Aker Philadelphia Shipyard Q Report

Transcription

1 Aker Philadelphia Shipyard Q Report First quarter 2011 Aker Philadelphia Shipyard, Inc. (APSI), the sole operating subsidiary of Aker Philadelphia Shipyard ASA (AKPS), continued to make progress on its tanker series for American Shipping Company ASA (AMSC) and Overseas Shipholding Group, Inc. (OSG). At 31 March 2011, newbuild (NB) 016 was approximately 97% complete. The vessel was delivered to AMSC on 28 April For the quarter ended 31 March 2011, AKPS recorded operating revenues of USD 26.6 million and EBITDA (earnings before interest, taxes, depreciation and amortization) of USD 3.6 million. On 31 March 2011, APSI formally closed on the transactions contemplated by the Authorization Agreement (Agreement) signed in mid-december 2010 between APSI and the Philadelphia Shipyard Development Corporation (PSDC). The closing of the transactions secures the yard s ability to finance the construction of two product tankers, NB 017 and 018. OSLO / PHILADELPHIA (28 April 2011) As announced on 31 March 2011, the transactions contemplated by the Agreement signed in mid-december 2010 between APSI and PSDC were formally closed. Pursuant to the 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 its agreement with PSDC. APSI will use the sale proceeds, in combination with construction period financing with private lenders and its own available funds, to construct NB 017 and 018. In conjunction with the closing, Aker ASA, which indirectly owns 71.2% of the shares of AKPS, agreed to provide a USD 30 million subordinated construction loan to APSI with funding to be in two tranches of USD 15 million each. The loan can be repaid no sooner than upon the sale and delivery of both NB 017 and 018 and full repayment may be delayed further if certain sales price thresholds are not met. Additionally, in conjunction with the PSDC transaction, PIDC Regional Center, LP XV (the Welcome Fund) restructured its USD 20 million loan such that 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 NB 017; and any remaining loan balance will be repaid upon the sale and delivery of NB 018. In Q1 2011, APSI also received a commitment letter for up to USD 80 million in construction financing from a third party lender. APSI anticipates the closing of this financing will occur in Q In connection with the closing of the PSDC transaction, the City of Philadelphia agreed to temporarily defer USD 8 million in tax payments due from APSI over the next three years. Under the Agreement, APSI is obligated to construct NB 017 and 018 in accordance with their current production schedules. If those ships are not complete before certain agreed-upon deadlines, then PSDC may require APSI to pay liquidated damages of up to USD 35 million per ship. As part of the PSDC transaction, PSDC has released APSI and Aker Maritime Finance AS, a wholly-owned subsidiary of Aker ASA, from the existing USD 20 million employment guarantee to provide the shipyard with flexibility in maintaining a workforce commensurate with the size of APSI s backlog. 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 certain cure and other rights. From an accounting perspective the asset sale will be treated 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 NB 017 and 018 because the refund contingencies lapse upon completion of NB 018. In accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), AKPS is recognizing the last nine tankers of the twelve-tanker order as one single project. As such, revenue and expense are being recognized on a total project basis. As of 31 March 2011, AKPS is approximately 99% complete with the project. As NB 017 and 018 are being built for APSI s own account, no revenue or cost of revenue will be recognized until delivery and sale of the vessels which are scheduled to be completed in Q and Q1 2013, respectively. Page 1 of 10

2 First Quarter Results Revenues for Q were USD 26.6 million compared to Q revenues of USD 55.2 million. EBITDA for the quarter ended 31 March 2011 was USD 3.6 million compared to USD 4.5 million for the quarter ended 31 March Q net income decreased to USD 0.9 million from Q net income of USD 1.3 million. The decrease in quarterly revenues, EBITDA and net income year-over-year are all attributable to less project activity in Q compared to Q due to the project nearing completion. Net financial items for Q were negative USD 0.1 million compared to negative USD 0.2 million for Q Vessels-under-construction receivables represent the total work-in-progress less payments made by AMSC. Vesselsunder-construction receivables at 31 March 2011 increased to USD 72.4 million from USD 51.9 million at 31 December This increase is due to the timing of the final vessel delivery in the project, which occurred on 28 April Cash and cash equivalents of USD 30.6 million at 31 March 2011 decreased USD 11.1 million from USD 41.7 million at 31 December 2010 due to the timing of working capital activity and financing draw-downs under APSI s construction financing facility. AKPS s construction loan increased to USD 32.0 million at 31 March 2011 from USD 16.0 million at 31 December 2010 due to the timing of construction financing drawdowns and vessel deliveries. Quarterly fluctuations in the above key statement of financial position accounts will continue to occur as the company continues to make progress on its various maritime construction projects. Unaudited Audited Amounts in USD millions Q1 Q1 Full Year (except shares and per share information) Operating revenues EBITDA Operating income - EBIT Income before tax Income for the period Average number of shares 10,165,305 10,165,305 10,165,305 Basic and diluted earnings per share (USD) Unaudited Audited 31-Mar 31-Dec Property, plant & equipment Other non-current assets Vessels-under-construction receivables Work-in-process Prepayments and other receivables Cash and cash equivalents Total assets Total equity Deferred tax liabilities Interest-bearing long-term debt Interest-bearing construction loan Interest-bearing short-term debt Tax payable and trade and other payables Total equity and liabilities Page 2 of 10

3 Operations At the end of the first quarter of 2011, APSI had two vessels, NB 016 and NB 017, under construction. NB 016 was launched on 11 March 2011, successfully completed sea trials on 11 April 2011 and was delivered to AMSC on 28 April Prefabrication of components of NB 017 is underway in APSI s workshops. Production activities on NB 018 are expected to begin during the summer of AKPS reduced its workforce and will continue to adjust its workforce in line with its backlog and production activities. 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 Outlook As discussed previously, the successful closing of the transaction with PSDC secured the ability for APSI to finance shipbuilding activities until early However, full and continuous utilization of the company s facilities will require new projects and additional backlog to be secured. AKPS continues to pursue prospects for new construction projects in all areas of the Jones Act including containerships, tankers, and alternative steel fabrication projects. In addition, as previously disclosed, NB 017 and 018 currently do not have external buyers. The efforts to market the vessels will continue in parallel with construction. Risks AKPS faces risks if it is unable to secure external buyers for NB 017 and 018. AKPS faces additional risks, including early termination of its facility lease, if it is unable to secure new orders and/or financing for projects beyond NB 017 and 018. The overall market risk is related to the Jones Act, however market experts believe that significant changes to the legislation are unlikely. AKPS is also exposed to normal market risk related to imbalance between supply and demand for vessels and the associated reduction in new-build projects. AKPS faces risks related to construction of vessels, primarily the shipyard s ability to meet anticipated budgets and schedules. Although AKPS has been successful building ships that are identical to NB 017 and 018 over the past several years, the downscaling of its workforce over the past year increases the risk of having available skilled workers throughout construction, particularly if no new projects are secured prior to completion of NB 018. AKPS s activities expose it to various financial risks including material price escalation risk, currency risk, interest rate risk, credit risk and liquidity risk. For further analysis of risks, please refer to the 2010 AKPS annual report. 28 April 2011 Board of Directors and President and CEO Aker Philadelphia Shipyard ASA Page 3 of 10

4 INCOME STATEMENT Unaudited Amounts in USD millions Q1 Q1 (except shares and per share information) Operating revenues Operating expenses (23.0) (50.7) Operating income before depreciation Depreciation (1.8) (1.9) Operating income Net financial items (0.1) (0.2) Income before tax Tax expense (0.8) (1.1) Income for the period * Average number of shares 10,165,305 10,165,305 Basic and diluted earnings per share (USD) * All attributed to the equity holders of AKPS. STATEMENT OF COMPREHENSIVE INCOME Unaudited Q1 Q1 Income for the period Other comprehensive income, net of income tax - - Total comprehensive income for the period * * All attributed to the equity holders of AKPS. STATEMENT OF FINANCIAL POSITION Unaudited Audited 31-Mar 31-Dec Assets Non-current assets Property, plant & equipment Other non-current assets Total non-current assets Current assets Vessels-under-construction receivables Work-in-process Prepayments and other receivables Cash and cash equivalents Total current assets Total assets Equity and liabilities Total equity Non-current liabilities Interest-bearing long-term debt Deferred tax liabilities Total non-current liabilities Current liabilities Interest-bearing construction loan Interest-bearing short-term debt Tax payable and trade and other payables Total current liabilities Total liabilities Total equity and liabilities Page 4 of 10

5 STATEMENT OF CHANGES IN EQUITY Unaudited Three Months Ended 31 March As of beginning of period Total comprehensive income for the period As of end of period CASH FLOW STATEMENT Unaudited Three Months Ended 31 March Net cash used in operating activities (26.6) (50.4) Net cash used in investing activities (0.0) (0.1) Net cash from financing activities Net change in cash and cash equivalents (11.1) (11.0) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Page 5 of 10

6 Notes to the consolidated interim financial statements for the 1 st quarter Introduction - Aker Philadelphia Shipyard ASA Aker Philadelphia Shipyard ASA (AKPS) is a company domiciled in Norway. The condensed interim consolidated financial statements for the three-month periods ended 31 March 2011 and 31 March 2010 are comprised of AKPS and its direct and indirect wholly-owned subsidiaries, including Aker Philadelphia Shipyard, Inc. (APSI). This interim report has not been subject to audit or review by independent auditors. The consolidated 2010 annual financial statements of AKPS, which include a detailed description of accounting policies and significant estimates, are available at 2. Basis of preparation These consolidated interim financial statements reflect all adjustments, in the opinion of AKPS s management, that are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the threemonth period are not necessarily indicative of the results that may be expected for any subsequent quarter or year. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended 31 December Statement of compliance These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of AKPS as of and for the year ended 31 December Significant accounting principles The accounting policies applied by AKPS in these condensed consolidated interim financial statements are substantially the same as those applied by AKPS in its consolidated financial statements as of and for the year ended 31 December There have not been any new IFRS standards or interpretations which were effective 1 January 2011 that have had a significant impact on Q Use of estimates The preparation of interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The most significant judgments made by management in preparing these condensed consolidated interim financial statements in applying AKPS s accounting policies, and the key sources of estimation uncertainty, are the same as those that applied to the consolidated financial statements as of and for the year ended 31 December Tax estimates Income tax expense is recognized in each interim period based on the best estimate of the expected annual income tax rates. 7. Share capital and equity At 31 March 2011, AKPS had 10,165,305 ordinary shares at a par value of NOK 10 per share which is the same as the average number of shares used in the calculation of earnings per share in all periods in 2010 and through 31 March Page 6 of 10

7 8. Interest-bearing debt The following shows material changes in interest-bearing debt during 2011: Short-term Long-term loans excluding Construction Total interest- Amounts in USD millions loans construction loan loan bearing debt Balance Repayment of debt (0.5) - - (0.5) Issuance/reclass of debt (5.0) Balance Related party transactions Converto Capital Fund AS, an investment fund controlled by Aker ASA, is the majority shareholder of AKPS, owning 71.2% of its total outstanding shares as of 31 March AKPS has business relationships 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. AKPS has service agreements with Aker ASA and its affiliates which provide certain specified consulting, accounting, tax, financial and administrative services. All payables are paid within the normal course of business. Related administrative costs and financial statement amounts for the three-month period ending 31 March 2011 were USD 36.0 thousand (USD 37.3 thousand for the same period in 2010). In its shipbuilding activities, AKPS subcontracts and hires services from several Aker controlled companies. Related costs for the three-month period ending 31 March 2011 were USD 0 (USD 0.8 million for the same period in 2010). 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 Financial Services Corporation for USD million for the construction financing of NB 015 and NB 016. AKPS paid USD thousand in Q (USD 0 for the same period in 2010) to Aker ASA for fees related to the guarantee. 10. Capitalized interest Q1 Q1 Interest expense (0.4) (0.7) Interest capitalized on construction contracts Net interest expense (0.2) (0.3) 11. Construction contracts The order backlog represents an obligation to deliver vessels that have not yet been produced for AMSC. The order backlog is USD 3.6 million at 31 March 2011 and represents future sales. Order backlog represents base contract price plus a fixed price for material escalation and is subject to adjustments based on change orders as defined in the construction contracts. Page 7 of 10

8 Order Order intake Order Backlog 12 months to Backlog Amounts in USD millions Product tankers Total The recognized profit on contracts in process for the periods that ended: Amounts in USD millions Contract revenue recognized as revenue to date Less contract expenses (865.2) (845.4) Recognized profit to date Contract costs incurred to date (861.6) (841.5) As of 31 March 2011 and 31 December 2010, the incurred costs billable to customers upon delivery of the ships were USD 72.4 million and USD 51.9 million, respectively, using the percentage of completion method. Work-in-process of USD 11.3 million at 31 March 2011 represents accumulated costs on vessel-under-construction for APSI s own account which will be sold to a third party customer once a contract is executed. Revenue recognition will occur upon sale and delivery of NB 017 and 018 which are scheduled to occur in Q and Q1 2013, respectively. Additionally, the proceeds from the sale/leaseback transaction with PSDC will be treated as a reduction in the work-inprocess of NB 017 and 018 as presented on 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. APSI currently has commitments of approximately USD 51.6 million for these vessels. Advances from customers as of 31 March 2011 and 31 December 2010 were USD 24.7 million. 12. 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 Agreement ), which secured the yard s ability to construct two additional product tankers (NB 017 and 018). Pursuant to the 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 Agreement. APSI will use the sale proceeds, in combination with construction period financing with private lenders and its own available funds, to construct NB 017 and 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 NB 017 and 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 lien on NB 017 and 018. The loan can be repaid no sooner than upon sale and delivery of both NB 017 and 018 and full repayment can be delayed further if certain sales price thresholds are not met. 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 NB 017 and 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 NB 017; and any remaining loan balance will be repaid upon the sale and delivery of NB 018. Page 8 of 10

9 In connection with the closing, the City of Philadelphia agreed to temporarily defer USD 8 million in tax payments due from APSI over the next three years. Under the Agreement, APSI is obligated to construct NB 017 and 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 existing 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. Page 9 of 10

10 Contact information: Aker Philadelphia Shipyard ASA Fjordalleen 16 Postboks 1423 Vika 0115 Oslo Norway Kristian Rokke Jeffrey Theisen President and CEO CFO Tel: Tel: kristian.rokke@phillyshipyard.com jeffrey.theisen@phillyshipyard.com Disclaimer This press release includes and is based, inter alia, on forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. Such forward-looking information and statements are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for Aker Philadelphia Shipyard ASA and its subsidiaries and affiliates (the "Aker Philadelphia Shipyard Group") lines of business. These expectations, estimates, and projections are generally identifiable by statements containing words such as "expects, "believes, "estimates" or similar expressions. Important factors that could cause actual results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are or will be major markets for the Aker Philadelphia Shipyard Group s businesses, oil prices, market acceptance of new products and services, changes in governmental regulations, interest rates, fluctuations in currency exchange rates and such other factors as may be discussed from time to time. Although Aker Philadelphia Shipyard ASA believes that its expectations and the information in this press release were based upon reasonable assumptions at the time when they were made, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in this press release. Neither Aker Philadelphia Shipyard ASA nor any other company within the Aker Philadelphia Shipyard Group is making any representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the information in the press release, and neither Aker Philadelphia Shipyard ASA, any other company within the Aker Philadelphia Shipyard Group nor any of their directors, officers or employees will have any liability to you or any other persons resulting from your use of the information in the press release. Aker Philadelphia Shipyard ASA undertakes no obligation to publicly update or revise any forward-looking information or statements in the press release, other than what is required by law. The Aker Philadelphia Shipyard Group consists of various legally independent entities, constituting their own separate identities. Aker Philadelphia Shipyard is used as the common brand or trade mark for most of these entities. In this press release we may sometimes use "Aker Philadelphia Shipyard, "Group, "we" or "us" when we refer to Aker Philadelphia Shipyard companies in general or where no useful purpose is served by identifying any particular Aker Philadelphia Shipyard company. Page 10 of 10