Aker Philadelphia Shipyard Q4 2010 Report Fourth quarter 2010 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 and Overseas Shipholding Group, Inc. At 31 December 2010, new-build (NB) 016 was 78% complete with NB 015, the Overseas Chinook, delivered on 17 December 2010. For the quarter ended 31 December 2010, AKPS recorded operating revenues of USD 44.3 million and EBITDA (earnings before interest, taxes, depreciation and amortization) of USD 7.2 million. In mid-december 2010, APSI and the Philadelphia Shipyard Development Corporation (PSDC) signed a tentative agreement pursuant to which, among other things, PSDC agreed to purchase for USD 42 million certain shipyard assets from APSI. On 17 February 2011, the agreement between APSI and PSDC became effective. The formal closing of the transaction with PSDC remains subject to certain closing conditions. APSI intends to use the sale proceeds, in combination with other funds, to construct two product tankers which would be the 17 th and 18 th vessels built by APSI. OSLO / PHILADELPHIA (17 February 2011) At the end of the fourth quarter of 2010, Aker Philadelphia Shipyard ASA (together with its subsidiaries, referred to herein as AKPS or the company) had delivered eleven of the twelve tankers in the series to American Shipping Company ASA (together with its subsidiaries, referred to herein as AMSC) and Overseas Shipholding Group, Inc. (together with its subsidiaries, referred to herein as OSG). The eleventh vessel in the tanker series, the Overseas Chinook, was delivered to OSG on 17 December 2010. As previously disclosed in the company s 2 January 2011 release, in mid-december 2010, APSI signed a tentative agreement with PSDC, under which PSDC agreed to purchase certain shipyard assets from APSI for a purchase price of USD 42 million, to be funded by the Commonwealth of Pennsylvania. The agreement contemplates that APSI will use the proceeds from the asset sale, together with a combination of construction period financing with private lenders and its own available funds, to finance the construction of two product tankers, NB 017 and NB 018. These vessels currently do not have external buyers. The agreement also contemplates that the City of Philadelphia will temporarily defer USD 8 million in tax payments due from APSI. On 17 February, 2011, the arrangements between PSDC and the Commonwealth of Pennsylvania for funding the USD 42 million were approved by all necessary governmental parties and, as a result, the agreement between APSI and PSDC became effective; however, as disclosed in the January 2 nd release, the closing of the transaction with PSDC remains subject to certain closing conditions. In accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), AKPS is recognizing the last nine tankers of the twelvetanker order as one single project. As such, revenue and expense are being recognized on a total project basis. As of 31 December 2010, AKPS is approximately 97% complete with the project. Fourth Quarter Results Revenues for Q4 2010 were USD 44.3 million compared to Q4 2009 revenues of USD 46.3 million. The decrease in quarterly revenues year-over-year is attributable to less progress on the project in Q4 2010 compared to Q4 2009 due to fewer ships in production. EBITDA for the quarter ended 31 December 2010 was USD 7.2 million compared to negative USD 1.2 million for the quarter ended 31 December 2009. The increase in quarterly EBITDA yearover-year is primarily driven by cost reductions on the overall project in Q4 2010 and certain pricing concessions given to AMSC, which were recognized in 2009. For Q4 2010, net income was USD 2.8 million compared to net loss of USD 12.7 million for Q4 2009. The increased net income is primarily attributable to the pricing concessions given to AMSC and the goodwill write-off of USD 11.0 million, both of which negatively impacted profitability in Q4 2009. Net financial items for Q4 2010 were negative USD 0.3 million compared to positive USD 0.1 million for Q4 2009. Year-to-Date Results For the twelve months ended 31 December 2010, revenues were USD 217.7 which represented a USD 9.0 million decrease compared to the twelve-month period ended 31 December 2009. EBITDA for the twelve months ended 31 December 2010 increased to USD 18.9 million compared to EBITDA of USD 13.4 million for the twelve months ended 31 December 2009. Net financial items for the twelve-month period ended 31 December 2010 amounted to negative USD 0.8 million compared to positive USD 6.2 million for the same period in 2009. The primary cause of the change was non-recurring unrealized gains on forward contracts which occurred in 2009. Net income for the twelve-month period ended 31 December 2010 increased to USD 5.8 million compared to net loss of negative USD 4.4 million for the twelve-month period ended 31 December 2009. Unless noted above, year-to-date fluctuations are caused by similar reasons as noted in the Q4 2010 discussion. Page 1 of 9
Unaudited Unaudited Audited Amounts in USD millions Q4 Q4 Twelve Months Ended 31 Dec. (except shares and per share information) 2010 2009 2010 2009 Operating revenues 44.3 46.3 217.7 226.7 EBITDA 7.2 (1.2) 18.9 13.4 Operating income/(loss) - EBIT 5.4 (14.1) 11.5 (5.0) Income/(loss) before tax 5.1 (14.0) 10.7 1.2 Income/(loss) for the period 2.8 (12.7) 5.8 (4.4) Average number of shares 10,165,305 10,165,305 10,165,305 10,165,305 Basic and diluted earnings/(loss) per share (USD) 0.28 (1.25) 0.57 (0.43) Unaudited Audited 31-Dec 31-Dec Amounts in USD millions 2010 2009 Property, plant & equipment 59.8 66.8 Other non-current assets 3.2 3.4 Vessels-under-construction receivables 51.9 94.6 Work-in-process 9.6 - Prepayments and other receivables 7.9 12.1 Interest-bearing short-term receivables - 3.0 Cash and cash equivalents 41.7 36.2 Total assets 174.1 216.1 Total equity 93.1 87.3 Deferred tax liabilities 6.7 4.6 Interest-bearing long-term debt 29.0 31.2 Interest-bearing construction loan 16.0 48.0 Interest-bearing short-term debt 2.2 2.1 Tax payable and trade and other payables 27.1 42.9 Total equity and liabilities 174.1 216.1 Vessels-under-construction receivables represent the total work-in-progress less payments made by AMSC. Vesselsunder-construction receivables at 31 December 2010 decreased USD 42.7 million from USD 94.6 million at 31 December 2009. This decrease is due to the timing of vessel deliveries and reduced production at the Yard. Cash and cash equivalents of USD 41.7 million at 31 December 2010 increased USD 5.5 million from USD 36.2 million at 31 December 2009 due to the timing of financing draw-downs under Aker Philadelphia Shipyard s construction financing facility and delivery of vessels. AKPS s construction loan decreased to USD 16.0 million at 31 December 2010 from USD 48.0 million at 31 December 2009 due to the timing of construction financing draw-downs and vessel deliveries and the reduced production at the Yard. Quarterly fluctuations in the above key statement of financial position accounts will continue to occur as the company continues to make progress on its current build project and delivers vessels. Operations NB 015, the Overseas Chinook, was delivered to OSG on 17 December 2010. At the end of the fourth quarter of 2010, Aker Philadelphia Shipyard had one vessel, NB 016, under construction. The vessel was skidded to its final position in the Building Dock on 17 July 2010 and is planned to be launched in March 2011 and delivered in May 2011. AKPS has reduced its workforce and will continue to adjust its workforce in line with its backlog. As previously disclosed in the company s Q3 2010 report, APSI has already begun preliminary production activities on Ship 17. 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 2015. Outlook Although the closing of the transaction with PSDC remains subject to certain closing conditions, in the company s opinion, the transaction with PSDC will be consummated. Based on a successful closing of the transaction with PSDC, shipbuilding activities at APSI s shipyard will be Page 2 of 9
secured until early 2013. However, full 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 for the future such as tankers and containerships, as well as alternative steel fabrication projects. The company anticipates the acceleration of preliminary production activities on Ship 17 in Q1 2011 so long as sufficient progress is made towards the closing of the transaction with PSDC. Risks AKPS faces risks if it is unable to close the transaction with PSDC or otherwise secure new orders and/or financing for vessels. If NB 017 and NB 018 are not built, then the company would incur significant expenses relating to disruption of shipbuilding activities. In addition, lack of a continued firm backlog has and will continue to cause operational inefficiencies for completion of the remaining vessel under construction. If AKPS is unable to build NB 017 and NB 018, then it will be very challenging for APSI to continue as a going concern after delivery of NB 016, which is scheduled to be delivered in May 2011 to a subsidiary of AMSC. In addition, if APSI is unable to close the transaction with PSDC, then AKPS would need to evaluate whether its 2010 financial statements to be included in its 2010 annual report should be prepared under the current going concern assumption. The effect of this analysis could result in AKPS recording certain asset write-downs and charges in its 2010 financial statements. 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 normal market risk related to imbalance between supply and demand for vessels and the associated reduction in newbuild projects. AKPS faces risks related to construction of vessels. The risks related to vessel construction are primarily the shipyard s ability to meet anticipated learning curves and through-put, as well as the availability of skilled workers and the risk of failing to maintain stable supplier networks and subcontractors. AKPS s activities also expose it to various financial risks including price risk due to material escalation, currency risk, interest rate risk, credit risk and liquidity risk. AKPS s activities also expose it to counterparty risk. AKPS s construction financing has certain cross-defaults to AMSC s take-out financing for NB 016. In addition, AKPS s construction financing and 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 via frequent updates with AMSC s management. For further analysis of risks, please refer to the 2009 AKPS annual report. 17 February 2011 Board of Directors Aker Philadelphia Shipyard ASA Page 3 of 9
INCOME STATEMENT Unaudited Unaudited Audited Amounts in USD millions Q4 Q4 Twelve Months Ended 31 Dec. (except shares and per share information) 2010 2009 2010 2009 Operating revenues 44.3 46.3 217.7 226.7 Operating expenses (37.1) (47.5) (198.8) (213.3) Operating income/(loss) before depreciation 7.2 (1.2) 18.9 13.4 Depreciation (1.8) (1.9) (7.4) (7.4) Impairment of goodwill - (11.0) - (11.0) Operating income/(loss) 5.4 (14.1) 11.5 (5.0) Net financial items (0.3) 0.1 (0.8) 6.2 Income/(loss) before tax 5.1 (14.0) 10.7 1.2 Tax benefit/(expense) (2.3) 1.3 (4.9) (5.6) Income/(loss) for the period * 2.8 (12.7) 5.8 (4.4) Average number of shares 10,165,305 10,165,305 10,165,305 10,165,305 Basic and diluted earnings/(loss) per share (USD) 0.28 (1.25) 0.57 (0.43) * All attributed to the equity holders of AKPS. STATEMENT OF COMPREHENSIVE INCOME Unaudited Unaudited Audited Q4 Q4 Twelve Months Ended 31 Dec. Amounts in USD millions 2010 2009 2010 2009 Income/(loss) for the period 2.8 (12.7) 5.8 (4.4) Other comprehensive income, net of income tax - - - - Total comprehensive income/(loss) for the period * 2.8 (12.7) 5.8 (4.4) * All attributed to the equity holders of AKPS. STATEMENT OF FINANCIAL POSITION Unaudited Audited 31-Dec 31-Dec Amounts in USD millions 2010 2009 Assets Non-current assets Property, plant & equipment 59.8 66.8 Other non-current assets 3.2 3.4 Total non-current assets 63.0 70.2 Current assets Vessels-under-construction receivables 51.9 94.6 Work-in-process 9.6 - Prepayments and other receivables 7.9 12.1 Interest-bearing short-term receivables - 3.0 Cash and cash equivalents 41.7 36.2 Total current assets 111.1 145.9 Total assets 174.1 216.1 Equity and liabilities Total equity 93.1 87.3 Non-current liabilities Interest-bearing long-term debt 29.0 31.2 Deferred tax liabilities 6.7 4.6 Total non-current liabilities 35.7 35.8 Current liabilities Interest-bearing construction loan 16.0 48.0 Interest-bearing short-term debt 2.2 2.1 Tax payable and trade and other payables 27.1 42.9 Total current liabilities 45.3 93.0 Total liabilities 81.0 128.8 Total equity and liabilities 174.1 216.1 Page 4 of 9
STATEMENT OF CHANGES IN EQUITY Unaudited Audited Twelve Months Ended 31 Dec. Amounts in USD millions 2010 2009 As of beginning of period 87.3 91.7 Total comprehensive income/(loss) for the period 5.8 (4.4) As of end of period 93.1 87.3 CASH FLOW STATEMENT Unaudited Audited Twelve Months Ended 31 Dec. Amounts in USD millions 2010 2009 Net cash from operating activities 40.3 88.6 Net cash used in investing activities (0.7) (3.4) Net cash used in financing activities (34.1) (72.6) Net change in cash and cash equivalents 5.5 12.6 Cash and cash equivalents at beginning of period 36.2 23.6 Cash and cash equivalents at end of period 41.7 36.2 Page 5 of 9
Notes to the consolidated interim financial statements for the 4 th quarter 2010 1. 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 and twelve-month periods ended 31 December 2010 and 31 December 2009 are comprised of AKPS and its wholly owned subsidiary Aker Philadelphia Shipyard, Inc. ( APSI ), and Aker Philadelphia Priming, Inc., ( APPI ), a wholly owned subsidiary of APSI. This interim report has not been subject to audit or review by independent auditors. The consolidated quarterly and 2009 annual financial statements of AKPS, which include a detailed description of accounting policies and significant estimates, are available at www.akerphiladelphia.com. 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 three and twelve-month periods 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 2009. AKPS was formed on 16 October 2007 to be the holding company of APSI which owns a shipyard located in Philadelphia, PA. On 3 December 2008, APSI formed APPI, a wholly-owned subsidiary to own and operate APSI s prime-plating operations. 3. 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 the Group as of and for the year ended 31 December 2009. There have not been any new IFRS standards or interpretations which were effective 1 January 2010 that have had a significant impact on Q4 2010. In addition, no standards effective in 2010 are expected to significantly impact AKPS. 4. 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 2009. 5. 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 2009. Page 6 of 9
6. 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 December 2010, 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 2009 and through 31 December 2010. 8. Interest-bearing debt The following shows material changes in interest-bearing debt during 2010: Short-term Long-term loans excluding Construction Total interest- Amounts in USD millions loans construction loan loan bearing debt Balance 01.01.10 31.2 2.1 48.0 81.3 Repayment of debt (2.2) - (216.0) (218.2) Issuance of debt - 0.1 184.0 184.1 Balance 31.12.10 29.0 2.2 16.0 47.2 9. Related party transactions Converto Capital Fund AS (formerly named Aker Capital Fund AS), an investment fund controlled by Aker ASA, is the majority shareholder of Aker Philadelphia Shipyard ASA, owning 67.1% of its total outstanding shares as of 31 December 2010. 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. The group 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 December 2010 were USD 22.3 thousand (USD 22.7 thousand for the same period in 2009) and for the twelve-month period ending 31 December 2010 were USD 136.0 thousand (USD 78.2 thousand for the same period in 2009). In its shipbuilding activities, AKPS subcontracts and hires services from several Aker controlled companies. Related costs for the three-month period ending 31 December 2010 were USD 0.0 million (USD 0.7 million for the same period in 2009) and for the twelve-month period ending 31 December 2010 were USD 1.5 million (USD 5.0 million for the same period in 2009). 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 150.0 million for the construction financing of NB 015 and NB 016. AKPS paid USD 240.3 thousand in Q4 2010 and USD 1.1 million for the year ended 31 December 2010 to Aker ASA for fees related to the guarantee. 10. Capitalized interest Q4 Q4 Twelve Months Ended 31 Dec. Amounts in USD millions 2010 2009 2010 2009 Interest expense (0.6) (0.8) (2.7) (3.9) Interest capitalized on construction contracts 0.3 0.5 1.6 2.7 Net interest expense (0.3) (0.3) (1.1) (1.2) Page 7 of 9
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 29.8 million at 31 December 2010 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. Order Order intake Order Backlog 12 months to Backlog Amounts in USD millions 31.12.10 31.12.10 31.12.09 Product tankers 29.8-246.7 Total 29.8-246.7 The recognized profit on contracts in process for the periods that ended: Amounts in USD millions 31.12.10 31.12.09 Contract revenue recognized as revenue to date 907.8 690.8 Less contract expenses (845.4) (646.7) Recognized profit to date 62.4 44.1 Contract costs incurred to date (841.5) (665.7) As of 31 December 2010 and 31 December 2009, the incurred costs billable to customers upon delivery of the ships were USD 51.9 million and USD 94.6 million, respectively, using the percentage of completion method. Work-in-process of USD 9.6 million at 31 December 2010 represents accumulated cost on vessel-under-construction for the Company s own account which will be sold once a customer is identified. Advances from customers as of 31 December 2010 and 31 December 2009 totaled USD 24.7 million and USD 94.7 million, respectively. 12. Events after 31 December 2010 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 2015. On 20 January 2011, in order to comply with U.S. federal, state and local legal requirements and to minimize future exposure if the transaction with PSDC does not close, APSI provided the Commonwealth of Pennsylvania, the City of Philadelphia, its union leadership and its employees formal notice of closure of the shipyard by the middle of May 2011 if the transaction with PSDC does not close. On 17 February 2011, the tentative agreement between PSDC and APSI signed in mid-december 2010, pursuant to which, among other things, PSDC agreed to purchase certain shipyard assets from APSI for a purchase price of USD 42 million with funds provided by the Commonwealth of Pennsylvania, became effective; however, the closing of the transaction with PSDC remains subject to certain closing conditions. Page 8 of 9
Contact information: Aker Philadelphia Shipyard ASA Fjordalleen 16 Postboks 1423 Vika 0115 Oslo Norway Jim Miller Jeffrey Theisen President & CEO CFO Tel: + 1 215 875 2601 Tel: +1 215 875 2678 jim.miller@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 9 of 9