Annual Report 2016 This is American Shipping Company
The business model of American Shipping Company ASA (AMSC) is to own and bareboat charter out U.S. built vessels to qualified U.S. citizen operators, who in turn time charter out the vessels in the U.S. domestic Jones Act market in a profit sharing arrangement with AMSC. The objective of the business model is to generate a stable cash flow from long term bareboat charters protected from short term market fluctuations, with upside potential through profit sharing arrangements with the charterers.
AMSC currently owns nine modern handy size product tankers and one modern handy size shuttle tanker, all built at Philly Shipyard (PHLY), a leading U.S. shipyard (formerly named Aker Philadelphia Shipyard). All ten vessels are on long term fixed rate bareboat charters with OverseasShipholding Group Inc. (OSG), together with a profit sharing agreement with OSG.OSG charters the vessels out on voyage and time charters to major oil companies and refineries.OSG has options to renew the bareboat charters for the life of the vessels.AMSCalso owns an equity stake in Philly Tankers AS, a Norwegian OTC-listed company which ordered four product tankers to be built at PHLY. Philly Tankers has entered into agreements to sell all four tanker contracts upon delivery.
AMSCis headquartered in Lysaker, Norway, and listed on the Oslo Stock Exchange, with its principal operating subsidiaries located in Pennsylvania, USA. Split of Aker American Shipping’s ship owning operations from its ship building operations, establishing Aker Philadelphia Finalized settlement Shipyard ASA (AKPS) agreement with OSG that settled all commercial Obtained take-out financing for disputes between the the ten vessels and issued NOK companies 700 million bond for investments in vessels and operations Took delivery of two additional tankers; sold Took delivery of the first three first of two shuttle tanker product tankers contracts to OSG
2005 2007 2008 2009 2010
Aker American Shipping ASA Aker ASA reduced its ownership Took delivery of two product (AKASA) established, interest to 19.9% in compliance tankers Philadelphia Shipyard acquired with U.S. Jones Act foreign and company listed on Oslo ownership restrictions Sold second shuttle tanker Stock Exchange. contract to OSG Name changed from Aker Closed a ten ship bareboat American Shipping ASA to charter agreement with American Shipping Company Overseas Shipholding Group, ASA. Trading ticker also changed Inc. (OSG) and placed from AKASA to AMSC corresponding ten ship order at Philadelphia Shipyard Took delivery of two more product tankers Refinancing of secured vessel debt completed with USD 450 Launched major recapitalization million in new secured debt of the Company including USD 120 million private placement, Philly Tankers secured long-term conversion of subordinated debt time charters on its first two to equity and amendments to ships, declared its two options vessel debt and bond loan and entered into agreement to Took delivery of final sell all four tanker contracts upon product tanker in build Negotiated agreement with OSG delivery series with AKPS for conversion of one of the ten product tankers into a shuttle Extended maturity of the tanker for a long term time NOK bond for 6 years charter with Shell
2011 2012 2013 2014 2015 2016
Negotiated extension of maturity Completed a major First Philly Tankers ship contract of vessel debt to June 2016 recapitalization of the Company and related assets sold with the which raised approximately USD proceeds distributed in early 2017 Achieved bareboat charter 128 million in cash and increased extensions with OSG to Decem- equity by approximately USD Explored opportunities for ber 2019 166 million refinancing of existing unsecured bond, with a new bond closed in OSG filed for Chapter 11 Began paying quarterly dividends February 2017 bankruptcy protection of USD 0.10 per share
OSG emerged from Chapter 11 bankruptcy with all of AMSC’s agreements assumed as part of OSG’s plan of reorganization
Overseas Tampa was converted to a shuttle tanker for a ten year time charter to Shell beginning in 2015
Invested USD 25 million in Philly Tankers with orders for two product tankers and options for two additional tankers In review Key events 2016
Key Events 2016
Contents
In review
2 Key events 2016 3 Key figures 2016 5 Goals and strategies
Performance 2016
6 Board of directors’ report 11 Board responsibility statement 12 Annual accounts – group 12 Consolidated statement of financial position 13 Consolidated income statement and consolidated statement of comprehensive income 14 Consolidated statement of changes in equity Dividend growth 15 Consolidated cash flow statement For the financial year 2016, the Company declared 16 Notes to the consolidated accounts dividends of USD 0.479 per share, USD 29 million in 32 Annual accounts – parent company total, a 15% increase from 2015. 32 Statement of financial position 33 Income statement and cash flow Investment in Philly Tankers statement 34 Notes to the accounts Philly Tankers closed the sale of its firstproducttanker contract and related assets to a subsidiary of Kinder 39 Auditor’s report Morgan, Inc. in November 2016. AMSC received its first 43 Share and shareholder information distribution from Philly Tankers amountingtoUSD6.8 million in January 2017, which was used to repay a por- Our organization and governance tion of the subordinated loan.
46 Corporate governance Bond refinancing 50 Presentation of the board of directors The Company began exploring its refinancing options for 51 Presentation of management the existing unsecured bond, which expires in February 52 Contact information 2018, with the hiring of financial advisors during Q3 2016. Subsequent to year-end, AMSC completed the placement ofaUSD 220 million senior unsecured bond. The bond issue wassignificantly oversubscribed and received strong Financial calendar 2017 demand from Nordic as well as international investors. 26 April Annual General Meeting 2017 Settlement was on 22 February, 2017 with final maturity 23 May 1st quarter interim results 2017 date on 22 February, 2022. The new bond issue has a 16 August2nd quarter interim results 2017 fixed coupon of 9.25%. An application will be made for the 16 November 3rd quarter interim results 2017 bonds to be listed on the Oslo Stock Exchange. (Dates subject to change)
2 American Shipping Company annual report 2016 In review Key figures 2016
Key Figures 2016
Profit and loss items 2016 2015
Operating revenues USD million 88.0 87.8 EBITDA USD million 85.1 84.9 Net income USD million 7.1 9.7 Normalized EBITDA Reported EBITDA USD million 85.1 84.9 Profit share USD million 10.2 11.1 DPO USD million 3.9 3.3 Normalized EBITDA USD million 99.2 99.3
Cash flow 2016 2015
Cash flow from operating activities USD million 56.7 50.9 Cash flow from investing activities USD million - - Cash flow used in financing activities USD million (38.6) (110.9) Cashas of 31 December USD million 51.4 33.3
Balance sheet 2016 2015
Interest bearing debt USD million 664.4 670.8 Equity USD million 195.7 216.4 Total assets USD million 889.4 905.0 Equity ratio Percent 22.0% 23.9%
The AMSC share 2016 2015
Share price as of 31 December NOK 24.3 26.5 Dividend per share NOK 3.99 3.42 Dividend per share USD 0.48 0.42 Dividend yield Percent 16.4% 12.4%
American Shipping Company annual report 2016 3
In review Goals and Strategies
Goals and Strategies
Be a preferred ship owning and lease finance company in the Jones Act market
Generate stable cash flow from long term bareboat charters
Have a modern, safe and operationally friendly fleet
Explore and invest in value creating opportunities for our stakeholders
Ensure an optimal use of capital
American Shipping Company annual report 2016 5 Performance 2016 Board of directors’ report
Board of Directors’ Report for 2016
Introduction the vessels under terms that are similar to The DPO is a receivable from OSG American Shipping Company ASA the existing arrangements. which originated from deferred cash pay- (“AMSC” or the “Company”) is a ship own- The vessels were built at Philly Ship- ments of a portion of the daily bareboat ing and lease finance company with a yard (“PHLY”, formerly named Aker Phila- charter rate for five of AMSC’s ships for the modern fleet of nine product tankers and delphia Shipyard, Inc.), a leading U.S. first seven years. The DPO is repaid to one shuttle tanker operating in the U.S. shipyard and delivered between 2007 and AMSC over 18 years including interest domestic (“Jones Act”) trades. During 2011. unless the bareboat charter is terminated 2016, all ten tankers were in operation on The Company has no research and earlier at which time the DPO becomes due long term bareboat charters to Overseas development activity. immediately. Shipholding Group, Inc. and itssubsidiaries The Jones Act market Normalized EBITDA (USD (collectively “OSG”), one of the largest millions) 2016 2015 operators in the Jones Act tanker market, The U.S. cabotage law, commonly referred Reported EBITDA 85.1 84.9 and domiciled in Tampa, Florida. to as the Jones Act, requires all commer- cial vessels transporting cargoes between Profit share 10.2 11.1 The Group’s business activities points in the United States to be U.S. built, DPO 3.9 3.3 The main entities in the AMSC Group owned, operated and manned by U.S. citi- Normalized EBITDA 99.2 99.3 (“Group”) are the Norwegian holding zens, and registered under the U.S. flag. company American Shipping Company AMSC’s operation in the Jones Act ASA and its wholly owned U.S. subsidiaries Investment in Philly Tankers AS market is made possible by the lease American Tanker Holding Company, Inc. During the fourth quarter of 2016, Philly finance exception of the Jones Act, which (ATHC), American Tanker, Inc. (ATI), Tankers (“PT”) completed the sale of its first permits foreign ownership of the ships American Shipping Corporation (ASC), and product tanker contract and related assets to under certain conditions. Compliance with the ten single purpose leasing companies a subsidiary of Kinder Morgan. AMSC the lease finance exception requires, (ASC Leasing I through X, Inc.), each own- recognized a gain of USD 2.7 million during among other things, that the vessels be ing one of the ten tankers. American Ship- 2016 on its investment in PT. The remaining bareboat chartered to qualified U.S. citizen ping Company ASAis domiciled in Lysaker, three product tankers are scheduled for operators, such as OSG. Norway, and listed on the Oslo Stock delivery during 2017 and are also contracted Exchange, with the U.S. subsidiaries Key events 2016 to be sold to Kinder Morgan. AMSCowns 19.6% of PT and holds a seat on its Board of located in Kennett Square, Pennsylvania. Dividend growth AMSC’s business model is to own and Directors. Subsequent to year-end, Philly For the financial year 2016, the Company long-term bareboat charter-out vessels for Tankers distributed a dividend (classified as declared dividends of USD 0.479 per share, operation in the U.S. Jones Act market, a repayment of capital) to itsshareholders USD 29 million in total, a 15% increase earning fixed bareboat charter revenues from the sale of its firstvessel. AMSC over the dividend in 2015. generating stable cash flows to protect received USD 6.8 million as itsshare of the against short-term market fluctuations, Stable cash flow distribution and subsequently used the funds and, in addition, earning a share of the Normalized EBITDA, calculated as reported to repay a portion of the subordinated Aker profits generated by the bareboat charter- EBITDA, plus profit share, plus the Deferred loan. ers’ operations in the time charter markets. Principal Obligation (“DPO”), was USD In accordance with this policy, all of 99.2 million for 2016 and USD 99.3 million Bond refinancing AMSC’s vessels are on long-term fixed rate in 2015. The Company began exploring its refinanc- bareboat charters with OSG, together with The profit share is not currently ing options for the existing unsecured a profit sharing agreement which gives included in reported EBITDA as it is used to bond, which expires in February 2018, with AMSC the upside of sharing the profits reduce the OSG credit, the amount of the hiring of financial advisors during Q3 generated by OSG.OSG employs the AMSC’s profit sharing that OSG retains 2016. Subsequent to year-end, AMSC vessels on voyage and time charters to prior to having an obligation to remit profit completed the placement of a USD 220 major oil companies and refineries. The sharing payments to AMSC. After the OSG million senior unsecured bond. The bond fixed bareboat charter period for nine of the credit has been reduced to zero (balance of issue wassignificantly oversubscribed and vessels expires in December 2019, while USD 4.9 million as of 31 December 2016), received strong demand from Nordic as one vessel (the Overseas Tampa) expires in AMSC will recognize profit share revenue well as international investors. Settlement 2025. Subsequently, OSG has options to and receive its 50%share of the sub- was on 22 February 2017 with final maturity renew the bareboat charters for the life of sequent profit in cash. date on 22 February 2022. The new bond
6 American Shipping Company annual report 2016 Performance 2016 Board of directors’ report
issue has a fixed coupon of 9.25%.An mark-to-market valuation of interest rate Property, plant and equipment as of application will be made for the bonds to swap agreements of USD 12.5 million. 31 December 2016 was USD 779.5 million be listed on the Oslo Stock Exchange. Net profit before tax for 2016 and 2015 (USD 813.8 million as of 31 December was USD 17.0 million and USD 14.1 million, 2015), and includes ten vessels. Review of the annual accounts respectively. Interest-bearing long-term receivables AMSC prepares and presents its con- Non-cash deferred income tax totaled USD 30.6 million as of solidated accounts according to Interna- expensewas USD 9.9 million in 2016 (USD 31 December 2016 (USD 32.6 million as of tional Financial Reporting Standards (IFRS) 4.4 million in 2015). During Q4 2016, AMSC 31 December 2015) and represent the DPO as adopted by the EU, and has one operat- identified an error in the calculation of 2014 due from OSG. ing segment. and 2015 non-cash deferred income tax Other long-term assets totaled USD expense. The restated figures for 2015 27.6 million and represent AMSC’s invest- Profit and loss accounts include a USD 5.0 million correction to ment in Philly Tankers. In 2016, AMSC had operating revenues of non-cash income tax expense. See more At 31 December 2016, total assets USD 88.0 million versus operating revenues details below and in note 20 in the con- were USD 889.4 million (restated of USD 87.8 million in 2015, a reflection of solidated financial statements. USD 905.0 million as of 31 December the Company’s stable, predictable busi- AMSC’s 2016 net income was USD 2015). ness model. Revenues are recognized on a 7.1 million versus restated net income of At 31 December 2016, total equity was monthly basis and represent the income USD 9.7 million in 2015. The 2016 basic USD 195.6 million. The equity ratio was from the bareboat charter agreements. All and diluted earnings per share (EPS) were 22.0% of total assets. Corresponding profits generated under the profit sharing USD 0.12. The corresponding restated fig- restated amounts for 2015 were USD agreement with OSG in 2016 and 2015 ures for 2015 were USD 0.16, for both 216.4 million and 23.9%,respectively. were used to offset the credit balance, basic and diluted EPS. Total current liabilities as of therefore no profit sharing revenue was 31 December 2016 were USD 40.2 million, recognized in 2016 or 2015. In the agree- Cash flow consisting of USD 28.3 million for short- ment negotiated with OSG, the “OSG The Company’s operating cash flow is term interest bearing debt and USD credit” is the amount of AMSC’s profit primarily composed of bareboat charter 11.9 million for deferred revenues and other sharing that OSG retains prior to having an hire and DPO received less interest paid. payables. The corresponding obligation to remit profit sharing payments Total net cash flow from operating activities total current liabilities as of 31 December to AMSC. After the OSG credit has been in 2016 was positive USD 56.7 million (USD 2015 were USD 20.3 million, consisting of fully reduced to zero, AMSC will receive its 50.8 million in 2015). USD 10.2 million for short-term interest 50%share of the subsequent profit in There were no investments made in bearing debt, USD 9.5 million for deferred cash. The Company’s operating profit 2016 or 2015. revenues and other payables and USD before interest, taxes, depreciation and Net cash flow from financing activities 0.6 million for the short term portion of the amortization (EBITDA) amounted to USD in 2016 was negative USD 38.6 million, mark-to-market valuation of the interestrate 85.1 million in 2016 compared to USD which included USD 10.1 million in vessel swap contracts. 84.9 million in 2015. debt installments,USD 27.9 million in divi- Non-current liabilities totaled USD Depreciation was USD 34.3 million in dends paid/return of capital and USD 0.6 653.6 million at 31 December 2016, 2016 versus USD 34.2 million in 2015. million in loan fees paid. Net cash flow from consisting of bank debt of USD AMSC’s operating profit (EBIT) was USD financing activities in 2015 was negative 403.3 million related to the ten vessels 50.8 million in 2016 versus USD USD 110.9 million, which included USD owned by AMSC, a bond issue of USD 50.7 million in 2015. 41.0 million in vessel debt installments, 212.8 million, a subordinated loan from Net financial items were negative USD USD 44.8 million net cashused for Aker ASAofUSD 20.0 million, the long 33.7 million in 2016 compared to negative refinancing, USD 25 million in dividends term portion of the mark-to-market valu- USD 36.6 million in 2015. Net financial paid/return of capital and USD 0.1 net cash ation of the interest rate swap contracts of items of negative USD 33.7 million in 2016 used for purchase of treasury shares. USD 0.1 million and deferred tax liability of consist primarily of net interest expenseof USD 17.4 million. Restated non-current USD 35.3 million and other financial Statement of financial position and liabilities totaled USD 668.3 million at expenses of USD 1.9 million, offset by gain liquidity 31 December 2015, consisting of bank on investment in Philly Tankers of USD 2.7 As of 31 December 2016, American Ship- debt of USD 430.2 million related to the ten million, unrealized, non-cash gain on the ping Company had cash on deposit with vessels owned by AMSC, a bond payable mark-to-market valuation of interest rate banks totaling USD 51.4 million. Of this of USD 210.4 million, a subordinated loan swap agreements of USD 0.7 million and total amount, USD 2.3 million is cashheld from Aker ASAofUSD 20.0 million, the foreign exchange gain of USD 0.1 million. for specified uses. The corresponding long term portion of the mark-to-market Net financial items of negative USD amounts for 2015 were USD 33.3 million in valuation of the interest rate swap con- 36.6 million in 2015 consist primarily of net cash on deposit with banks and USD tracts of USD 0.2 million and deferred tax interest expenseofUSD 43.8 million, other 1.6 million in cash held for specified uses. liability of USD 7.5 million. financial expenses of USD 5.1 million, and Other current assets were USD Tax position and prior year restatement foreign exchange loss of USD 0.2 million, 0.3 million as of 31 December 2016 (USD AMSChas net operating losses in carryfor- offset by unrealized, non-cash gain on the 0.4 million as of 31 December 2015). ward (NOLs)as of 31 December 2016 of
American Shipping Company annual report 2016 7 Performance 2016 Board of directors’ report
USD 525.9 million in the U.S. and USD tanker operator. AMSC’s ten ships are a Parent company accounts and allocation 112.2 million in Norway. These NOLs have significant part of OSG’s fleet post spin off. of income for the year been generated since 2005 from the tax AMSC continues to closely monitor its The profit and loss account of American losses of the Company, which in the U.S. counterparty risk. Shipping Company ASA (“AMSCASA”) are mostly due to the accelerated shows aloss for the year 2016 of USD depreciation of the vessels for tax pur- Financial risk and risk management 6.3 million, mostly related to financing poses (10 years) and in Norway are mainly AMSC’s activities expose it to a variety of activities.AMSCASAis the Norwegian due to the interestcost on the bond. financial risks: market risk, currency risk, parent company owning 100% of the U.S. During 2016, AMSC identified an error interest rate risk, counterparty risk, price subsidiaries and owning the 19.6%share in the calculation of 2014 and 2015 non- risk, credit risk, and liquidity risk.AMSC’s of Philly Tankers.AMSCASAis the issuer cash deferred income tax liabilities, which overall risk management program focuses of the existing bond, which was refinanced was due to an overstatement of the U.S. on the unpredictability of financial markets by a subsidiary of AMSC after year-end NOLs in carry forward in the tax provision. and seeks to minimize potential adverse 2016. The restated figures include a USD 2.8 mil- effects on AMSC’s financial performance. The Board of Directors proposes that lion correction to the 1 January 2015 bal- AMSCuses derivative financial instruments the loss for the year be allocated asshown ance sheet, as an increase in the deferred to hedge certain risk exposure. below: tax liabilities and a decrease in retained AMSC operates in a business environ- earnings. The 2015 correction increased ment that is capital intensive. The Com- Dividend payments USD 27.9 million the deferred tax liabilities by USD 5.0 mil- pany is dependent upon having access to Transferred from share lion and reduced retained earnings accord- long-term funding for the vessels and other premium (USD 27.9 million) ingly. loan facilities to the extent its own cash Transferred from other equity (USD 6.3 million) On 3 January 2014, the U.S. sub- flow from operations is insufficient to fund Total allocated (USD 6.3 million) sidiaries experienced a change of owner- its operations. The unsecured bond out- ship as defined by Internal Revenue Code standing as of year-end 2016 matures in The Board of Directors was granted author- Section 382 due to a greater than 50% 2018. Subsequent to year-end, the bond ization to pay dividends based on the shift in the owners of AMSC stock. The uti- was refinanced with a new unsecured USD Company’s annual accounts for 2015 at lization of the net operating losses 220 million bond with maturity in 2022. The the Annual General Meeting in 2016, which carryforward as of that date are subject to majority of the bank debt matures in 2020 is valid up to the Company’s Annual Gen- annual limitations. with the remaining approximately 20% eral Meeting in 2017 subject to the Board See footnote 5 in the consolidated maturing in 2025. evaluating the liquidity position of the accounts for further information. Through the vessel financing, the Company. Such authorization facilitates Company is exposed to fluctuations in payment of dividend by the Board of Direc- Risks interest rates on its long-term debt. The tors on a quarterly basis. Counterparty risk and charter renewal interest rate risk related to the vessel Subsequent to year-end, the Board risk financing is partially mitigated by the useof declared a dividend/return of capital of The risks facing AMSC principally relate to interest rate swap agreements to hedge the USD 0.124 per share (USD 7.5 million in the operational and financial performance interest rate risk. The Company entered aggregate) on 5 February 2017. The divi- of OSG and from OSG’s operation of our into interest rate swaps to convert its float- dend was paid on 22 February 2017. vessels,as well as overall Jones Act market ing rate debt to fixed rates for USD risk. 300 million of its vessel debt (USD Corporate governance and internal Since OSG is AMSC’s only counter- 438.3 million as of 31 December 2016). control party, AMSCis exposed to OSG’s credit AMSCissubject to financial covenants American Shipping Company ASA’s corpo- risk.As charterer of all of the Company’s under the secured bank loans relating to rate governance policy exists to ensure an vessels,OSG continued to service its minimum liquidity and collateral, and lever- appropriate division of roles among the financial obligations to AMSC in 2016 on age and debt service ratios.AMSCissub- company’s owners, board of directors, and time, including USD 3.9 million in payments ject to financial covenants under the new executive management. Such a separation on the DPO receivable. The fixed bareboat bond related to minimum liquidity and of roles ensures that goals and strategies charter period for nine of the vessels maximum leverage. AMSCwas in com- are prepared, adopted corporate strategies expires in December 2019, with the tenth pliance with all of its debt covenants as of are implemented, and the results achieved expiring in June 2025. Subsequently, OSG 31 December 2016. are subject to verification and follow-up. An has options to renew the bareboat charters appropriate division of responsibilities and The going concern assumption for the life of the vessels under terms that satisfactory internal controls will contribute are similar to the existing arrangements. In view of AMSC’s financial position, the to the greatestpossible value creation over There is arisk that OSG may not declare Board confirms the going concern assump- time, to the benefit of shareholders and some or all of its options to extend the tions and that the 2016 annual accounts other stakeholders.AMSC’s corporate bareboat charters upon expiry of the fixed have been prepared based on the assump- governance guidelines are presented in period. tion of a going concern. greater detail on page 46 of this annual OSG spun off its international business report and it is the Board’s opinion that the in 2016 and became a pure play Jones Act Company’s corporate governance policy is
8 American Shipping Company annual report 2016 Performance 2016 Board of directors’ report
effectively applied. Based on the relatively The Board members of AMSC are as ronmental impact. Since all of AMSC’s simple business model and small size of follows: vessels are operated by OSG, we do not the Company’s staff, the Board believes Chairman Annette Malm Justad have formal policies covering safety of that adequate steps have been taken to Board Member Peter D. Knudsen personnel, workers’ rights and the mitigate the internal control risk such as the Board Member Audun Stensvold environment. Nevertheless, our policy is to Board’s monthly review of results com- meet our responsibilities by choosing a pared to budget. Further description of the Board Members reputable business partner to operate our Good corporate governance, that is, is on page 50. vessels and by following the laws and regu- proper board conduct and company Corporate Social Responsibility lations applicable to our employees.We management, are key to AMSC’s efforts to In accordance with the Norwegian Account- believe both AMSC and OSG share a build and maintain trust. AMSCis commit- ing Act §3-3, section c, the Board has common commitment to worksafely and in ted to maintaining an appropriate division assessed AMSC’s Corporate Social a manner that protects and promotes the of responsibilities between the Company’s Responsibility (CSR) in the following areas: health and well-being of the employees and governing bodies,its Board of Directors, human rights, labor standards, environment the environment. OSG is obligated to notify and management. AMSChas compared and corruption. AMSC if (i) any of the vessels are involved the Norwegian requirements and recom- AMSC’s modern, double-hulled tanker in an accident involving repairs, the costof mendations on corporate governance for fleet meets the current requirements of the which is likely to exceed $500,000, listed companies with the Company’s own U.S.Coast Guard. Under its lease agree- (ii) events have occurred whereby any of corporate governance procedures and ments,OSG is responsible for the day to the vessels are likely to become a total practice. The findingsshow that the day operation of the vessels. In addition, loss, or (iii) any of the vessels have been Company is in compliance with respect to the ships’ crews are managed by OSG. arrested or someone has exercised or the requirements and substantially in con- OSG is one of the largest ship operators in purports to exercise a lien on the vessel. If formance with those recommendations. the U.S. Jones Act and OSG has a OSG makes a claim under its hull policy in The Company’s board chairman is commitment to meeting and exceeding connection with an accident involving elected at the Company’s annual share- environmental regulations and social damage to the vessel in excess of holders’ meeting and the shareholder- responsibility and safety standards. $500,000, AMSC would be notified by the elected directors are elected for two year BecauseAMSChas only three employ- hull underwriters. There have been no such terms. ees, the Company has a limited direct envi- reported incidents during 2016.
American Shipping Company annual report 2016 9 Performance 2016 Board of directors’ report
The Company has three full time and preserve the need for all commercial accelerate over the next several years given employees who are senior executives who vessels transporting cargoes between that 21% of the existing fleet is above 30 work in offices in the United States and points in the United States to be U.S. built, years of age. Notably, no new tanker Norway. AMSChas agreements with Aker owned, operated and manned by U.S. citi- orders have been placed over the past two ASA and Aker U.S. Services, LLC (formerly zens, and registered under U.S. flag. years, and the capacity of the two prom- Resource Group International) which The U.S. Jones Act Product tanker inent Jones Act tanker shipyards (NASSCO primarily include office services and tax market wassofter during 2016 compared and Philly Shipyard) is restricted as the services. The Company allows a flexible to the marketsseen over the past three shipyards are contracted to build Jones Act working schedule and work location for its years. The low oil price environment has container vessels over the next few years. employees. contributed to reduced production of shale Following additions to the tanker fleet American Shipping Company ASA oil in the U.S. This has led to reduced scheduled for delivery in 2017, no new seeks to be an attractive employer, volumes of crude transported out of Cor- vessels are scheduled to enter the tanker focused on employee retention, and main- pus Christi, the main port in Texas for market. tains a working environment with com- shipping crude on Jones Act product tank- Although the Jones Act tanker market petitive compensation and benefits that is ers. The Company remains insulated from may remain soft in the near term, the open and fair. AMSCis committed to pro- current market conditions with nine prod- Company expects that a combination of viding equal opportunity regardless of race, uct tankers on “hell or high water” bareboat the factors described above – namely, ethnic background, gender, religion, age or contracts until December 2019 and one increased shale production and accel- any other legally protected status. Because tanker that has been converted to a shuttle erated vesselsscrapping – may drive char- the Company hasso few employees,its tanker on a “hell or high water” bareboat ter rates to stronger levels over time. The human resource policies, including those contract until June 2025. fixed charter agreements with OSG secure on discrimination, are not formalized but Despite the current environment, there AMSC’s leasing backlog of USD follow the laws and practices customary to are several encouraging signs that support 314 million from bareboat charter revenues. the geographical location of each of its the Company’s long-term view for the Any profit sharing contribution will come in offices. prospects of the U.S. Jones Act product addition to the fixed bareboat charter rev- At year-end 2016, one of AMSC’s tanker market. First and foremost, the enues. Although the bareboat contracts for employees is a woman (Controller). In addi- prices of crude oil have risen on the back nine of the ships expire in December 2019, tion, the chairman of the board of directors of cuts in production by OPEC and select we assume that OSG will utilize the renewal is a woman. non-OPEC countries, which has led to options and continue to lease the vessels The Company values open communica- expectations of increased U.S. shale oil long term due to the favorable base bare- tion and the Board takes a hands on production to meet forecast global demand boat rate representing a lower cost of capi- approach to AMSC’s governance. With the growth for crude oil. Whilst clean products tal compared to current newbuilding costs. small size of AMSC’s staff and the location trades remain stable and have increased To date, AMSC’s profits generated and nature of its operations, the Board with rising domestic gasoline consumption, under the profit sharing agreement with sees the risk of corruption as low although increased U.S. crude oil production may OSG (approximately USD 10 million for it has implemented formal procedures to lead to increasing demand for Jones Act 2016) have been applied to offset the address risks related to segregation of tankers. Company’s credit balance with OSG which duties inherent in a company with so few On the supply side, eight newbuild must be reduced before profit sharing is employees.AMSC does not have any other vessels were delivered during 2016, and payable to AMSC. The extent of profit shar- initiatives ongoing to address corruption. two vessels were scrapped. This led to an ing contributions will depend on the time Outlook oversupplied market that was exacerbated charter rates obtained by OSG as well as The U.S. Jones Act market, which has by the decline in U.S. shale production. It is OSG’s ability to operate the vessels in a been in existence since 1920, is expected expected, however, that the pace of vessel cost efficient manner. to remain in existence and thereby protect scrapping in the tanker and ATB fleet will
Lysaker, 14 March 2017 The Board of Directors American Shipping Company ASA
Annette Malm Justad Peter D. Knudsen Audun Stensvold Chairman Board Member Board Member
Pål Magnussen President/CEO
10 American Shipping Company annual report 2016 Performance 2016 Board responsibility statement
Board Responsibility statement ance with the Norwegian Accounting Act tion and profit (or loss)as a whole as of and Today, the Board of Directors and the and Norwegian accounting standards as of for the year ended 31 December 2016 for President/CEO reviewed and approved the 31 December 2016. The Board of Directors’ the group and the parent company. Board of Directors’ Report and the con- Report for the group and the parent com- The Board of Directors’ Report for the solidated and parent company annual pany is in accordance with the require- group and the parent company includes a financial statements for American Shipping ments in the Norwegian Accounting Act true and fair review of: and Norwegian Accounting Standard no. Company ASAas of and for the year ended Ⅲ the development and performance of 16 as of 31 December 2016. 31 December 2016 (Annual Report 2016). the business and the position of the American Shipping Company ASA’s group and the parent company consolidated financial statements have To the best of our knowledge: been prepared in accordance with Interna- The consolidated and parent annual finan- Ⅲ the principal risks and uncertainties the tional Financial Reporting Standards as cial statements for 2016 have been pre- group and the parent company face adopted by the EU and additional dis- pared in accordance with the applicable closure requirements in the Norwegian accounting standards. Accounting Act. The separate financial The consolidated and parent annual statements for American Shipping Com- financial statements give a true and fair pany ASA have been prepared in accord- view of the assets, liabilities, financial posi-
Lysaker, 14 March 2017 The Board of Directors American Shipping Company ASA
Annette Malm Justad Peter D. Knudsen Audun Stensvold Chairman Board Member Board Member
Pål Magnussen President/CEO
American Shipping Company annual report 2015 11 Performance 2016 Annual accounts - group
American Shipping Company ASA Group Consolidated Statement of Financial Position as of 31 December
restated restated 31 December 31 December 1 January Amounts in USD thousands Note 2016 2015 2015
ASSETS Property, plant and equipment 6 779,490 813,826 847,990 Interest-bearing long-term receivables 7 30,625 32,569 33,204 Other non-current assets 12 27,559 24,874 24,926 Total non-current assets 837,674 871,269 906,120
Other receivables 8 307 250 112 Tax receivable 12 167 136 Cash held for specified uses 2,347 1,541 8,107 Cash and cashequivalents 49,046 31,737 85,201 Total current assets 51,712 33,695 93,556
Total assets 889,386 904,964 999,676
EQUITY AND LIABILITIES Share capital and share premium 11 266,485 294,372 319,372 Accumulated deficit (70,843) (77,943) (87,620) Total equity attributable to equity holders of the parent 195,642 216,429 231,752 Total equity 195,642 216,429 231,752
Interest-bearing loans 13 636,034 660,630 676,157 Deferred tax liabilities 5 17,440 7,508 3,068 Derivative financial liabilities - long term portion 9 57 153 7,514 Total non-current liabilities 653,531 668,291 686,739
Interest-bearing loans 13 28,333 10,148 52,205 Deferred revenues and other payables 15 11,880 9,504 9,060 Derivative financial liabilities - short term portion 9 - 592 19,920 Total current liabilities 40,213 20,244 81,185
Total liabilities 693,744 688,535 767,924
Total equity and liabilities 889,386 904,964 999,676
Lysaker, 14 March 2016 The Board of Directors American Shipping Company ASA
Annette Malm Justad Peter D. Knudsen Audun Stensvold Chairman Board Member Board Member
Pål Magnussen President/CEO
12 American Shipping Company annual report 2016 Performance 2016 Annual accounts - group
American Shipping Company ASA Group Consolidated Income Statement
restated Amounts in USD thousands Note 2016 2015 Operating revenues 88,042 87,788 Wages and other personnel expenses 2 (1,131) (956) Other operating expenses 3 (1,791) (1,943) Operating profit before depreciation 85,120 84,889
Depreciation 6 (34,336) (34,165) Operating profit 50,784 50,724
Financial income 4 5,379 14,650 Financial expenses 4 (39,121) (51,239) Income before income tax 17,042 14,134
Income tax expense 5 (9,932) (4,439)
Net income for the year (1) 7,110 9,695
American Shipping Company ASA Group Consolidated Statement of Comprehensive Income
restated Amounts in USD thousands (except per share amounts) 2016 2015 Net income for the year 7,110 9,695 Other comprehensive income for the period, net of tax - - Total comprehensive income for the year (1) 7,110 9,695
Basic and diluted earnings per share 10 0.12 0.16
1) Applicable to common shareholders of the parent company.
American Shipping Company annual report 2016 13 Performance 2016 Annual accounts - group
American Shipping Company ASA Group Consolidated Statement of Changes in Equity
Share Accumulated Total Amounts in USD thousands Note Share Capital Premium deficit equity Balance at 31 December 2014 96,366 223,006 (84,827) 234,545
Non-cash deferred tax correction 20 - - (2,793) (2,793)
Restated balance at 1 January 2015 96,366 223,006 (87,620) 231,752
Restated total comprehensive income for the year 20 - - 9,695 9,695
Repurchase of treasury shares - - (63) (63)
Proceeds from sale of treasury shares - - 45 45
Dividends paid / return of capital 11 - (25,000) - (25,000)
Restated balance at 31 December 2015 96,366 198,006 (77,943) 216,429
Total comprehensive income for the year - - 7,110 7,110
Repurchase of treasury shares - - (43) (43)
Proceeds from sale of treasury shares - - 33 33
Dividends paid / return of capital 11 - (27,887) - (27,887)
Balance at 31 December 2016 96,366 170,119 (70,843) 195,642
14 American Shipping Company annual report 2016 Performance 2016 Annual accounts - group
American Shipping Company ASA Group Consolidated CashFlowStatement
Amounts in USD thousands Note 2016 2015 Net income before taxes 17,040 14,134 Unrealized foreign exchange (gain)/loss and other non-cash items 1,959 7,697 Unrealized (gain) interest swaps 9 (688) (12,512) Net interest expense 4 35,316 43,814 Depreciation 6 34,336 34,165 (Increase)/decrease in: Other current assets 8 (322) (364) Other long-term operating assets 7 1,944 634 Increase/(decrease) in: Accrued liabilities and other payables 15 (2,351) (1,851) Interest paid 4 (32,537) (36,576) Interest received 4 2,023 1,698 Net cash flow from operating activities 56,720 50,840
Investment in equity accounted investee 12 - - Net cash flow used in investing activities - -
Repayment of credit facilities and settlement of related interest rate swaps 13 (10,097) (547,338) Loan fees paid (610) (8,514) Proceeds from interest bearing debt - 470,000 Repurchase of treasury shares (43) (63) Proceeds from sale of treasury shares 33 45 Dividends paid / return of capital (27,887) (25,000) Net cash flow from financing activities (38,605) (110,870)
Net change in cash and cash equivalents 18,115 (60,029)
Cashandcashequivalents, including current cashforspecified uses as of1January 33,278 93,308 Cash and cash equivalents, including current cash for specified uses as of 31 December 51,393 33,278
American Shipping Company annual report 2016 15 Performance 2016 Annual accounts - group
American Shipping Company ASA Group Notes to the consolidated accounts
Ⅵ Note 1: Accounting principles
CORPORATE INFORMATION The significant factors that affect theseestimates PROPERTY, PLANT AND EQUIPMENT American Shipping Company ASA (the Company, and assumptions are detailed in the accompany- Property, plant and equipment acquired by the Group or AMSC) is incorporated and domi- ing financial statements and footnotes. Group companies are stated at historical cost. ciled in Norway. The address of the main office is Vessels are depreciated to their salvage value on Oksenøyveien 10, P.O. Box 230, NO-1366 GROUP ACCOUNTING, CONSOLIDATION a straight-line basis and adjusted for impairment Lysaker, Norway. American Shipping Company PRINCIPLES AND EQUITY INVESTEES charges, if any. Each vessel’s salvage value is ASAis listed on the Oslo Stock Exchange. The consolidated financial statements of AMSC equal to the product of its lightweight tonnage The principle activity of the business is to Group include the financial statements of the and an estimated scrap rate less estimated costs purchase and bareboat charter out product parent company American Shipping Company of disposal. The carrying value of the property, tankers, shuttle tankers and other vessels to ASA and itssubsidiaries. Subsidiaries are those plant and equipment on the balance sheet repre- operators and end users in the U.S. Jones Act entities in which AMSC Group either owns, sents the costless accumulated depreciation market. directly or indirectly, over fifty percent of the vot- and any impairment charges.Cost includes ing rights, or otherwisehas control over the expenditures that are directly attributable to the STATEMENT OF COMPLIANCE investee. All intercompany transactions have acquisition of the asset. Interestcosts on borrow- The consolidated financial statements of Ameri- been eliminated in the consolidated results. ings to finance the construction of property, plant can Shipping Company ASA and all itssub- Associates are entities in which AMSChas and equipment are capitalized during the period sidiaries (AMSC) have been prepared in significant influence but not control or joint con- of time that is required to complete and prepare accordance with International Financial Reporting trol. Interests in associates are accounted for the asset for its intended use. Other borrowing Standards as adopted by the European Union using the equity method. Investments in asso- costs are expensed. (IFRS). ciates are initially recognized at cost, which Expected useful lives and salvage value esti- These accounts have been approved for includes transaction costs. Subsequently the mates of long-lived assets are reviewed annually issue from the Board of Directors on 14 March consolidated financial statements include and, where they differ significantly from previous 2017. AMSC’s share of the profit or loss and other estimates, depreciation is changed prospectively. comprehensive income of equity accounted Ordinary repairs and maintenance costs,to BASIS FOR PREPARATION investees. the extent they are AMSC’s responsibility, are These consolidated financial statements have charged to the income statement during the been prepared on a historical costbasis, except FOREIGN CURRENCY TRANSLATION AND financial period in which they are incurred. The for derivative financial instruments that have TRANSACTIONS cost of improvements is included in the asset’s been measured at fair value. Fair value is defined Functional currency carrying amount when it is probable that the as the price that would be received to sell an Items included in the financial statements of each Group will derive future economic benefits in asset or paid to transfer a liability in an orderly subsidiary in the Group are initially recorded in excess of the originally assessed standard of transaction between market participants at the the functional currency, i.e. the currency that performance of the existing asset. Improvements measurement date. best reflects the economic substance of the are depreciated over the useful lives of the The consolidated financial statements are underlying events and circumstances relevant to related assets. presented in USD (thousands), except when that subsidiary. indicated otherwise. The consolidated financial statements are IMPAIRMENT OF LONG-LIVED ASSETS presented in United States dollars (USD), which Property, plant and equipment and other USE OF ESTIMATES is the functional and reporting currency of the non-current assets are reviewed for potential The preparation of financial statements in con- parent company and subsidiaries. impairment whenever events or changes in cir- formity with IFRS requires the useofestimates cumstances indicate that the carrying amount of and assumptions that affect the reported Transactions and balances an asset may not be recoverable. amounts in the financial statements. Although Foreign currency transactions are translated into For the purposes of assessing impairment, theseestimates are based on management’s USDusing the exchange rates prevailing at the assets are grouped at the lowest levels for which best knowledge of current events and actions, dates of the transactions. Receivables and liabilities there are separately identifiable, mainly actual results may ultimately differ from those in foreign currencies are translated into USDatthe independent, cashflows. An impairment loss is estimates. exchange rates ruling on the balance sheet date. the amount by which the carrying amount of the Estimates and underlying assumptions are Foreign exchange gains and losses resulting from assets exceeds the recoverable amount. The reviewed on an ongoing basis. Revisions to the settlement of such transactions andfromthe recoverable amount is the higher of the asset’s accounting estimates are recognized in the translation of monetary assets and liabilities net selling price and its value in use. The value in period in which the estimates are revised if the denominated in foreign currencies are recognized useis determined by reference to discounted revision affects that period or in the period of in the income statement. Foreign exchange differ- cashflows.Most critical in determining the value revision and future periods if the revision affects ences arising in respect of operating business in useofvessels is determining the estimated both current and future periods. items are included in operating profit in the appro- profit share on existing contracts and estimating Critical accounting estimates and assump- priate income statement account, and thosearising future revenues from new leases.Theseestimates tions include revenue recognition, accounting for in respect of financial assets and liabilities are are primarily influenced by expectations of future property, plant and equipment, and impairment. recorded as a net financial item. demand in the Jones Act market.
16 American Shipping Company annual report 2016 Performance 2016 Annual accounts - group
A previously recognized impairment loss is INCOME TAXES PENSIONS reversed only if there has been a change in the Current income taxes The Group has defined contribution pension estimates used to determine the recoverable Income tax receivable and payable for the cur- plans that cover its employees whereby con- amount, however not to an extent higher than the rent period are measured at the amount tributions are paid to qualifying pension plans. carrying amount that would have been expected to be recovered from or paid to the Once the contributions have been paid, there are determined had no impairment loss been recog- taxation authorities. The tax rates and tax law as no further payment obligations. Plan con- nized in prior years. used to compute the amount are those that are tributions are charged to the income statement in enacted or substantively enacted at the balance the period to which the contributions relate. sheet date. LEASES ACCOUNTING FOR DERIVATIVE FINANCING Leases where a significant portion of the risks Deferred income taxes INSTRUMENTS AND HEDGING ACTIVITIES and rewards of ownership are retained by the Deferred income tax is provided, using the Derivative financial instruments are recognized lessor are classified as operating leases. liability method, on all temporary differences at initially and on a recurring basis at fair value. the balance sheet date between the tax bases of AMSC currently has no derivative instruments OTHER NON-CURRENT ASSETS assets and liabilities and their carrying amounts that qualify for hedge accounting under IFRS. Other non-current assets represent a long-term for financial reporting purposes. Changes in the fair value of any derivative receivable balance due from a customer which is Deferred income tax assets are recognized instruments are recognized immediately in the accounted for using the amortized cost method. for all deductible temporary differences, carry- income statement. forward of unused tax assets and unused tax In accordance with its treasury policy, the losses, to the extent that it is probable that tax- Group does not hold or issue derivative financial TRADE RECEIVABLES able profit will be available against which the instruments for trading purposes.Estimates of Trade receivables are carried at their anticipated deductible temporary differences, and the carry- the fair value of interest rate swaps are based on realizable value, which is the original invoice forward of unused tax assets and unused tax broker quotes, with an adjustment for the amount less an estimated valuation allowance for losses can be utilized. The carrying amount of Company’s credit risk as described in note 9. impairment of these receivables. A valuation deferred income tax assets is reviewed at each The fair value of derivative short-term and long- allowance for impairment of trade receivables is balance sheet date and reduced to the extent term financial liabilities is disclosed in note 16 made when there is objective evidence that the that it is no longer probable that sufficient taxable regarding financial instruments. Group will not be able to collect all amounts due profit will be available to allow all or part of the according to the original terms of the receivables. deferred income tax asset to be utilized. RELATED PARTY TRANSACTIONS Expected utilization of tax losses are not dis- All transactions, agreements and business activ- CASH AND CASH EQUIVALENTS counted when calculating the deferred tax asset. ities with related parties are, in the Group’s opin- Cash and cashequivalents comprisecashon Deferred income tax assets are recognized ion, conducted on an arm’s length basis hand, deposits held at call with banks, other when it is probable that they will be realized. according to ordinary business terms and con- short-term highly liquid investments with original Determining probability requires the Group to ditions. maturities of three months or less. estimate the sources of future taxable income Cash held for specified uses is restricted to from operations and reversing taxable temporary REVENUE RECOGNITION debt service payments. differences. Determining these amounts issub- Revenue is recognized only if it is probable that ject to uncertainty and is based primarily on future economic benefits will flow to American expected earnings from existing contracts and Shipping Company, and these benefits can be SHARE CAPITAL expected profit sharing participation. measured reliably. Revenues related to fixed Ordinary shares are classified as equity. Deferred income tax assets and liabilities are term vessel bareboat charter agreements are Incremental costs directly attributable to the measured at the tax rates that are expected to recognized over the charter period. Revenue issue of new shares options are shown in equity apply to the year when the asset is realized or related to profit sharing agreements is recog- as a deduction, net of tax, from the proceeds. the liability issettled, based on tax rates (and tax nized when the amount becomes fixed and Where any Group company purchases the laws) that have been enacted or substantively determinable. Revenue related to the deferred Company’s equity share capital (treasury shares), enacted at the balance sheet date. principal obligation (note 7) is discounted in the consideration paid, including any directly cases where a payment period extends beyond attributable incremental costs,is deducted from PROVISIONS 12 months. equity. A provision is recognized when the Group has a present obligation (legal or constructive) as a SEGMENT INFORMATION INTEREST-BEARING LIABILITIES result of a past event and it is probable (i.e. more AMSChas only one operating segment. All oper- All loans and borrowings are initially recognized likely than not) that an outflow of resources ations and bareboat charter revenues are in the at cost, being the fair value of the consideration embodying economic benefits will be required to U.S. received net of issue costs associated with the settle the obligation, and a reliable estimate can borrowing. be made of the amount of the obligation. Provi- BASIC AND DILUTED EARNINGS PER SHARE After initial recognition, interest-bearing sions are reviewed at each balance sheet date The calculation of basic earnings per share is loans and borrowings are subsequently meas- and adjusted to reflect the current bestestimate. based on the profit attributable to ordinary ured at amortized costusing the effective interest The amount of the provision is the present shareholders adjusted for preferred share divi- method; any difference between proceeds (net of value of the risk adjusted expenditures expected dends using the weighted average number of transaction costs) and the redemption value is to be required to settle the obligation, shares outstanding during the year after recognized in the income statement over the determined using the estimated risk free interest deduction of the average number of treasury period of the interest-bearing liabilities. Amor- rate as the discount rate. Where discounting is shares held over the period. The calculation of tized costis calculated by taking into account used, the carrying amount of provision increases diluted earnings per share is consistent with the any issue costs, and any discount or premium. in each period to reflect the unwinding of the calculation of basic earnings per share while giv- Gains and losses are recognized in net profit discount by the passage of time. This increaseis ing effect to all dilutive potential ordinary shares or loss when the liabilities are derecognized, for recognized as interest expense. that were outstanding during the period. The instance due to significant modifications to or Group currently has no potentially dilutive shares settlements of existing financing agreements. outstanding.
American Shipping Company annual report 2016 17 Performance 2016 Annual accounts - group
EVENTS AFTER THE BALANCE SHEET DATE Standards issued but not yet adopted Due to the fact that American Shipping Company Adistinction is made between events both favor- IFRS 15 Revenue from Contracts with Customers is primarily a lessor and lessor accounting under able and unfavorable that provide evidence of establishes a comprehensive framework for IFRS 16 remainssimilar to current practice, the conditions that existed at the balance sheet date determining whether, how much and when rev- adoption of the new standard is not expected to (adjusting events) and those that are indicative of enue is recognized. It replaces existing revenue have significant impact on the financial state- conditions that arose after the balance sheet recognition guidance, including IAS 18 Revenue, ments of American Shipping Company. date (non-adjusting events). Financial statements IAS 11 Construction Contracts and IFRIC 13 IFRS 9 Financial Instruments replaces the will only be adjusted to reflect adjusting events Customer Loyalty Programs. The new standard existing guidance in IAS 39 Financial Instru- (although there are disclosure requirements for will, however, not replace the existing guidance ments. IFRS 9 includes revised guidance on the non-adjusting events). related to lease contracts within the scope of IAS classification and measurement of financial 17. IFRS 15 is effective for annual periods begin- instruments, including a new expected credit loss NEW STANDARDS AND INTERPRETATIONS ning on or after 1 January 2018, with early adop- model for calculating impairment on financial ADOPTED tion permitted. The new standard is not expected assets, and the new general hedge accounting Standards and interpretations that are issued up to have significant impact on the financial state- requirements.Italso carries forward the guid- to the date of issuance of the consolidated ments of American Shipping Company. ance on recognition and derecognition of finan- financial statements, but not yet effective, are IFRS 16 Leases is effective for annual peri- cial instruments from IAS 39. IFRS 9is effective disclosed below. The Group’s intention is to ods beginning on or after 1 January 2019, with for annual reporting periods beginning on or after adopt the relevant new and amended standards early adoption permitted. IFRS 16 replaces the 1 January 2018, with early adoption permitted. and interpretations when they become effective, existing guidance in IAS 17 Leases. IFRS 16 The implementation of IFRS 9 may result in cer- subject to EU approval before the consolidated eliminates the current dual accounting model for tain amendments to the measurement and financial statements are issued. leases and will establishasingle on-balance classification of the Group’s financial instru- sheet-accounting model that issimilar to the ments, but it is not expected to have significant current finance lease accounting under IAS 17. impact on the financial statements of American Shipping Company.
Ⅵ Note 2: Wages and other personnel expenses
Wages and other personnel expenses consist of:
Amounts in USD thousands 2016 2015 Wages and bonuses 965 825 Social security contributions 128 100 Pension costs 21 14 Other expenses 17 17 Total expense 1,131 956
Average number of employees 3 3 Number of employees at year-end 3 3
The Group has a defined contribution plan for its employees which provides for a contribution based upon a fixed matching amount plus discretionary percentage of salaries. This expenseis included in pension costs above.
Ⅵ Note 3: Other operating expenses
Other operating expenses consist of:
Amounts in USD thousands 2016 2015 Rent and leasing expenses 70 45 Other operating expenses 1,721 1,898 Total other operating expenses 1,791 1,943
Other operating expenses primarily relate to selling, general and administrative expenses including legal and outside consulting costs and fees to auditors for the American Shipping Company ASA Group. Audit expenses for 2016 and 2015 included only ordinary audit fees, other assurance services and tax services and were as follows:
Amounts in USD thousands 2016 2015 Ordinary audit fee 84 123 Other assurance services 6 20 Tax services 86 62 Total 176 205
18 American Shipping Company annual report 2016 Performance 2016 Annual accounts - group
Ⅵ Note 4: Financial items
Amounts in USD thousands 2016 2015
Financial income Interest income 2,023 2,138 Change in mark to market value of interest rate swaps 688 12,512 Other financial income 2,668 - Financial income 5,379 14,650
Financial expenses Interest expense (37,339) (45,952) Net foreign exchange gain/(loss) 121 (188) Other financial expenses (1,903) (5,099) Financial expenses (39,121) (51,239)
NET FINANCIAL ITEMS (33,742) (36,589)
Interest income in 2016 includes interest received from OverseasShipholding Group (“OSG”) of USD 2.0 million on the DPO receivable (see note 7). Interest income in 2015 includes income on bank deposits of USD 0.1 million, interest accreted and earned on the DPO receivable from OSG of USD 0.4 million and interest received from OSG of USD 1.6 million.
The Company has interest rate swaps, related to a portion of its vessel debt financing, with BNP Paribas (“BNP”), Credit Agricole Corporate & Investment Bank (“CACIB”) and SkandinaviskaEnskilda Banken AB (“SEB”). During 2015, at the closing of the refinancing, the Company paid USD 14.2 million to terminate the prior interest rate swaps. The Company subsequently entered into new interest rate swaps for a portion of the new loan. Estimates of the fair value of the interest rate swaps are obtained from a third party, with an adjustment for the Company’s credit risk as described in note 9.
Other financial income in 2016 reflects the Company’s gain on its investment in Philly Tankers AS (“Philly Tankers”), related to the delivery and sale of the firstvessel contract and related assets by Philly Tankers to Kinder Morgan.
Interest expense in 2016 includes interest paid of USD 32.5 million. Interest expense in 2015 includes interest paid of USD 36.7 million.
Net foreign exchange gain/loss in 2016 and 2015 relates to the translation of cash held in NOK into USD.
Other financial expenses in 2016 relate to amortization of lending fees of USD 1.9 million. Other financial expenses in 2015 relate to amortization of lending fees of USD 3.1 million and a one-time write off of lending fees relating to the refinanced loan of USD 1.9 million.
Ⅵ Note 5: Tax
INCOME TAX EXPENSE Recognized in the income statement
restated Amounts in USD thousands 2016 2015 Current tax expense/(benefit): Current year -- Total current tax expense/(benefit) --
Deferred tax expense/(benefit): Origination and reversal of temporary differences 9,932 4,439 Total deferred tax expense/(benefit) 9,932 4,439 Total income tax expense/(benefit) in income statement 9,932 4,439
Reconciliation of effective tax rate
restated Amounts in USD thousands 2016 2015 Profit/(loss) before tax 17,043 14,134 25.0% 27.0% Expected tax expense/(benefit) using nominal Norwegian tax rate of 25% in 2016 / 27% in 2015 4,261 3,816 Effect of differences between nominal Norwegian tax rate and U.S. federal and state tax rate 3,873 4,099 Foreign exchange 1,350 (5,984) Tax losses for which no deferred income tax asset was recognised, net of benefit recognized 1,170 2,502 Other differences (720) 5 Total income tax expense/(benefit) in income statement 9,932 4,439
American Shipping Company annual report 2016 19 Performance 2016 Annual accounts - group
During 2016, AMSC identified an error in the calculation of 2014 and 2015 non-cash deferred income tax liabilities, which was due to an overstatement of the U.S. NOLs in carry forward in the tax provision. The restated figures include a USD 2.8 million correction to the 1 January 2015 balance sheet, as an increase in the deferred tax liabilities and a decrease in retained earnings. The 2015 correction increased the deferred tax liabilities by USD 5.0 million and reduced retained earnings accordingly.
Understatement Correction Amounts in USD thousands Restated Reported of liability (expense)/income 2014 2015 Federal deferred tax asset/(liability) as of 31 December 2015 (4,303) 2,020 (6,323) (6,323) - (6,323) State deferred tax asset/(liability) as of 31 December 2015 (3,206) (1,720) (1,485) (1,485) (2,793) 1,308 Total deferred tax asset/(liability) as of 31 December 2015 (7,508) 300 (7,808) (7,808) (2,793) (5,015)
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 2016 for the Group was primarily Norway, the U.S., and the Commonwealth of Pennsylvania.
Deferred tax assets and (liabilities) were as follows at 31 December:
United States
restated Amounts in USD thousands 2016 2015 Net operating losses 216,940 200,726 Financial derivatives 24 309 Vessels (241,537) (216,746) Other 7,133 8,203 Net deferred tax assets/(liabilities) (17,440) (7,508) Net deferred tax assets not recorded - - Net deferred tax assets/(liabilities) (17,440) (7,508)
The Group has tax losses carryforward as of 31 December 2016 of USD 525.9 million in the U.S., the last of which expires in 2036.
On 3 January 2014, American Tanker Holding Company, Inc. (ATHC) and subsidiaries experienced a change of ownership in the U.S.as defined by Internal Revenue Code Section 382 due to a greater than 50%shift in owners of AMSC stock. The utilization of the tax losses carryforward as of that date are sub- ject to annual limitations. Net tax losses carryforward as of that date are estimated to be recovered and useable based on the following schedule (subject to certain exceptions):
(USD millions) 2017 146.1 2018 45.6 2019-2033* 189.6 381.3
* From 2019-2033, AMSC expects to be able to utilize USD 12.6 million per year of its U.S. tax losses to reduce U.S. taxable income. Any net tax losses recovered but not used in a year will carry over to the following year.
The Group’s U.S. Federal tax losses carryforward are comprised of the IRC 382 losses of USD 381.3 million and the losses through 31 December 2016 of USD 144.6 million. There are no restrictions on the use of the USD 144.6 million net operating loss, the last of which expires in 2036.
In 2016, the Company recognized a deferred tax expenseofUSD 8.1 million (USD 4.3 million in 2015) related to U.S. Federal income taxes.
In 2016, the Company recognized a deferred tax expenseofUSD 1.8 million (USD 0.1 million in 2015) related to income taxes in the Commonwealth of Pennsylvania. Under Pennsylvania tax regulations, the entities in the Group cannot be consolidated for state tax purposes.As aresult, the Company must recognize a state deferred tax liability for those separate legal entities in which gross tax liabilities exceed gross tax assets.
Norway
Amounts in USD thousands 2016 2015 Operating losses 26,928 27,163 Financial instruments - - Other - - Net deferred tax assets/(liabilities) 26,928 27,163 Net deferred tax assets not recorded (26,928) (27,163) Net deferred tax assets/(liabilities) - -
The Group has net operating losses in carryforward as of 31 December 2016 of USD 112.2 million in Norway, with no expiration date. Deferred tax assets in excess of deferred tax liabilities have not been recognized in respect of these items becauseitis not probable that future taxable profit in the short term will be available against which the Group can utilize the benefits therefrom.
20 American Shipping Company annual report 2016 Performance 2016 Annual accounts - group
Ⅵ Note 6: Property, plant and equipment
Movements in property, plant and equipment for 2016 are shown below:
Amounts in USD thousands Ships Cost balance at 1 January 2016 1,076,563 Cost balance at 31 December 2016 1,076,563
Depreciation at 1 January 2016 262,737 Depreciation charge for the year 34,336 Depreciation at 31 December 2016 297,073
Book value at 31 December 2016 779,490
Movements in property, plant and equipment for 2015 are shown below:
Amounts in USD thousands Ships Cost balance at 1 January 2015 1,076,563 Cost balance at 31 December 2015 1,076,563
Depreciation at 1 January 2015 228,572 Depreciation charge for the year 34,165 Depreciation at 31 December 2015 262,737
Book value at 31 December 2015 813,826
Depreciation period 30 years Depreciation method straight-line
Each vessel’s salvage value is equal to the product of its lightweight tonnage and an estimated scrap rate of USD 310 per ton (2015: USD 330) less esti- mated costs of disposal.
Secured property, plant and equipment At 31 December 2016 vessels with a carrying amount of USD 779.5 million are subject to a registered debenture to secure bank loans (see note 13).
The BNP and CIT credit facilities are secured by, among other things, a first preferred mortgage on eight of the ten product tankers in the case of the BNP facility, and two of the ten product tankers in the case of the CIT facility. In addition, the credit facilities are secured by collateral assignments of the insurances, earnings and bareboat charters for thosevessels (and certain related guarantees of those bareboat charters and related supplemental indemnifications by OSG).
Determination of recoverable amounts/Fair value The Company evaluated any potential impairment of its vessels.Based on its analysis, which included third party appraisals and a discounted cash flows (“DCF”) approach, the Company concluded that no impairment of vessels occurred in 2016 or 2015.
Elements of the DCF, which is used to determine the recoverable amount, include assumptions for bareboat charter hire, profit sharing, asset lives, salvage value and the Company’s weighted average cost of capital (“WACC”).
Ⅵ Note 7: Interest-bearing long-term receivables
Financial interest-bearing long-term receivables consist of the following items:
Amounts in USD thousands 2016 2015 Balance at beginning of period 32,569 33,204 DPO revenue - 577 Repayments of principal (1,944) (1,653) Interest accreted - 441 Balance at end of period 30,625 32,569
American Shipping Company annual report 2016 21 Performance 2016 Annual accounts - group
Other interest-bearing long-term receivables relate to a deferred principal obligation (DPO). Pursuant to the current charter and financing agreements,OSG had the right to defer payment of a portion of the bareboat charter hire for the first five vessels during the initial seven year fixed bareboat charter periods. OSG paid a reduced bareboat charter rate and assumed the DPO. The DPO accrued on a daily basis to a maximum liability of USD 7.0 million per vessel. The DPO during the initial seven year period was discounted using the estimated market discount rate at lease inception. After the initial seven years, the DPO is repaid over 18 years including interest at 6.04% unless the bareboat charter is terminated earlier at which time the DPO becomes due immediately. During 2016 and 2015, OSG made repayments on the five vessels delivered under the arrangement, and thosevessels’ cash bareboat charter hire resumed to its full contractual amount.
Ⅵ Note 8: Other receivables
Trade and other receivables consist of the following items:
Amounts in USD thousands 2016 2015 Advance payments to suppliers 307 250 Total 307 250
Advance payments to suppliers as of 31 December 2016 and 2015 include prepaid fees.
Ⅵ Note 9: Derivative financial assets and liabilities
Derivative financial assets and liabilities comprise the following items:
Amounts in USD thousands 2016 2015 Fair value of interest rate swaps 57 745 Derivative financial liabilities 57 745
In connection with refinancing the BNP loan in 2015, the Company prepaid the interest rate swaps for USD 14.2 million. Under the new BNP loan facility, the Company entered into new interest rate swaps for USD 300 million of the principal amount of the loan. As of 31 December 2016 and 2015 the market value of derivative financial instruments was negative USD 57 thousand and USD 0.7 million, respectively. The fair value of the interest swaps is based on broker quotes. Similar contracts are traded in an active market and the quotes reflect the actual transactions in similar instruments. In accordance with IAS 39, the Company considered the impact its own credit risk would have on the valuation in the market. It therefore adjusted the risk-free discount rate to include a credit spread of 200 basis points. The result of the credit spread differential had a positive impact of USD 1 thousand and USD 12 thousand on the fair value of interest rate swaps at 31 December 2016 and 2015, respectively.
Refer to note 16 for additional information regarding financial instruments.
Ⅵ Note 10: Earnings per share
Basic and diluted earnings/(loss) per share are calculated by dividing the profit/(loss) attributable to equity holders of the Company by the weighted average number of ordinary shares.
restated Amounts in USD thousands (except share and per share data) 2016 2015 Profit/(loss) attributable to equity holders of the Company for the period for determination of earnings per share 7,110 9,695
Weighted average number of ordinary shares in issue 60,616,505 60,616,505 Basic and diluted earnings per share 0.12 0.16
During 2016, AMSCrestated its 2015 financial statements due to a non-cashU.S. deferred income tax error. See note 20 for more information.
Ⅵ Note 11: Paid in capital
The current authorized share capital of AMSCis 66,678,505 ordinary shares. The issued share capital of AMSCas of 31 December 2016 is 60,616,505 ordinary shares, each with a par value of NOK 10, fully paid. No common shares were issued in 2016.
22 American Shipping Company annual report 2016 Performance 2016 Annual accounts - group
The changes in equity are:
Common shares of equity holders of the parent Share Share Total Amounts in USD thousands Capital premium paid in equity 1 January 2015 96,366 223,006 319,372
Dividends paid / return of capital - (25,000) (25,000) 31 December 2015 96,366 198,006 294,372
Dividends paid / return of capital - (27,887) (27,887) 31 December 2016 96,366 170,119 266,485
Ⅵ Note 12: Subsidiaries and associates
The subsidiaries included in the American Shipping Company ASA’s Group account were as follows. Companies owned directly by American Shipping Company ASA are highlighted.
AMSC’s common AMSC’s Principal 2016 holding % voting share % place of business Country American Tanker Holding Company, Inc. (ATHC) 100% 100%Kennett Square, PA USA American Tanker, Inc. (ATI) 100% 100%Kennett Square, PA USA American Shipping Corporation (ASC) 100% 100%Kennett Square, PA USA ASC Leasing I - X, Inc. (10 legal entities) 100% 100%Kennett Square, PA USA
American Shipping Company ASA (“AMSCASA”) is the Norwegian parent company and is listed on Oslo Børs.AMSCASA owns ATHC 100% and is the issuer of the outstanding bond obligations, which were refinanced subsequent to year-end with a new bond issued by ATI. ATHC, ATI and ASC are intermediary holding companies. Each of the Company’s ten vessels are owned by an individual leasing company, ASC Leasing I - X, Inc. Each of the individual leasing companies have contracts directly with OSG and vessel debt directly with BNP Paribas or CIT Bank which are covered by overall agree- ments that tie the arrangements together through either a framework agreement and/or guarantees.
ASSOCIATES Philly Tankers AS In 2014, AMSC made an equity investment of USD 25 million in Philly Tankers AS (“Philly Tankers”) and owns 19.6% of the Oslo, Norway based company. Philly Tankers was formed in Q3 2014 and is listed on the Norwegian OTC market. Philly Tankers has orders for four 50,000 dwt product tankers from Philly Shipyard (“PHLY”, formerly Aker Philadelphia Shipyard) with deliveries between Q4 2016 and Q4 2017. AMSCalso holds a seat on the Board of Directors of Philly Tankers. In 3Q 2015, Philly Tankers AS agreed to sell its four product tanker contracts to a subsidiary of Kinder Morgan, Inc. with the assignment to take place immediately before delivery of each ship. In Q4 2016, Philly Tankerssold its firstvessel contract and related assets to Kinder Morgan, recogniz- ing a pre-tax gain of approximately USD 12 million. The investment in Philly Tankers is recorded using the equity method.
The following table summarizes the financial information of Philly Tankers as included in its own financial statements.
Amounts in USD thousands 2016 2015 Non-current assets 68,590 93,754 Current assets 57,863 20,518 Non-current liabilities - - Current liabilities (690) (105) Net assets 125,763 114,167 Group’s share of net assets (19.6%) 24,649 22,377 Excess of AMSC’s investment over itsshare of equity in associates 2,910 2,497 Carrying amount of interest in associate 27,559 24,874 Net profit/(loss) of Philly Tankers AS consolidated 11,596 1,275
Capital Management Risk AMSC’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and bene- fits for other stakeholders, while maintaining an optimal capital structure to minimize the cost of capital. To meet these capital structure objectives,AMSC will review annually with its Board any proposed dividends, covenant requirements as well as any needs to raise additional equity for future business oppor- tunities or to reduce debt.
American Shipping Company annual report 2016 23 Performance 2016 Annual accounts - group
Ⅵ Note 13: Interest-bearing loans and liabilities
Following is information about the contractual terms of AMSC’s interest-bearing loans and borrowings.
Amounts in USD thousands 2016 2015 Non-current liabilities Secured loans 403,251 430,260 Unsecured bond issues 212,783 210,370 Subordinated loan from Aker ASA 20,000 20,000 Total long term interest bearing loans 636,034 660,630
Current liabilities Current portion of secured loans 28,333 10,148 Total interest-bearing short term debt 28,333 10,148
Summary of secured Loans as of 31 December 2016 2015 BNP Paribas gross borrowings 298,717 300,480 CIT Bank gross borrowings 139,583 147,917 Less unamortized loan fees (6,715) (7,989) Sum Secured Loans 431,585 440,408
On 25 November 2015, funding was completed on USD 450 million of secured vessel debt and USD 20 million of a subordinated loan from Aker ASA. The USD 450 million isstructured in two separate facilities; one being a USD 300 million facility secured by eight vessels with a syndicate of banks with BNP Paribas as agent, and the other a USD 150 million facility secured by two vessels with CIT Maritime Finance asSole Arranger and CIT Bank, N.A., Pruden- tial Capital Group and AloStar Bank of Commerce as lenders.As part of the refinancing, the Company entered into a USD 20 million subordinated loan with Aker ASA.
The refinancing repaid the previous BNP vessel debt of USD 492.4 million, which had a maturity in June 2016. The Company paid USD 8.4 million in fees for the new borrowing arrangements, which were capitalized and will be amortized as additional interest expense over the term of the loans. The Company entered into new mandatory five year interest rate swaps in December 2015 at an average rate of 164 bps for USD 210 million of the new debt. During 2016, the Company entered into four year interest rate swaps at an average rate of 93 bps for USD 90 million of the new debt. The average margin on the secured vessel debt is 325 bps.
Unsecured bond issue as of 31 December Maturity 2016 2015 Bond balance at beginning of period 2018 210,370 201,285 Interest added to bonds outstanding - 6,672 Plus amortization of discount and capitalized fees 2,413 2,413 Sum Unsecured bond issue 212,783 210,370
On 16 February 2007 AMSCissued a NOK 700 million bond. The interest rate on the bond is LIBOR plus a margin of 6.0% (6.93011% as of 31 December 2016).
In connection with the bank debt refinancing in 2015, the Company agreed with the holders of its unsecured bond that the cash interest element will increase from 50% to 100% from time of funding of the bank debt refinancing which occurred in Q4 2015 and that the Company will not useits option to extend the bond beyond the final maturity date in February 2018.
Aker ASA, through a subsidiary, held 93% of the bond loan, which wassubsequently refinanced in 2017.
On 9 February 2017, AMSC completed the placement of a USD 220 million senior unsecured bond. The bond issue was placed to Nordic as well as interna- tional investors. Ocean Yield, a subsidiary of Aker ASA, was allocated 22.7% of the new bond. Settlement was on 22 February, 2017 with final maturity date on 22 February, 2022. The new bond issue has a fixed coupon of 9.25%. An application will be made for the bonds to be listed on the Oslo Stock Exchange.
The net proceeds from the bond were used to refinance the existing bond maturing February 2018.
Subordinated loan from Aker ASA Maturity 2016 2015 Principal amount 2021 20,000 20,000 Sum Subordinated Loan 20,000 20,000
As part of the bank debt refinancing in 2015, the Company entered into a USD 20 million subordinated loan with Aker ASA. The loan has an interest rate of 10.25 percent which is due in one lump sum upon repayment of the loan. The loan is due the earlier of (i) six months after the secured vessel debt becomes due or (ii) upon receipt of proceeds from Philly Tankers.
Subsequent to year-end, AMSC paid USD 6.8 million towards the Aker loan from proceeds received from Philly Tankers.
24 American Shipping Company annual report 2016 Performance 2016 Annual accounts - group
Restrictions on dividend payments Subject to certain exceptions,as of 31 December 2016, the BNP and CIT credit agreements restrict the payment of dividends by AMSC and itssub- sidiaries. Specifically, AMSC and itssubsidiaries may pay cash dividends only if there is no default and the Company is in compliance with its financial covenants under the loans. Beginning in 2019, dividends may be paid only if all ships remain on bareboat charter contracts.
Financial covenants AMSCissubject to financial covenants under the secured bank loans relating to minimum liquidity and collateral, and leverage and debt service ratios.
AMSCwas in compliance with all of its debt covenants as of 31 December 2016.
Ⅵ Note 14: Operating leases
Non-cancellable operating lease rentals for bareboat charter hire are receivable as follows:
Amounts in USD thousands 2016 2015 Less than one year 87,801 88,041 Between one and five years 193,913 272,571 More than five years 31,989 41,132 Total 313,703 401,744
The fixed term of AMSC’s bareboat charters of its vessels to OSG have a common maturity date in December 2019, with the exception of the Overseas Tampa which expires in 2025. In connection with the conversion of the Overseas Tampa to a shuttle tanker in 2014, the bareboat charter was extended by ten years. The non-cancellable bareboat charter revenue backlog totals approximately USD 313.7 million as of 31 December 2016. In addition, OSG has options to extend the charter terms for one, three or five years for the remaining useful lives of the vessels under similar conditions as the fixed lease term.
Non-cancellable operating lease rentals for office space are payable as follows:
Amounts in USD thousands 2016 2015 Less than one year 44 43 Between one and five years 15 59 More than five years - - Total 59 102
In 2013 AMSC signed a lease for office space in Kennett Square, Pennsylvania through April 2016. In 2015 AMSC extended the lease for the Kennett Square office by two years to April 2018.
Ⅵ Note 15: Deferred revenues and other payables
Trade and other payables comprise the following items:
Amounts in USD thousands 2016 2015 Trade accounts payable 206 130 Accrual of financial costs 3,729 1,521 Other short-term interest free liabilities 7,945 7,853 Total 11,880 9,504
Other short-term interest free liabilities at 31 December 2016 and 2015 include deferred revenue from OSG of USD 7.5 million becauseOSG makes monthly lease payments in advance and other accrued costs of USD 0.4 million.
Ⅵ Note 16: Financial instruments
Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interestrisk and price risk), credit risk,cash-flow interest-rate risk and foreign exchange risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group 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 areassuch as foreign exchange risk, interest-rate risk, credit risk, and use of derivative financial instru- ments and non-derivative financial instruments.
Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. Derivative financial instruments are used from time to time to hedge exposure to fluctuations in foreign exchange rates and interest rates for business purposes.
American Shipping Company annual report 2016 25 Performance 2016 Annual accounts - group
Credit risk The carrying amount of financial assets represents the maximum credit exposure.
At 31 December the maximum exposure to credit risk is as follows:
Amounts in USD thousands 2016 2015 Loans and receivables 30,932 32,819 Cash and cashequivalents 49,046 31,737 Cash held for specified uses 2,347 1,541 Total 82,325 66,097
AMSC regularly monitors the financial health of the financial institutions which it uses for cash management services and in which it makes deposits and other investments.AMSCresponds to changes in conditions affecting its deposit relationships assituations warrant.
Receivables are to be collected from the following types of counterparties:
Amounts in USD thousands 2016 2015 Type of counterparty: End-user customer (1) 30,625 32,569 Other receivables 307 250 Total 30,932 32,819
(1) Due to the nature of the Group’s operations, revenues and related receivables, including the DPO, are currently concentrated amongst OSG and its affiliates. The Group continually evaluates the credit risk associated with customers.
Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’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.
With regards to making the debt service payments on the BNP and CIT loans, the Group has established cash earnings accounts whereby all charter hire payments are deposited and utilized for debt service prior to being available for general corporate purposes.
The following are the contractual maturities of financial liabilities including interest payments:
31 December 2016 Contractual 6 mths More than Amounts in USD thousands Book value cash flow and less 6-12 mths 1-2 years 2-5 years 5 years Non-derivative financial liabilities Unsecured bonds (gross) 212,783 (233,196) (7,512) (7,637) (218,047) - - Long-term interest bearing external liabilities (gross) 458,300 (559,477) (23,285) (23,555) (47,539) (393,194) (71,903)
Derivative financial liabilities Interest rate swaps 57 (1,400) (610) (316) (299) (175) - Total as of 31 December 2016 671,140 (794,073) (31,407) (31,508) (265,885) (393,369) (71,903)
31 December 2015 Contractual 6 mths More than Amounts in USD thousands Book value cash flow and less 6-12 mths 1-2 years 2-5 years 5 years Non-derivative financial liabilities Unsecured bonds (gross) 210,370 (245,120) (6,801) (6,876) (13,640) (217,803) - Long-term interest bearing external liabilities (gross) 468,397 (563,415) (12,675) (14,333) (44,589) (387,273) (104,545)
Derivative financial liabilities Interest rate swaps 745 (1,218) (319) (333) (107) (459) - Total as of 31 December 2014 679,512 (809,753) (19,795) (21,542) (58,336) (605,535) (104,545)
Currency risk American Shipping Company is exposed to foreign currency risk related to certain cash accounts; however, the Group may enter into foreign exchange derivative instruments, from time to time, to mitigate that risk.
The Group incurs foreign currency risk on purchases and borrowings that are denominated in a currency other than USD. The currency giving rise to this risk is primarily NOK.
Foreign exchange gains and losses relating to the monetary items are recognized as part of “net financing costs”(see note 4). The Company did not have any exchange contracts at 31 December 2016 or 31 December 2015.
26 American Shipping Company annual report 2016 Performance 2016 Annual accounts - group
Exposure to currency risk The company’s exposure to currency risk at 31 December 2016 and 2015 primarily related to amounts denominated in NOK,as follows:
Amounts in USD thousands 2016 2015 Gross balance sheet exposure Trade payables (-) (22) (70) Bond - - Cash 301 1,855 Gross balance sheet exposure 279 1,785 Estimated forecast expenses (-) (2,275) (2,090) Gross forecasted exposure (2,275) (2,090) Forward exchange contracts - - Net exposure (1,996) (305)
Sensitivity analysis In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates would have an impact on consolidated earnings.
It is estimated that a general strengthening of ten percent in the value of the USD against the NOK would have had an immaterial impact on the Group’s earnings before tax for the year ended 31 December 2016 and decreased the Group’s earning before tax by approximately USD 0.1 million for the year ended 31 December 2015. This analysis assumes that all other variables remain constant.
Exposure to interest rate risk The Group is exposed to fluctuations in interest rates for its variable interest rate debt related to the bank and bond financing. With regards to the BNP financing, the Group has entered into interest swap agreements to lock in the interest rate paid. The new bond issued in 2017 has a fixed interest rate.
Sensitivity analysis An increase of 100 basis points in interest rates in the reporting year would have increased /(decreased) equity and profit or loss by the amountsshown below. This analysis assumes thal all other variables remain constant.
Amounts in USD thousands 2016 2015 Increase/(decrease) Bank deposits 443 664 Financial liabilities (3,664) (3,204) Interest swap 6,925 7,922 P&L sensitivity (net) 3,704 5,382
For 2016 and 2015, estimates of the interest swap valuation following the change in interest rates are based on broker quotes, with an adjustment for the Company’s credit risk as described in note 9.
Fair values Fair value hierarchy IFRS requires companies to disclose certain information about how fair value is determined in a “fair value hierarchy” for financial instruments recorded at fair value, which for AMSC are derivative financial instruments,ordisclosures about fair value measurements which have been identified below. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 includes 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.
The only financial instruments that the Company accounts for at fair value are the interestrateswaps as of 31 December 2016 and 2015, which are classified in the Level 2 category described above. The Company’s policy is to recognize transfers into and transfers out of fair value hierarchy levels as ofthedateof the event or change in circumstances that caused the transfer. During the year ended 31 December 2016, there were no transfers between categories.
The fair values of financial instruments, the related fair value hierarchy, together with the carrying amountsshown in the balance sheet as of 31 December 2016 are as follows:
Amounts in USD thousands Carrying amount 2016 Fair value 2016 Fair value hierarchy Valuation technique Interest-bearing receivables from external companies, Discounted cash maturity greater than 3 years 30,625 24,699 3 flows at 10% Interest swap used for economic hedging: Liabilities Market comparison (57) (57) 2 from a third party Unsecured bonds (gross) Discounted cash (212,783) (206,965) 3 flows at 10% Secured loans (gross) Discounted cash (438,300) (454,613) 2 flows at 4.0% Subordinated loans (gross) Discounted cash (20,000) (19,775) 2 flows at 10.25%
American Shipping Company annual report 2016 27 Performance 2016 Annual accounts - group
The fair value of cash, accounts receivable and accounts payable approximate the carrying values due to their short-term nature.
In accordance with its treasury policy, the Group 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 fair values of financial instruments, the related fair value hierarchy, together with the carrying amountsshown in the balance sheet as of 31 December 2015 are as follows:
Amounts in USD thousands Carrying amount 2015 Fair value 2015 Fair value hierarchy Valuation technique Interest-bearing receivables from external companies, Discounted cash maturity greater than 3 years 32,569 26,044 3 flows at 10% Interest swap used for economic hedging: Liabilities Market comparison (745) (745) 2 from a third party Unsecured bonds (gross) Discounted cash (210,370) (198,882) 3 flows at 10% Secured loans (gross) Discounted cash (448,397) (447,580) 2 flows at 3.7% Subordinated loans (gross) Discounted cash (20,000) (17,872) 2 flows at 10.25%
The discounted cash flow valuation model considers the present value of expected payments,discounted using the risk adjusted discount rate noted.
Financial instruments measured at fair value
Inter-relationship between significant Significant unobservable inputs unobservable and fair value Type Valuation technique inputs measurement Interest rate swaps Market comparison Not applicable Not applicable technique: The fair values are based on broker quotes. Similar contracts are traded in an active market and the quotes reflect the actual transactions in similar instruments.
Ⅵ Note 17: Shares owned or controlled by the president and chief executive officer, Ⅵ board of directors and senior employees of the American Shipping Company Group
Shares in American Shipping Company ASA of 31 December 2016
Name Position Company No. of shares Pål Magnussen President and CEO AMSC 50,000 Annette Malm Justad Chairman of the Board AMSC 4,523 Peter Knudsen Board Member AMSC 2,000
There is no share option agreement between American Shipping Company ASA and senior management or Directors.
REMUNERATION TO THE BOARD OF DIRECTORS THROUGH 31 DECEMBER 2016
Name Position Company Remuneration Annette Malm Justad Chairman AMSC 54,307 Audun Stensvold Board Member AMSC 24,307 Peter Knudsen Board Member AMSC 42,239 Kristian Røkke Board Member - former AMSC 20,869 Sum Directors’ fee 141,722
28 American Shipping Company annual report 2016 Performance 2016 Annual accounts - group
The Chairman and the Board of Directors have not received benefits other than Directors’ fees. The Board of Director’s term runs from 1 April through 31 March and the above remuneration reflects cash payments to board members during the calendar year 2016.
The Directors’ fee for Audun Stensvold has been paid to Aker ASA.
REMUNERATION TO THE NOMINATION COMMITTEE The nomination committee of AMSChas the following members: Arild Støren Frick and Christine Rødseter. Remuneration earned by each member of the committee in 2016 was NOK 33,000 (USD 3,840).
GUIDELINES FOR REMUNERATION OF SENIOR MANAGEMENT
The basis of remuneration of senior management has been developed in order to create a performance-based system which is founded on the Company’s values. Thissystem of reward was designed to contribute to the achievement of good financial results and increaseinshareholder value.
The senior management receives abase salary and may also be granted a variable pay.
The senior management is entitled to 6 months’ severance payment. Except for this, the members of the management are not entitled to special benefits beyond ordinary severance pay during available termination notice periods. The senior management participate in a standard pension and insurance scheme.
In 2016, the senior management received a base salary in addition to a variable pay based on the award of synthetic shares in order to align performance payments with shareholder value creation. The system is based on awarding a certain number of synthetic shares to each member of the management team. The holder of the synthetic shares receives cash payments equal to the dividend paid to the shareholders. Further, the annual share price increase, if any, is paid as acash bonus at the end of the year. There is a cap on the maximum compensation payable to each member of the management team. The remuneration of the senior management is in accordance with the guidelines for remuneration for 2016.
During 2016, Mr. Magnussen was awarded 350,000 synthetic shares. Under hissynthetic share agreement, the total bonus payment paid during 2016 was USD 161 thousand. The cap on hissalary for 2016 was NOK 7 million. During 2016, Mr. Bakkewas awarded 200,000 synthetic shares,resulting in bonus payments of USD 70 thousand. The cap on hissalary for 2016 was NOK 4 million. During 2016, Ms. Jaros was awarded 50,000 synthetic shares,resulting in bonus payments of USD 23 thousand. The cap on Ms. Jaros’ salary was USD 253 thousand per year.
The Company alsohas an incentive scheme for the management, where the Company can offer the management to purchase shares in the Company, subject to lock-up restrictions, with a view to incentivize long-term value creation and performance by the management.
During 2016, Mr. Magnussen purchased 30,000 shares with a price reduction of 20% to the closing price to compensate for the lock-up restrictions on the shares for a period of three years.
The Company does not offer share option programs to the management.
REMUNERATION TO SENIOR MANAGEMENT DURING 2016
Pension Base salary Bonus Other Benefits Contribution Total (USD) Severance pay Pål Magnussen CEO Jan. - Dec. 301,532 177,828 7,090 9,184 495,634 6 months Morten Bakke CFO Apr. - Dec. 127,087 70,276 2,436 9,174 208,973 6 months Leigh Jaros Controller Jan. - Dec. 174,308 23,123 2,281 1,997 201,709 6 months
The Company had no bonus accrued as of 31 December 2016.
REMUNERATION TO SENIOR MANAGEMENT DURING 2015
Pension Base salary Bonus Other Benefits Contribution Total (USD) Severance pay Pål Magnussen CEO Jan. - Dec. 290,154 145,553 5,915 7,772 449,394 6 months Morten Hofstad CFO Jul. - Dec. 98,452 42,165 461 - 141,078 6 months Leigh Jaros Controller Jan. - Dec. 157,133 20,600 - 1,573 179,305 6 months
The Company had no bonus accrued as of 31 December 2015.
The above amounts reflect cash payments made to senior management during the calendar years 2016 and 2015, respectively.
Ⅵ Note 18: Transactions and agreements with related parties
AMSC’s largest shareholder is a subsidiary of Aker ASA which holds 19.1 percent of the Company’s shares.
American Shipping Company annual report 2016 29 Performance 2016 Annual accounts - group
As part of the bank debt refinancing, the Company entered into a USD 20 million subordinated loan with Aker ASA. The loan has an interest rate of 10.25 percent which is due in one lump sum upon repayment of the loan. The loan is due the earlier of (i) six months after the secured vessel debt becomes due or (ii) upon receipt of proceeds from Philly Tankers.
Aker ASA, through a subsidiary, held 93% of the bond loan, which was refinanced subsequent to year-end. Ocean Yield, a subsidiary of Aker ASA, was allocated 22.7% of the new bond.
The Group hasservice agreements with Aker ASA and Aker USServices, LLC (formerly known as Resource Group International) which provide certain office services and tax services. The cost of these services was not significant, however they are important to the Company’s operations.
The Company believes that related party transactions are made on terms equivalent to those that prevail in arm’s length transactions.
Ⅵ Note 19: Agreements with OSG
AMSC’s only customer is OSG. The key agreements with OSG include the bareboat charter agreements, DPO agreements and profit sharing agreement.
Under the bareboat charter agreements,OSG pays AMSC a fixed daily rate for leasing the vessels and OSG is responsible for operating costs and main- tenance of the vessels. The fixed terms of the bareboat charters run through December 2019 (except the Overseas Tampa, which is fixed to 2025), with options for OSG to extend the charters for 1, 3 or 5 years for the useful lives of the vessels.
Under the DPO agreement (see note 7), OSG defered payment of a portion of the daily bareboat charter hire for the first seven years of vessels 1-5. This deferred payment accrued on a daily basis to a maximum of USD 7.0 million per vessel and is now repayable over 18 years after the initial 7 year period.
Under the profit sharing agreement, AMSC and OSG share in the profits from OSG’s operations of AMSC’s 10 vessels. The calculation of profit to share is made on an aggregated fleet level. The calculation thusstarts with total vessel revenue, subtracted by defined cost elements,as described below.
Time Charter Hire Fleet revenue Less: BBC hire Bareboat rate paid from OSG to AMSC OPEX Crew, maintenance & repairs,insurance, fees & vetting, lubes OSG profit layer Fixed daily rate of USD 4,000/day per vessel Management fee Fixed daily rate plus annual escalation Auditor expenses Actual OSG auditor expenses Amortization of start-up costs Amortized through December 2019 Amortization of conversion costs Amortized over ten years = Profit to share before Drydock Reserve Provision, Drydock Income subject to Profit Share before covering drydocking costs Reserve True-Up
The profit to share is then reduced by a drydock reserve provision, adjusted for a drydock reserve true-up once a drydock has been completed. The dry- dock reserve provision includes the estimated costs for each Intermediary Repair Period (IRP), which occurs every 3 years and each special survey occur- ring every 5 years.
When drydock expenses are covered, AMSC’s portion of the profit share pay down a USD 18.2 million credit (plus accrued interest at 9.5% p.a. since December 2009) negotiated with OSG, which is the amount of AMSC’s profit sharing OSG retains prior to having an obligation to remit profit sharing pay- ments to AMSC. After the OSG credit has been fully reduced to zero, AMSC will receive its 50% of subsequent profits under the formula above in cash and will recognize profit sharing revenue. As an example, the calculation of profit sharing for the full year 2016 isshown with aggregated, rounded figures in USD millions below.
212.3
88.0
97.2
6.7 20.4
Other (opex, Net TC agreed OSG Drydock Profit to revenue for BBC profit layer, provisions share 2016 2016 misc)
30 American Shipping Company annual report 2016 Performance 2016 Annual accounts - group
AMSC’s 50%share of the profit (USD 10.2 million for 2016) is used to reduce the OSG credit. The cumulative balance as of the end of 2016 and 2015 for the OSG credit isshown in the table below and as described above, must be covered prior to AMSC being entitled to receive profit share from OSG:
Balance per 31 December 2016:
Ending Beginning balance balance as of 31 Dec 2015 Interest Reduction as of 31 Dec 2016 OSG credit 13.8 1.3 (10.2) 4.9
Balance per 31 December 2015:
Ending Beginning balance balance as of 31 December 2014 Interest Reduction as of 31 December 2015 OSG credit 22.7 2.2 (11.1) 13.8
Ⅵ Note 20: Prior year restatement
During 2016, AMSC identified an error in the calculation of 2014 and 2015 non-cashU.S. deferred income tax liabilities, which was due to an overstatement of the U.S. NOLs in carry forward in the tax provision. The restated figures include a USD 2.8 million correction to the 1 January 2015 balance sheet, as an increase in the deferred tax liabilities and a decrease in retained earnings. The 2015 correction increased the deferred tax liabilities by USD 5.0 million and reduced retained earnings accordingly. See also note 5 for more information.
change made to Understatement of Correction equity as of restated (USD thousands) Restated Reported liability (expense)/income 1 January 2015 2015 Federal deferred tax asset/(liability) as of 31 December 2015 (4,303) 2,020 (6,323) (6,323) - (6,323) State deferred tax asset/(liability) as of 31 December 2015 (3,206) (1,720) (1,485) (1,485) (2,793) 1,308 Total deferred tax asset/(liability) as of 31 December 2015 (7,508) 300 (7,808) (7,808) (2,793) (5,015)
The reported earnings for 2015 was USD 0.24 per share. The restated 2015 expenseequates to a loss per share of USD 0.08. The restated earnings for 2015 was USD 0.16 per share.
Ⅵ Note 21: Events after the balance sheet date
On 18 January 2017, AMSC received USD 6.8 million from Philly Tankers as adistribution. On 30 January 2017, AMSC paid USD 6.8 million to Aker ASAas a repayment of the subordinated loan in accordance with the agreement.
On 5 February 2017, the Board authorized a quarterly dividend payment of USD 0.124 per share (USD 7.5 million in aggregate) to the shareholders of AMSC on record as of 14 February 2017. The dividend was paid on 22 February 2017.
On 9 February 2017, AMSC completed the placement of a USD 220 million senior unsecured bond. The bond issue wassignificantly oversubscribed and received strong demand from Nordic as well as international investors. Settlement was on 22 February 2017 with final maturity date on 22 February 2022. The new bond issue has a fixed coupon of 9.25%. An application will be made for the bonds to be listed on the Oslo Stock Exchange.
The net proceeds from the bond were used to refinance the existing bond maturing February 2018.
American Shipping Company annual report 2016 31 Performance 2016 Annual accounts - parent company
American Shipping Company ASA Statement of Financial Position as of 31 December
Amounts in USD thousands Note 2016 2015
ASSETS Shares in subsidiaries and associates 3 330,052 352,355 Deferred tax asset 4 92 - Long-term receivable group companies 5 84,148 87,603 Total financial non-current assets 414,292 439,958 Total non-current assets 414,292 439,958
Other short-term receivables 1,178 82 Cash and cashequivalents 8 2,239 7,300 Total current assets 3,417 7,382 Total assets 417,709 447,340
EQUITY AND LIABILITIES Share capital 96,366 96,366 Share premium reserve 170,119 198,006 Total paid in capital 266,485 294,372
Other equity (86,060) (79,733) Total retained earnings (86,060) (79,733) Total equity 6 180,425 214,639
Bond obligation 7 212,783 210,370 Other interest-bearing debt 20,383 20,481 Total long-term liabilities 233,166 230,851
Other short-term debt 4,118 1,850 Total short-term liabilities 4,118 1,850 Total equity and liabilities 417,709 447,340
Lysaker, 14 March 2016 The Board of Directors American Shipping Company ASA
Annette Malm Justad Peter D. Knudsen Audun Stensvold Chairman Board Member Board Member
Pål Magnussen President/CEO
32 American Shipping Company annual report 2016 Performance 2016 Annual accounts - parent company
American Shipping Company ASA Income Statement
Amounts in USD thousands Note 2016 2015 Operating revenues 50 69 Other operating expenses 2 (1,640) (1,460) Operating loss (1,590) (1,391)
Interest income from group companies 8,546 3,675 Other interest and financial income 7 5,807 45 Other interest and financial expenses 2,7 (19,170) (16,443) Loss after financial items (6,407) (14,114)
Income tax benefit 4 92 - Loss for the period (6,315) (14,114)
Allocation of net loss: Loss (6,315) (14,114) Other equity 6 6,315 14,114 Total - -
American Shipping Company ASA Cashflowstatement
Amounts in USD thousands Note 2016 2015 Loss before tax (6,407) (14,114) Unrealized foreign exchange (gain)/loss and unpaid interest expense (4,048) 5,645 Other non-cash items (2,686) - Changes in short term receivables (1,096) (20) Changes in short term liabilities 183 (56) Cash flow from operating activities (14,054) (8,545)
Other changes in long term investments 3,5 36,989 (51,714) Cash flow from investing activities 36,989 (51,714) Dividends / return of capital paid (27,887) (25,000) Repurchase of treasury shares (43) (63) Proceeds from sale of treasury shares 33 45 Proceeds from / (repayments of) other interest-bearing debt (97) 19,953 Cash flow from financial activities (27,995) (5,065)
Cash flow for the year (5,061) (65,324) Cash and cashequivalents 1 January 7,300 72,624 Cash and cash equivalents 31 December 2,239 7,300
American Shipping Company annual report 2016 33 Performance 2016 Annual accounts - parent company
American Shipping Company ASA: Notes to the accounts
Ⅵ Note 1: Accounting principles
The annual report is prepared according to the the period of the borrowing on an effective inter- existing temporary differences (25%) between Norwegian Accounting Act and generally estbasis. accounting profit and taxable profit together with accepted accounting principles in Norway. Trade and other receivables are recognized tax deductible deficits at year end. Temporary at the original invoiced amount less allowances differences, both positive and negative, are bal- Subsidiaries and investment in associates for expected losses. Provision for expected anced out within the same period. Deferred tax Subsidiaries are valued by the cost method in the losses is considered on an individual basis. assets are recorded in the balance sheet to the company accounts. The investment is valued at The bond loan is initially recorded at fair extent it is more likely than not that the tax the costofacquiring shares in the subsidiary, value and subsequently is accounted for at assets will be utilized. providing that a write down is not required. A amortized cost. write down to fair value will be carried out if the Cash flow statement reduction in value is caused by circumstances Trade and other receivables The cash flow statement is presented using the which may not be regarded as incidental, and Trade receivables and other current receivables indirect method. Cash and cashequivalents deemed necessary by generally accepted are recorded in the balance sheet at nominal includes cash, bank deposits and other short- accounting principles. Write downs are reversed value less provisions for doubtful accounts. term highly liquid deposits with original maturities when the cause of the initial write down is no of three months or less. longer present. Foreign currency translation If dividends exceed withheld profits after The company’s functional currency is U.S. dol- Revenue recognition acquisition, the exceeding amount represents lars (USD). Foreign currency transactions are The Company’s revenues consist of manage- reimbursement of invested capital, and the dis- translated into USDusing the exchange rates ment fees charged to foreign subsidiaries and tribution will be subtracted from the value of the prevailing at the dates of the transactions. are recognized when they become due and acquisition in the balance sheet. Receivables and liabilities in foreign currencies payable. Investments in associates are valued by the are translated into USD at the exchange rates equity method. The investment is valued at the ruling on the balance sheet date. Foreign Pensions costofacquiring the shares, with an adjustment exchange gains and losses resulting from the The Company has a defined contribution pension for the Company’s share of the associate’s profit settlement of such transactions and from the plan that covers its employees whereby con- or loss. translation of monetary assets and liabilities tributions are paid to qualifying pension plans. denominated in foreign currencies are recog- Once the contributions have been paid, there are CLASSIFICATION AND VALUATION OF nized in the income statement. The NOK/USD no further payment obligations. Plan con- BALANCE SHEET ITEMS foreign exchange rate as of 31 December 2016 tributions are charged to the income statement in Assets and liabilities are presented as current was 8.62 and the average rate during 2016 was the period to which the contributions relate. when they are due within one year or they are 8.40 NOK/USD. part of the operating cycle. Other assets and Use of estimates liabilities are classified as non-current. Short term investments The preparation of the financial statements Current assets are valued at the lowestof Short term investments (stocks, short-term requires management to makeestimates and cost and fair value. Current liabilities are valued bonds,liquid placements and shares) are valued assumptions that affect the reported amounts in at nominal value at the time of recognition. at the lower of acquisition cost or fair value at the the profit and loss statement, the measurement Non-current receivables are measured at balance sheet date. Dividends and other dis- of assets and liabilities and the disclosure of costless impairment losses that are not consid- tributions are recognized as other investment contingent assets and liabilities on the balance ered to be temporary. Non-current liabilities are income. sheet date. Actual results can differ from these initially valued at transaction value less attribut- estimates. able transaction cost. Subsequent to initial Income tax Contingent losses that are probable and recognition, interest bearing non-current borrow- Tax expenses in the profit and loss account quantifiable are expensed as occurred. ings are measured at amortized cost with any comprise both tax payable for the accounting Certain prior year reclassifications were difference between cost and redemption value period and changes in deferred tax. Deferred tax made to conform to current year presentation. being recognized in the income statement over is calculated at the percent on the basis of
Ⅵ Note 2: Other operating and financial expenses
Fees to the auditors of USD 34 thousand (without VAT) for ordinary audit was expensed in 2016. For more information on fees paid to KPMG, see note 3 in the consolidated accounts. Morten Bakkewas appointed to the position of CFO effective 4 April 2016. See note 17 in the consolidated accounts for more information regarding remu- neration to senior management. The Company has no other employees than the CEO and CFO. Board of directors expenses were USD 153 thousand in 2016. Other interest and financial inome in 2016 includes USD 2.7 million in gain recognized on AMSC’s investment in Philly Tankers AS,USD 3.0 million of guar- anty fees from itssubsidiaries and USD 0.1 million of unrealized foreign exchange gain. Other interest and financial expenses in 2016 includes interest on the bond of USD 17.1 million and interest expense on the Aker loan of USD 2.1 million.
34 American Shipping Company annual report 2016 Performance 2016 Annual accounts - parent company
Ⅵ Note 3: Shares in subsidiaries and associates
This item comprises the following as of 31 December 2016:
Ownership of common Voting rights Business Historical Book Amounts in USD thousands shares(%) (%) address cost value American Tanker Holding Company, Inc. (ATHC) 100% 100%Kennett Square, PA 302,493 302,493 Philly Tankers AS 19.6% 19.6% Oslo, Norway 27,559 27,559 Total shares 330,052 330,052
ATHC Subsidiaries’ 2016 results after tax in USD thousands 13,447 Subsidiaries’ equity attributable to common shareholders at 31 December 2016 in USD thousands 316,615
American Shipping Company ASA (“AMSCASA”) is the Norwegian parent company and is listed on Oslo Børs.AMSCASA owns ATHC 100% and is the issuer of the outstanding bond obligations, which were refinanced subsequent to year-end with a new bond issued by ATI. ATHC, ATI and ASC are intermediary holding companies. Each of the Company’s ten vessels are owned by an individual leasing company, ASC Leasing I—X, Inc. Each of the individual leasing companies have contracts directly with OSG and vessel debt directly with BNP Paribas or CIT Bank which are covered by overall agree- ments that tie the arrangements together through either a framework agreement and/or guarantees.
AMSC analyzes the value of its investments in subsidiaries on an annual basis,orsooner if conditions change or events occur which could cause the carry- ing values to change. Detailed analysis, including discounted cash flows and third party appraisals, are prepared and reviewed by management supporting the carrying value of each of its investments.AMSC considers many factors, including the appropriate cost of capital, asset lives, market values and like- lihood of events, in reviewing its investment value. No impairment was recognized in 2016 or 2015.
During 2016, USD 25 million was paid from ATHC to AMSCas a return of capital and corresponding reduction in AMSC’s investment in subsidiaries. The funds were used for general corporate purposes, including interest and dividend payments.
ASSOCIATES Philly Tankers AS In 2014, AMSC made an equity investment of USD 25 million in Philly Tankers AS (“Philly Tankers”) and owns 19.6% of the Oslo, Norway based company. Philly Tankers was formed in Q3 2014 and is listed on the Norwegian OTC market. Philly Tankers has orders for four 50,000 dwt product tankers from Philly Shipyard (“PHLY”, formerly Aker Philadelphia Shipyard) with deliveries between Q4 2016 and Q4 2017. AMSCalso holds a seat on the Board of Directors of Philly Tankers. In 3Q 2015, Philly Tankers AS agreed to sell its four product tanker contracts to a subsidiary of Kinder Morgan, Inc. with the assignment to take place immediately before delivery of each ship. In Q4 2016, Philly Tankerssold its firstvessel contract and related assets to Kinder Morgan, recogniz- ing a profit of approximately USD 12 million.
The investment in Philly Tankers is recorded using the equity method.
The following table summarizes the financial information of Philly Tankers as included in its own financial statements.
Amounts in USD thousands 2016 2015 Non-current assets 68,590 93,754 Current assets 57,863 20,518 Non-current liabilities - - Current liabilities (690) (105) Net assets 125,763 114,167 Group’s share of net assets (19.6%) 24,649 22,377 Excess of AMSC’s investment over itsshare of equity in associates 2,910 2,497 Carrying amount of interest in associate 27,559 24,874 Net loss of Philly Tankers AS 11,596 1,275
American Shipping Company annual report 2016 35 Performance 2016 Annual accounts - parent company
Ⅵ Note 4: Tax
The table below shows the difference between book and tax values at the end of 2016 and 2015, and the amounts of deferred taxes at these dates and the change in deferred taxes.
Tax payable:
Amounts in USD thousands 2016 2015 Profit/(loss) before tax USD accounts in USD (6,407) (14,114) Difference between NOK and USD accounts 7,781 (22,162) Result before tax measured in NOK for taxation purposes 1,374 (36,276) Permanent differences (2,540) 1 Change in temporary differences - - FX effect on opening balance of loss carried forward (2,382) - Estimated result for tax purposes (3,548) (36,275) Utilization of loss carried forward - - Taxable income/(loss) (3,548) (36,275) Tax payable - -
The result before taxes in NOK are different from the result before taxes in USD primarily due to currency exchange differences.
Deferred tax:
Amounts in USD thousands 2016 2015 Other differences - - Operating loss carried forward (112,200) (108,651) Total differences (112,200) (108,651) Deferred tax asset, 24 / 25 percent (26,928) (27,163) Restrictions regarding balance tax asset 26,928 27,163 Book value tax asset 92 -
The deferred tax asset recorded on AMSC’s books relates to U.S. income taxes on its investment in Philly Tankers.
Taxes:
Amounts in USD thousands 2016 2015 Current payable tax charged to the income statement - - Change in deferred tax (92) - Total tax (benefit) (92) -
Ⅵ Note 5: Long-term receivables
Long-term receivables are:
Amounts in USD thousands 2016 2015 American Tanker, Inc. (ATI) 84,148 87,603 Total 84,148 87,603
As of 31 December 2016, AMSC holds aUSD 26.4 million loan to ATI. The loan to ATI is unsecured and bears interest at the higher of 9.5% or LIBOR plus 7% (9.5% at 31 December 2016) and is paid in kind semi-annually. The ATI note is payable on demand by AMSC.
During 2016, ATI repaid USD 12 million of accrued and paid-in-kind interesttoAMSC.
During 2015, in connection with the vessel debt refinancing, AMSC made a second loan of USD 52.2 million loan to ATI. The loan to ATI is unsecured and bears interestat10%, which is paid in kind each quarter. The balance as of 31 December 2016 is USD 57.7 million. The ATI note is payable on demand by AMSC, provided that demand may not be made prior to the maturity date of the secured vessel debt.
36 American Shipping Company annual report 2016 Performance 2016 Annual accounts - parent company
Ⅵ Note 6: Total equity
Changes in equity are:
2016 Total paid-in Amounts in USD thousands Share capital Share premium capital Other equity Total equity Equity as of 1 January 2016 96,366 198,006 294,372 (79,733) 214,639 Repurchase of treasury shares - - - (43) (43) Proceeds from sale of treasury shares - - - 33 33 Dividends paid / return of capital - (27,887) (27,887) - (27,887) Net result - - - (6,315) (6,315) Equity as of 31 December 2016 96,366 170,119 266,485 (86,060) 180,425
The total outstanding shares of AMSC are 60,616,505 shares each with a par value of NOK 10 per share.
No treasury shares were held as of 31 December 2016. During 2016, 30,000 treasury shares were purchased and subsequently sold to Pål Magnussen under hisshare purchase agreement and lock-up restrictions.
2015 Total paid-in Amounts in USD thousands Share capital Share premium capital Other equity Total equity Equity as of 1 January 2015 96,366 223,006 319,372 (65,601) 253,771 Repurchase of treasury shares - - - (63) (63) Proceeds from sale of treasury shares - - - 45 45 Dividends paid / return of capital - (25,000) (25,000) - (25,000) Net result - - - (14,114) (14,114) Equity as of 31 December 2015 96,366 198,006 294,372 (79,733) 214,639
No treasury shares were held as of 31 December 2015. During 2015, 20,000 treasury shares were purchased and subsequently sold to Pål Magnussen under hisshare purchase agreement and lock-up restrictions.
The shares were owned by the following 20 largest parties as of 31 December 2016: Number Percent AKER CAPITAL AS 11,557,022 19.1% DNB NOR MARKETS,AKSJEHAND/ANALYSE 9,338,248 15.4% SKANDINAVISKAENSKILDA BANKEN AB 9,182,520 15.1% GOLDMAN, SACHS & CO. 5,471,001 9.0% THE BANK OF NEW YORK MELLON N.V. 3,441,180 5.7% EUROCLEAR BANK N.V. 2,199,575 3.6% TRETHOM AS 1,371,111 2.3% J.P. MORGAN SECURITIES LLC 937,825 1.5% UBSSWITZERLAND AG 800,000 1.3% NORDNET LIVSFORSIKRING AS 705,517 1.2% JPMORGAN CHASE BANK, N.A., LONDON 700,000 1.2% RO 700,000 1.2% FIRST CLEARING LLC 564,998 0.9% PERSHING LLC 488,285 0.8% B.O. STEEN SHIPPING AS 480,000 0.8% STATE STREET BANK AND TRUST COMP 458,416 0.8% HERFO FINANS AS 400,200 0.7% CREDIT SUISSE SECURITIES (USA) LLC 335,634 0.6% THE BANK OF NEW YORK MELLON N.V. 314,270 0.5% BEDDINGEN FINANS AS 313,216 0.5% Total 20 largest shareholders 49,759,018 82.1% Other shareholders 10,857,487 17.9% Total 60,616,505 100.0%
American Shipping Company annual report 2016 37 Performance 2016 Annual accounts - parent company
Ⅵ Note 7: Other long term interest-bearing debt
The bond obligation is as follows as of 31 December 2016:
Amounts in USD thousands Maturity Balance Interest Rate Bond balance at beginning of period 2018 210,370 LIBOR + 6.0% Less unamortized discount and capitalized fees 2,413 1) Sum Unsecured bond issue 212,783
1) Included in other interest and financial expenses.
On 16 February 2007 AMSCissued a NOK 700 million bond. The interest rate on the bond is LIBOR plus a margin of 6.0% (6.4067% as of 31 December 2015).
In connection with the bank debt refinancing in 2015, the Company agreed with the holders of its unsecured bond that the cash interest element will increase from 50% to 100% from time of funding of the bank debt refinancing which occurred in Q4 2015 and that the Company will not useits option to extend the bond beyond the final maturity date in February 2018.
Aker ASA, through a subsidiary, held 93% of the bond loan, which wassubsequently refinanced in 2017.
On 9 February 2017, AMSC completed the placement of a USD 220 million senior unsecured bond. The bond issue was placed to Nordic as well as interna- tional investors. Ocean Yield, a subsidiary of Aker ASA, was allocated 22.7% of the new bond. Settlement was on 22 February, 2017 with final maturity date on 22 February, 2022. The new bond issue has a fixed coupon of 9.25%. An application will be made for the bonds to be listed on the Oslo Stock Exchange.
The net proceeds from the bond were used to refinance the existing bond maturing February 2018.
Subordinated loan from Aker ASA as of 31 December 2016 Maturity Balance Interest rate Principal amount 2021 20,000 10.25% Sum Subordinated Loan 20,000
As part of the bank debt refinancing in 2015, the Company entered into a USD 20 million subordinated loan with Aker ASA. The loan has an interest rate of 10.25 percent which is due in one lump sum upon repayment of the loan. Accrued interest on the loan as of 31 December 2016 is USD 2.3 million. The loan is due the earlier of (i) six months after the secured vessel debt becomes due or (ii) upon receipt of proceeds from Philly Tankers.
Subsequent to year-end, AMSC paid USD 6.8 million towards the Aker loan from proceeds received from Philly Tankers.
Ⅵ Note 8: Cash and cashequivalents
There is no restricted cash, except cash in a tax withholding account for employees’ salaries of USD 73 thousand at 31 December 2016.
Ⅵ Note 9: 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 17 in the consolidated accounts.
Ⅵ Note 10: Guarantees
The company has made the following guarantees:
Description Beneficiary Amount (USD thousands) Guarantee party Senior secured credit facility Agent (BNP Paribas), Arranger, 300,000 ASC Leasing I-VII and IX, Inc. Lenders and Hedging Banks Senior secured credit facility Agent (CIT Bank), Security Trustee 150,000 ASC Leasing VIII and X, Inc. and Lenders
AMSChas also agreed to indemnify OSG for any losses resulting from any breach by a vessel owning company of its obligations under its agreements with OSG.
38 American Shipping Company annual report 2016 Performance 2016 Auditor’s report
American Shipping Company annual report 2016 39 Performance 2016 Auditor’s report
40 American Shipping Company annual report 2016 Performance 2016 Auditor’s report
American Shipping Company annual report 2016 41 Performance 2016 Auditor’s report
42 American Shipping Company annual report 2016 Performance 2016 Share and shareholder information
Share and shareholder information
American Shipping 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 American Shipping Company ASA’s share price reflects its underlying value.
American Shipping Company’s goal is that Shares and share capital with good corporate governance practice the Company’s shareholders will, over and on an arm’s length basis. If needed, As of 31 December 2016, American Ship- time, receive competitive returns on their external, independent opinions are sought. ping Company ASA had 60 616 505 ordi- investment. The Board considers the nary common shares; each share with a amount of dividend, if any, to be recom- Current Board authorizations par value of NOK 10 (see Note 11 to the mended for approval by the shareholders Company’s 2016 accounts). The Annual General Meeting in 2016 on an annual basis. The recommendation is As of 31 December 2016, the Com- granted an authorization to the Board to based upon earnings for the year just pany had 1,499 shareholders, of whom purchase own (treasury) shares in con- ended, the financial situation at the relevant 7.1 percent were non-Norwegian share- nection with the Company’s incentive point in time and applicable restrictions holders. scheme for employees. The Board was also under AMSC’s financial agreements. American Shipping Company ASA granted an authorization to increase the currently has a single share class. Each share capital in connection with Dividends share is entitled to one vote, but issubject strengthening of the Company’s equity The Company paid dividends totaling USD to certain voting and ownership restrictions capital or to raiseequity capital for future 0.462 per share (USD 27.9 million) in 2016. due to the fact that the Company is operat- investments within the Company’s scope The dividends were classified for account- ing under an exception from the U.S. of operations. ing purposes as repayment of previously ownership requirement in the Jones Act The Board of Directors has author- paid in share premium. (see Articles of Association available on the ization to pay dividends, to facilitate pay- The Norwegian Public Limited Liability Company’s web page). The Company held ment of dividends on a quarterly basis. Companies Act allows for the Board of no own (treasury) shares as of All of these Board authorizations are Directors to pay dividends on the basis of 31 December 2016. valid up to the Annual General Meeting in an authorization from the General Meeting. 2017. At the 2016 Annual General Meeting, the Stock-exchange listing Board of Directors were granted an author- The Company’s shares are listed on the Share incentive program ization to pay dividends up to an approved Oslo Stock Exchange’s main (OSEBX) list The Company currently does not have any amount at their discretion based on the (ticker: AMSC). American Shipping share or stock option plans, but the Annual Company’s annual accounts for 2015, valid Company’s shares are registered in the General Meeting in 2014 approved the up to the Company’s Annual General Meet- Norwegian Central Securities Depository; establishment of an incentive program for ing in 2017. Such authorization facilitated the shares have the securities registration its employees, giving the Board of Direc- payment of dividend by the Board of Direc- number ISIN NO 0010272065. DNB Bank is tors the ability to offer its employees to tors on a quarterly basis. the Company’s registrar. purchase shares in the Company on favor- Payment of dividends by AMSCis able terms, subject to certain lock-up subject to restrictions under its vessel debt Significant shareholder restrictions. facilities and the bond loan. Subject to American Shipping Company ASA’s largest certain exceptions,as of 31 December shareholder is Aker Capital AS, which holds Investor relations 2016, the BNP and CIT credit agreements 19.1 percent of the Company’s shares. American Shipping Company ASA seeks to restrict the payment of dividends by AMSC From time to time, agreements are maintain an open and direct dialogue with and itssubsidiaries. Specifically, AMSC entered into between two or more former shareholders, financial analysts, and the and itssubsidiaries may pay cash divi- related companies. The boards of directors financial market in general. dends only if there is no default and the and other parties involved in the decision- Visitors to American Shipping Compa- Company is in compliance with its financial making processes related to such agree- ny’s website at www.americanshippingco. covenants under the loans. Beginning in ments are all critically aware of the need to com can subscribe to email delivery of 2019, dividends may be paid only if all handle such matters in the best interests of American Shipping Company news ships remain on bareboat charter contract. the involved companies, in accordance releases.
American Shipping Company annual report 2016 43 Performance 2016 Share and shareholder information
American Shipping Company’s press 20 largest shareholders releases and investor relations (IR) pub- as of 31 December 2016 lications for the current and prior year are available at the Company’s website: Shareholder Number of shares held Ownership (in %) www.americanshippingco.com. This online AKER CAPITAL AS 11,557,022 19.1% resource includes the Company’s quarterly DNB NOR MARKETS,AKSJEHAND/ANALYSE 9,338,248 15.4% and annual reports, prospectuses, corpo- SKANDINAVISKAENSKILDA BANKEN AB 9,182,520 15.1% rate presentations, articles of association, GOLDMAN, SACHS & CO. 5,471,001 9.0% financial calendar, and its Investor Rela- THE BANK OF NEW YORK MELLON N.V. 3,441,180 5.7% tions and Corporate Governance policies, EUROCLEAR BANK N.V. 2,199,575 3.6% along with other information. TRETHOM AS 1,371,111 2.3% J.P. MORGAN SECURITIES LLC 937,825 1.5% Shareholders can contact the Company UBSSWITZERLAND AG 800,000 1.3% at [email protected]. NORDNET LIVSFORSIKRING AS 705,517 1.2% JPMORGAN CHASE BANK, N.A., LONDON 700,000 1.2% Save the environment – RO 700,000 1.2% read reports online FIRST CLEARING LLC 564,998 0.9% Annual reports are published on the PERSHING LLC 488,285 0.8% Company’s website B.O. STEEN SHIPPING AS 480,000 0.8% (www.americanshippingco.com) at the STATE STREET BANK AND TRUST COMP 458,416 0.8% same time as they are made available via HERFO FINANS AS 400,200 0.7% CREDIT SUISSE SECURITIES (USA) LLC 335,634 0.6% website release by the Oslo Stock THE BANK OF NEW YORK MELLON N.V. 314,270 0.5% Exchange: www.newsweb.no (ticker: BEDDINGEN FINANS AS 313,216 0.5% AMSC). Total 20 largest shareholders 49,759,018 82.1% American Shipping Company ASA encourages itsshareholders to subscribe Other shareholders 10,857,487 17.9% to the Company’s annual reports via the Total 60,616,505 100.0% electronic delivery system of the Norwegian Central Securities Depository (VPS). Please Geographic distribution of shareholders note that VPSservices (VPS Invest- as of 31 December 2016 ortjenester) are designed primarily for Norwegian shareholders. Subscribers to Nationality Number of shares held Ownership (in %) thisservice receive annual reports in PDF Non-Norwegian shareholders 18,606,208 30.7% format by email. Norwegian shareholders 42,010,297 69.3% Electronic distribution is the fastest Total 60,616,505 100.0% channel for accessing Company information; it is alsocost-effective and Ownership structure by number of shares held environmentally friendly. as of 31 December 2016 Quarterly reports, which are generally only distributed electronically, are available Number of Percent of from the Company’s website and other Shares owned shareholders share capital sources. Shareholders who are unable to 1 – 100 227 0.01% receive the electronic version of interim and 101 – 1000 498 0.46% annual reports, may subscribe to the 1001 – 10,000 565 3.63% printed version by contacting American 10,001 – 100,000 172 8.81% Shipping Company. 100,001 – 500,000 24 9.60% over 500,000 13 77.49% Total 1,499 100.00%
44 American Shipping Company annual report 2016 Performance 2016 Share and shareholder information
Annual shareholders’ meeting 2016 share data American Shipping Company ASA’s annual shareholders’ meeting The Company’s total market capitalization as of 31 December is normally held in late March or April. Written notification issent to 2016 was NOK 1,473 million. During 2016, a total of 22,077,378 all shareholders individually or to shareholders’ nominee. To vote American Shipping Company ASA shares traded. The shares at shareholders’ meetings, shareholders (or their duly authorized traded on 253 trading days. representatives)must either be physically present, vote by proxy or vote electronically prior to the shareholders’ meeting.
American Shipping Company annual report 2016 45 Our organization and governance Corporate governance
Corporate governance
American Shipping Company ASA’s focus is on building a premier ownership position in the Jones Act mar- ket to create maximum value for its shareholders. Good corporate governance will help to reduce risk and ensure sustainable value creation.
The Board of Directors of American Ship- over time, to the benefit of owners and industrial business and other activities ping Company ASAhas reviewed and other stakeholders.Itis the responsibility of related hereto, including ownership of updated the Company’s principles for the Board of Directors of AMSCtoensure vessels, capital management and other corporate governance. The Board’s state- that the Company implementssound functions for the group, as well as partic- ment of corporate governance is included corporate governance. ipation in or acquisition of other in the annual report. The principles are companies.” based on the Norwegian Code of Practice Values and ethical guidelines The function of the business purpose for Corporate Governance, dated The Board has adopted AMSC’s corporate clauseis to ensure that shareholders have 30 October 2014 (the “Code of Practice”), values and ethical guidelines. The corpo- control of the business and its risk profile, the principlesset out in the Continuing rate values are presented below. without limiting the Board or manage- Obligations of stock exchange listed ment’s ability to carry out strategic and companies from the Oslo Stock Exchange, Safety, Quality & Environment mindset financially viable decisions within the and the relevant Norwegian background We take personal responsibility because defined purpose. The Group’s financial law such as the Norwegian Accounting Act we care goals and main strategies are as follows: and the Norwegian Public Limited Liability Ⅲ Be a preferred ship owning and lease Companies Act. The Code of Practice is Delivering results finance company in the Jones Act available at www.nues.no and the Continu- We deliver consistently and strive to beat market ing Obligations of stock exchange listed our goals companies may be found at Ⅲ Generate stable cash flow from long www.oslobors.no. The principles also apply Customer drive term bareboat charters to American Shipping Company ASA’s Building customer trustiskey to our busi- Ⅲ Have a modern, safe and operationally subsidiaries where relevant. ness friendly fleet The following presents American Ship- Ⅲ Explore and invest in value creating ping Company ASA’s (hereinafter American People and teams Shipping Company, AMSC, the Company opportunities for our shareholders All our major achievements are team efforts or the Group) practice regarding each of Ⅲ Ensure an optimal use of capital the recommendations contained in the Hands-on management Code of Practice. Any deviations from the These goals and strategies are presented in We know our business and get things done recommendations are found under the item more detail on page 5 of this report and in in question. In addition to the Code of the Board of Director’s report. Open and direct dialogue Practice, the Norwegian Accounting Act § 3-3b stipulates that companies must We encourage early and honest communi- Equity and dividends provide a report on their policies and cation Equity practices for corporate governance either The Group’s book equity as of in the annual report or in a document Business 31 December 2016 was USD 195.6 million referred to in the annual report. This report The Company’s business model is to own corresponding to an equity ratio of is integrated in this corporate governance and bareboat charter vessels for operation 22 percent. The Company’s Board of statement. in the U.S. Jones Act market through its Directors frequently monitors the Compa- wholly owned subsidiary leasing compa- ny’s equity level according to the Norwe- nies. The corporate structure of American gian Public Limited Liability Companies Act Purpose Shipping Company, through its operating Sections 3-4 and 3-5. Assuch, the Com- American Shipping Company’s Corporate subsidiaries in the United States,is in pany regards the Group’s current equity as Governance principles are intended to conformance with the applicable require- sound. ensure an appropriate division of roles and ments of the Jones Act. All of its vessels responsibilities among the Company’s are fully qualified to participate in the Dividends owners,its Board of Directors, and its domestic maritime trades of the American Shipping Company’s dividend executive management and that the United States. policy is included in the section “Shares Company’s activities are subject to sat- Pursuant to clause 3 of the Company’s and shareholder information”, on pages isfactory control. These principles contrib- Articles of Association, the objective of the 43-45 of this annual report. The Company’s ute to the greatestpossible value creation Company is “to own and carry out goal is that itsshareholdersshall, over
46 American Shipping Company annual report 2016 Our organization and governance Corporate governance
time, receive competitive returns on their American Shipping Company has vote electronically in advance of the Gen- investment. Any payment of dividend will prepared guidelines designed to ensure eral Meeting. be based upon the Group’s earnings for that members of the Board of Directors and Pursuant to the Company’s Articles of the last year ended and other factors, the executive management notify the Board of Association, the Chairman of the Board or financial situation at the relevant point in any direct or indirect stake they may have an individual appointed by the Chairman of time and applicable restrictions under in agreements entered into by the Group. the Board will chair shareholder’s meet- AMSC’s financial agreements and appli- See information on transactions with ings. Thus, the Articles of Association of cable laws and regulations. related parties in Note 18 to the con- the Company deviates from the Code of solidated accounts. Practice in this respect. Having the Chair- Board authorizations man of the Board or a person appointed by The Board’s proposals for Board author- Freely negotiable shares her chairing the General Meetingssim- izations to increase the Company’s share American Shipping Company’s shares are plifies the preparations for the General capital are to be limited to defined issues freely negotiable. However, the trans- Meetingssignificantly. To the extent possi- and to be valid only until the next Annual ferability of shares issubject to certain ble, board members and the auditor attend General Meeting. voting and ownership restrictions on annual shareholders’ meetings. The Annual General Meeting in 2016 “Shipping Operators” due to the fact that The shareholders are invited to vote on granted an authorization to the Board to the Company is operating under an the composition of the Board of Directors purchase own (treasury) shares in con- exception from the U.S ownership proposed by the Nomination Committee as nection with the Company’s incentive requirement in the Jones Act. A “Shipping a group, and not on each board member scheme for employees. The Board was also Operator” is defined in the Company’s separately. Hence, the Company deviates granted an authorization to increase the Articles of Association as a person or entity from the Code of Practice in this regard as share capital in connection with that operates any vessel for hire or directly it is important to the Company that the strengthening of the Company’s equity or indirectly controls,is controlled by, or is Board of Directors works in the bestpossi- capital or to raiseequity capital for future under common control with any company ble manner as a team, and that the back- investments within the Company’s scope or person who operates any vessel for hire. ground and competence of the board of operations. For further details, see the Company’s members complement each other. The Board of Directors has author- Articles of Association Section 8, which are Minutes of General Meetings are pub- ization to pay dividends, to facilitate pay- available on the Company’s web page. lished assoon as practically possible via ment of dividends on a quarterly basis. the Oslo Stock Exchange messaging serv- All of these Board authorizations are General Meetings ice www.newsweb.no (ticker: AMSC) and valid up to the Annual General Meeting in on the Company’s website The Board encouragesshareholders to 2017. www.americanshippingco.com. participate in itsGeneral Meetings.Itis the Equal treatment of shareholders and Board’s priority to hold the Annual General transactions with close associates Meeting as early as possible after the Nomination Committee The Company has a single class of shares, year-end. Notices convening General Meet- Pursuant to American Shipping Company’s and all shares carry the same rights in the ings, with comprehensive documentation Articles of Association, the Nomination Company. However, the shares are subject relating to the items on the agenda, includ- Committee recommends candidates for to certain ownership and voting restrictions ing the recommendations from the Nomi- members of the Board of Directors. The due to the fact that the Company is operat- nation Committee, are made available on Nomination Committee alsomakes ing under an exception from the U.S the Company’s website no later than 21 recommendations as to remuneration of ownership requirement in the Jones Act days prior to the General Meeting. The Board members and members of the (see the Company’s Articles of Association deadline for shareholders to register to the Nomination Committee. The current Section 8, which are available on the shareholders’ meetings isset as closeto members of the Nomination Committee, as Company’s web page). the date of the meeting as possible and the elected by the General Meeting, are Arild Equal treatment of all shareholders is deadline for registration may not expire Støren Frick (chair) and Christine crucial. If existing shareholders’ earlier than five days prior to the date of the Rødsæther. pre-emptive rights are waived upon an General Meeting. The General Meeting of the Company increaseinshare capital, the Board must The notice materials include a thor- has adopted guidelines for the Nomination justify the waiver. Transactions in own ough explanation of all procedures for Committee. According to these guidelines, (treasury) shares must be executed on the registration, voting and attendance. The the Nomination Committee shall emphasize Oslo Stock Exchange or by other means at proxy form includes instructions for repre- that candidates for the Board have the the listed price. sentation at the meeting through a proxy necessary experience, competence and If there are material transactions and allowsshareholders to nominate a capacity to perform their duties in a sat- between the Company and a shareholder, person who will be available to vote on isfactory manner. Furthermore, attention board member, member of executive behalf of the shareholders. In addition, to should be paid to ensure that the Board management, or a party closely related to the extent possible, the proxy form can function effectively as a collegiate any of the aforementioned, the Board shall includesseparate voting instructions to be body. A reasonable representation with ensure that independent valuations are given for each matter to be considered by regard to gender and background should available. the meeting. The shareholders may also also be emphasized, and the Nomination
American Shipping Company annual report 2016 47 Our organization and governance Corporate governance
Committee should present its nomination The board members represent a of the committee shall be restricted to of Directors to the Board, and alsojustify combination of expertise, capabilities, and members of the Board who are its nominations. The guidelines for the experience from various finance, industry, independent of the Company’s executive Nomination Committee are available on the and non-governmental organizations. personnel. Company’s website. Based on the current board members’ The Board evaluates its own perform- The Chairman of the Nomination experience and expertise, the Board func- ance and expertise once a year. Committee has the overall responsibility for tions effectively as a collegiate body. the work of the committee. In the exercise One of the three shareholder-elected Risk management and internal control of its duties, the Nomination Committee Board members are up for election in 2017. The Board is to ensure that the Company may contact, amongst others, share- maintainssolid in-house control practices holders, the Board of Directors, manage- The work of the Board of Directors and appropriate risk management systems ment and external advisors. The The Board of American Shipping Company tailored to the Company’s business activ- Nomination Committee shall alsoensure annually adopts a plan for its work, ities and its values and ethical guidelines. that its recommendations are endorsed by emphasizing goals, strategies, and The Board annually reviews the Company’s the largest shareholders. The Company will implementation. Also, the Board has most important risk areas and internal con- provide their shareholders with information adopted informal guidelines that regulate trol systems and procedures, and the main on how to submit proposals to the Nomi- areas of responsibility, tasks, and division elements of theseassessments are men- nation Committee for candidates for elec- of roles of the Board, Chairman, and CEO. tioned in the Board of Directors’ report. tion to the Board of Directors on the Theseinstructions also feature rules Company’s website. governing Board schedules, rules for notice Audit Committee and chairing of Board meetings, decision- The Audit Committee has reviewed the Board composition and independence making rules, the CEO’s duty and right to Company’s internal reporting systems, The Company does not have a corporate disclose information to the Board, pro- internal control and risk management and assembly since the Company has only fessional secrecy, impartiality, and other had dialogue with the Company’s auditor. three employees. issues. In general, four ordinary board The Audit Committee has also considered Pursuant to the Company’s Articles of meetings are convened each year, with one the auditor’s independence. Association and corporate governance meeting held every quarter. AMSC’s financial policies ensure policy, the Board comprises between three To ensure a more independent consid- follow-up of financial risk. Key targets are and nine members, which are elected for a eration of matters of a material nature in identified by the Board and management to period of two years. Further, up to three which the Chairman is,orhas been, ensure timely control of currency exposure, shareholder-elected deputy board mem- personally involved, the Board’s consid- interest rate exposure and compliance with bers may be elected annually. The Chair- eration of such mattersshould be chaired loan covenants. man of the Board is elected by the General by another member of the Board. The Meeting. The Board may elect a Deputy Board itself assesses the need to elect a Financial Statement Close Process Board Chairman. deputy chairman. Consolidation and control over the financial The majority of the shareholder- The Norwegian Public Limited Liability statement close process is the Controller’s elected Board members are to be Companies Act requires that companies responsibility. The Company’s current independent of the Company’s executive listed on a regulated market shall have an business includes bareboat chartering of its management, itssignificant business audit committee. Due to the small size of ten vessels and therefore means that the associates and itssignificant shareholders. the Company’s Board, the entire Board of activities of its employees are managing Representatives of American Shipping Directors acts as the audit committee. The the financing of vessels and overhead. The Company’s executive management shall majority of the members of the audit Company has a small organization with not be board members. The current committee are independent of the Compa- three employees, who all have direct composition of the Board is presented on ny’s operations. communication with the Board of Directors. page 50 of this annual report, which also With the exception of the audit commit- Meetings between management, the includes the board members’ expertise, tee, the Board has not deemed it necessary external auditor and members of the Board, capabilities and independence. The current to establish other board committees at this to identify significant accounting issues or members of the Board are Annette Malm time. The Board has considered appointing other issues are held prior to completion of Justad (Chairman), Peter Knudsen and a remuneration committee in order to help the annual report and in connection with Audun Stensvold. Two of the three mem- ensure thorough and independent prepara- management’s reporting to the Audit bers of the Board are independent of the tion of matters relating to compensation Committee. The purpose of these meetings Company’s significant shareholders and paid to executive personnel. However, due is to focus on new and amended account- significant business associates. The to the small size of the Board and since no ing principles or other issues in the finan- Company encourages the board members members of the executive personnel are cial statements. Financial results and cash to invest in the Company shares, and the also members of the Board of Directors, development are analyzed and compared shareholdings of the board members are the Board does not deem it necessary to to the budget by the CFO and Controller presented in Note 17 to the consolidated appoint a remuneration committee at this and reported to the Board monthly. accounts. time. If the Board decides to appoint a Because of the inherent segregation of remuneration committee, the membership duties matters caused by having only three
48 American Shipping Company annual report 2016 Our organization and governance Corporate governance
employees, special actions have been Information and communications soning for no such recommendation. For implemented. In Norway, disbursements The Board of Directors has established each bid, an assessment will be made as to are managed by accounting services pur- guidelines for the reporting of financial and the necessity of bringing in independent chased from an accounting firm, with other information and is based on open- expertise. In a situation where a competing normal control procedures in place such as ness and on equal treatment of share- bid is made and the bidder has a con- management approval of invoices for holders, the financial community, and other nection to any member of the Board or payment and two signatories required for interested parties. The long-term goal of executive personnel, or if the bidder is a payments. American Shipping Company’s investor main shareholder, the Board shall seek an The Board of Directors approves the relations activities is to ensure the Compa- independent valuation. The valuation is to Company’s yearly budget and reviews ny’s access to capital at competitive terms be recorded in the Board’s statement. deviations to the budget on a monthly and to ensure shareholders’ correct pricing Transactions that have the effect of basis. of shares. sale of the Company or a major component These goals are to be accomplished of it are to be decided on by shareholders Remuneration of the Board of through correct and timely distribution of at a shareholders’ meeting. Directors information that can affect the Company’s Board remuneration is to reflect the share price; the Company is also to comply Auditor Board’s responsibility, expertise, time with current rules and market practices, The auditor will make an annual pre- spent, and the complexity of the business. including the requirement of equal treat- sentation to the Board of a plan for the Remuneration does not depend on Ameri- ment. All stock exchange notifications and auditing work for the year. Further, the can Shipping Company’s financial press releases are made available on the auditor is to provide the Board with an performance and the Company does not Company’s website annual written confirmation that the grant share options to the board members. www.americanshippingco.com; stock requirement of independence has been Board members and companies with whom exchange notices are also available from met. they are associated must not takeonspe- www.newsweb.no. All information that is The auditor participates in at least one cial tasks for the Company beyond their distributed to shareholders issimulta- Board meeting annually, including the Board appointments unless such assign- neously published on American Shipping meeting prior to the Annual General Meet- ments are disclosed to the full Board and Company’s website. The Company’s ing. At this meeting, the auditor reviews remuneration for such additional duties is financial calendar is also found on page 2 any material changes in the Company’s approved by the Board. The Chairman and of this annual report. accounting policies, comments on any the Board of Directors have not received material estimated accounting figures and benefits other than directors’ fees. Take-overs reports all material matters on which there Additional information on remuneration The overriding principle is equal treatment has been disagreement between the audi- paid to board members for 2016 is pre- of shareholders. The principles are based tor and the executive management of the sented in Note 17 to the consolidated on the bidder, the Company and the Company. The auditor also presents to the accounts. management all having an independent Board a review of the Company’s internal responsibility for fair and equal treatment of control procedures, including identified Remuneration of executive the shareholders in a takeover process, weaknesses and proposals for improve- management and that company operations are not ments. The Board has adopted guidelines for unnecessarily disturbed. It is the responsi- One meeting a year is held between remuneration of executive management in bility of the Board to ensure that the share- the auditor and the Board, at which no accordance with the Norwegian Public holders are kept informed and that they representatives of executive management Limited Company Act section 6-16a. Salary have reasonable time to assess the offer. are present. Auditors are to provide the and other remuneration of American Ship- Unless the Board has particular rea- Board with an annual overview of services ping Company’s CEO are determined by sons for so doing, it will not take steps to other than auditing that have been supplied the Board of Directors. prevent or obstruct a take-over bid for the to the Company. Remuneration for audi- The Board’s guidelines for remuner- Company’s business or shares, nor use tors, presented in Note 3 to the con- ation of executive management will be share issue authorizations or other meas- solidated accounts,isstated for the four made available as a separate appendix to ures to hinder the progress of the bid, categories of ordinary auditing, other attes- the agenda for the Annual General Meeting. without such actions being approved by tation services, tax assistance and other The statement will include information on the shareholders’ meeting after the take- assurance services. In addition, these which aspects of the guidelines are advi- over offer has become public knowledge. details are presented at the Annual General sory, and which, if any, is binding. The If an offer is made for the Company’s Meeting. The auditor has provided the shareholders will be able to vote separately shares, the Board will makeastatement to Board of Directors with written confirmation on theseaspects of the guidelines. the shareholders that provides an assess- of its independence. ment of the bid, the Board’s recom- mendations, and reasons for these recommendations. If the Board cannot make a recommendation to the share- holders, the Board shall explain their rea-
American Shipping Company annual report 2016 49 Our organization and governance Presentation of the board of directors
Presentation of the Board of Directors
Annette Malm Justad Chairman
Ms.Justad has been a member of American Shipping Company ASA’s Board of Directorssince December 2007. From 2006 through 2010, she held the position of CEO of Eitzen Maritime Services ASA, a Norwegian marine shipping services Company. Prior to that she has held various positions in large companiessuch as Yara International ASA, Norgas Carriers/IM Skaugen ASA, and Norsk Hydro ASA. Ms.Justad is chairman of the board of Store Norske Spitsbergen Kulkompani AS and SeaBird Exploration Plc, a member of the Board of Port of London Authority, Odfjell, and Awilco LNG ASA. Ms.Justad holds aMaster degree of Technology Management from NTH/MIT (Sloan School)/NHH in addition to a MSc in Chemical Engineering from NTH. Ms.Justad is a Norwegian citizen. Ms.Justad holds 4,523 shares in the Company and has no stock options. She has been elected for the period 2015-2017.
Peter D. Knudsen
Peter D. Knudsen is the Managing Partner of NorthCape Capital AS. Mr. Knudsen previously worked as CEO of Oslo listed Camillo Eitzen & Co. ASA from November 2008 to February 2012. Prior to Camillo Eitzen & Co. ASA, Mr. Knudsen was employed by Nordea Bank (Shipping Offshore and Oil Services) for 15 years, and his lastposition was as a General Manager of Nordea Bank in Singapore. Mr. Knudsen has also been employed with GIEK, Den norske Creditbank, Jøtun Fonds and Stemoco Shipping. Mr. Knudsen holds an MBA from Arizona State University. Mr. Knudsen is presently a Board member of Uglands Rederi AS.Heis a Norwegian citizen and holds 2,000 shares of stock in the Company. Mr. Knudsen has been a Board Member of American Shipping Company ASA since 2012 and has been re-elected for the period 2016-2018.
Audun Stensvold
Audun Stensvold is currently Investment Director of Aker ASA. Prior to his appointment as an investment director, he was CFO and Investment Director for Converto, which managed the Aker- owned Converto Capital Fund. He has also served as Vice President of Aker’s M&A and Business Development team. 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 aMasters degree in Business and Economics from the Norwegian School of Economics (NHH). Mr. Stensvold is a Norwegian citizen and holds zero shares in the Company. Mr. Stensvold was elected to the Board of Directors at the Company’s Annual General Meeting in 2016 for the period 2016-2018.
50 American Shipping Company annual report 2016 Our organization and governance Presentation of management
Presentation of Management
Pa˚ l Magnussen President / CEO
Mr. Magnussen was appointed President and CEO of AMSC effective 1 January 2015. He previously served as the Company’s CFO from 1 June 2014. A Norwegian national, Mr. Magnussen comes from the position as Director of the Investment Banking Division in DNB Markets where he has worked since 2007 focusing on the shipping and offshore sectors. Prior to that he worked for five years as Vice President of Corporate Banking in DNB Bank’s shipping and offshore division. He hassignificant experience from international shipping finance and has been based in New York, Singapore and Oslo. Mr. Magnussen holds a seat on the Board of Philly Tankers AS. Mr. Magnussen holds an MBA from Columbia University, New York, and a Master of Science from the Norwegian School of Management, Oslo. He holds 50,000 shares in the Company.
Morten Bakke CFO
Mr. Bakkewas appointed CFO of AMSC effective 4 April 2016. He has 14 years of corporate finance, shipping and offshore experience of which 10 years with DVB Corporate Finance in London and Oslo and previously with Chartered Accountants Moore Stephens and Credit Suisse, both in London. Mr. Bakkehas advised multiple offshore, shipping and private equity firms on a variety of M&A deals and holds aMSCinShipping, Trade and Finance from Cass Business School and BA in Business Studies from University of Greenwich. Mr. Bakkeis a Norwegian national and holds zero shares in the company.
Leigh Jaros Controller
Ms. Jaros joined American Shipping Company as Controller in July 2008. Ms. Jaros has over 15 years of corporate financial experience including financial reporting, analysis and budgeting. Ms. Jaros was employed by Aker Philadelphia Shipyard as its Accounting Supervisor prior to joining AMSC. Ms. Jaros holds a Bachelor of Science in Finance and Economics from West Chester University. Ms. Jaros is aU.S. citizen and holds zero shares of stock in the Company.
American Shipping Company annual report 2016 51 Our organization and governance Contact Information
American Shipping Company ASA Norway Office Oksenøyveien 10, P.O. Box 230 1326 Lysaker, Norway Tel: + 47 24 13 00 00
U.S. Office 415 McFarlan Road, Suite 205 Kennett Square, PA 19348 USA Tel: + 1 (484) 732-3021, Fax: +1 (484) 732-3022
52 American Shipping Company annual report 2016 Project management: Donnelley Financial Solutions
Photo/illustrations: All photos courtesyof American Shipping Company ASA Page 44 photo courtesy of Yevgeniy B.
Layout/production: Donnelley Financial Solutions American Shipping Company
Annual report 2016
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