cash flows of the cash generating unit. Generally, there will be uncertainties regarding the timing and amount of cash flows for various reasons, including the costs of production and demand in the U.S. Jones Act shipping market. In addition, AKPS must determine an appropriate interest rate to discount expected future cash flows. Deferred Income Taxes Deferred income tax assets are recognized when it is probable that they will be realized. Determining probability requires AKPS to estimate the sources of future taxable income from operations and reversing taxable temporary differences. Determining these amounts is subject to uncertainty and is based primarily upon historical earnings, reversals of taxable temporary differences and expected earnings due to contracts in progress and contract backlog. Accruals/Provisions AKPS has various accruals/provisions which require management to make estimates. Management uses all available facts and circumstances when determining these estimates including historical experiences as well as input from outside advisors. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects that period or in the period of revision and future periods if the revision affects both current and future periods. AKPS ACCOUNTING AND CONSOLIDATION PRINCIPLES Subsidiaries The consolidated financial statements include the financial statements of the parent company, Aker Philadelphia Shipyard ASA, and its subsidiaries. A subsidiary is an entity in which Aker Philadelphia Shipyard ASA either owns, directly or indirectly, over 50% of the voting rights, or otherwise has the power to govern the operating and financial policies. All intercompany transactions are eliminated in consolidation. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS Functional Currency Items included in the financial statements of each entity in AKPS are initially recorded in the entity s functional currency, i.e. the currency that best reflects the economic substance of the underlying events and circumstances relevant to that subsidiary. The consolidated financial statements are presented in United States dollars (USD), rounded to the nearest thousand, which is the reporting currency for the consolidated accounts and the functional currencies for all the entities within AKPS. Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities in foreign currencies are translated into the functional currency at the exchange rates in effect on the statement of financial position date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated income statement. Foreign exchange differences arising in respect of operating items are included in operating profit in the consolidated income statement, and those arising in respect of financial assets and liabilities are recorded net as a financial item. PROPERTY, PLANT AND EQUIPMENT General Property, plant and equipment acquired by AKPS companies is stated at cost at the date of acquisition. Depreciation is calculated on a straight-line basis and adjusted for impairment charges, if any. The carrying value of the property, plant and Aker Philadelphia Shipyard annual report

20 Consolidated accounts equipment on the statement of financial position represents the cost net of government grants and subsidies received (if applicable) less accumulated depreciation and any impairment charges. Cost includes expenditures that are directly attributable to the asset. The cost of selfconstructed assets includes the costs of material and direct labor, and any other costs directly attributable to bringing the asset to working condition for its intended use. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalized during the period of time that is required to complete and prepare the asset for its intended use. Land is not depreciated, but other property, plant, and equipment in use are depreciated on a straight-line basis. Expected useful lives of longlived assets are reviewed annually and, where they differ significantly from previous estimates, depreciation periods are changed accordingly. Ordinary repairs and maintenance costs are charged to the consolidated income statement during the financial period in which they are incurred. The cost of improvements is included in the asset s carrying amount when it is probable that AKPS will derive future economic benefits in excess of the originally assessed standard of performance of the existing asset. Improvements are depreciated over the useful lives of the related assets. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in operating profit. Assets to be disposed of are reported at the lower of the carrying amount and the fair value less selling costs. Component Cost Accounting The Company allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant components and depreciates separately each such component part over its useful life. IMPAIRMENT OF LONG-LIVED ASSETS Property, plant and equipment and other non-current assets are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable, mainly independent, cash flows. An impairment loss is the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable amount is the higher of the asset s net selling price and its value in use. The value in use is determined by discounted cash flows and fair market value is based on recent third party appraisals. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount, however not to an extent higher than the carrying amount that would have been determined had no impairment loss been recognized in prior years. LEASES Leases of property, plant and equipment, where AKPS has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalized at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability. Finance charges are charged directly against income. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases net of any incentives received from the lessor is charged to the consolidated income statement on a straight-line basis over the period of the lease when annual instalments vary. When a sale and leaseback results in a finance lease, any gain on the sale is deferred and recognized as income over the lease term. If the leaseback is classified as an operating lease, then any gain is recognized immediately if the sale and leaseback are at fair value. CONSTRUCTION CONTRACTS AKPS s business activities mainly involve deliveries of vessels and services under contract to customers. Revenue related to construction contracts for customers is recognized using the percentage of completion method, based primarily on the scope of completed work compared to estimated overall project scope at the statement of financial position date. The stage of completion is assessed by reference to production hours incurred to total estimated production hours. As soon as the outcome of the construction contract can be estimated reliably, contract revenue and expenses are recognized in the consolidated income statement in proportion to the degree of completion of the contract. If the final outcome of a contract cannot be estimated reliably, contract revenue is recognized only to the extent costs incurred are expected to be recovered. Any projected losses on future work done under existing contracts are expensed and classified as accrued costs/ provisions in the statement of financial position under accrued liabilities. Losses on contracts are recognized in full when identified. Recognized contract profit includes profit derived from change orders and disputed amounts when, in management s assessment, realization is probable and reasonable estimates can be made. Project costs include costs directly related to the specific contract and indirect costs attributable to the contract. Interest expense is included in project costs to the extent there are qualifying assets, which normally occurs when customer payments lag behind construction progress. To the extent AKPS procurement activities result in it acting as an agent for its customer, the related costs and revenues are presented net within revenue. This situation typically occurs when certain materials are paid for and supplied by the customer directly. Project revenue is classified as operating revenues in the consolidated income statement. Vessels-under-construction receivable is classified as a current asset in the statement of financial position. Advances from customers are deducted from the value of vessels-underconstruction receivable of the contract involved or, to the extent they exceed this value, recorded as customer advances. Customer advances that exceed contract offsets would be classified as current liabilities. VESSEL CONSTRUCTION FOR UNSPECIFIED CUSTOMERS Vessels which do not have a contractual buyer and are being built with the expectation of identifying a customer during the construction phase are capitalized into work-in-process. When the vessel is completed and sold both revenue and cost are recognized. If conditions indicate that the ultimate sales price will be below the estimated cost of the vessel, AKPS determines the estimated sales price and records an impairment charge as appropriate. The accumulated costs for vessels-under-construction receivables for unspecified customers is included in work-in-process. GOVERNMENT GRANTS AND SUPPORT Government grants and support are recognized at their fair value where there is reasonable assurance that amounts will be received and conditions have been met. In some cases, recognition occurs over a period of time as restrictions lapse or as conditions are met. Grants and support related to capital expenditures or construction of assets for AKPS s account are recognized as a reduction of the related asset cost. For assets held for use, this results in a lower depreciation charge over the useful life of the asset. Grants related to specific programs or projects are recognized as income over the period in which work that relates to the grant is performed. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand, demand deposits with banks and other short-term highly liquid investments with original maturities of three months or less. SHARE CAPITAL Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any subsidiary purchases AKPS s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs, is deducted from equity. INTEREST-BEARING LIABILITIES All loans and borrowings are initially recognized at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing borrowings are subsequently measured at amortized cost using the effective interest method; any difference between proceeds (net of transaction costs) and the redemption value is recognized in the consolidated income statement over the period the interest bearing liabilities are outstanding. Amortized cost is calculated by taking into account any issuance costs, and any discount or premium. 18 Aker Philadelphia Shipyard annual report 2011

21 Consolidated accounts Gains and losses are recognized in net profit or loss when the liabilities are derecognized or impaired, as well as through the amortization process. INCOME TAXES Current Income Taxes Income taxes receivable and payable for the current period are measured at the amount expected to be recovered or paid to the taxation authorities. The tax rates and tax laws as used to compute the amount are those that are enacted or substantively enacted by the statement of financial position date. Deferred Income Taxes Deferred income tax is provided, using the asset/ liability method, on all temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except upon initial recognition of an asset or a liability that does not impact income. Deferred income tax assets are recognized for all deductible temporary differences, and carry-forward of unused tax losses and credits, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax losses and credits can be utilized. The carrying amount of deferred income tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. The expected utilization of tax losses are not discounted when calculating the deferred tax asset. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date. Income tax relating to items recognized directly in equity is recognized in equity. PENSION OBLIGATIONS AKPS has a pension plan that covers its non-union employees whereby contributions are paid to a qualifying pension plan. The Company s union employees are participants in a union selected pension plan. Although the Union Plan is a defined benefit pension plan, because the union does not provide information on the Company s employees and their share of the pension assets and obligations, the plan is accounted for in accordance with the requirements of a defined contribution plan. Under defined contribution pension plans, contributions are charged to the consolidated income statement in the period to which the contributions relate. PROVISIONS A provision is recognized when AKPS has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each statement of financial position date and adjusted to reflect the current estimate. The amount of the provision is the present value of the risk adjusted expenditures expected to be required to settle the obligation, determined using the estimated risk free interest rate as the discount rate. Where discounting is used, the carrying amount of provision increases in each period and is recognized as interest expense. FINANCIAL RISK MANAGEMENT AKPS s activities expose it to a variety of financial risks: market risk (including commodity pricing risk, currency risk, and price risk), credit risk, and cash-flow interest-rate risk. AKPS s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on AKPS s financial performance. AKPS uses derivative financial instruments to hedge certain risk exposures. Risk-management is carried out under policies approved by the Board of Directors. The Board of Directors provides principles for overall financial risk management as well as policies covering specific areas such as foreign exchange risk, interest-rate risk, credit risk, and use of derivative financial instruments and non-derivative financial instruments. Credit Risk Due to the nature of AKPS s operations, revenues and related receivables are typically concentrated amongst a few customers. As of 31 December 2011, AKPS had only one customer, SeaRiver Maritime, Inc. (SeaRiver). AKPS continually evaluates the credit risk associated with customers and manages this risk by requiring payment for substantially the entire contractual amount prior to delivering a vessel, including milestone payments upon completion of specified milestones. Interest Rate Risk AKPS is exposed to fluctuations in interest rates for its variable interest rate debt related to construction financing. Foreign Exchange Risk AKPS is exposed to foreign currency risk for purchases made in currencies other than the U.S. dollar which primarily relates to materials, supplies and costs related to the services of expatriate workers purchased from Korea, Norway and other countries in Europe. AKPS attempts to mitigate this risk through its foreign exchange hedging program. Commodity Price Risk AKPS is exposed to commodity price risk on the steel that it procures in the shipbuilding process. AKPS attempts to mitigate this risk by attempting to pass this risk on to its end customers. Capital Management Risk AKPS s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, while maintaining an optimal capital structure to minimize the cost of capital. To meet these capital structure objectives, AKPS will review annually with its Board any proposed dividends as well as any needs to raise additional equity for future business opportunities or to reduce debt. Counter-Party Credit Risk AKPS s capital expenditure financing contain defaults triggered by an AMSC insolvency event. AKPS closely monitors these links to AMSC and their potential impact on operations, including through frequent updates with AMSC s management. If an AMSC insolvency event occurs, then AKPS s capital expenditure credit facility would be in default, which would require the Company to seek waivers from its lender. As a condition to any such waiver, the lender might, among other things, require additional collateral or guarantees, increase the interest rate, and/or impose fees. There is no guarantee the lender would grant any such waiver, in which case the lender could demand immediate repayment of its loans, foreclose on its collateral and/or exercise its other rights and remedies. Funding/Investment Risk The challenging global economy has placed existing and future financing sources at risk. AKPS regularly monitors the health of its construction financing lenders. Additionally, AKPS monitors the financial health of the financial institutions which it uses for cash management services and in which it makes deposits and other investments. AKPS responds to changes in conditions affecting its financing sources and deposit relationships as situations warrant. Liquidity Risk Liquidity risk is the risk that AKPS will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial assets. AKPS s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to AKPS s reputation. AKPS attempts to mitigate this risk through project financing, progress payments from the customers, and material supplied and paid directly by its customers. Accounting for Derivative Financial Instruments and Hedging Activities Derivative financial instruments are recognized initially and in subsequent periods on the statement of financial position at fair value with the resulting gains and losses included in the consolidated income statement. In accordance with its treasury policy, AKPS does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Estimates of the fair value for foreign currency contracts are obtained from a third party. The fair value of derivative long-term financial liabilities is disclosed in note 22 regarding financial instruments. RELATED PARTY TRANSACTIONS All transactions, agreements and business activities with related parties are conducted on an arm s length basis according to ordinary business terms and conditions. Aker Philadelphia Shipyard annual report

22 Consolidated accounts SEGMENT INFORMATION AKPS has one business segment which is building vessels for the U.S. Jones Act market. DIVIDENDS Dividends are recorded in AKPS s financial statements in the period in which they are approved by AKPS s shareholders. AKPS did not pay dividends in 2010 or BASIC AND DILUTED EARNINGS PER SHARE The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders using the weighted average number of shares outstanding during the year after deduction of the average number of treasury shares held over the period. The calculation of diluted earnings per share is consistent with the calculation of basic earnings per share while giving effect to all potential dilutive ordinary shares that were outstanding during the period. AKPS currently has no potentially dilutive shares outstanding. EVENTS AFTER 31 DECEMBER 2011 A distinction is made between events both favorable and unfavorable that provide evidence of conditions that existed at the statement of financial position date (adjusting events) and those that are indicative of conditions that arose after the statement of financial position date (nonadjusting events). Financial statements will only be adjusted to reflect adjusting events and not non-adjusting events (although there are disclosure requirements for such events). RECENTLY ISSUED ACCOUNTING STANDARDS AND PRONOUNCEMENTS A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of AKPS, except for IFRS 9 Financial Instruments, which becomes mandatory for AKPS s 2013 consolidated financial statements and could change the classification and measurement of financial assets. AKPS does not plan to adopt this standard early and the extent of the impact has not been determined. Note 2: Wages and other personnel expenses Wages and other personnel expenses consist of: Amounts in USD thousands (except number of employees) Wages Social security contributions Pension costs (note 17) Other expenses Total gross expense Expenses related to vessel construction (27 144) (45 160) Wages and other personnel expenses, net Average number of employees Number of employees at year-end Other expenses relate primarily to workers' compensation and employee benefits. Note 3: Other operating expenses Other operating expenses consist of: Amounts in USD thousands Rent and leasing expenses Other operating expenses Total other operating expenses Other operating expenses primarily relate to selling, general and administrative expenses. Fees to auditors for AKPS were for ordinary audit services and are included in other operating expenses. Such fees totaled USD 312 thousand for 2011 and USD 274 thousand for In 2011 APSI operated at below normal capacity levels. The increase in other operating expenses was caused by unallocated overhead which was considered stranded cost and expensed in Note 4: Financial income and financial expenses Amounts in USD thousands Interest income Gain on foreign currency forward contracts Financial income Interest expense (1 500) (2 719) Interest capitalized on construction contracts Loss on foreign currency forward contracts (431) - Foreign exchange loss, net (332) (151) Financial expenses (1 906) (1 289) Net financial items (1 636) (808) 20 Aker Philadelphia Shipyard annual report 2011

23 Consolidated accounts Details regarding the Company's debt facilities and interest rates are provided in note 14 and foreign exchange gain/(loss) details are provided in note 22. The loss on foreign currency forward contracts in 2011 and gain in 2010 are attributable to mark-to-market of foreign exchange forward contracts in Korean Won, Norwegian Kroner and Euro. The foreign exchange losses are attributable to certain cash balances which are held in Norwegian Kroner and Korean Won. Note 5: Taxes Income tax (benefit)/expense Recognized in the income statement Amounts in USD thousand Current tax (benefit)/expense: Current year - U.S Current year - Norway - (724) Total current tax expense Deferred tax (benefit)/expense: Origination and reversal of temporary differences - U.S. (5 896) Origination of temporary differences - Norway - - Total deferred tax (benefit)/expense (5 896) Total income tax (benefit)/expense in the income statement (5 285) Reconciliation of effective tax rate: Amounts in USD thousand (Loss)/income before tax (9 493) Nominal Norwegian tax rate 28.0% 28.0% Expected tax (benefit)/expense using nominal Norwegian tax rate (2 658) Effect of differences between nominal Norwegian tax rate and U.S. federal, state and city tax rate (1 585) Additional deductions for tax purposes - (263) Loss not subject to tax (929) - Expenses not deductible for tax purposes Foreign exchange Tax refund from 2009 deficit - (724) Other differences (152) (262) Total income tax (benefit)/expense in the income statement (5 285) The effective tax rate differs from the expected tax rate primarily due to the difference between the nominal Norwegian tax rate and U.S. federal, state and city tax rate; expenses that were not deductible in the U.S. (2010) and for a tax refund of Norwegian taxes (2010). Deferred tax assets and liabilities Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred income taxes relate to the same fiscal authority, which through 31 December 2011 for AKPS was primarily the U.S., the Commonwealth of Pennsylvania and the City of Philadelphia. The offset amounts for U.S. items are as follows: Amounts in USD thousand Deferred tax assets Deferred tax liabilities (9 255) (11 493) Net deferred tax liabilities (806) (6 702) Deferred tax assets and liabilities shown in the statement of financial position are mainly attributable to the U.S. tax jurisdiction. Deferred assets have not been recognized in respect of the following items: Norwegian unrecognized tax assets represent net operating losses with no expiration date. At 31 December 2011 the Company also had USD 0.1 million of deferred tax assets related to the Norwegian tax jurisdiction which are not recognized in the financial statements due to lack of expected future taxable income in Norway. The gross movement in the deferred income tax account for all tax jurisdictions is as follows: Amounts in USD thousand Beginning of the period (6 702) (4 622) Deferred tax benefit/(expense) (2 080) End of the year (806) (6 702) Aker Philadelphia Shipyard annual report

24 Consolidated accounts The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Deferred tax assets: Amounts in USD thousand Provisions of assets Tax losses Total 31 December Charged/(credited) to the income statement December Deferred tax liabilities: Amounts in USD thousand Property, plant and equipment Projects Other Total 31 December 2010 (10 421) (1 072) - (11 493) Charged/(credited) to the income statement December 2011 (8 946) (309) - (9 255) Note 6: Property, plant and equipment Movements in property, plant and equipment for 2011 are shown below: Amounts in USD thousands Machinery and Vehicles Buildings Land Improvements Assets-Under- Construction Total Cost at 1 January Purchases Transfers (27) - Write-off of assets-under-construction (1) (207) (207) Write-off of assets - (692) - - (692) Cost at 31 December Depreciation and impairment losses at 1 January Depreciation Write-off of assets - (692) - - (692) Depreciation and impairment losses at 31 December Book value at 31 December 2011 (2) (1) The Company wrote off concept projects that were in assets-under-construction. (2) Book value of assets under financial leasing agreements recorded in the statement of financial position (see note 16 and note 24): Depreciation period 3-12 years 7-30 years 20 years Depreciation method Straight-line Straight-line Straight-line Movements in property, plant and equipment for 2010 are shown below: Amounts in USD thousands Machinery and Vehicles Buildings Land Improvements Assets-Under- Construction Total Cost at 1 January Purchases Transfers (82) - Write-off of assets-under-construction (1) (372) (372) Cost at 31 December Depreciation and impairment losses at 1 January Depreciation Depreciation and impairment losses at 31 December Book value at 31 December 2010 (2) (1) The Company wrote off concept projects that were in assets-under-construction. (2) Book value of assets under financial leasing agreements recorded in the statement of financial position: Depreciation period 3-12 years 7-30 years 20 years Depreciation method Straight-line Straight-line Straight-line 22 Aker Philadelphia Shipyard annual report 2011

25 Consolidated accounts Leased plant and machinery The Company leases production equipment under a number of finance lease agreements. At the end of each of the leases, the Company has the option to purchase the equipment at a beneficial price. The leased equipment secures lease obligations (see note 14). In January 2012 the Company entered into a finance lease for certain production equipment with a fair value of USD 1.5 million. Security granted on property, plant and equipment At 31 December 2011, property, plant and equipment with a carrying amount of USD 54.9 million (2010: USD 59.8 million) are subject to mortgages to secure loans (see note 14). Property, plant and equipment under construction Assets-under-construction primarily relate to upgrades in facilities and equipment. Depreciation Depreciation charges for equipment and property used in the construction of vessels are included in depreciation expense and capitalized in the value of vessels-under-construction receivables (2010) and work-in-process (2011). See note 8 for discussion of depreciation expense allocation. Determination of recoverable amounts/fair value The Company evaluated any potential impairment of property, plant and equipment. Based on its analysis, which included alternative uses under different scenarios, third party valuations of certain assets and a discounted cash flows approach, the Company concluded that no impairment of property, plant and equipment had occurred in 2011 or The discounted cash projections were based on future cash flow budgets and forecasts for the period with firm backlog ( ) and an annual growth rate of 2% for subsequent periods. A discount rate (WACC) of 8% before tax has been used. Sales leaseback The assets sold and leased back from PSDC are being accounted for as a finance lease and as such the gain is being deferred and recognized over the assets' useful life since the lease term is 99 years. Note 7: Other non-current assets Other non-current assets consist of the following items: Amounts in USD thousands 31 Dec Dec Prepaid lease payments and deposits Interest-bearing long-term receivable Total The lease payments and deposits are unsecured and have no collateral. For 31 December 2011, the amount includes USD 0.4 million for refundable deposits for Hulls 019 and 020 as product tankers (USD 2.7 million for 31 December 2010). The interest-bearing long-term receivable has a fixed interest rate of 5.0% per annum. Note 8: Construction contracts/vessels built for own account The order backlog represents an obligation to deliver vessels that have not yet been produced for our customer. The contract signing with SeaRiver has created an order backlog of USD million as of 31 December 2011 and represents future sales. Order backlog represents base contract price plus certain materials (approximately USD 80 million) supplied by the customer and is subject to adjustments based on change orders as defined in the construction contracts. The materials supplied by the customer will not be recognized as revenue by AKPS. Amounts in USD thousands Order Backlog 31 Dec Order Intake 2011 Order Backlog 31 Dec Order Intake 2010 Order Backlog 31 Dec Crude oil tankers Total As of 31 December 2011 and 2010, the incurred costs billable to customers upon delivery of the ships were USD 0 and USD 51.9 million, respectively, using the percentage of completion method. Revenue recognition will occur upon sale and delivery of Hull 017 and Hull 018 which are scheduled to be completed in Q and Q1 2013, respectively. Additionally, the proceeds from the sale/leaseback transaction with the Philadelphia Shipyard Development Corporation (PSDC) described in note 24 are being treated as a reduction in the work-in-process of Hull 017 and Hull 018 ratably as construction costs are incurred due to refund clauses (liquidated damages) which lapse upon vessel completion. Accordingly, accumulated costs less recognized proceeds are presented in the statement of financial position and any income statement impact will be deferred until the sale and/or delivery of the vessels to third parties. Work-in-process of USD 70.1 million at 31 December 2011 represents accumulated costs on vessel-under-construction for APSI s own account net of recognized PSDC support of USD 16.9 million. APSI recognized depreciation expense for the year ended 31 December 2011 of USD 7.1 million of which USD 2.5 million was capitalized as part of work-in-process and USD 4.6 million was expensed in the income statement. As of 31 December 2011, APSI has purchase commitments of approximately USD 36.5 million for Hulls Advances from customers as of 31 December 2011 and 2010 totaled USD 2.4 million and USD 24.7 million, respectively. Aker Philadelphia Shipyard annual report

26 Consolidated accounts Note 9: Prepayments and other receivables Prepayments and other receivables consist of the following items: Amounts in USD thousands 31 Dec Dec Advance payments to suppliers PSDC receivable (see note 24) Other short-term interest-free receivables Total Note 10: Cash and cash equivalents Cash and cash equivalents consist of the following items: Amounts in USD thousands 31 Dec Dec Cash and bank deposits Cash and cash equivalents in the statement of cash flows Cash and bank deposits are invested in overnight deposits. There are no restrictions on cash. Note 11: Restricted cash Restricted cash consists of the following items: Amounts in USD thousands 31 Dec Dec Restricted cash Total Restricted cash represents an escrow account established in conjunction with the SeaRiver contract. The monies will be released after delivery of the second vessel (Hull 020) as defined in the contract. Note 12: Earnings per share Basic and diluted Basic and diluted (loss)/earnings per share are calculated by dividing the (loss)/income attributable to equity holders of the Company by the weighted average number of ordinary shares. Amounts in USD thousands (except shares and per share data) (Loss)/income attributable to equity holders of the Company (4 208) Weighted average number of ordinary shares in issue Basic and diluted (loss)/earnings per share (USD) (0.41) 0.57 There were no potentially dilutive securities outstanding as of 31 December 2011 and Note 13: Paid in capital The current share capital is 10,165,305 shares issued and outstanding, each with a par value of NOK 10 (USD 1.85 at an exchange rate of NOK/USD 5.4:1 at the transaction date), fully paid. There are currently no additional authorized shares. Amounts in USD thousands Share Capital Share Premium Total Paid-in-Capital 31 December December Aker Philadelphia Shipyard annual report 2011

27 Consolidated accounts Note 14: Interest-bearing loans and liabilities This note provides information about AKPS s contractual terms of interest-bearing loans and borrowings. For more information about AKPS s exposure to interest rate and foreign currency risk, see note 22. Amounts in USD thousands 31 Dec Dec Interest-bearing long-term debt: Borrowings, net of unamortized financing costs of USD 24 in 2011 and USD 124 in Aker ASA loan Total interest-bearing long-term debt Interest-bearing short-term debt: PIDA/PIDC/Welcome Fund loans Finance lease liabilities - 10 Construction loan Total interest-bearing short-term debt Secured Loans as of 31 December 2011 Maturity Balance Interest rate Pennsylvania Industrial Development Authority (PIDA) Oct % PIDC Local Development Corporation (PIDC) July % PIDC Regional Center, LP XV (Welcome Fund) Various % Total Secured Loans The PIDA and PIDC loans are secured by a joint first mortgage against certain property, plant and equipment with a carrying amount of USD 54.9 million as of 31 December 2011 (see note 6) and have a fixed interest rate until maturity. Payments are fixed and are paid monthly through maturity. The Welcome Fund loan is secured by a second mortgage against certain property, plant and equipment with a carrying amount of USD 54.9 million as of 31 December 2011 (see note 6) and has a fixed interest rate until the original maturity date (27 March 2012). Interest is paid semi-annually. The amended repayment schedule requires USD 5.0 million to be paid at the original maturity date of 27 March 2012; a minimum of USD 5.0 million and a maximum of USD 15.0 million (subject to certain sales price thresholds being met) to be repaid upon the sale and delivery of Hull 017; and any remaining loan balance to be repaid upon the sale and delivery of Hull 018 (see note 24). The interest rate increases to 4.75% after the original maturity date. The Welcome Fund loan is also secured by a second lien on Hulls 017 and 018. Such lien is pari passu with the second lien of Aker ASA on such vessels. Construction Loans as of 31 December 2011 Maturity Balance Interest rate Caterpillar Financial Services Corporation < 12 months % 3-month LIBOR % The Caterpillar construction loan is a USD 80.0 million facility for construction of Hulls 017 and 018 with a maximum borrowing amount of USD 40.0 million per vessel and is secured by a first lien on those vessels. The loan is also secured by a performance guaranty by Aker ASA. The margin of 2.80% is subject to an increase or decrease depending upon the lender s cost of funds as defined in the loan agreement. In no event will the margin be adjusted below 2.80%. The Caterpillar construction loan outstanding at 31 December 2011 is for construction of Hull 017 and is secured by a first lien on work-in-process, valued at USD 50.9 million as of 31 December The undrawn amount for Hull 017 as of 31 December 2011 is USD 32.0 million. The Caterpillar loan balance for each vessel is repayable at the delivery of such vessel. Maturity Balance Interest rate Aker ASA > 12 months % 3-month LIBOR % The Aker construction loan is a USD 30.0 million facility for construction of Hulls 017 and 018 with a maximum borrowing amount of USD 15.0 million per vessel and is secured by a second lien on those vessels. Such lien is pari passu with the second lien of the Welcome Fund on such vessels. The Aker construction loan outstanding at 31 December 2011 is for construction of Hull 017 and is secured by a second lien on work-in-process, valued at USD 50.9 million as of 31 December The undrawn amount as of 31 December 2011 is USD 15.0 million. The second tranche was drawn on 11 January The Aker loan balance is repayable at the delivery of Hull 018 provided that certain sales price thresholds with respect to Hull 017 and Hull 018 are met. Construction loan covenants The Caterpillar and Aker ASA loans contain certain financial covenants related to a minimum tangible net worth, as defined, of USD 40.0 million (USD 88.9 million at 31 December 2011) and debt to tangible net worth of no more than 4.0 to 1.0 (0.6 at 31 December 2011). As of 31 December 2011, the Company was in compliance with the existing covenants and is expected to remain in compliance during Aker Philadelphia Shipyard annual report

28 Consolidated accounts Undrawn credit facilities As of 31 December 2011, the Company has USD 5.0 million of undrawn credit facilities with a bank, out of a total available balance of USD 6.0 million. The drawn amount is being used for letters of credit. The credit facilities are secured by a lien on deposit accounts held at the bank. The Company anticipated that it would be out of compliance with a financial covenant tested as of year-end for this facility but a waiver was obtained in December Note 15: Other long-term liabilities Amounts in USD thousands Deferred real estate tax liability Total In connection with the PSDC agreement (see note 24), the City of Philadelphia agreed to temporarily defer USD 8.0 million in tax payments due from APSI over three years, commencing in The full deferral is due in The Company has discounted the deferred payments and is imputing interest expense over the deferred period. Note 16: Operating and financial leases Non-cancelable operating lease rentals are payable as follows as of 31 December: Amounts in USD thousands Less than one year Between one and five years Total The operating leases are for priming and blasting equipment and facilities, vehicles, and printing and copying equipment. In February 2012 the Company extended the priming facility lease for an additional five years. The lease payments are included in the above table. The Company operates on land leased from PSDC through April Lease payments include rent, taxes and operating expenses. The lease payments are subject to an annual revision based on PSDC's operating expenses. The Company has options to renew the lease for three consecutive periods of 20 years each and one final period of 19 years. The Company can acquire the land for USD 1 after the expiration of all renewal periods. The lease may be terminated if APSI fails to maintain certain employment levels at the shipyard. For additional information regarding this termination event, see note 24. Lease payments under the financing lease are USD 1 per year through April 2018 with options concurrent with the facility lease noted above. Note 17: Pensions Pension expense recognized in the income statement: Amounts in USD thousands Contribution plans (employer's contribution) Total net pension expense The Company has a defined contribution plan for its non-union employees which provides for a Company contribution based on a fixed percentage of certain employee contributions plus a discretionary percentage of salaries. In addition, the Company's union employees are participants in a multi-employer union selected pension plan (Union Plan). The Company contributes a fixed amount per hour worked to the Union Plan. If the Company were to terminate its relationship with the Union Plan, the Company could be statutorily liable for a termination liability calculated at the termination date. Currently the Company has no plans to terminate this relationship. Thus no termination liability has been recognized in the financial statements. Note 18: Other provisions-warranties Amounts in USD thousands Current balance as of 1 January Provisions made during the period Provisions used during the period (562) (1 178) Current balance as of 31 December The warranty provision relates to the warranty work for product tankers (Hulls ) delivered through April Aker Philadelphia Shipyard annual report 2011

29 Consolidated accounts Note 19: Trade payables and other accruals Trade payables and other accruals comprise the following items: Amounts in USD thousands 31 Dec Dec Trade payables Ship material and subcontracting accruals Derivative financial instruments Employee-related cost accruals Overhead cost accruals Deferred income from PSDC Other short-term interest-free liabilities Total Deferred income represents amounts received from PSDC but not yet recognized as a reduction in ship cost (see notes 8 and 24). Note 20: Interest-bearing short-term debt Interest-bearing short-term debt comprises the following items at 31 December: Amounts in USD thousands Construction loans Current portion of interest-bearing long-term debt Total See note 14 for further details on interest-bearing debt. Note 21: Net interest-bearing debt Net interest-bearing debt comprise the following items at 31 December: Amounts in USD thousands Interest-bearing long-term debt (see note 14) Interest-bearing short-term debt excluding construction loans (see notes 14 and 20) Total interest-bearing debt Interest-bearing long-term receivable (see note 7) (82) (125) - Cash and cash equivalents (see note 10) (18 913) (41 699) - Restricted cash (see note 11) (20 000) - Total interest-bearing assets (38 995) (41 824) Net interest-bearing debt (+)/assets (-) (10 564) Note 22: Financial instruments Exposure to credit, liquidity, currency and interest rate risks arise in the normal course of AKPS's business. Derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates for business purposes. Credit risk The carrying amount of financial assets represents the maximum credit exposure. At 31 December 2011 and 2010, respectively, the maximum exposure to credit risk is as follows: Amounts in USD thousands Cash and cash equivalents Restricted cash Total Amounts in USD thousands Interest-bearing long-term receivable Security deposits Vessels-under-construction receivables PSDC receivable Total Aker Philadelphia Shipyard annual report

30 Consolidated accounts Liquidity risk: The following are the contractual maturities of financial liabilities including interest payments: 31 December 2011 Amounts in USD thousands Book value Contractual cash flow Less than 6 months 6-12 months 1-2 years 2-5 years More than 5 years Non-derivative financial liabilities: Long-term portion of secured loans (gross) (17 218) - - (12 638) (4 580) - Current portion of interest-bearing long-term external debt (13 133) (6 626) (6 507) Construction loans (8 186) (40 227) Aker ASA loan (15 935) (31 628) - - Trade payables (2 881) (2 881) Derivative financial liabilities: Forward exchange contracts 431 (431) (431) Total (57 784) (46 734) (44 266) (4 580) - 31 December 2010 Amounts in USD thousands Book value Contractual cash flow Less than 6 months 6-12 months 1-2 years 2-5 years More than 5 years Non-derivative financial liabilities: Long-term portion of secured loans (gross) (29 957) - - (2 618) (27 339) - Current portion of interest-bearing long-term external debt (3 185) (1 595) (1 590) Construction loans (16 454) (16 454) Trade payables (1 160) (1 160) Derivative financial liabilities: Forward exchange contracts Total (50 756) (19 209) (1 590) (2 618) (27 339) - Book values included in the above tables are gross loan amounts. Balances included in the statement of financial position are shown net of unamortized financing costs of USD 24 thousand in 2011 and USD 124 thousand in Currency risk AKPS incurs foreign currency risk on purchases that are denominated in a currency other than USD. The currencies giving rise to this risk are primarily EUR (Euro), NOK (Norwegian Kroner) and KRW (Korean Won). As of 31 December 2011 AKPS's portfolio of foreign exchange transaction exposures represented the following currencies and maturities. Amounts indicated represent the underlying notional amounts. Amounts in USD thousands Maturing in Later years Total Buy KRW Buy total Net position Changes in the fair value of forward exchange contracts that economically hedge monetary assets and liabilities in foreign currencies and for which hedge accounting is not applied are recognized in the income statement. Both the changes in fair value of the forward contracts and the foreign exchange gains and losses relating to the monetary items are recognized as part of net financial items (see note 4). The fair value of exchange contracts used as economic hedges of monetary assets and liabilities in foreign currencies at 31 December 2011 and 2010 were USD 431 thousand and USD 0, respectively, recognized in current liabilities. 28 Aker Philadelphia Shipyard annual report 2011

31 Consolidated accounts Exposure to currency risk The Company's exposure to currency risk at 31 December 2011 and 2010 was as follows based on the following notional amounts: Amounts in USD thousands Euro KRW NOK Euro KRW NOK Gross balance sheet exposure Trade payables (-) (18) - - Cash Gross balance sheet exposure (18) Estimated forecast expenses (-) - (4 529) - (444) (14 026) - Gross exposure - (4 529) - (444) (14 026) - Forward exchange contracts Net exposure (462) (14 026) Sensitivity analysis In managing interest rate and currency risks AKPS aims to reduce the impact of short-term fluctuations on AKPS's earnings. Over the longer term, however, permanent changes in interest and foreign exchange rates would have an impact on consolidated earnings. At 31 December 2011 it is estimated that a 10% strengthening of the USD against other foreign currencies would decrease AKPS's loss before tax by less than USD 1 thousand. Exposure to interest rate risk It is estimated that a general increase of one percentage point in interest rates would increase AKPS's loss before tax on an annual basis by approximately USD 95 thousand for 2011 and decrease income before tax by USD 136 thousand for The estimate for financial liabilities includes only the variable interest rate construction loan and the loan from Aker ASA (2011). Fair values The fair values of financial instruments together with the carrying amounts shown in the statement of financial position as of 31 December are as follows: Amounts in USD thousands Carrying amount 2011 Fair value 2011 Carrying amount 2010 Fair value 2010 Interest-bearing long-term receivables Cash and cash equivalents Forward exchange contracts Secured loans (gross) (29 144) (25 436) (31 374) (27 790) Aker ASA loan (15 000) (12 860) - - Construction loans (8 000) (8 000) (16 000) (16 000) Finance lease liabilities - - (10) (10) The fair value of fixed-interest long-term debt (i.e. secured loans) is calculated based on the present value of future principal and interest cash flows discounted at a market rate of 8.0% for both 2011 and Carrying amounts included in the above table are gross loan amounts. Balances included in the statement of financial position are shown net of unamortized financing costs of USD 24 thousand in 2011 and USD 124 thousand in In accordance with its treasury policy, AKPS does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. The Company has categorized its assets and liabilities that are recorded at fair value, based on the priority of the input to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets and liabilities fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The categories are described below: Level 1. Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access. Level 2. Assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Examples of Level 2 inputs include quoted prices for identical or similar assets or liabilities in non-active markets and pricing models whose inputs are observable for substantially the full term of the asset or liability. Level 3. Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management s own assumptions about the assumptions a market participant would use in pricing the asset or liability. Foreign exchange contracts as of 31 December 2011 are measured using Level 2 inputs. Aker Philadelphia Shipyard annual report

32 Consolidated accounts Note 23: Shares owned or controlled by the President and Chief Executive Officer, Board of Directors and Senior Employees of AKPS Shares owned in Aker Philadelphia Shipyard ASA as of 31 December 2011 Name Position AKPS Number of shares Jim Miller Board Chairman Elin Karfjell Board Member Jeffrey Theisen Chief Financial Officer 500 Scott Clapham Senior Vice President There is no share option agreement between Aker Philadelphia Shipyard ASA and Senior Management or Directors. Remuneration to the Board of Directors for the year ended 31 December 2011 Name Position Remuneration (NOK) Remuneration (USD) Jim Miller Board Chairman Elin Karfjell Board Member Amy Humphreys Board Member Thorhild Widvey Board Member Audun Stensvold Board Member Manuel Stamatakis Board Member - - Sum Directors' fees No board members received any remuneration other than Directors' fees. Manuel Stamatakis agreed to waive his fees as a board member. Remuneration to the audit committee The audit committee of AKPS is comprised of Elin Karfjell (Chairperson) and Audun Stensvold. Remuneration for the Chairperson is NOK 40,000 (USD 6,721) and for each member is NOK 30,000 (USD 5,041). Remuneration to the nomination committee The nomination committee of Aker Philadelphia Shipyard ASA has the following members: Leif-Arne Langoy, Oyvind Erikseń and Gerhard Heiberg. Remuneration earned by each member of the committee in 2011 was NOK 30,000 (USD 5,041). Guidelines for remuneration to the President and CEO and members of the Executive Team The basis of the remuneration of the President and CEO and Members of the Executive Team has been developed in order to create a performance-based system. This system of reward is designed to contribute to the achievement of good financial results and increase shareholder value. The President and CEO and members of the Executive Team receive a base salary. In addition, a variable pay may be awarded. This variable pay program was implemented in This variable pay is based on the achievement of financial and personal performance targets and leadership performance in accordance with the Company s values. The variable pay program represents a potential for an additional variable pay in the range of 20% to 50% of base salary depending on the achievement of defined short-term and long-term results such as financial targets (profit, working capital and vessel sales) and personal targets (project targets, development of commercial solutions, alignment with values and improvement of Health, Safety and Environment). The President and CEO and members of the Executive Team are eligible for participation in the variable pay program. The President and CEO and Executive Team participate in the standard pension and insurance schemes, applicable to all employees. The Company practices standard employment contracts and standard terms and conditions regarding notice period and severance pay for the President and CEO and the members of the Executive Team. The Company does not offer share option programs to the Executive Team. Remuneration to Executive Management Kristian Rokke was appointed President and CEO on 5 April His compensation for the period of 5 April 2011 through 31 December 2011 was a salary of USD 184,981, variable pay of USD 11,500, pension contributions of USD 7,000 and other benefits of USD 55,826. Contractual severance obligations are six months compensation. Jim Miller was President and CEO for the period of 1 January 2011 through 4 April 2011 and remained in executive management of AKPS through June During this period he received a salary of USD 215,929, variable pay of USD 248,514, pension contributions of USD 26,057 and other benefits of USD 72,605. Jim Miller's compensation in 2010 was a salary of USD 485,000, variable pay of USD 547,400, pension contributions of USD 13,300 and other benefits of USD 142,400. Contractual severance obligations are eighteen months compensation. In 2011, Jeffrey Theisen, CFO, received a salary of USD 243,558, variable pay of USD 54,500, pension contributions of USD 9,697 and other benefits of USD 15,784. His paid compensation in 2010 was a salary of USD 239,900, variable pay of USD 203,100, pension contributions of USD 8,100 and other benefits of USD 15,800. Contractual severance obligations are nine months compensation. 30 Aker Philadelphia Shipyard annual report 2011

33 Consolidated accounts Note 24: PSDC agreement On 31 March 2011, PSDC and APSI closed the transactions contemplated by the Authorization Agreement dated 15 December 2010 and effective as of 18 February 2011 (the Authorization Agreement ), which secured the yard's ability to construct two additional product tankers (Hull 017 and Hull 018). Pursuant to the Authorization Agreement, PSDC purchased certain shipyard assets from APSI for a purchase price of USD 42 million, payable in two equal tranches, with funds being (or to be) provided by the Commonwealth of Pennsylvania. APSI will lease back those same assets from PSDC subject to the terms of its shipyard lease and the Authorization Agreement. APSI will use the sale proceeds, in combination with construction period financing with private lenders and its own available funds, to construct Hull 017 and Hull 018. For accounting purposes the transaction will be accounted for as a sale/leaseback and no adjustments will be made to the accounting value of the assets at closing and the proceeds will be proportionately recognized as a reduction of vessel cost over the construction of Hull 017 and Hull 018. On 21 November 2011, PSDC advanced the first USD 21 million tranche to APSI. In conjunction with the closing, Aker ASA, which indirectly owns 71.2% of the shares of AKPS, agreed to make a USD 30 million subordinated construction loan to APSI with funding to be in two tranches of USD 15 million each. The loan is subject to customary disbursement conditions. Interest will be paid at maturity and the interest rate is on market terms. The loan is secured by a lien on Hull 017 and Hull 018. The loan can be repaid no sooner than upon sale and delivery of both Hull 017 and Hull 018 and full repayment can be delayed further if certain sales price thresholds are not met. On 4 November 2011, Aker ASA advanced the first USD 15 million tranche to APSI. On 11 January 2012, Aker ASA advanced the second USD 15 million tranche to APSI. Additionally, in conjunction with the transaction, PIDC Regional Center, LP XV (the Welcome Fund) agreed to restructure its USD 20 million loan to, among other things, extend its maturity and secure it with a lien on Hull 017 and Hull 018. As restructured, USD 5 million will be paid at the original maturity date of 27 March 2012; a minimum of USD 5 million and a maximum of USD 15 million (subject to certain sales price thresholds being met) will be repaid upon the sale and delivery of Hull 017; and any remaining loan balance will be repaid upon the sale and delivery of Hull 018. In connection with the closing, the City of Philadelphia agreed to temporarily defer USD 8 million in tax payments due from APSI over three years, commencing in The full deferral is due in Under the Authorization Agreement, APSI is obligated to construct Hull 017 and Hull 018 in accordance with their current production schedules. If those ships are not completed before certain agreed-upon deadlines, as extended for events of force majeure, then PSDC may require APSI to pay liquidated damages of up to USD 35 million per ship. APSI's obligation to pay the liquidated damages is guaranteed to PSDC by Aker ASA. As part of the transaction PSDC has released APSI and Aker Maritime Finance AS, a wholly-owned subsidiary of Aker ASA, from the USD 20 million employment guarantee, provided to guarantee a minimum employment level at the shipyard through the end of In addition, APSI has agreed to a new termination event under its shipyard lease, pursuant to which PSDC has the right to recapture the shipyard if APSI fails to maintain an average of at least 200 full-time employees at the shipyard for 90 consecutive days, subject to the right of APSI to complete work-in-process projects and a one-time, limited cure right which allows APSI to restore the lease to a 5-year term under certain circumstances. Additionally, the PSDC Chairman is now a member of the AKPS Board. Note 25: Commitments and contingencies Government grants The Shipyard has been funded by various federal, state, and local government agency subsidies for periods including those prior to the purchase by AKPS on 30 June 2005, totaling USD million, as set forth in the Master Agreement between the Government Parties and the Shipyard, dated 16 December 1997, as amended 30 July Funding under the Master Agreement was allocated as follows: USD 42.0 million for preliminary shipyard development, USD million for initial construction costs, and USD million for employee training programs. In 2001, the Shipyard was granted a transfer of USD 50.0 million from the preliminary shipyard development budget to the initial construction costs budget, but the overall amount of USD million did not change. Funding was provided through loans to the Shipyard (see note 14) as well as grants. The Shipyard has exhausted the funding under the Master Agreement and did not receive any funding in 2011 or For the year ended 31 December 2011, the Shipyard received USD 51 thousand reimbursement of employee training costs from various governmental agencies (USD 245 thousand reimbursement in 2010). For the year ended 31 December 2011, the Shipyard received USD 386 thousand of grant funds for capital and infrastructure improvements under the Small Shipyard Grant Program (USD 452 thousand of grant funds in 2010). Other commitments and contingencies Under the Master Agreement, the Shipyard is required to pay a common area maintenance charge each month to PSDC of approximately USD 34 thousand through the term of the agreement. On 13 September 2002, the Shipyard finalized an agreement with the City of Philadelphia (and others), whereby the parties agreed to the Real Estate and Use and Occupancy Tax for the years 2001 through The Shipyard is committed to a fixed assessment of approximately USD 3.3 million to USD 3.6 million per year, commencing in On 31 March 2011, the City of Philadelphia agreed to temporarily defer USD 8.0 million in tax payments over the next three years (see note 24) until As of 31 December 2011, the Company has entered into commitments with various third-party suppliers for approximately USD 36.5 million of ship production and overhead related expenditures on Hulls APSI and American Shipping Company ASA (AMSC) are jointly and severally liable for indemnifying Overseas Shipholding Group, Inc. (OSG) in respect of any losses suffered by it due to a breach of APSI or AMSC of the framework agreement and related transaction documents governing the construction and leasing of the initial ten Jones Act tankers of APSI's twelve-ship series, which was completed in April APSI and AMSC have entered into a crossindemnity agreement to allocate these liabilities among themselves based on relative fault. As all of the vessels have been completed and delivered, APSI has fulfilled all of its construction obligations under the OSG documents other than certain unexpired warranty obligations. AMSC's primary leasing obligation under the OSG documents is to provide OSG with quiet enjoyment of the vessels. AMSC may breach its quiet enjoyment covenant under certain circumstances. The Company regards this risk as remote. During 2011, APSI concluded its audit by the Internal Revenue Service for the year ended 31 December 2007 and the year ended 31 December The ultimate resolution of the audit did not have a material adverse effect on the Company's financial position or results of operations. Aker Philadelphia Shipyard annual report

34 Consolidated accounts The Company is obligated to pay liquidated damages to PSDC of up to USD 70.0 million if Hulls 017 and 018 are not completed before certain agreedupon deadlines. For additional information regarding this obligation, see note 24. Legal matters AKPS is involved in various legal disputes in the ordinary course of business related primarily to personal injury matters, employment matters and commercial matters. Provisions have been made to cover the expected outcomes when it is probable that a liability has been incurred and the amount is reasonably estimable. Although the final outcome of these matters is subject to uncertainty, in AKPS's opinion the ultimate resolution of such legal matters will not have a material adverse effect on AKPS's financial position or results of operations. Note 26: Transactions, guarantees and agreements with related parties and concentration of business Converto Capital Fund AS, an investment fund controlled by Aker ASA, is the majority shareholder in AKPS owning 71.2% of the total outstanding shares of AKPS as of 31 December In addition, Kristian Rokke, the President and CEO of AKPS, is a Board member of TRG Holding AS, which owns 66.7% of the total outstanding shares of Aker ASA as of 31 December APSI has business relations with several companies which are ultimately controlled by Aker ASA. AKPS believes that related party transactions are made on terms equivalent to those that prevail in arm's length transactions. Transactions AKPS has service agreements with Aker ASA and its affiliates which provide certain specified consulting, accounting, financial and administrative services. Related administrative costs and financial statement amounts were as follows: Expenses Expenses Payables Payables Amounts in USD thousands Dec Dec Aker ASA In its day to day activities AKPS subcontracts and hires services from several affiliated companies on behalf of APSI. Related balances were as follows: Amounts in USD thousands Expenses 2011 Expenses 2010 Payables 31 Dec Payables 31 Dec Resource Group International Aker Solutions - (30) - 1 Concentrations Operating revenues were from sales to entities controlled by AMSC. Vessels-underconstruction receivables Amounts in USD thousands Revenue 2011 Revenue Dec Dec AMSC Agreements A service agreement with Aker ASA exists for economic and accounting services, IT support and operation and administrative services. As part of the settlement with OSG, AMSC, and Aker ASA on 11 December 2009, Aker ASA was required to provide a guarantee under the construction loan facility with Caterpillar for USD million for the construction financing of Hull 015 and Hull 016. AKPS paid Aker ASA USD 185 thousand related to this guarantee in The guarantee was extinguished upon the delivery of the Overseas Tampa in April Aker ASA provided a guarantee under the construction loan facility with Caterpillar for USD 80.0 million for the construction financing for Hull 017 and Hull 018. AKPS paid Aker ASA USD 406 thousand related to this guarantee in Aker ASA also committed to a USD 30.0 million loan in 2011 to partially finance the construction of Hulls 017 and 018. USD 15.0 million was drawn as of year end and the remaining USD 15.0 million was drawn in January 2012 (see note 14). Interest expense in 2011 on the loan was USD 104 thousand (see notes 14 and 24 for further discussion). AKPS issued a USD 70.0 million counter guarantee to Aker ASA related to APSI's obligation to pay liquidated damages to PSDC under the Authorization Agreement. For additional information regarding this obligation, see note Aker Philadelphia Shipyard annual report 2011

35 Parent company accounts Aker Philadelphia Shipyard ASA Income Statement Amounts in USD thousands Note Operating revenues Operating expenses 2 (617) (779) Operating loss (531) (691) Interest income from subsidiary Other interest and financial income Other interest and financial expenses (39) (220) Loss before tax (189) (529) Tax income Net (loss)/income for the year (189) 195 Allocation of net (loss)/income: Net (loss)/income for the year (189) 195 Other equity (195) Total - - Aker Philadelphia Shipyard annual report

36 Parent company accounts Aker Philadelphia Shipyard ASA Statement of Financial Position as of 31 December Amounts in USD thousands Note ASSETS Shares in subsidiary Long-term receivable from subsidiary Total non-current assets Other short-term receivables Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Share capital Share premium reserve Total paid in capital Other equity Total equity Other short-term liabilities Total current liabilities Total equity and liabilities Oslo, Norway 22 February 2012 Board of Directors Aker Philadelphia Shipyard ASA James H. Miller Board Chairman Amy Humphreys Elin Karfjell Manuel N. Stamatakis Audun Stensvold Thorhild Widvey Kristian M. Rokke General Manager 34 Aker Philadelphia Shipyard annual report 2011

37 Parent company accounts Aker Philadelphia Shipyard ASA Cash Flow Statement Amounts in USD thousands Loss before tax (189) (529) Income tax benefit received Change in short-term receivables Change in short-term liabilities (72) (54) Net cash flow (used in)/from operating activities (257) 358 Net cash flow used in investing activities - - Net cash flow used in financing activities - - Net change in cash and cash equivalents (257) 358 Cash and cash equivalents at beginning of period Cash and cash equivalents as of 31 December Aker Philadelphia Shipyard annual report

38 Parent company accounts Aker Philadelphia Shipyard ASA Notes to the accounts Note 1: Basis for preparation The accounts of Aker Philadelphia Shipyard ASA (AKPS or the Company) are presented in conformity with Norwegian legislation and generally accepted accounting principles in Norway. The Company's functional and reporting currency is the U.S. dollar (USD), except when indicated otherwise. Subsidiaries Subsidiaries are presented on a historical cost basis in the parent company accounts. The investment is valued at historical cost for the shares unless impairment write-downs have been deemed necessary. The shares are written down to fair value if the impairment is not of a temporary nature and is necessitated by generally accepted accounting principles. Writedowns are reversed when the basis for the writedown no longer exists. Dividends and other payments are taken to income in the year they are accrued in the subsidiary. If dividends exceed retained earnings after the purchase, the excess represents repayment of invested capital and the payments are deducted from the invested value in the Company's statement of financial position. Classification and valuation of statement of financial position items Current assets and current liabilities include items that have less than one year to maturity, and other items that are deemed operational working capital. Other items are classified as non-current assets/non-current liabilities. Current assets are valued at the lower of historical cost and fair value. Current liabilities are valued at their nominal historical value at the time the liability arises. Non-current assets are valued at historical cost, but are written down to fair value if impairment is deemed to be of a permanent nature. Noncurrent liabilities are valued at nominal historical values. Tax Tax expense in the income statement comprises both current payable taxes and the change in deferred tax. Payable tax is calculated on the basis of the profit for the period in Norwegian Kroner (NOK). Deferred tax is calculated using a 28% income tax rate utilizing the difference that exists between book values and tax values and the net operating losses that can be carried forward at the statement of financial position date. Tax-increasing and tax-reducing temporary differences that are reversing or can reverse in the same period are offset against each other. Net tax assets are shown in the statement of financial position to the extent it is probable that these assets can be utilized. To the extent a group contribution is not shown in the income statement, the tax effect is taken directly against the investment item in the statement of financial position. Cash flow statement The cash flow statement is shown using the indirect method. Cash and cash equivalents comprises cash, bank deposits and other shortterm liquid placements. Use of estimates Preparation of financial statements in conformity with generally accepted accounting principles in Norway requires management to make estimates and assumptions that affect the income statement, the reported amounts of assets and liabilities and also the disclosure of contingent assets and liabilities on the statement of financial position date. Contingent losses that are probable and quantifiable are expensed when they are identified. 36 Aker Philadelphia Shipyard annual report 2011

39 Parent company accounts Note 2: Other operating expenses Fees to the auditors of USD 41,505 and USD 44,368 for ordinary audit have been expensed in 2011 and 2010, respectively. The Company has no employees. The senior management is employed in the operating company. Fees to the Board of Directors of USD 184,840 and USD 187,715 were expensed in 2011 and 2010, respectively. Note 3: Shares This item comprises the following as of 31 December 2010: Amounts in USD thousands Ownership and voting rights (%) Business address Historical cost Book value Aker Philadelphia Shipyard, Inc. (APSI) 100% Philadelphia Total shares APSI's results after-tax in 2011 and equity at the end of 2011 are: Results after-tax 2011 (4 019) Equity at 31 December Based on the net asset position of APSI (the investment in subsidiary) as well as the cash on hand at APSI, AKPS has concluded that no impairment has occurred to either the investment in subsidiary or the long-term receivable from subsidiary at December Note 4: Taxes The table below shows the difference between book and tax values by the end of 2011 and 2010 and the amounts of deferred taxes at these dates and the change in deferred taxes. Amounts in USD thousands Operating loss carried forward measured in NOK for taxation purposes (437) (766) Total differences (437) (766) Net deferred tax asset, 28% (122) (214) Tax losses not recognized Tax asset in the statement of financial position - - Deferred tax asset is not recognized due to lack of expected future taxable income in Norway. Estimated result for tax purposes: Amounts in USD thousands Loss before tax measured in NOK for taxation purposes 354 (28) Transaction cost offset equity (32) - Utilization of loss carried forward (322) - Estimated loss for tax purposes - (28) Payable current tax - - Tax (expense)/income in the income statement: Amounts in USD thousands Tax payable - - Tax income recognized during the year related to refund Change in deferred tax in the statement of financial position - - Tax (expense)/income - - Aker Philadelphia Shipyard annual report

40 Parent company accounts Note 5: Total equity Changes in equity are: Amounts in USD thousands Share capital Share premium Total paid-in capital Other equity Total equity Equity as of 1 January Net loss (189) (189) Equity as of 31 December The share capital of NOK consists of shares with a par value of NOK 10. The Company is a part of the consolidated accounts of Aker ASA, Fjordalleen 16, 0115 Oslo. Twenty largest shareholders (as of 1 February 2012) Shareholder Number of shares held Ownership (in %) Converto Capital Fund AS % Deutsche Bank AG Lon Prime Brokerage Full % State Street Bank AN A/C Client Omnibus D % Commerzbank AG Frank Meglerkonto % Bank of New York Mel BNY GCM Client Account % Deutsche Bank AG Lon % Skandinaviska Enskil % Kovaci Ramadan % Ro Lars % Seb Enskilda ASA Egenhandelskonto % Meehan David % First Clearing A/C L C/O JP Morgan Chase B (Executive Management) % Schlosser-Moller GRU V/Erik Schlosser Mol % Ulvolden AS % Elsjo AS V/Erling Sigvart Joh % Camelback Holding AS V/ Tore Bjark % Intelligent Trading % Hove Ove % Loligo AS % Tinderholt Kjell % Total, 20 largest shareholders % Other shareholders % Total % Note 6: Cash and cash equivalents There is no restricted cash. Note 7: Shares owned by the Board of Directors and the Senior Management For information regarding shares owned by the members of the Board of Directors and the Senior Management, see note 23 to the Consolidated Accounts. Note 8: Guarantee on behalf of subsidiary and affiliated Companies The Company has made the following guarantees: Description Beneficiary Amount (USD thousands) Borrower Capital expenditure facility PIDC Regional Center, LP XV APSI Construction loan facility Caterpillar Financial Services Corp APSI Construction loan facility Aker ASA APSI Working capital TD Bank, N.A APSI 38 Aker Philadelphia Shipyard annual report 2011

41 Parent company accounts The capital expenditure facility is for capital improvements at the yard. The construction loan facilities are for the construction of the product tankers. USD 15.0 million was drawn under the Aker loan at 31 December 2011 and the remaining USD 15.0 million was drawn in January The working capital facility supports the issuance of letters of credit. The Company has a service agreement with Aker ASA for economic and accounting services, IT support and operations and administrative services. Total expense incurred under this agreement in 2011 and 2010 were USD 86 thousand and USD 87 thousand, respectively. The Company entered into a loan agreement in the amount of USD 20.0 million with APSI. USD 10.0 million is outstanding at 31 December Interest is payable quarterly in arrears at three-month LIBOR plus 2.25%. The loan is payable upon demand and unsecured. The Company issued a USD 70.0 million counter guarantee to Aker ASA related to APSI's obligation to pay liquidated damages to PSDC under the Authorization Agreement. For additional information regarding this obligation, see note 24 to the Consolidated Accounts. Aker Philadelphia Shipyard annual report

42 Auditor s report 40 Aker Philadelphia Shipyard annual report 2011

43 Auditors report Aker Philadelphia Shipyard annual report

44 Shares and shareholder matters Good dialogue Aker Philadelphia Shipyard ASA (referenced to herein as AKPS or the Company) is committed to maintaining an open and direct dialogue with its shareholders, potential investors, analysts, brokers, and the financial community in general. The timely release of information to the market that could affect the Company s share price helps ensure that Aker Philadelphia Shipyard ASA s share price reflects its underlying value. Aker Philadelphia Shipyard s goal is that the Company s shareholders will, over time, receive competitive returns on their investments through a combination of dividends and share price growth. On 25 February 2008, the Company s Board of Directors adopted the following dividend policy: The Company s objective is to provide its shareholders with a competitive return over time based on its earnings. Any dividends will be considered in conjunction with the Company s financial position, debt covenants, its capital requirements and potential strengthening of the Company s financial structure. The Company aims to pay out between 50% and 100% of its net profits. The Board of Directors will propose to Aker Philadelphia Shipyard s annual shareholders meeting that no dividend be paid for the 2011 accounting year. Year Dividend (in NOK) Proposed 0 Shares and share capital Aker Philadelphia Shipyard ASA has ordinary shares; each share has a par value of NOK 10 (see note 5 to the parent company s 2011 accounts). As of 31 December 2011, the Company had 99 shareholders, of whom 13.3% were non-norwegian shareholders. Aker Philadelphia Shipyard has a single share class. Each share is entitled to one vote. The Company held 0 of its own (treasury) shares as of 31 December No share issues were carried out in Stock-exchange listing Aker Philadelphia Shipyard ASA was listed on Oslo Axess on 17 December 2007 (ticker: AKPS). Aker Philadelphia Shipyard s shares are registered in the Norwegian Central Securities Depository; the shares have the securities registration number ISIN NO DNB Bank ASA is the Company s registrar. Majority shareholder Aker Philadelphia Shipyard ASA s majority shareholder is Converto Capital Fund AS, an investment fund controlled by Aker ASA. Companies that are part of Aker are legally and financially independent units. Converto Capital Fund AS exercises active ownership as part of systematic efforts to create value for all Aker Philadelphia Shipyard shareholders. From time to time, agreements are entered into between two or more Aker companies. The Boards of Directors and other parties involved in the decisionmaking processes related to such agreements are all critically aware of the need to handle such matters in the best interests of the involved companies, in accordance with good corporate governance practice. If needed, external, independent opinions are sought. Current Board authorizations As of 31 December 2011, Aker Philadelphia Shipyard ASA has no current Board authorizations to issue shares. Stock option plans As of 31 December 2011, Aker Philadelphia Shipyard ASA has no options program. Investor relations Aker Philadelphia Shipyard ASA seeks to maintain an open and direct dialogue with shareholders, financial analysts, and the financial market in general. All Aker Philadelphia Shipyard press releases and investor relations (IR) publications, including archived material, are available at the Company s website: This online resource includes the Company s quarterly and annual reports, prospectuses, articles of association, financial calendar, and its Investor Relations and Corporate Governance policies, along with other information. Shareholders can contact the Company at ir@akerphiladelphia.com. Electronic interim and annual reports Aker Philadelphia Shipyard ASA encourages its shareholders to subscribe to the electronic version of the Company s annual Share capital development over the past three years Date Change in share capital Share capital (in NOK) Number of shares Par value (in NOK) 31 December Change in December Change in December Change in December Aker Philadelphia Shipyard annual report 2011

45 Shares and shareholder matters reports. Annual reports are published on the Company s website at the same time as they are made available via website release by the Oslo Stock Exchange/Oslo Axess: (ticker: AKPS). Subscribers to this service receive annual reports in PDF format by . Quarterly reports, which are generally only distributed electronically, are available from the Company s website and other sources. Shareholders who are unable to receive the electronic version of interim and annual reports, may subscribe to the printed version by contacting Aker Philadelphia Shipyard s investor relations staff. Nomination committee The Company s nomination committee has the following members: Leif-Arne Langoy, Gerhard Heiberg, Oyvind Eriksen. Shareholders who wish to contact Aker Philadelphia Shipyard s nomination committee may do so using the following address: Nomination Committee of Aker Philadelphia Shipyard ASA P.O. Box 1423 Vika NO-0115 Oslo, Norway Annual shareholders meeting Aker Philadelphia Shipyard ASA s annual shareholders meeting is normally held in March or early April. Written notification is sent to all shareholders individually or to shareholders nominee. To vote at shareholders meetings, shareholders (or their duly authorized representatives) must either be physically present or must vote by proxy share data The Company s total market capitalization as of 31 December 2011 was NOK 37.6 million. During 2011, a total of Aker Philadelphia Shipyard ASA shares traded, corresponding to.0532 times the Company s freely tradable stock. The shares traded on 46 trading days in Twenty largest shareholders (as of 01 February 2012) Shareholder Number of shares held Ownership (in %) Converto Capital Fund AS % Deutsche Bank AG Lon Prime Brokerage Full % State Street Bank AN A/C Client Omnibus D % Commerzbank AG Frank Meglerkonto % Bank of New York MEL BNY GCM % Deutsche Bank AG Lon % Skandinaviska Enskil % Kovaci Ramadan % Ro Lars % Seb Enskilda ASA Egenhandelskonto % Meehan David % First Clearing A/C L C/O JP Morgan Chase B % Schlosser-Moller GRU V/Erik Schlosser MOL % Ulvolden AS % Elsjo AS V/Erling Sigvart Joh % Camelback Holding AS V/ Tore Bjark % Intelligent Trading % Hove Ove % Loligo AS % Tinderholt Kjell % Total, 20 largest shareholders % Other shareholders % Total % Ownership structure by number of shares held (as of 1 February 2012) Shares owned Number of shareholders Percent of share capital % % % % % Over % Total % Share price development in share data Highest traded NOK Lowest traded NOK 1.50 Share price as of 31 Dec. NOK 3.70 Shares issued as of 31 Dec Own (treasury) shares as of 31 Dec. 0 Shares issued and outstanding as of 31 Dec Market capitalization as of 31 Dec. NOK million 37.6 Proposed share dividend NOK per share 0.0 Geographic distribution of shareholders (as of 1 February 2012) Nationality Number of shares held Ownership (in %) Non-Norwegian shareholders % Norwegian shareholders % Total % Share price development Aker Philadelphia Shipyard ASA OAAX 0 Dec 2007 Feb 2012 Aker Philadelphia Shipyard annual report

46 Our organization and governance Corporate governance Corporate governance Aker Philadelphia Shipyard ASA aims to create maximum value for its shareholders over time. Good corporate governance will help to reduce risk and ensure sustainable value creation. In line with the Accounting Act 3-3, section b and the Norwegian Code of Practice for Corporate Governance, which was last amended in 2011, the Board has reviewed and updated the Company s principles for corporate governance. The principles also apply to Aker Philadelphia Shipyard ASA s subsidiaries when relevant. The Board s statement of corporate governance is included in the annual report. The following presents Aker Philadelphia Shipyard ASA s current practice regarding each of the recommendations contained in the Code of Practice. Any deviations from the recommendations are explained under the item in question. Purpose Aker Philadelphia Shipyard ASA s Corporate Governance principles ensure an appropriate division of roles and responsibilities among the Company s owners, its Board of Directors, and its Executive Management, and that business activities are subject to satisfactory control. The appropriate division of roles and satisfactory control contribute to the greatest possible value creation over time, to the benefit of owners and other stakeholders. Values and ethical guidelines The Board has adopted Aker ASA s corporate values and ethical guidelines, which are shared by Aker companies worldwide. The ethical guidelines are a cornerstone of the Company s ownership. AKPS works to promote a sustainable and responsible company that is driven by good results and the demands for social responsibility. Aker Philadelphia Shipyard ASA s corporate values are presented on pages 4-5 of this annual report. These values consist of HSE mindset; customer drive; delivering results; hands-on management; open and direct dialogue; and people and teams. Business Aker Philadelphia Shipyard ASA s business purpose clause in the articles of association is as follows: The Company s business is to own and manage industry and other related business related to building of ships, capital management and other operations for the group, including participating in or acquiring other business. The function of the business purpose clause is to ensure that shareholders have control of the business and its risk profile, without limiting the Board or management s ability to carry out strategic and financially viable decisions within the defined purpose. AKPS s goals and main strategies are presented on page 2 of this annual report and in the Board of Directors report. The Company s overall goal is to be the premier provider of merchant vessels in the U.S. Jones Act market and its primary strategies include striving for a zero incident culture; increasing productivity; delivering on our promises; and being a market leader. Equity and dividends Equity AKPS s equity as of 31 December 2011 amounted to USD 88.9 million, which corresponds to an equity ratio of 50%. Aker Philadelphia Shipyard ASA regards the Company s current equity structure as appropriate and adapted to its objectives, strategy, and risk profile. Dividends Aker Philadelphia Shipyard ASA s dividend policy is included in the section Shares and shareholder matters (see page 42). As stated in that policy: The Company s objective is to provide its shareholders with a competitive return over time based on its earnings. Any dividends will be considered in conjunction with the Company s financial position, debt covenants, its capital requirements and potential strengthening of the Company s financial structure. The Company aims to pay out between 50% and 100% of its net profits. Given the Company s challenges over the past several years in securing financing and backlog, the Company has not paid a dividend since Instead, the Company has sought to maximize its equity to help the Company obtain funding and new orders and to ensure sufficient resources in the event it is unable to do so. Board authorizations regarding shares It is the intention that the Board s proposals for future Board authorizations to issue shares and to undertake share buybacks are to be limited to defined purposes and to be valid only until the next annual shareholders meeting. The Board currently has no authorizations to issue shares or undertake share buybacks. Equal treatment of shareholders and transactions with close associates The Company has a single class of shares, and all shares carry the same rights in the Company. Equal treatment of all shareholders is crucial. If existing shareholders pre-emptive rights are proposed waived upon an increase in share capital, the Board must justify the waiver. The Board must also publicly disclose such justification in a stock exchange announcement issued in connection with such increase in share capital. Transactions in own (treasury) shares are executed on the Oslo Stock Exchange or by other means at the listed price. If there are material transactions between the Company and a shareholder, Board member, member of Executive Management, or a party closely related to any of the aforementioned, the Board shall ensure that independent valuations are available. Aker Philadelphia Shipyard ASA has prepared guidelines designed to ensure that members of the Board of Directors and Executive Management notify the Board of any direct or indirect stake they may have in agreements entered into by AKPS. 44 Aker Philadelphia Shipyard annual report 2011

47 Our organization and governance Corporate governance See additional information on transactions with related parties in note 26 to the consolidated accounts. 71.2% of the shares in Aker Philadelphia Shipyard ASA are owned by Converto Capital Fund AS, an investment fund controlled by Aker ASA. For further details on the relationship between Aker Philadelphia Shipyard ASA and Aker ASA, see note 26 to the consolidated accounts. Freely negotiable shares Aker Philadelphia Shipyard ASA s shares are freely negotiable. No restrictions on transferability are found in the Company s articles of association/incorporation. Annual shareholders meetings The Board of Directors encourages shareholders to participate in shareholders meetings. It is the Company s priority to hold the annual shareholders meeting as early as possible after the year-end. Notice of shareholders meetings and comprehensive supporting information, including the recommendations of the nomination committee, is made available for the shareholders on the Company s home page and sent to the shareholders according to the deadlines stated in the Norwegian Public Company Act (allmennaksjeloven) and the recommendations in the Norwegian Code of Practice when possible. The Board seeks to ensure that the resolutions and supporting information are sufficiently detailed and comprehensive to enable the shareholders to form a view on all matters to be considered at the meeting. The deadline for shareholders to register to the shareholders meetings is set as close to the date of the meeting as possible. Shareholders who are unable to attend the meeting in person may vote by proxy, and normally the proxy may be given to the chairman of the meeting or any other person appointed by the chairman. Both on the attendance and proxy form and the notice of meeting, all procedures for registration are thoroughly explained. In addition, information on how to propose a resolution to the items on the agenda at the annual general meeting will be included in the notice. Pursuant to Aker Philadelphia Shipyard ASA s articles of association, the Chairman of the Board, or any other person appointed by the Chairman, chairs the shareholders meetings. It is the view of the Company that this procedure provides efficient and well prepared general meetings and is in the interests of the shareholders. The Board of Directors and the person chairing the meeting make appropriate arrangements for the general meeting to vote separately on each candidate nominated for election to the Company s corporate bodies. To the extent possible, the nomination committee leader and auditor attend annual shareholders meetings. In its work, the nomination committee emphasizes composing a board that works as a team, and that the Board members experience and qualifications support each other. The shareholders meeting is invited to vote for each nominee up for election. Minutes of shareholders meetings are published as soon as practically possible on the Oslo Stock Exchange, (ticker: AKPS) and on the Company s home page under the heading Media Center. Nomination committee Aker Philadelphia Shipyard ASA has a nomination committee, as set forth in Section 7 of the Company s articles of association. Pursuant to the articles of association, the nomination committee is to comprise no fewer than three members. Each member is normally elected for a two-year period. The composition of the nomination committee reflects the interests of the shareholders, and the nomination committee members independence from Aker Philadelphia Shipyard ASA s Board and Executive Management. Nomination committee members and Chairman are elected by the Company s annual shareholders meeting, which also determines remuneration payable to committee members. Pursuant to Aker Philadelphia Shipyard ASA s articles of association, the nomination committee recommends candidates for members of the Board of Directors. The nomination committee also makes recommendations as to remuneration of Board members. The nomination committee should justify its recommendation. Aker Philadelphia Shipyard s nomination committee comprises the following members: Leif Arne Langoy, Chairman ( ) Gerhard Heiberg ( ) Oyvind Eriksen ( ) None of the members of the nomination committee is a member of the Board of Directors. Neither the general manager nor any other senior executive is a member of the nomination committee. The general meeting has stipulated guidelines for the duties of the nomination committee. Board composition and independence The Company does not have a corporate assembly because Aker Philadelphia Shipyard ASA, excluding its subsidiaries, has fewer than 200 employees. Pursuant to Section 4 of the Company s articles of association, the Board comprises between three and seven members. The Board is currently comprised of a total of six members. The Company s shareholders elect the Chairman of the Board at the annual shareholders meeting. The Board may elect its own Deputy Chairman. Board members are elected for a period of two years. The composition of the Board of Directors is designed to ensure that it can operate independently of any special interests and function effectively as a collegiate body. A majority of the shareholder-elected Board members are independent of the Company s Executive Management and its significant business associates. The Board of Directors does not include any executive personnel. Since the last shareholders meeting in 2011, Manuel Stamatakis, has served as a Board member. Mr. Stamatakis is also the Chairman of the Philadelphia Shipyard Development Corporation (PSDC), the Company s landlord and a party to the Master Agreement and the Authorization Agreement. For more information regarding these agreements, see page 31 of the annual report. Further, four of the shareholder-elected Board members are independent of the Company s main shareholder. Currently, two of the Board members are employed by affiliates of Aker ASA. Jim Miller is Executive Vice President E&C Americas of Kvaerner, a portfolio company of Aker ASA. Audun Stensvold is the CFO and Investment Director of the investment advisor to Converto Capital Fund AS, an investment fund controlled by Aker ASA and the majority shareholder of Aker Philadelphia Shipyard ASA. Aker Philadelphia Shipyard annual report

48 Our organization and governance Corporate governance The current composition of the Board is presented on pages of this annual report; the Board members expertise, capabilities, and independence are also presented. Board members shareholdings are presented in note 23 to the consolidated accounts. The Company encourages the Board members to invest in the Company shares. The shareholder-elected Board members represent a combination of expertise, capabilities, and experience from various businesses and industries in both the private and public sectors. Two of the shareholder-elected Board members are up for election. The work of the Board of Directors The Board of Aker Philadelphia Shipyard ASA annually adopts a plan for its work, emphasizing goals, strategies, and implementation. The plan also recognizes the Company s corporate social responsibility. Also, the Board has adopted informal guidelines that regulate areas of responsibility, tasks, and division of roles of the Board, Board Chairman, and President and CEO/General Manager. The Board plans to adopt formal instructions to regulate these areas in The Board anticipates that these instructions will also feature rules governing Board schedules, rules for notice and chairing of Board meetings, decisionmaking rules, the President and CEO s/ General Manager s duty and right to disclose information to the Board, professional secrecy, impartiality, and other issues. In order to ensure a more independent consideration of matters of a material character in which the Board Chairman is, or has been, personally involved, the Board s consideration of such matters are chaired by the Deputy Board Chairman, if there is one serving at the time, or some other member of the Board in the absence of a Deputy Board Chairman. The Board of Aker Philadelphia Shipyard ASA established an audit committee in The audit committee consists of two members, Elin Karfjell (Chairperson) and Audun Stensvold. Both members are independent from operations of the Company. As discussed above, Mr. Stensvold is linked to the Company s main shareholder. Aker Philadelphia Shipyard ASA does not have any other active Board committees at this time. In particular, the Company does not have a remuneration committee because all members of the Board are independent of the Company s executive personnel. The Board evaluates its own performance and expertise once a year. Risk management and internal control The Board is to ensure that the Company maintains solid in-house control practices and protocols and appropriate risk management systems tailored to the Company s business activities. These practices and systems encompass the Company s corporate values, ethical guidelines and guidelines for corporate social responsibility. The Company s policy regarding corporate social responsibility is set forth on pages 4-5 of this annual report. The Board annually reviews the Company s most important risk areas and internal control systems and procedures, and the main elements of these assessments are mentioned in the Board of Directors report. The issue is further described in notes 1 and 22 to the consolidated accounts. Audit Committee The audit committee has reviewed the company s internal reporting systems, internal control and risk management and had dialogues with the company s auditor. The audit committee has also considered the auditor s independence. AKPS financial policies ensure follow-up of financial risk. Key targets are identified by the Board and management to ensure timely follow-up of currency exposure, interest rate exposure and compliance with covenants. The Company has prepared an authorization matrix and approval procedures for costs included in the governing documents. Financial Statement Close Process The Company has implemented Aker ASA s accounting and reporting handbook which contains requirements and procedures for the preparation of both the quarterly and annual reporting. The reporting is done quarterly through AKPS s reporting and consolidation system. Consolidation and control over the financial statement close process is the CFO s responsibility. Financial results and cash development are analyzed and compared to the budget by the CEO and CFO and reported to the Board monthly. Remuneration of the Board of Directors Board remuneration reflects the Board s responsibility, expertise, time spent, and the complexity of the business. Remuneration does not depend on Aker Philadelphia Shipyard ASA s financial performance and the Company does not grant share options to members of its Board. Board members and companies with whom they are associated are not to take on special tasks for the Company beyond their Board appointments unless such assignments are disclosed to the full Board and the remuneration for such additional duties is approved by the Board. Additional information on remuneration paid to Board members for 2011 is presented in note 23 to the consolidated accounts. Remuneration of Executive Management The Board has adopted guidelines for remuneration of Executive Management in accordance with the Norwegian Public Limited Company Act (Allmennaksjeloven 6-16a). Salary and other remuneration of the President and CEO of Aker Philadelphia Shipyard ASA are determined in a Board of Directors meeting. The basis of remuneration of Executive Management has been developed in order to create a performance-based system. The system of reward is designed to contribute to the achievement of good financial results and increase in shareholder value. Aker Philadelphia Shipyard ASA does not have stock option plans or other such share award programs for employees. Further information on remuneration for 2011 for members of Aker Philadelphia Shipyard ASA s Executive Management is presented in note 23 to the consolidated accounts. AKPS s guidelines for remuneration to Executive Management are discussed on page 30 of this annual report and will be presented to the shareholders at the annual shareholders meeting. The maximum size of any payment under the existing performance-related remuneration program to any executive is linked to the size of the executive s base salary. 46 Aker Philadelphia Shipyard annual report 2011

49 Our organization and governance Corporate governance Information and communications Aker Philadelphia Shipyard ASA s reporting of financial and other information is based on openness and on equal treatment of shareholders, the financial community, and other interested parties. The long-term purpose of Aker Philadelphia Shipyard ASA s investor relations activities is to ensure the Company s access to capital at competitive terms and to ensure shareholders correct pricing of shares. These goals are to be accomplished through correct and timely distribution of information that can affect the Company s share price; the Company is also to comply with current rules and market practices, including the requirement of equal treatment. All stock exchange notifications and press releases are made available on the Company s home page stock exchange notices are also available from All information that is distributed to shareholders is simultaneously published on Aker Philadelphia Shipyard ASA s home page. The Company s financial calendar is found on page 1 of this annual report. The Company s investor relations staff is responsible for maintaining regular contact with the Company s shareholders, potential investors, analysts and other financial market stakeholders. The Board is regularly informed about the Company s investor relations activities. For more information regarding the Company s guidelines for reporting of financial and other information, see pages Takeovers The Company has not produced special principles for how it will act in the event of a takeover bid. However, if a takeover bid occurred the Board would follow the overriding principle of equal treatment for all shareholders. Unless the Board has particular reasons for so doing, it will not take steps to prevent or obstruct a take-over bid for the Company s business or shares, nor use share issue authorizations or other measures to hinder the progress of the bid, without such actions being approved by a shareholders meeting after the take-over offer has become public knowledge. Upon the issuance of an offer for the Company s shares, the Board will make a statement to shareholders that provides an assessment of the bid, the Board s recommendations, and reasons for these recommendations. For each instance, an assessment will be made as to the necessity of bringing in independent expertise and if a third party valuation is to be obtained. If a third party valuation is obtained the Board will aim at recording such valuation in its statement. It may be necessary to obtain an independent valuation where a competing bid is made and the bidder either is the main shareholder or has a connection to the Board members or executive personnel. Transactions that have the effect of sale of the Company or a major component of it are to be decided on by shareholders at a shareholders meeting. Auditor The auditor makes an annual presentation to the Board of a plan for the auditing work for the year. Further, the auditor has provided the Board with a written confirmation that the requirement of independence is met. The auditor participates in the Board meeting that deals with the annual accounts, and the auditor has reviewed the companies internal control with the Board. At these meetings, the auditor reviews any material changes to the Company s accounting principles, comments on any material estimated accounting figures and reports all matters on which there have been disagreement between the auditor and the Company s executive personnel. Once a year a meeting is held between the auditor and the Board, at which no representatives of Executive Management are present. In addition to the presentations to the full Board, the auditor is present at all audit committee meetings which occur throughout the year and presents both its preliminary and final audit findings to the committee during such meetings. Guidelines have been established for Executive Management s use of auditors for services other than auditing. Auditors are to provide the Board with an annual overview of services other than auditing that have been supplied to the Company. Remuneration for auditors is presented in note 3 to the consolidated accounts, detailed in auditing and other services. In addition, these details are presented at the annual general meeting. Aker Philadelphia Shipyard annual report

50 Our organization and governance Presentation of the Board of Directors Presentation of the Board of Directors Jim Miller Board Chairman Jim Miller (b. 1955) is Executive Vice President of E&C Americas at Kvaerner. Prior to that, Mr. Miller served as President and CEO of Aker Philadelphia Shipyard from June 2008 to April Before coming to the shipyard, Mr. Miller was President of Aker Solutions Process & Construction (P&C) Americas, where he was responsible for financial operations of seven business units which generated approximately 8-9 billion NOK in revenues per year. During his tenure, Aker Solutions P&C Americas became a leading provider of global engineering and construction solutions with 7,500 employees, including 4,500 construction trades personnel. Prior to joining Aker Solutions P&C Americas, Mr. Miller held the position of President of Aker Construction Inc. which is one of the largest union construction companies in the North America and is recognized as one of the top three largest employers of the union construction trades. Mr. Miller graduated from the University of Edinboro in Pennsylvania with a BA. Mr. Miller is a U.S. citizen. As of 1 February 2012, Mr. Miller holds 20,000 shares in the company and has no stock options. He has been elected for the period Amy Humphreys Board Member Amy Humphreys, (b. 1966) is President of Delta Western, Inc., a leading petroleum marketing and distribution company in Alaska and a subsidiary of Saltchuk Resources. Prior to her current role and beginning in late 2006, Ms. Humphreys was CFO of North Star Utilities Group, the parent company of five fuel distribution operating companies and also a subsidiary of Saltchuk Resources. From 1996 to 2006, Ms. Humphreys held various leading positions in her 10 year tenure with American Seafoods Group including VP Corporate Development and Treasurer. For the past 15 years, Ms. Humphreys has worked within companies operating under the Jones Act and, for the past several years, has managed companies in the oil industry within an environment subject to OPA 90 regulation. Ms. Humphreys holds a Master of Business Administration (MBA), with honors, from University of Washington, is a Certified Public Accountant (CPA) and holds Bachelor of Arts (BA) in Accounting and Finance, magna cum laude, from University of Puget Sound. Ms. Humphreys is a U.S. citizen. As of 1 February 2012, Ms. Humphreys holds zero shares in the company and has no stock options. She has been elected for the period Elin Karfjell Board Member Elin Karfjell (b. 1965) is CEO of Fabi Group AS. Prior to that, she was Director of Finance and Administration of Atea AS. She is former partner of Ernst & Young AS. Ms. Karfjell joined Ernst & Young AS in Prior to this, Ms. Karfjell held various positions including partner at Arthur Andersen. At Ernst & Young/Arthur Andersen, she held various leading positions, both within advisory and audit, and she has experience from a broad specter of industries. Ms. Karfjell is also a Board Member of Aktiv Kapital ASA and Aker Floating Production ASA. Previously she had been a Board member of DNO International ASA. Ms. Karfjell is a state authorized public accountant. She has a bachelor accountant s degree from Okonomisk College (Hoyskolen i Oslo) and a master of accounting and auditing from the Norwegian School of Economics and Business Administration. Ms. Karfjell is a Norwegian citizen. As of 1 February 2012, Ms. Karfjell holds 1,200 shares in the company and has no stock options. She has been elected for the period Manuel Stamatakis Board Member Mr. Stamatakis (b. 1949) is president and chief executive officer of Capital Management Enterprises, a financial services and employee benefit consulting company. He served as one of the lead negotiators for Governor Tom Ridge s efforts to bring Kvaerner (now Aker Philadelphia Shipyard) to Philadelphia in order to operate a world-class shipbuilding facility at the Philadelphia Naval Shipyard. Mr. Stamatakis serves as the Chairman of the Philadelphia Shipyard Development Corporation (PSDC) and also serves on several other boards and committees for Pennsylvania organizations. He has vast experience in leading different joint public/private efforts to strengthen the local economy and improve Pennsylvania s role in world trade. Mr. Stamatakis also devotes his time and resources to several charitable activities in the Philadelphia region. Mr. Stamatakis achieved a Bachelor of Science degree in Industrial Engineering in 1969 from the Pennsylvania State University and an honorary doctorate from Drexel University in Mr. Stamatakis is a U.S. citizen. As of 1 February 2012, Mr. Stamatakis holds zero shares in the company and has no stock options. He has been elected for the period Aker Philadelphia Shipyard annual report 2011

51 Our organization and governance Presentation of the Board of Directors Audun Stensvold Board Member Audun Stensvold (b. 1972) is CFO and Investment Director for Converto Capital Management, which is the investment advisor for Aker Philadelphia Shipyard s largest shareholder, Converto Capital Fund. Prior to joining Converto Capital Management in 2009, Mr. Stensvold worked for Aker ASA as Vice President of the M&A and Business Development team, and was involved in the initial stock exchange listing of Aker Philadelphia Shipyard (then named Aker American Shipping ASA) and later follow-up of Aker s ownership in the yard. Before joining Aker, Mr. Stensvold worked as a strategy and finance consultant for Selmer, and as a financial analyst for DnB NOR. Mr. Stensvold holds an MSc in Business and Economics from the Norwegian School of Economics and Business Administration (NHH). Mr. Stensvold is a Norwegian citizen. As of 1 February 2012, Mr. Stensvold holds zero shares in the company and has no stock options. He has been elected for the period Thorhild Widvey Board Member Mrs. Widvey (b. 1956) has extensive political experience, and has been a member of the Norwegian Parliament from 1989 to She was Norway s Minister of Petroleum and Energy from 2004 to 2005 and has also been State Secretary of the Ministry of Foreign Affairs and of the Ministry of Fisheries. She currently works as a private consultant, holding board positions in several oil and gas industry related companies. Mrs. Widvey has held a number of political positions and honorary posts both for the Conservative Party and various organizations. She also has former work experience as sale and marketing director for a large hotel chain in Norway. Mrs. Widvey has a degree from the College of Physical Education in Århus, Denmark and has also completed several management programs at BI Norwegian School of Management. Mrs. Widvey is a Norwegian citizen. As of 1 February 2012, Mrs. Widvey holds zero shares in the company and has no stock options. She has been elected for the period Aker Philadelphia Shipyard annual report

52 Our organization and governance Presentation of the Management Team Presentation of the Management Team Kristian Røkke President and CEO Kristian Røkke (b. 1983) joined Aker Philadelphia Shipyard as SVP Operations in May Previously, he worked for Aker Philadelphia Shipyard as Senior Shop Manager responsible for prefabrication, section assembly and shop outfitting. Mr. Røkke has experience from offshore service and shipbuilding from several companies in the Aker group. In , he participated in Aker Solutions International Trainee Program, working for Aker Solutions Subsea in Malaysia. Mr. Røkke is a Board member of TRG Holding AS which owns 66.7% of Aker ASA. Mr. Røkke has studied economics and mathematics at Colby College, London School of Economics and Political Science and the Norwegian School of Management (BI). Mr. Røkke is a Norwegian citizen. Mr. Røkke lives in Philadelphia, PA, USA. As of 1 February 2012, Mr. Røkke holds zero shares in the company and has no stock options. Jeffrey Theisen Chief Financial Officer Jeffrey Theisen (b. 1968) joined APSI in May Mr. Theisen has over 20 years experience in financial and strategic planning, organizational leadership, budgeting and cost management, including seven years with Arthur Andersen. Prior to joining APSI, Mr. Theisen served as Chief Financial Officer for The Regulus Group, a market leader in transaction and information processing services to financial institutions and commercial end-users. Mr. Theisen holds a Bachelor of Science in Accounting from Villanova University and is a certified public accountant (inactive) in the state of Pennsylvania. Mr. Theisen lives in Lansdale, PA, USA. Mr. Theisen is a U.S. citizen. As of 1 February 2012, Mr. Theisen holds 500 shares in the company and has no stock options. Eirik Fadnes Vice President Eirik Fadnes (b.1980) is Vice President of Aker Philadelphia Shipyard. In addition to this responsibility, Mr. Fadnes serves as Financial Controller for Converto Capital Management. Mr. Fadnes joined Converto Capital Management in Prior to this, he worked as an auditor in Ernst & Young. Mr. Fadnes holds an MSc in Business and Economics from the Norwegian School of Economics and Business Administration (NHH) and an MSc in Professional Accountancy from the Norwegian School of Management (BI). Mr. Fadnes is a State Authorized Public Accountant in Norway. Mr. Fadnes lives in Oslo, Norway. As of 1 February 2012, Mr. Fadnes holds zero shares in the company and has no stock options. Scott Clapham Senior Vice President Projects and Business Improvements Scott Clapham (b. 1974) has been with Aker Philadelphia Shipyard since its inception in Mr. Clapham provided critical support to the CV2600 and CV2500 containership projects from design through production. Since joining the management team in 2005, Mr. Clapham has been responsible for marketing efforts, advanced projects, and other business development issues at the shipyard. Mr. Clapham holds a degree in Naval Architecture and Marine Engineering from the University of Michigan. Mr. Clapham lives in Fort Washington, PA, USA. Mr. Clapham is a U.S. citizen. As of 1 February 2012, Mr. Clapham holds 1,000 shares in the company and has no stock options. Robert Fitzpatrick Vice President Production Robert Fitzpatrick (b. 1964) joined Aker Philadelphia Shipyard in April 2001 and had held numerous key positions including Prefabrication Manager and Senior Production Manager before being promoted to VP Production in January Prior to coming to the shipyard, Mr. Fitzpatrick amassed 16 years experience in industrial manufacturing including 12 years as a production manager responsible for the fabrication of naval circuit breakers and switchgear. Mr. Fitzpatrick holds a Bachelor of Science in Mechanical Engineering from Spring Garden College in Philadelphia, PA, USA. Mr. Fitzpatrick lives in Burlington, NJ, USA. Mr. Fitzpatrick is a U.S. citizen. As of 1 February 2012, Mr. Fitzpatrick holds zero shares in the company and has no stock options. 50 Aker Philadelphia Shipyard annual report 2011

53 Our organization and governance Presentation of the Management Team Michael Giantomaso Vice President Human Resources Michael Giantomaso (b. 1966) joined Aker Philadelphia Shipyard as Human Resources Manager in May 1998 and was the shipyard s first locally hired manager. Mr. Giantomaso was promoted to VP in August He has over 20 years of human resources experience in the manufacturing and health care fields. Mr. Giantomaso holds a Bachelor of Arts in Business Administration and Human Resources from Temple University. Mr. Giantomaso lives in Huntingdon Valley, PA, USA. Mr. Giantomaso is a U.S. citizen. As of 1 February 2012, Mr. Giantomaso holds zero shares in the company and has no stock options. Sanjay Deshmuk Vice President Purchasing Sanjay Deshmuk (b. 1952) joined Aker Philadelphia Shipyard in 2000 and held several positions such as Design Manager, Project Manager and Procurement Manager before being promoted to VP Purchasing in April Mr. Deshmuk began his career in the maritime industry as a Hull Engineer and, in total, has amassed over 30 years of experience in Engineering, Project Management and Procurement. Mr. Deshmuk has a Master of Business Administration (MBA) from Drexel University and holds a Bachelor of Engineering in Naval Architecture and Marine Engineering from the Indian Institute of Technology in India. Mr. Deshmuk lives in Somerdale, NJ, USA. Mr. Deshmuk is a U.S. citizen. As of 1 February 2012, Mr. Deshmuk holds zero shares in the company and has no stock options. Dean Grabelle General Counsel Dean Grabelle (b. 1970) was appointed General Counsel at Aker Philadelphia Shipyard in May Prior to joining the shipyard, Mr. Grabelle was employed with the law firm Drinker Biddle & Reath LLP in Philadelphia, PA USA, where he established a legal career spanning 12 years. Past experience includes mergers and acquisitions, business counseling, lending, private equity and corporate finance. Mr. Grabelle graduated from Duke University with a Bachelor of Arts in Economics and Public Policy Studies. He also holds a Juris Doctor from the University of Pennsylvania Law School. Mr. Grabelle lives in Voorhees, NJ, USA. Mr. Grabelle is a U.S. citizen. As of 1 February 2012, Mr. Grabelle holds zero shares in the company and no stock options. Aker Philadelphia Shipyard annual report