Annual report American Shipping Company ASA (AMSC)
American Shipping Company owns and leases world-class quality vessels for operation between ports in the United States. AMSC is positioned to be the leading ship owner in the U.S. and will own the most modern product tanker fleet in the U.S. Jones Act market when the current series of twelve tankers is completed in 2011. In addition, the thirteen vessel option agreement with Aker Philadelphia Shipyard provides growth opportunities well beyond 2011.
AMSC Timeline
February 2007: Took delivery April 2005: Closed a ten ship of first product tanker, the bareboat charter agreement with Overseas Houston Overseas Shipholding Group, Inc. (OSG)
February 2007: Obtained new USD 770 million credit facil- ity for permanent ownership financing for ten vessels
2005
June 2005: Aker American February 2007: Issued Shipping ASA (AKASA) estab- NOK 700 million bond. lished and listed on Oslo Stock Proceeds to be used for Exchange. Purchased the investments in vessels former Kvaerner Philadelphia and operations Shipyard.
Aker ASA owns 53.2% of AKASA
April 2005: Production June 2007: Took delivery began on first of ten of second product tanker, product tankers for OSG the Overseas Long Beach About us and our goals
October 2007: Received April 2008: Took delivery order from OSG for two of fourth product tanker, the additional product tank- Overseas New York ers, which will be con- verted into the first U.S. built shuttle tankers for December 2007: Split of operation in the U.S. Gulf Aker American Shipping’s of Mexico ship owning operations from its ship building operations.
Aker American Shipping sold Aker Philadelphia Shipyard (AKPS). AKPS listed as a September 2008: Took separate company on Oslo delivery of the fifth product Exchange tanker, the Overseas Texas City
November 2008: The sixth product tanker launched, with delivery in February 2009 June 2008: Aker ASA reduced its ownership interest, as planned, to 19.9% from 53.2% due to U.S. Jones Act restrictions which would limit its further ambition for developing maritime business outside the U.S. November 2007: Took delivery of third product tanker, As a result, name changed from Aker the Overseas Los Angeles American Shipping ASA to American Shipping Company ASA. Trading tick- er symbol also changed from AKASA to AMSC
American Shipping Company annual report 2008 3 About us and our goals
Contents
n About us and our goals
5 Key figures 2008 7 Goals and strategies 8 Letter from the President and CEO n Our business
11 American Shipping Company 16 Our values 18 Corporate responsibility n Our performance
22 Board of Directors’ report 26 Group accounts 48 Parent company accounts Fourth and fifth product tankers delivered on time and on long-term charter. 55 Auditors’ report The Overseas New York and the Overseas Texas 57 Share and shareholder information City were delivered in April and September 2008, respectively and are on long-term charters to OSG. n Our organization and governance They join the Overseas Houston, Overseas Long Beach and Overseas Los Angeles in successful operation in 60 Corporate governance the U.S. Jones Act. 64 Board of Directors 65 Management team Name change and ticker symbol change.
Key events 2008 With the reduction of Aker ASA’s majority 66 Addresses ownership position, the company was renamed to American Shipping Company ASA and its trading symbol on the Oslo Stock Exchange changed to “AMSC”.
Long-term focus on emerging shuttle tanker market. Extensive resources have been committed and col- laborative efforts were held with a major oil company. Studies and analysis show strong potential for this new, exciting market segment.
Financial Calendar 2009 03 April Annual General Meeting 2009 22 April 1st quarter interim results 2009 05 August 2nd quarter interim results 2009 22 October 3rd quarter interim results 2009 (Dates subject to change)
4 American Shipping Company annual report 2008 About us and our goals
Profit and loss items 2008 2007
Operating revenues USD million 33.3 12.7 EBITDA USD million 27.9 10.9 EBITDA margin Percent 83.6% 85.8% Loss for the year USD million (74.7) (35.9) (1)
Cash flow 2008 2007
Cash flow from operating activities USD million (15.5) 33.2 (2) Cash and cash equivalents as of 31 Dec USD million 71.8 151.9
Balance sheet 2008 2007
Interest bearing debt USD million 504.4 371.0 Equity USD million 101.0 155.7 Total assets USD million 714.1 573.0 Equity ratio Percent 14.1% 27.2%
The AMSC share 2008 2007
Share price as of 31 December Norwegian Kroner 33.5 125.5 Dividend per share Norwegian Kroner - -
1) Including unrealized loss on interest swap hedge of USD 66.1 million in 2008 and USD 34.5 million in 2007 and gain on sale of Aker Philadelphia Shipyard of USD 8.2 million in 2007 2) Cash flow from continuing operating activities (e.g. excluding Aker Philadelphia Shipyard) Key figures 2008 Key figures
Revenues Amount in in USD USD millions millions
Overseas Houston Houston 35 Overseas Long Long Beach Beach Overseas Los Los Angeles Angeles 30 Overseas New New York York 25 Overseas Texas Texas City City
20
15
10
5
0
2007 2008
American Shipping Company annual report 2008 5 About us and our goals
The preferred partner
6 American Shipping Company annual report 2008 About us and our goals Goals and strategies
Goals and Strategies To be the preferred ship owning and leasing partner to the U.S. Jones Act market
Be the major, most profitable vessel owning and leasing company in the Jones Act market ■■ Leverage our close relationship with Aker Philadelphia Shipyard by working closely to develop new vessel designs to offer the Jones Act market and by maintaining open communication on all issues relating to ship construction in a collaborative partnering approach ■■ Expand our partnership with OSG within the product tanker market by exploring additional product tanker opportunities together and working to ensure that maximum value is gained from each of the time charters and the profit sharing arrangements ■■ Maintain stringent controls on all costs associated with the management of AMSC
Have the newest, safest and most modern and operationally friendly fleet ■■ Continue to seek improvements in the design and operation of our vessels in a manner that will ensure the safest, highest quality and most environmentally friendly fleet Pursue new business opportunities in the Jones Act market
■■ Capture additional shuttle tanker opportunities by developing a comprehensive and compelling business case for the emerging shuttle tanker market in the U.S. Gulf of Mexico and undertake an aggressive marketing effort focused on companies actively engaged in the development of producing deep water fields in the region ■■ Work with Aker Philadelphia Shipyard and the oil majors to develop the next generation vessel designs that will fully meet the requirements for these conditions and pursue market-wide leasing opportunities with end- users of these vessels ■■ Capture other Jones Act business including barges, ATB’s, short-sea shipping and container vessel opportunities ■■ Explore opportunities to participate in the operation of Jones Act vessels Explore and invest in value creation opportunities for our shareholders
■■ Continue to focus our efforts on value creation opportunities in the Jones Act market and position ourselves to take advantage of these opportunities ■■ Continue to develop close relationships with the oil majors with business in the deep water U.S. Gulf of Mexico
American Shipping Company annual report 2008 7 About us and our goals Letter from the President and CEO
8 American Shipping Company annual report 2008 About us and our goals Letter from the President and CEO
Facing Today’s Challenges, But Focused On The Future
This past year was one characterized by some our ability to obtain financing, on reasonable to recover sometime in 2009 due to a slowly significant achievements as well as a number commercial terms, is certainly one of the key improving economy and oil company refin- of challenges. The good news is that Ameri- factors in achieving our growth plans. ery expansions that will occur over the next can Shipping Company ASA (AMSC) contin- With respect to our financials, while our several years, our view is that rates for mod- ues to grow and now owns one of the larg- quarterly and annual revenue figures were in ern vessels will firm and additional new build- est, most modern product tanker fleets in the line with internal forecasts, our quarterly and ings will be needed. Thus, although we have U.S. Jones Act market. This commitment to annual EBITDA figures were below internal not been able to exercise any of our thirteen growth, coupled with our unique partnership forecasts due to higher than expected S,G&A options to date, we still strongly believe in the with Aker Philadelphia Shipyard ASA (AKPS) costs. S,G&A costs were significantly higher long-term value of these options. and our dedicated management team, is why than expected due to increased third party Despite the dramatic reduction in the price AMSC is clearly becoming the preferred ship- legal and consulting costs incurred in con- of crude oil over the second half of 2008, our ping partner to the U.S. Jones Act Market. junction with our ongoing “exclusivity” arbi- belief is that the deepwater Gulf of Mexico On the positive side, the company took tration with OSG. We expect that our legal will continue to be explored and developed, delivery of an additional two product tank- and consulting costs will return to normal lev- and that U.S. flag shuttle tankers, because ers in 2008, bringing the total current operat- els in 2009. In any event, it should be noted of their cost, quicker availability and flexibil- ing fleet to five vessels total as of year end. that one of our primary objectives has been a ity advantage over pipelines, will eventually be These vessels, like their three previous sisters, disciplined approach to controlling our costs needed in substantial numbers. A number of were delivered to AMSC, immediately bare- and this approach will be continued, and even independent studies have highlighted these boat chartered to OSG, and subsequently enhanced, in the future. advantages and made a compelling case for time chartered to major oil companies. AMSC Our earnings in 2008 were adversely shuttle tankers as the preferred export solu- continues to be the beneficiary of AKPS’s impacted by significant unrealized, non- tion for production sites in the deepwater Gulf growing stature in the domestic shipbuilding cash losses resulting from the accounting of Mexico. AMSC continues to closely follow industry as these two vessels, the Overseas requirement to mark-to-market our interest the evolution of this exciting new market and New York and the Overseas Texas City, were, rate swaps. These non-cash losses resulted is uniquely positioned with the most competi- once again, delivered on time and have per- primarily from steadily falling interest rates tive vessels built in the United States, ready to formed extremely well in their intended trades. throughout the second half of the year. As you capture the many opportunities that we antici- Our sixth product tanker, the Overseas Bos- may recall, the variable rate structure of our pate will emerge here. ton, was delivered 19 February 2009, bare- take-out vessel financing was converted to a Our business development efforts also boat chartered to OSG L.P., and is the first of fixed rate structure via an interest rate swap remain focused on other Jones Act market four vessels to be time chartered to Tesoro for instrument. The P&L impact of these unreal- sectors where we can leverage our valuable service on the U.S. West Coast. ized losses was USD 58 million for the fourth and strategic relationship with AKPS. As we Another positive development in 2008 quarter and USD 66.1 million for the full year. have said in the past, we expect there will be was the establishment of our core operating Although it is impossible to predict the future opportunities for new building replacement team. Back in June, we introduced Gregory direction of interest rates, at today’s historic vessels to address the aging container ves- Matecki as our Chief Financial Officer (CFO). low levels, it is reasonable to assume that sel fleet, as well as the possibility for special- Greg came to AMSC with an excellent back- rates will eventually rise and begin to offset ized vessels to service the developing short ground – with experience in a number of dif- some of these unrealized losses. sea shipping market that is being pushed so ferent industries – and has made major contri- Although much of our share price decline vigorously by the U.S. Department of Trans- butions to our company from day one. Leigh can be attributed to the overall decline in portation and Maritime Administration. We Jaros joined AMSC soon thereafter as our world equity markets generally in 2008 and also continue to evaluate the prospects for Controller and Manager of Financial Planning the industry specific problems in the finan- building specialty vessels that would service & Analysis. Leigh came to us from Aker Phila- cial and marine transportation sectors, we are oil and gas interests in the arctic region. delphia Shipyard where she was an account- not satisfied with our share price performance In summary, while 2008 did not end in ing supervisor. Our team was completed with over the past year. We will apply even greater line with our original expectations due to a Dean Grabelle, who came aboard as our in- efforts, focus and resources in 2009 to facili- number of macro global and economic fac- house counsel and Michelle Pinto, who is our tate long-term share price appreciation. tors, my optimism about the future of AMSC Office Manager. Although we were not able to exercise any remains firmly intact. We are involved ina As indicated above, we also experienced of our thirteen options with AKPS during the highly specialized industry loaded with oppor- a number of notable challenges during this past year, we remain very optimistic about tunities and I am confident that for all of the past year. The collapse of the credit markets, the Jones Act product tanker market and reasons stated above, we will be successful commencing in the third quarter of 2008,cre- its prospects for the future. Oil companies in capitalizing on many of them. I look forward ated a very uncertain environment for asset today clearly want modern, double-hull ton- to sharing our successes with you, our loyal financing generally, and a particularly chal- nage and this chartering/vetting posture con- shareholders and stakeholders, in the months lenging one for vessel financing due to its per- tinues to be substantiated by new buildings ahead, and sincerely thank you for your con- ceived higher risk profile. We expect this diffi- replacing older, double-bottom vessels. For tinued support of our company. cult credit environment to continue until a via- this reason, we fully expect the rate of ves- ble stimulus package is passed in Washington sel retirements to accelerate in 2009 as older that, hopefully, will stabilize the financial mar- ships experience increasing difficulty in find- kets and provide the foundation for a recover- ing employment, both on the term and spot Robert Kurz ing economy in the future. We will, of course, market side. Given this consolidating fleet President & CEO continue to monitor this situation closely as profile and assuming that demand will begin American Shipping Company ASA
American Shipping Company annual report 2008 9 Our business American Shipping Company
Our business
10 American Shipping Company annual report 2008 Our business American Shipping Company
Fleet and Revenue Growth
In its first full year as a focused Jones Act ship owning and leasing company, American Shipping Company (“AMSC”) had five vessels in operation and higher revenues than any other year in the company’s history.
American Shipping Company ASA (for- modern design also boasts less noise and merly known as Aker American Shipping air emissions. Their outstanding perform- ASA) owns and leases vessels for opera- ance, reliability and quality have been rec- tion in the U.S. Jones Act market. Its fleet ognized by those chartering these vessels Key 2008 Events of five product tankers, plus the seven re- over the last two years. maining vessels on order to be delivered ■■ Revenues rose 160% over through early 2011, will comprise the most Competitive Advantages previous year modern product tanker fleet in the United Aker Philadelphia Shipyard ■■ Successful on-time delivery of States. In addition to leasing vessels, the The main competitive advantage for AMSC two new product tankers intention to participate in the ownership of is its exclusive relationship with Aker Phil- an operating company will position AMSC adelphia Shipyard (“AKPS”). AKPS is the ■■ All five new Jones Act product tankers are performing well in to be a unique and premier owning, leas- most modern commercial shipyard in the the U.S. Gulf and U.S. west ing and operating company in the U.S. U.S. and has earned a reputation as the coast waters Jones Act market. leader and most reliable producer of high American Shipping Company took quality commercial ships in the U.S. AKPS delivery of two more product tankers in has built and delivered nine vessels since 2008, bringing its total fleet to five vessels. 2003 and is on track to deliver three ves- All of the five vessels currently in operation, sels per year to AMSC. Through our unique along with the remaining five product tank- relationship with this shipyard, AMSC has ers and two shuttle tankers, are on long- secured favorable pricing and reasonable term bareboat charter contracts with Over- escalation terms for all of the vessels cur- seas Shipholding Group, Inc. and OSG rently on order and for the thirteen vessels America L.P. (collectively “OSG”). OSG has under the option agreement. In addition to Revenues secured time charter contracts with major competitive pricing for product and shuttle 100 oil companies for nine of the ten product tankers, AKPS and AMSC have teamed up tankers and both shuttle tankers. The two to pursue additional market opportunities 80 shuttle tankers will be the first to operate in within the U.S. Jones Act market. AKPS the U.S. Gulf of Mexico. has the expertise required to build many 60 American Shipping Company is head- different types of vessels through its ad-
40 quartered in Oslo, Norway, with its oper- vanced shipbuilding practices, its highly ating subsidiaries located in Philadelphia, skilled and flexible workforce and its stra- 20 Pennsylvania and Wilmington, Delaware, tegic agreements with leading shipbuilders USA. The Company’s current business and suppliers. 0 model is to own and bareboat charter ves-
2007 2008 2009 est 2010 est sels for operation in the U.S. Jones Act First to Market market through its wholly-owned subsidi- American Shipping Company’s collabo- aries in the U.S. AMSC is in conformance ration with Aker Philadelphia Shipyard with the applicable requirements of the has contributed to AMSC’s second major Number of vessels Jones Act. All of its vessels are fully quali- competitive advantage: having the benefit 12 fied to participate in the domestic maritime of being “first to market”. There are- cur
10 trades in the United States. rently a limited number of newbuild ves- The vessels which AMSC owns are the sels on order, and a limited number of U.S. 8 most modern product tankers in opera- shipyards with the capacity and capability
6 tion and use the proven design of Hyundai to produce high quality vessels for the U.S. Mipo Dockyard. These 46,000 dwt ves- Jones Act market. AMSC has the newest 4 sels are state-of-the-art, fuel efficient ves- and most modern fleet capable of trans-
2 sels and have highly flexible cargo sys- porting petroleum products. It will also be tems. In addition, they have lower oper- the first to own shuttle tankers for use in 0 ating expenses than other tankers due to the emerging crude oil transportation mar-
2007 2008 2009 est 2010 est reduced maintenance, reduced fuel con- ket in the deepwater U.S. Gulf of Mexico. sumption and reduced crew size. The
American Shipping Company annual report 2008 11 Our business American Shipping Company
Vessel Delivery 2007 2008 2009 2010 2011 2012 2013 2014 2015
PT 1 Feb-07 Shell
PT 2 Jun-07 BP
PT 3 Nov-07 BP
PT 4 Apr-08 Shell
PT 5 Sep-08 BP
PT 6 Feb-09 Tesoro
PT 7 Jun-09 Tesoro
PT 8 Oct-09 Tesoro ST 1 Mar-10 10 yr BB Petrobras
PT 9 Jun-10 Tesoro 10 yr BB ST 2 Oct-10 Petrobras 10 yr BB PT 10 Mar-11 No T/C contract Option delivery PT 13 - PT 25 (July 2011 - July 2015):
Initial BB length Start BB option period T/C period Delivery option vessel
Overseas Shipholding Group by U.S. citizens and to be registered un- standards for vetting tankers, and this is AMSC also has a partnering relationship der the U.S. flag. As a non-U.S. company, resulting in accelerating the retirement of with OSG, the second largest publicly AMSC is permitted to own Jones Act ships older, single-hulled vessels. traded shipping company in the world. The under the lease finance exception. Com- In addition to reduced capacity due to agreements between AMSC and OSG pro- pliance with the lease finance exception retirements of older vessels, demand for vide for long term bareboat charters of be- requires that AMSC’s subsidiaries bare- product tankers is expected to increase as tween five and ten years with an unlimited boat charter their vessels to qualified U.S. a result of refinery expansions in the U.S. number of extension options. OSG is one citizen operators. OSG is a qualified U.S. Gulf Coast and Midwest. Wilson & Gillette of the world’s most successful shipping citizen company. have estimated that petroleum products companies and has full technical, opera- The Jones Act has been U.S. law for transported by water from the U.S. Gulf tional and commercial management con- almost 90 years and is supported by many Coast to the East Coast will increase 30 trol of the vessels it charters from AMSC. different groups including maritime union percent by 2014. AMSC receives a fixed bareboat rate and labor, shipyards and those concerned with Due to the expected decreased sup- profit sharing based on end-user escalat- U.S. national security. There have also been ply of Jones Act product tankers and ing time charter rates. These agreements significant investments into Jones Act ves- increased demand for these tankers, Wil- provide AMSC with stable, long term cash sels over the last fifteen years, amounting son & Gillette project a future supply def- flows. to about USD 9.4 billion (Source: Wilson & icit beginning in 2012. Currently, there is Gillette, June 2008). For these reasons, it Strengthened Management Team is extremely unlikely that the Jones Act will Throughout the end of 2007 and 2008, be overturned or that waivers to bring in AMSC strengthened its management team foreign built vessels will be granted. U.S. Flag Tanker Fleet age profile with the hiring of several experienced members. President and CEO Robert Kurz Product Tanker Market New tankers under construction: 23 has 25 plus years of experience in the U.S. The Oil Pollution Act of 1990 (“OPA 90”) maritime industry. Also hired in 2008 were was enacted as a result of the Exxon Val- Existing tankers under age 20: 15 a Chief Financial Officer (CFO), Controller dez oil spill and mandates that only dou- and Office Manager. In addition, the Com- ble-hull tanker vessels will be permitted pany secured the services of an in-house to carry petroleum products in the United legal counsel. States after 2015. The act established phase out dates for existing single-hull The Jones Act Market tanker vessels. Due to the mandatory re- U.S. coastwise law, referred to as the tirement schedule under OPA 90, the mar- Jones Act, requires all commercial vessels ket will most likely experience a signifi- transporting cargo between U.S. ports to cant reduction in capacity of product tank- be U.S. built, owned, operated and crewed ers. Oil companies are also tightening their Existing tankers over age 20: 36
12 American Shipping Company annual report 2008 Our business American Shipping Company
”Shuttle tankers have substantial advantages over pipelines in deeper waters.”
a well defined two tiered market, in which available today for deep water discoveries The shuttle tanker’s ability to relocate mini- newbuildings are achieving significant rate The Company has designed the only mizes field and environmental risk. premiums over older tonnage. Following shuttle tanker for the Jones Act market Several deep water fields have been the laws of supply and demand, it is also with superior dynamic positioning capa- identified as candidates for FPSO units expected that time charter rates for first tier bilities. The DP2 system, combined with combined with shuttle tanker transporta- vessels will increase in 2012 and beyond. a controllable pitch propeller, provide for tion solutions. AMSC estimates the total Due to AMSC’s competitive advantages, increased maneuverability and can pro- demand for shuttle tankers to be 15-20 the company will be well positioned to take pel the ship in the event of engine failure. vessels by 2015, and with our competitive advantage of these favorable market con- The bow loading system allows for tandem advantages, we are well positioned to be ditions. As the existing capacity declines, loading at sea for faster and safer transfer the front runner in this new market. the AMSC vessels will be entering service of crude oil. to replace this tonnage and commencing Shuttle tankers have substantial advan- Other Markets time charter arrangements are expected to tages over pipelines in deeper waters. AMSC, in collaboration with AKPS, is also be reflective of the strengthening market. Our studies show that pipelines have an exploring other opportunities in the Jones Few, if any, other companies will have the expected disproportional cost increase Act market. These marketing efforts are same opportunity. per barrel in deep water fields. Although targeting the aging container vessel fleet economics vary on field specifics, shuttle and the emerging short-sea shipping mar- Shuttle Tanker Market tankers are being recognized as the most ket, in addition to barges, bulk vessels and A newly emerging and exciting market is economical means of exporting oil in the special purpose vessels. the shuttle tanker market in the U.S. Gulf of deep water Gulf of Mexico. In addition, Mexico. Over the past several years, there shuttle tankers provide increased flexibility Competitive Landscape has been increased focus on deep water over pipelines. For example, shuttle tank- AMSC is a unique company in that there developments in this region. Exploration ers can be moved between fields, making is no other Jones Act vessel leasing com- has been successful, and about one-third it more cost effective to target marginal pany. Our competitors tend to be other of wells drilled in ultra-deep water (greater fields. Shuttle tankers can also transport U.S. shipyards and vessel operating com- than 2,200 meters) have resulted in dis- oil to different refineries, allowing flexibil- panies. Some of these companies include: coveries of oil. ity in the event of refinery incidents or pric- NAASCO, a U.S. shipbuilding company As oil is produced in increasing water ing differentials. Perhaps the biggest flex- in San Diego, CA; Bender Shipbuilding in depths and further from the existing pipe- ibility advantage shuttle tankers have over Mobile, AL; Seabulk Tankers in Ft. Lauder- line infrastructure, floating production, pipelines is in severe weather conditions. dale, FL; and U.S. Shipping Partners in Ed- storage and offloading (FPSO) units com- During both minor and major hurricanes, ison, NJ. bined with shuttle tankers are being iden- oil platforms are forced to shut down and With its exclusive relationship with tified as the preferred alternative for crude evacuate well ahead of the storm for the AKPS, AMSC possesses a significant cost oil transport to the U.S. Gulf coast refiner- crew’s safety. Shuttle tankers, on the other advantage over other vessel owners. This ies. Not only are these new fields located hand, are able to sail away from the severe cost advantage leads to a lower breakeven far from the existing pipeline infrastructure, weather to seek refuge and return to the bareboat rate and a more competitive there is also no proven pipeline technology field as soon as severe weather has passed. position in the market. It also allows for significant profit potential if market rates increase to reflect the higher build cost from other yards. The long-term charter market has been the key market in the Jones Act for over a decade. Some characteristics of this long- term market include limited exposure to spot market fluctuations and newer, more efficient vessels. Older vessels have been struggling in this market due to poor fuel economy and tighter vetting standards by oil companies.
Risks The principle categories of risk which AMSC faces in its business are: construc- tion risk, operational risk, market risk and financial risk. AMSC and its Board of Di-
American Shipping Company annual report 2008 13 Our business American Shipping Company
rectors have adopted sound, comprehen- committed debt financing for the ten prod- plans. AMSC must secure and maintain sive risk management procedures in order uct tankers is considered to be minimal sufficient equity capital in order to support to mitigate and minimize exposure to all risk. AMSC’s market risk going forward such borrowing facilities. types of risk. will be its ability to raise both equity and As discussed above, the structure of The construction risk faced by AMSC debt financing for the two shuttle tankers the bareboat charter contracts and time includes the on-time delivery of the ves- on order as well as the thirteen option ves- charter contracts limits the credit risk to sels from AKPS and cost escalation of sels with AKPS. AMSC. AMSC performs a credit review materials and labor. Based on the histori- AMSC is exposed to currency risk of all potential and targeted customers. cal performance of Aker Philadelphia Ship- through its Norwegian Kroner (NOK) Credit risk associated with cash and bank yard, AMSC believes that the on-time deliv- denominated bond (NOK 700 million plus deposits is regarded as minimal. ery risk is minimal. Cost escalation risk on NOK 139 million of interest added to the materials has been moderated primarily as principal balance) and through its ship- The year 2008 a result of falling commodity pricing. building contracts with AKPS. AMSC After the deliveries of two vessels in April The credit risk associated with OSG is hedges its foreign exposure through the and September 2008, AMSC earned bare- limited due to the structure of the bare- use of foreign currency swap contracts boat revenues from the service of five boat charter contracts with OSG. These and a forward contract for a part of the product tankers in operation. The tankers, contracts are backed by major oil compa- future interest payment on the bond. two of which operate for Shell and three nies with strong investment grade credit. Both the take-out financing and the NOK of which operate for BP Shipping, are all The operational risk includes OSG’s ability 700 million bond expose the company to performing above expectations in the U.S. to secure time charter contracts and effi- interest rate fluctuations. The floating rate Gulf of Mexico and the U.S. west coast. ciently operate the vessels in order to pro- on the financing for the ten product tank- In June 2008, the company changed vide profit sharing to AMSC. ers is hedged through fixed interest rate its name from Aker American Shipping Overall market risk is related to the con- swaps. Additionally, AMSC is exposed to ASA to American Shipping Company ASA tinuation of the Jones Act in its present interest fluctuations for the external capi- after its former parent, Aker ASA, sold its form. As discussed above, this market risk tal required to fund future vessels without majority ownership through a total return is minimal due to the broad political, com- current financing in place. The interest risk swap. The ticker symbol on the Oslo Stock mercial and labor union support. is deemed to be moderate. Exchange was changed to “AMSC”. After The financial risks that confront AMSC Because the ship owning business the sale of its shares, Aker ASA owns include overall market risk, currency risk, is capital intensive, AMSC is dependent 19.9% of AMSC shares. interest rate risk, liquidity risk and credit upon having long-term funding for vessels, During 2008, AMSC kicked off “Project risk. In 2008, the deterioration of the finan- construction financing facilities and other Shuttle” by dedicating resources to stud- cial markets had a negative impact on loans and debt facilities to the extent its ying the developing U.S. shuttle tanker AMSC’s ability to raise financing for its own cash flow from operations is insuf- market. The company marketed its newly two shuttle tankers on order. The existing ficient to fund its operations and growth designed Generation II shuttle tanker to
14 American Shipping Company annual report 2008 Our business American Shipping Company
”AMSC’s tankers are all performing above expectations in the U.S. Gulf of Mexico and the U.S. west coast.”
end users with interests in the U.S. deep with AKPS, AMSC will target obtaining advantage of opportunities in this new water Gulf of Mexico. Although no orders chartering contracts for new vessels. market. We believe that shuttle tankers will have been placed to date, major advances become the preferred alternative to trans- were made in educating the market to the Outlook porting oil from the deep water to refineries advantages of shuttle tankers over pipe- American Shipping Company will continue on the U.S. Gulf coast. lines in this region of the Gulf of Mexico. to take deliveries of new vessels from AMSC will also continue its evaluation The company has worked closely with an AKPS and anticipates that they will be de- of other market opportunities and pros- independent exploration and production livered on time. This will enable AMSC to pects for newbuildings. The long term company with interests in this region. earn revenues from the bareboat charters outlook for continued escalation of time In September 2008, the company held immediately upon delivery. charter rates is positive due to the accel- its first ever “Investor Day” in Philadelphia, The global financial crisis continues erating retirement of older vessels and an Pennsylvania. Investors and other stake- to delay the decision-making process of expected increase in product transport holders from all over the world traveled to potential costumers and limits the avail- demand due to various announced refin- Philadelphia for a company presentation, ability of financing for new build projects. ery expansions. lunch and a presentation by a key note Nonetheless, AMSC continues to be opti- speaker, an expert in export solution alter- mistic about the long-term prospects for natives in the deep water U.S. Gulf of Mex- the Jones Act product tanker market, as ico. well as the potential for a substantial shut- In the fourth quarter 2008, AMSC tle tanker market in the deep water U.S. announced its intention to change the Gulf of Mexico. The MT-46 product tankers are fitted building sequence of the twelve vessel The outlook for the shuttle tanker mar- with a MAN B&W 6S50MC diesel en- build program, as the company has not ket is especially exciting to AMSC as the gine. This engine produces 8,700 kW yet been able to secure financing for the company is uniquely positioned to take of power to propel the vessel a speed of 14.6 knots. two shuttle tankers in that program. The two shuttle tankers are intended for bare- boat charter to OSG, who will time char- ter the vessels to Petrobras for operation as the first shuttle tankers in the U.S. Gulf of Mexico. Without financing in place, Aker Philadelphia Shipyard cannot draw on its committed construction financing facil- ity to build these vessels. The shipbuild- ing contracts and the bareboat charters for the shuttle tankers provide flexibility with respect to delivery of the vessels and make the change in building sequence possible. AMSC anticipates that the two shuttle tankers will be delivered in compli- ance with their respective bareboat char- ters.
Goals for 2009 AMSC believes the shuttle tanker market will develop as new fields begin produc- tion over the next five years. The company will focus on securing chartering opportu- nities for additional shuttle tanker vessels. AMSC will also focus on opportunities to participate in the operation of U.S. Jones Act vessels. AMSC will continue to leverage its rela- tionship with AKPS and jointly market new vessel types such as barges, ATB’s, short- sea shipping and container vessels. With the ultimate goal of exercising its options
American Shipping Company annual report 2008 15 Our business Our values
Unity and Commitment
American Shipping Company’s business activities build on our six core values.
Our employees’ dedication and know-how allow American Shipping Company to deliver on its commitments to SQE mindset customers, employees and the communities in which We take personal we work. Solid values form the foundation that enables responsibility for SQE because American Shipping Company to achieve sustainable, we care long-term growth. Acting in accordance with our corporate values promotes sound attitudes and performance every day.
The consistency of our values from year to year strengthens our relationships, both internal and external. The values that our employees adhere to focus our efforts in support of exceeding our customers’ expectations and achieving our corporate goals.
”American Shipping Company’s corporate values support and guide day-to-day priorities and decision-making.”
American Shipping Company – Our values in context
SQE mindset Customer drive Delivering results ■■ The safety of our vessels is paramount ■■ We build customer trust by deliver- ■■ We deliver on-time and within budget, in order to protect the crew members’ ing on time and on budget, and at the to our customer’s satisfaction safety agreed level of quality ■■ We are proactive and energetic, and ■■ The quality of our vessels directly ■■ We know our customer’s business and we strive to generate competitive affects both crew safety and environ- we are a flexible, competent and relia- returns on the assets entrusted to us mental impact ble partner at every phase by our shareholders ■■ We work safely in a manner that pro- ■■ We leverage our unique business rela- ■■ Every action we take is with the end tects and promotes the health and tionships for the benefit of our custom- goal in mind well-being of our employees and the ers environment
16 American Shipping Company annual report 2008 Our business Our values
American Shipping Company – Our values in context
Hands-on management Open and direct dialogue People and teams ■■ We recognize our roles and responsi- ■■ We are committed to honest and sin- ■■ We work in an inclusive environment bilities, take ownership and accept the cere communications among all stake- that embraces change, new ideas, consequences of our actions holders, creating an environment in respect for the individual and equal ■■ We act with a sense of ownership in which ideas are fostered and shared opportunities to succeed our workplace ■■ We convey information so that stake- ■■ We are team players, willing to share ■■ We are professional and proactive holders can better understand our and utilize common knowledge business, our objectives and our per- ■■ We empower people and provide formance opportunities for personal development in an energetic and challenging atmos- phere
American Shipping Company annual report 2008 17 Our business Corporate responsibility
Demonstrating corporate responsibility Our commitment
American Shipping Company’s overriding concern is to provide American Shipping Company makes the following commitments products and services in an environmentally sound, ethical and to its customers, shareholders, socially responsible manner. employees, and the communities in which we operate.
To our customers:
■■ Outstanding safety, quality and environmental performance ■■ To be listened to and understood ■■ Competitive, on-time deliveries ■■ An open, long-term and mutually beneficial relationship ■■ High ethical standards and integrity
To our shareholders:
■■ To be part of an active and value- creating ownership, full of energy and determination ■■ Positive, long-term share price The way in which we achieve growth and ■■ Environment: We work systematically growth ■■ A decisive management that profitability is as important as the achieve- to reduce emissions and minimize closely supervises business ments themselves. environmental stress – in American activities, delivers solid profits and Via constant awareness and respon- Shipping Company’s vessels, inspires confidence sive actions, American Shipping Com- workplace and services. The greatest ■■ Transparency – accurate, pany instills confidence among employees, long-term service we can perform for consistent and timely presentation of financial and other relevant investors, customers, suppliers, coopera- the environment is to develop and information tion partners and the communities of which deliver technologies, products and ■■ Sound corporate governance we are a part (see right). Dedication, know- solutions that are consistent with how and performance make our company maintaining a sustainable environment. the preferred partner. To our employees: American Shipping Company is com- ■■ Integrity: Success at American Ship- ■■ A safe and inspiring work mitted to good corporate citizenship and ping Company depends on a reli- environment operates according to fundamental stand- able, well-functioning business cli- ■■ Challenging work assignments ards for workplace safety, ethical conduct mate. Our six core values help ensure and opportunities for growth and sound business practices. integrity and adherence to high ethi- ■■ A working environment in which The following four key points summa- cal standards. Potential ethical dilem- diversity is appreciated rize how American Shipping Company mas are discussed in regularly occur- ■■ Competitive compensation, implements its corporate social responsi- ring forums, sharpening awareness of relative to the markets in which they work bility policy. our guidelines and generating improve- ■■ To be treated fairly and with ments. American Shipping Company is respect ■■ People: A competent, motivated work- continually building a culture that val- force working toward common goals ues honesty, openness and transpar- is key. Diversity with regard to cul- ency. To communities in which we ture, religion and ethnicity makes us operate: ■ stronger and more adaptive. We help ■ Society: Through profitable ■■ Local and regional value creation each employee reach his or her full investments, American Shipping ■■ Respect for its inhabitants, laws potential – and take personal respon- Company establishes good relations and culture sibility for safety, quality and the envi- with the communities in which we ■■ Mutually beneficial relationships ronment. Cooperation, quality-con- operate. Our focus on safety, quality with local partners, subcontractors sciousness and mutual respect further and environment also benefits society and suppliers American Shipping Company’s com- at large. ■■ Socially responsible business conduct, integrity and high ethical mitment to protect individual rights and standards the interests of the company’s stake- ■■ Openness – an open agenda, holders, our local communities and the transparency and reliability environment.
18 American Shipping Company annual report 2008 Our business Corporate responsibility
American Shipping Company annual report 2008 19 Our performance
Our performance
20 American Shipping Company annual report 2008 Our performance
Contents
22 Board of Directors’ report
26 Group annual accounts: 26 Profit and loss account 27 Balance sheet 28 Statement of changes in equity 29 Cash flow statement 30 Notes to the accounts
48 Parent company annual accounts: 48 Profit and loss account 49 Balance sheet 50 Cash flow statement 51 Notes to the accounts
55 Auditors’ report
57 Share and shareholder information
American Shipping Company annual report 2008 21 Our performance Board of Directors’ report
Owning and leasing the most modern U.S. Jones Act tanker fleet
Introduction has secured access to 2015 to cost competi- registered under the U.S. flag. American Shipping Company ASA (AMSC), tive construction of new vessels. Since AMSC is not a U.S. citizen qual- formerly known as Aker American Shipping ified to operate vessels in the Jones Act, it ASA, is a ship owning and leasing company Strategy is dependent on the lease finance exception with the most modern U.S. Jones Act ves- AMSC will, through its unique partnership which permits foreign ownership of Jones sels operating between domestic U.S. ports. with AKPS, continue to grow into a leading Act ships under certain conditions. If AMSC During 2008, AMSC took delivery of its fourth Jones Act ship owning and leasing company. does not fully comply with the terms of the and fifth product tankers, realizing total op- Through its arrangement with OSG on prod- lease finance exception, it may be prohibited erational revenues of USD 33.3 million with uct tankers, AMSC will seek further growth in from bareboat chartering its vessels to quali- earnings before interest, taxes, depreciation the product tanker market segment. AMSC fied U.S. citizen operators in the U.S. coast- and amortization of USD 27.9 million. AMSC will also pursue other market-wide leasing wise trade. Compliance with the lease finance currently has seven additional tankers on or- and operating opportunities with end users exception requires that AMSC’s subsidiaries der with Aker Philadelphia Shipyard (AKPS) which include the potential growing market bareboat charter their vessels to qualified and options for 13 additional tankers. The opportunities for shuttle tankers in the Gulf of U.S. citizen operators. five vessels in operation and the seven ves- Mexico. The Oil Pollution Act of 1990 (“OPA 90”) sels on order have all been bareboat char- was enacted as a result of the Exxon Valdez tered either to subsidiaries of OSG America Risks oil spill. OPA 90 created a new legal regime L.P. (OSP) or Overseas Shipholding Group, AMSC faces risks related to construction of to increase pollution prevention, ensure bet- Inc., which owns over 75% of OSG America vessels and to market risk related to financing ter spill response capability, increase liability L.P. (collectively OSG). and ownership of vessels. The risks related to for spills, and facilitate prompt compensation In June 2008, Aker ASA, through one of vessel construction are primarily AKPS’s abil- for cleanup and pollution damage. OPA 90 its wholly-owned subsidiaries, reduced its ity to deliver the vessels on time and the risk also established phase-out dates for exist- majority ownership in the Company. The associated with material and labor cost esca- ing single-hull tanker vessels and required sale of shares was related to U.S. Jones Act lation. The overall market risk is related to the all newly constructed tanker vessels to meet restrictions which would have limited Aker future of the Jones Act, but market experts double-hull standards. Beginning in 2015, all ASA’s further ambitions for developing mar- think it is very unlikely that something nega- tanker vessels trading in the United States itime businesses outside the United States. tive will happen with the Jones Act. AMSC is must meet double-hull standards. As a result, the Company was renamed from exposed to normal market risk related to im- In the 1990’s, there was a surplus capac- Aker American Shipping ASA to American balance between supply and demand. ity of product tankers and barges. As more Shipping Company ASA. The Company also The activities of AMSC and its subsidiar- vessels reach their OPA 90 retirement date, initiated a revision of its trading ticker symbol ies and their main markets are described in capacity will decrease and eventually create on Oslo Bors (the Oslo Stock Exchange) to greater detail herein. By and large, their mar- a supply deficit. Due to a limited number of “AMSC” which became effective on 31 July kets are characterized by favorable underly- vessels under construction, it is reasonable 2008. ing trends. Good risk management is a core to assume a strong market for new tankers competence of AMSC and its subsidiaries, going forward. During 2008, Jones Act prod- The Group’s business activities which make systematic efforts to manage uct tanker time charter rates strengthened, The main entities in the AMSC Group are the risk to protect their operations and ensure and it is believed that the rates will continue Norwegian holding company American Ship- newbuilds are delivered in accordance with to increase in the long term. ping Company ASA, the U.S. intermediate contract specifications. holding company American Tanker, Inc. (ATI), AMSC and its subsidiaries have adopted Key events 2008 formerly known as Aker American Shipping, sound, comprehensive risk management The fourth and fifth product tankers were de- Inc., and American Shipping Corporation systems and procedures. Maintaining open livered to AMSC in April and September, re- (ASC). American Shipping Company ASA is and effective communication is stressed by spectively. The fourth vessel, the Overseas domiciled in Oslo, Norway, with the U.S. sub- the Board of Directors. It is important that New York, is on long-term time charter to sidiaries and operations located in Philadel- any deviations from plan specifications or Shell. The fifth vessel, the Overseas Texas phia, Pennsylvania, and Wilmington, Dela- expected performance are identified quickly City, is on long-term time charter to BP. The ware, USA. so that corrective measures can be taken sixth vessel, the Overseas Boston, was de- AMSC’s current business model is to own at an early stage, thus limiting the conse- livered on 19 February 2009. The long-term and bareboat charter vessels for operation in quences of such deviations. bareboat charter agreements have different the U.S. Jones Act market. The vessels are AMSC and its subsidiaries adhere to fixed charter periods between five and ten being built at Aker Philadelphia Shipyard, a a risk policy designed to minimize expo- years from delivery and, as such, some ves- leading U.S. commercial shipyard. AMSC, sure to financial market risk, such as foreign sels have secure stable cash flows until 2020, through its subsidiaries, will own and bare- exchange, interest risk and counterparty risk. with options for OSG to extend the bareboat boat charter the vessels to vessel operating charter term. Further, in a U.S. product tanker companies. Of the first 12 vessels, which are The Jones Act market market with strong fundamentals, the charter all on bareboat charter to OSG, ten vessels U.S. coastwise law, commonly referred to as agreements have upside potential above the are product tankers and two vessels will be the Jones Act, requires all commercial ves- fixed bareboat charter rates through a profit converted to shuttle tankers. sels transporting cargoes between ports in sharing mechanism. Through the shipbuilding contracts and the United States to be built, owned, oper- During 2008, AMSC strengthened its vessel option agreements with AKPS, AMSC ated and manned by U.S. citizens and to be management team with the hiring of Gregory
22 American Shipping Company annual report 2008 Our performance Board of Directors’ report
Matecki as its Chief Financial Officer, and Cash flow to-market as of the last day of each reporting securing the services of Dean Grabelle as The company’s cash flow is primarily com- period. Consequently, any resulting gains or General Counsel. Several other support per- posed of bareboat charter hire paid. To- losses from the change in fair market value of sonnel were hired as the company expands tal net cash flow from operating activities in the hedge are non-cash and unrealized and its fleet and looks at future growth opportu- 2008 was negative USD 15.5 million, and in are recorded on AMSC’s books and records nities. 2007 was positive USD 38.8 million, which in- through the income statement. The interest cluded USD 5.6 million from discontinued op- rate swaps do not qualify for hedge account- Review of the annual accounts erations. The decrease in 2008 versus 2007 ing, hence the change in market value is AMSC prepares and presents its accounts is primarily due to additional interest paid on charged to the profit and loss account each according to International Financial Report- AMSC’s vessel financing and a loss incurred period. It was, however not foreseen that the ing Standards (IFRS) as adopted by the EU, on foreign currency swaps. unprecedented volatility in the credit markets and has one business segment. Net cash flow from investment activi- would result in significant changes in interest ties was negative USD 230.4 million in 2008 rates during the latter half of 2008. Profit and loss accounts compared to a negative USD 192.0 million in One of the covenants on the Company’s In 2008, AMSC had operating revenues of 2007. This is mainly attributable to the ves- NOK denominated bond requires that con- USD 33.3 million versus operating revenues sels delivered in each year as well as to pre- solidated equity be maintained at a level not of USD 12.7 million in 2007 as the fleet grew payments made to AKPS for the vessels cur- less than USD 140 million. As a result of the from three to five vessels. Revenues are rec- rently on order. changes in interest rates and their impact ognized on a monthly basis and represent the Net cash flow from financing activities on the total equity, resulting from recording income from the charter agreements. No rev- was USD 170.3 million in 2008 related to the interest rate swap arrangements at fair value, enue from the profit split arrangement with take-out financing of the two vessels deliv- AMSC approached the Loan Trustee, subse- OSG was recognized in 2008 or 2007. The ered versus USD 285.5 million in 2007 which quent to 31 December 2008, on its NOK 700 Group’s operating profit before interest, taxes, includes the take-out financing of the three million bond loan to request the Trustee to depreciation and amortization (EBITDA) vessels delivered, plus the issuance of the convene a bondholders meeting to consider amounted to USD 27.9 million in 2008 com- NOK 700 million bond in February 2007. a request for consent to disregard any effect pared to USD 10.9 million in 2007. of any non-cash gain or loss from the change Depreciation was USD 17.5 million in Balance sheet and liquidity in the fair market value of interest rate hedg- 2008 versus USD 6.9 million in 2007. AMSC’s As of 31 December 2008, American Shipping ing agreements in connection with the calcu- operating profit (EBIT) was USD 10.4 million Company had cash and cash equivalents to- lation of the required equity balance. In addi- in 2008 versus USD 4.0 million in 2007. taling USD 71.8 million. The corresponding tion to the minimum equity covenant change, Net financial items in the consolidated fig- figure for 2007 was USD 151.9 million. The AMSC also requested to extend the option ures amounted to negative USD 84.9 million decreased cash is primarily related to the to select Payment-in-Kind (PIK) interest in 2008 compared to negative USD 47.5 mil- purchase of vessels from AKPS. throughout the loan term. The Trustee agreed lion in 2007. Net financial items of negative Other current assets amount to USD 22.2 with our request and convened a bondhold- USD 84.9 million in 2008 consist primarily of million as of 31 December 2008, and USD 6.4 ers meeting for 25 February 2009. At that an unrealized, non-cash loss on the mark-to- million in 2007, mainly representing receiva- meeting, the bondholders voted to accept market valuation of interest rate swap agree- bles from AKPS and Aker ASA. both of the Company’s proposals. Therefore, ments of USD 66.1 million, coupled with net Property, plant and equipment as of 31 with the bondholders’ approval, the calcula- interest expense of USD 21.2 million and December 2008 and 2007 was USD 520.8 tion of equity under the amended covenants other financial income of USD 2.4 million. Net million and USD 316.2 million, respectively, as of 31 December 2008 was approximately financial items of negative USD 47.5 million in and includes five vessels in 2008 versus three USD 202 million and the Company believes it 2007 related primarily to an unrealized, non- vessels in 2007. Prepayments made to AKPS is highly probable that it will remain in com- cash loss on the mark-to-market valuation in accordance with the shipbuilding contracts pliance with this covenant for the remaining of interest swap contracts of USD 34.5 mil- for the vessels under construction were USD term of the bonds. However, because as of lion. The remaining negative USD 13.0 mil- 92.9 million at 31 December 2008 and USD 31 December 2008 equity was less than the lion reflects net interest expense of USD 7.5 94.6 million at 31 December 2007. required minimum, all of the Company’s debt million, negative one-off effects of approx- Interest bearing long-term receivables is classified as current on its balance sheet imately USD 4.2 million relating to previous totaled USD 6.3 million and USD 3.9 million due to IFRS requirements as well as cross- financing costs and other financial costs of as of 31 December 2008 and 2007, respec- default provisions which impact the Compa- negative USD 1.3 million. tively. These amounts include a restricted ny’s other debt facility. Due to the approved Income tax expense for 2008 was USD cash deposit serving as security for the modification in the consolidated equity cov- 0.2 million, compared to USD 0.6 million in foreign exchange swap agreements and enant subsequent to 31 December 2008, the 2007. The tax cost in 2007 relates to changes deferred principal obligation (DPO) receiva- Company expects to again classify the major- in deferred tax and is not tax payable. ble from OSG. ity of its debt as long-term for its 31 March AMSC’s 2008 net loss was USD 74.7 mil- At 31 December 2008, total equity was 2009 interim reporting. lion versus a 2007 net loss of USD 35.9 mil- USD 101.0 million. The equity ratio was 14% Given the global financial markets and lion. In 2007, the net loss included profit from of total assets. Corresponding amounts tightness in credit, the extension of the option discontinued operations of USD 8.2 million. for 2007 were USD 155.7 million and 27%, to declare PIK interest on a quarterly basis The net loss of both 2008 and 2007 includes respectively. This significant decrease in total will help the Company’s cash position to the the negative effect of the unrealized, non- equity is primarily due to the unrealized, non- benefit of all stakeholders. This will enable cash loss on the mark-to-market valuation cash loss on the mark-to-market valuation the Company to take advantage of antici- of the interest rate swap contracts. The 2008 of interest rate swap contracts. The Com- pated opportunities in the Jones Act Market. earnings per share (EPS) was negative USD pany entered into interest rate swaps to con- Total current liabilities of as of 31 Decem- 2.71 and the diluted EPS was negative USD vert its floating rate debt to a fixed rate under ber 2008 of USD 613.1 million are mainly 2.71. The corresponding figures for 2007 the 770 million loan facility. This was done to related to the current classification of debt were negative USD 1.30 and negative USD protect the stakeholders against interest rate referred to above. Total debt included in this 1.30, respectively. fluctuations. These interest rate swap instru- amount was USD 504.4 million, of which USD ments, in accordance with IFRS, are marked- 385.2 million relates to bank debt for the first
American Shipping Company annual report 2008 23 Our performance Board of Directors’ report
five vessels and USD 119.2 million relates to tankers will be delivered in compliance with The profit and loss account of American Ship- the NOK denominated bond. Also included their respective bareboat charters, provided ping Company ASA shows a profit for the in current liabilities is the mark-to-market val- that the current discussions will lead to per- year 2008 of USD 4.6 million. The Board of uation of the interest rate swap contracts of manent financing and that the Company will Directors proposes that the profit for the year USD 100.6 million, trade and other payables be able to raise the appropriate level of equity be allocated as shown below: of USD 6.3 million and other derivative finan- for these two vessels. cial liabilities of USD 1.8 million. The corre- Through both the take-out financing and Dividend payments - sponding total current liabilities for 2007 was the NOK bond, the company is exposed to Other equity USD 4.6 million USD 53.4 million, consisting of USD 34.5 mil- fluctuations in interest rates. The interest risk Total allocated USD 4.6 million lion for the mark-to-market valuation of the related to the permanent term loan for the ten Unrestricted equity interest rate swap contracts, USD 11.7 mil- product tankers is offset by the use of finan- amounts to USD 13.6 million lion for trade and other payables and USD 7.2 cial instruments, namely interest swaps to million for short-term interest bearing debt. hedge the interest risk. The Company entered Safety, quality and environment Non-current liabilities totaled USD 0 mil- into interest rate swaps to convert its floating A safe and quality environment is an impor- lion at 31 December 2008. Non-current liabili- rate debt to a fixed rate under their USD 770 tant part of AMSC’s strategy. AMSC develops ties at 31 December 2007 totaled USD 363.9 million loan facility (see remarks in “Balance policies to comply with all federal, state and million, consisting of bank debt of USD 225.7 sheet and liquidity” section of this report). local requirements. Compliance with environ- million related to the first three vessels deliv- AMSC’s take-out financing has certain mental regulations is assured by establishing ered in 2007 and a bond payable of USD cross-defaults to AKPS’s construction financ- operating procedures utilizing best practices 138.2 million. ing. AMSC closely monitors this link to AKPS and is executed by management. At 31 December 2008, total assets were and its impact on operations through frequent American Shipping Company ASA takes USD 714.1 million versus USD 573.0 million updates with AKPS’s management. If there is its environmental responsibilities seriously. at 31 December 2007. The increase repre- an event of default under AKPS’s construction Beginning with our fifth product tanker, our sents the delivery of two additional vessels financing and the construction debt is accel- vessels have been modified to incorporate in 2008. erated, AMSC’s take-out financing would also three improved diesel-powered electrical gen- The Board deems that the company is be in default, which would require AMSC to erating sets to power the vessel’s electrical financially sound and has an appropriate seek waivers from its lending syndicate. As a system. These diesel engines comply with financing structure. condition to any such waiver, a lender might, the Environmental Protection Agency’s Tier II among other things, require additional collat- requirements. When in operation, these new Financial risk and risk management eral or guarantees, increase the interest rate, engines produce lower levels of pollutants and AMSC’s activities expose it to a variety of fi- and/or impose fees. There is no guarantee particulate than previous versions. The ves- nancial risks: market risk, including currency the lending syndicate would grant any such sel’s emergency diesel generator, hydraulic risk, interest risk, price risk, credit risk, and li- waiver, in which case they could demand power packs and rescue and lifeboat engines quidity risk. AMSC’s overall risk management immediate repayment of their loans, foreclose have all been upgraded as well. program focuses on the unpredictability of fi- on their collateral and/or exercise their other AMSC aims to comply with applicable nancial markets and seeks to minimize poten- rights and remedies. This counter-party credit laws, rules, and regulations. This commitment tial adverse effects on AMSC’s financial per- risk is regarded as minimal. extends to evaluating and adopting environ- formance. AMSC uses derivative financial in- Ship owners and lessors are credit rated on mentally beneficial improvements in its oper- struments to hedge certain risk exposures. contract signing. At the completion of a ves- ations. AMSC promotes open communica- As also described in the Board of Directors sel, transfer of ownership takes place upon tion on environmental issues with employ- report under “Risks”, risk management is car- settlement. In the unlikely event that AMSC ees, neighbors, public authorities, and other ried out under policies approved by the Board should fail to pay, the vessel is disposed of to interested parties. American Shipping Com- of Directors that provide principles for overall recover AKPS’s construction financing. Credit pany’s activities have only a limited environ- financial risk management. risk associated with OSG or OSG America L.P. mental impact. No significant accidental envi- AMSC operates in a business environ- is regarded as minimal. Credit risk associated ronmental emissions were recorded in 2008 ment that is capital intensive. The company is with cash and bank deposits is regarded as or in 2007. dependent upon having access to long-term minimal. funding for vessels, construction financing Organization facilities and other loans and debt facilities to Events after the balance sheet date During 2008, the company secured the serv- the extent its own cash flow from operations As noted above, the Company requested a ices of Dean Grabelle as General Counsel is insufficient to fund its operations and cap- bondholders meeting, which was granted and hired Gregory Matecki as Chief Financial ital expenditures. AMSC has secured take- by the Loan Trustee. The result of the bond- Officer to assist Mr. Robert Kurz, President & out financing for the first ten product tankers, holders vote was a favorable outcome for the CEO, in managing the business. In addition, but has not yet secured financing for the two Company. On 19 February 2009, the Com- a controller and office manager were hired. shuttle tankers which were ordered in Octo- pany took delivery of its sixth product tanker, AMSC has entered into a services agreement ber 2007. In turn, AMSC must secure and the Overseas Boston, and immediately bare- with Aker Philadelphia Shipyard for services maintain sufficient equity capital to support boat charted it to OSG America L.P. who sub- related to payroll, IT, human resources and such borrowing facilities. Due to the global sequently time chartered the vessel to Tesoro. certain other services. Furthermore, AMSC financial crisis in the latter half of 2008, AMSC There were no other significant events that has management agreements with Aker ASA was unable to arrange financing for these occurred after the balance sheet date. which primarily includes accounting serv- two shuttle tankers and therefore changed ices. As such, the equivalent full time staff of the building sequence of its twelve tanker The going concern assumption AMSC would be approximately five persons build program. The Company is currently in In view of AMSC’s financial position and its as of 31 December 2008. discussions with various lending institutions projections, the Board confirms that the 2008 in an effort to raise this financing. AMSC’s annual accounts have been prepared based Equal-opportunity employer shipbuilding contracts and bareboat char- on the assumption of a going concern. American Shipping Company ASA seeks to ters for the shuttle tankers provide flexibil- be an attractive employer and maintains a ity with respect to the delivery of the vessels. Parent company accounts and allocation human relations policy that is open and fair. The Company anticipates that the two shuttle of profit for the year AMSC is committed to providing equal em-
24 American Shipping Company annual report 2008 Our performance Board of Directors’ report
ployment opportunity to all employees and formance with those recommendations. The positive Jones Act market conditions and applicants for employment, regardless of Company’s board chairman is elected at the envisions continued growth. race, ethnic background, gender, religion, Company’s annual shareholders’ meeting age or any other legally protected status. Di- and the shareholder-elected directors are Responsibility statement versity strengthens AMSC’s overall capacity elected for two year terms. At the Company’s Today, the Board of Directors and the Man- and skills. extraordinary general meeting in June 2008, aging Director reviewed and approved the The entire industry faces the challenge John Rose was elected as a new board mem- Board of Directors’ Report and the consoli- of developing and sustaining diversity in the ber. dated and parent company annual financial workplace. At year-end 2008, two of AMSC’s Following the June 2008 extraordinary statements for American Shipping Company four full time employees are women (control- general meeting, the Board members of ler and office manager). In addition, two of AMSC are as follows: ASA for the year ending and as of 31 Decem- the five members of the board of directors ber 2008 (Annual Report 2008). are women. Chairman Robert N Caruso American Shipping Company ASA’s con- Board Member Gary Mandel solidated financial statements have been pre- Corporate governance Board Member Annette Malm Justad pared in accordance with IFRSs and IFRICs American Shipping Company ASA’s corpo- Board Member Hege Yli Melhus as adopted by the EU and additional disclo- rate governance policy exists to ensure an Board Member John Rose sure requirements in the Norwegian Account- appropriate division of roles among the com- ing Act. The separate financial statements for pany’s owners, board of directors, and ex- Further description of the Board Members is American Shipping Company ASA have been ecutive management. Such a separation of on page 64. prepared in accordance with the Norwegian roles ensures that goals and strategies are Accounting Act and Norwegian account- prepared, adopted corporate strategies are Outlook ing standards as of 31 December 2008. The implemented, and the results achieved are The U.S. Jones Act (which has been in ex- Board of Directors’ Report for the group and subject to verification and follow-up. Apply- istence since 1920) market is expected to the parent company is in accordance with ing these principles also contributes to sat- remain positive as more vessels reach their the requirements in the Norwegian Account- isfactory group wide monitoring and verifi- OPA 90 retirement dates. Due to a limited ing Act and Norwegian Accounting Standard cation of activities. An appropriate division number of vessels under construction, apart no. 16 as of 31 December 2008. of responsibilities and satisfactory internal from our ten product tankers and two shut- controls will contribute to the greatest pos- tle tankers, it is reasonable to assume charter To the best of our knowledge: sible value creation over time, to the benefit rates will continue to rise. The charter agree- The consolidated and parent annual financial of shareholders and other stakeholders. AM- ments with OSG America L.P. and OSG se- statements for 2008 have been prepared in SC’s corporate governance guidelines are cure AMSC’s leasing backlog in excess of accordance with the applicable accounting presented in greater detail on page 60 of this USD 715 million from bareboat charter rev- standards. annual report. enues until 2020. Any profit sharing contribu- The consolidated and parent annual finan- Good corporate governance, that is, tion will come in addition to the fixed bare- cial statements give a true and fair view of the proper board conduct and company manage- boat charter revenues. assets, liabilities, financial position and profit ment, are key to AMSC’s efforts to build and The extent of profit sharing contributions (or loss) as a whole as of 31 December 2008 maintain trust. AMSC is committed to main- will depend on the time charter rates as well for the group and the parent company. taining an appropriate division of responsi- as OSG’s ability to operate the vessels in a The Board of Directors’ Report for the bilities between the Company’s governing cost efficient manner. group and the parent company includes a bodies, its Board of Directors, and manage- AMSC believes there will be an increas- true and fair review of: ment. AMSC has compared the Norwegian ing need for more vessels within existing and requirements and recommendations on cor- new market segments. AMSC will continue ■■ the development and performance of the porate governance for listed companies with to aggressively pursue opportunities in the business and the position of the group the Group’s own corporate governance pro- various market segments with the goal of and the parent company cedures and practice. The findings show that growing the company and creating long-term ■■ the principal risks and uncertainties the the Company is in compliance with respect shareholder value. AMSC is well positioned group and the parent company face to the requirements and substantially in con- to take advantage of these fundamentally
Oslo, 25 February 2009 The Board of Directors American Shipping Company ASA
Robert N. Caruso Gary Mandel Annette Malm Justad Chairman Board Member Board Member
Hege Yli Melhus John Rose Robert Kurz Board Member Board Member President/CEO
American Shipping Company annual report 2008 25 Our performance Group accounts
American Shipping Company ASA Group: Consolidated Profit and Loss Account
Amounts in USD thousands (except share and per share amounts) Note 2008 2007
Operating revenues 33 341 12 698 Wages and other personnel expenses 2 (896) (303) Other operating expenses 3 (4 562) (1 490) Operating profit before depreciation 27 883 10 905
Depreciation 6 (17 482) (6 865) Operating profit 10 401 4 040
Financial income 4 5 432 6 134 Financial expenses 4 (90 321) (53 658) Profit/(loss) before income tax (74 488) (43 484)
Income tax expense 5 (232) (620) Profit/(loss) for the year from continuing operations (74 720) (44 104)
Profit from discontinued operations, net of tax 23 - 8 180
Profit/(loss) for the year (1) (74 720) (35 924)
Attributable to: Equity holders of the parent (74 720) (35 924)
Average number of common shares 12 27 600 000 27 600 000
Basic earnings/(loss) per share continuing operations (2) 12 (2.71) (1.60) Diluted earnings/(loss) per share continuing operations (3) 12 (2.71) (1.60)
Basic earnings/(loss) per share discontinued operations (2) 12 - 0.30 Diluted earnings/(loss) per share discontinued operations (3) 12 - 0.30
Basic earnings/(loss) per share (2) 12 (2.71) (1.30) Diluted earnings/(loss) per share (3) 12 (2.71) (1.30)
1) Applicable to common stockholders of the parent company. No dividends were paid on preferred stock. 2) Profit/(loss) attributable to the equity holders of the parent / average number of shares. 3) There was no potentially dilutive securities outstanding as of 31 December 2008 and 2007.
26 American Shipping Company annual report 2008 Our performance Group accounts
American Shipping Company ASA Group: Consolidated Balance Sheet of 31 December
Amounts in USD thousands Note 2008 2007
ASSETS Property, plant and equipment 6 520 828 316 172 Interest-bearing long-term receivables 7 6 301 3 936 Other non-current assets 8 92 931 94 596 Total non-current assets 620 060 414 704
Trade and other receivables 9 22 124 4 857 Income tax receivable 5 84 - Derivative financial assets 10 - 1 545 Cash and cash equivalents 11 71 805 151 865 Total current assets 94 013 158 267
Total assets 714 073 572 971
EQUITY AND LIABILITIES Share capital and share premium 13 180 408 180 408 Retained earnings/(Accumulated deficit) (99 394) (24 674) Total equity attributable to equity holders of the parent 81 014 155 734 Preferred shares in subsidiary 13 20 000 -
Total equity 101 014 155 734
Interest-bearing loans 15 - 363 852 Total non-current liabilities - 363 852
Interest-bearing debt 15 504 360 7 150 Trade and other payables 18 6 187 11 207 Income tax payable 5 87 523 Derivative financial liabilities 10 102 425 34 505 Total current liabilites 613 059 53 385
Total liabilites 613 059 417 237
Total equity and liabilities 714 073 572 971
American Shipping Company annual report 2008 27 Our performance Group accounts
American Shipping Company ASA Group: Consolidated statement of changes in equity
Retained Equity earnings/ of common Preferred Share Share (Accumulated shareholders Shares Amounts in USD thousands Capital Premium deficit) of the Parent of subsidiary Total equity
Balance at 31 December 2006 42 462 137 946 11 250 191 658 - 191 658
Profit for the year - - (35 924) (35 924) - (35 924)
Balance at 31 December 2007 42 462 137 946 (24 674) 155 734 - 155 734
Issuance of preferred shares in subsidiary - - - - 20 000 20 000
Loss for the year - - (74 720) (74 720) - (74 720)
Balance at 31 December 2008 42 462 137 946 (99 394) 81 014 20 000 101 014
28 American Shipping Company annual report 2008 Our performance Group accounts
American Shipping Company ASA Group: Consolidated Cash Flow Statement
Amounts in USD thousands Note 2008 2007
Net profit/(loss) before tax (74 488) (35 303) Less profit from discontinued operations 23 - (8 180) Unrealized foreign exchange gain/loss and other non-cash items (21 867) 12 663 Unrealized (gain)/loss interest swaps 10 66 096 34 505 Net financial expense/(income) 4 21 243 7 504 Non-cash interest expense 4 14 743 8 956 Depreciation 6 17 482 6 865 Operating cash flow from discontinued operations 23 - 5 608 (Increase)/decrease in: Other current assets 9 1 377 1 405 Other long-term operating assets 7 (5 510) 6 160 Increase/(decrease) in: Accrued liabilities and other payables 18 (27 147) (4 509) Taxes paid 5 (1 072) (1) Interest paid, net of capitalized interest 4 (10 807) (1 113) Interest received 4 4 417 4 281 Net cash flow from operating activities (15 533) 38 841
Investments in ships 6,8 (210 419) (255 686) Proceeds from disposal of businesses, net of cash disposed of 23 - 68 375 Investing cash flow from discontinued operations 23 - (4 647) Note receivable 9 (20 000) - Net cash flow used in investing activities (230 419) (191 958)
Proceeds from interest bearing debt 15 160 000 235 149 Repayment of interest bearing debt 15 (9 741) (3 138) Proceeds from bond issuance 15 - 114 170 Financing cash flow from discontinued operations 23 - (60 668) Proceeds from a subsidiary’s issuance of preferred shares 13 20 000 - Net cash flow from financing activities 170 259 285 513 Net change in cash and cash equivalents (75 693) 132 396 Effects of changes in exchange rates on cash 4 (4 367) 8 954
Cash and cash equivalents as of 1 January 151 865 10 515 Cash and cash equivalents as of 31 December 11 71 805 151 865
American Shipping Company annual report 2008 29 Our performance Group accounts
American Shipping Company: Notes to the accounts
■■ Note 1: Accounting Principles
CORPORATE INFORMATION expected earnings from existing contracts and American Shipping Company ASA (the Com- expected profit sharing participation. PROPERTY, PLANT AND EQUIPMENT pany) is incorporated and domiciled in Norway. Property, plant and equipment acquired by The address of the main office is Fjordalleen GROUP ACCOUNTING AND CONSOLIDA- Group companies are stated at historical cost, 16, P.O. Box 1423 Vika, NO-0115 Oslo, Norway. TION PRINCIPLES except the assets of acquired subsidiaries American Shipping Company ASA is listed on The consolidated financial statements of AMSC that were stated at the fair values at the date the Oslo Stock Exchange. Group include the financial statements of the of acquisition. Depreciation is calculated on a The principle activity of the business is to parent company (American Shipping Com- straight-line basis and adjusted for impairment purchase and bareboat charter product tankers, pany ASA) and its subsidiaries. Subsidiaries charges, if any. The carrying value of the pro- shuttle tankers and other vessels to operators are those entities in which AMSC Group either perty, plant and equipment on the balance sheet and end users in the U.S. Jones Act market. owns, directly or indirectly, over fifty percent of represents the cost less accumulated deprecia- the voting rights, or otherwise has the power tion and any impairment charges. Cost includes STATEMENT OF COMPLIANCE to govern their operating and financial policies. expenditures that are directly attributable to the The consolidated financial statements of Ame- Share options, convertible debt and other equity acquisition of the asset. Interest costs on bor- rican Shipping Company ASA and all its sub- instruments are considered when assessing rowings to finance the construction of property, sidiaries (AMSC Group, the Group) have been whether an entity is controlled. plant and equipment are capitalized during the prepared in accordance with International Fi- Acquisitions of subsidiaries are accounted period of time that is required to complete and nancial Reporting Standards as adopted by the for using the purchase method of accounting. prepare the asset for its intended use. Other European Union (IFRS). The excess cost of the acquisition over the fair borrowing costs are expensed. These accounts have been approved for issue value of the net assets of the subsidiary acqui- Land is not depreciated, but other fixed as- by the Board of Directors on 25 February 2009. red measured at the date of change of control is sets in use are depreciated on a straight-line recorded as goodwill. basis. Expected useful lives of long-lived assets BASIS FOR PREPARATION Subsidiaries acquired during the year are in- are reviewed annually and, where they differ sig- These consolidated financial statements have cluded in the consolidated financial statements nificantly from previous estimates, depreciation been prepared on a historical cost basis, except from the date on which control is transferred to periods are changed accordingly. for derivative financial instruments, available-for- AMSC. Ordinary repairs and maintenance costs are sale investment securities and financial assets Where necessary, the accounting policies charged to the income statement during the and financial liabilities held-for-trading that have of subsidiaries have been adjusted to ensure financial period in which they are incurred. The been measured at fair value. The carrying va- consistency with the policies adopted by AMSC. cost of major renovations is included in the lues of recognized assets and liabilities that are All intercompany transactions, receivables, liabi- asset’s carrying amount when it is probable that hedged are adjusted to record changes in the lities and unrealized profits, as well as intragroup the Group will derive future economic benefits fair values attributable to the risks that are being profit distributions, are eliminated. in excess of the originally assessed standard of hedged. performance of the existing asset. Major renova- The consolidated financial statements are FOREIGN CURRENCY TRANSLATION AND tions are depreciated over the useful lives of the presented in USD (thousands), except when TRANSACTIONS related assets. indicated otherwise. Functional currency Gains and losses on disposals are determined Items included in the financial statements of by comparing the disposal proceeds with the USE OF ESTIMATES each subsidiary in the Group are initially recor- carrying amount and are included in operating The preparation of financial statements in ded in the functional currency, i.e. the currency profit. Assets to be disposed of are reported at conformity with IFRS requires the use of esti- that best reflects the economic substance of the the lower of the carrying amount and the fair mates and assumptions that affect the reported underlying events and circumstances relevant to value less selling costs. amounts in the financial statements. Although that subsidiary. these estimates are based on management’s The consolidated financial statements are FINANCIAL INVESTMENTS best knowledge of current events and actions, presented in United States dollars (USD), which All investments are initially recognized at cost, actual results may ultimately differ from those is the functional and reporting currency of the being the fair value of the consideration given estimates. parent company and subsidiaries. and including acquisition charges associated Estimates and underlying assumptions are with the investment. reviewed on an ongoing basis. Revisions to ac- Transactions and balances Other long-term investments that are inten- counting estimates are recognized in the period Foreign currency transactions are translated ded to be held-to-maturity are subsequently in which the estimates are revised if the revision into USD using the exchange rates prevailing measured at amortized cost using the effective affects that period or in the period of revision at the dates of the transactions. Receivables interest method. Amortized cost is calculated and future periods if the revision affects both and liabilities in foreign currencies are trans- by taking into account any discount or premium current and future periods. lated into USD at the exchange rates in effect on acquisition, over the year to maturity. For Critical accounting estimates and assump- on the balance sheet date. Foreign exchange investments carried at amortized cost, gains and tions are as follows: gains and losses resulting from the settlement losses are recognized in income when the inves- of such transactions and from the translation of tments are derecognized or impaired, as well as Deferred Income Tax Assets monetary assets and liabilities denominated in through the amortization process. Deferred income tax assets are recognized foreign currencies are recognized in the income when it is probable that they will be realized. statement. Foreign exchange differences arising IMPAIRMENT OF LONG-LIVED ASSETS Determining probability requires the Group to in respect of operating business items are inclu- Property, plant and equipment and other estimate the sources of future taxable income ded in operating profit in the appropriate income non-current assets are reviewed for potential from operations and reversing taxable tempora- statement account, and those arising in respect impairment whenever events or changes in cir- ry differences. Determining these amounts is of financial assets and liabilities are recorded net cumstances indicate that the carrying amount of subject to uncertainty and is based primarily on as a financial item. an asset may not be recoverable.
30 American Shipping Company annual report 2008 Our performance Group accounts
For the purposes of assessing impairment, method; any difference between proceeds (net Once the contributions have been paid, there are assets are grouped at the lowest levels for of transaction costs) and the redemption value no further payment obligations. Plan contribu- which there are separately identifiable, mainly is recognized on the income statement over the tions are charged to the income statement in the independent, cash flows. An impairment loss is period of the interest-bearing liabilities. Amorti- period to which the contributions relate. the amount by which the carrying amount of the zed cost is calculated by taking into account any assets exceeds the recoverable amount. The issue costs, and any discount or premium on FINANCIAL RISK MANAGEMENT recoverable amount is the higher of the asset’s settlement. The Group’s activities expose it to a variety of fi- net selling price and its value in use. The value Gains and losses are recognized in net profit nancial risks: market risk (including currency risk, in use is determined by reference to discounted or loss when the liabilities are derecognized or fair value interest risk and price risk), credit risk, future net cash flows expected to be generated impaired, as well as through the amortization cash-flow interest-rate risk and foreign exchange by the asset. Most critical in determining the va- process. risk. The Group’s overall risk management pro- lue in use of vessels is determining the estimated gram focuses on the unpredictability of financial profit share on existing contracts and estimating INCOME TAXES markets and seeks to minimize potential adverse future revenues from new contracts. These esti- Current income taxes effects on the Group’s financial performance. mates are primarily influenced by expectations Income tax receivable and payable for the cur- The Group uses derivative financial instruments of future demand in the Jones Act market. rent period are measured at the amount ex- to hedge certain risk exposures. A previously recognized impairment loss is pected to be recovered or paid to the taxation Risk-management is carried out under po- reversed only if there has been a change in the authorities. The tax rates and tax law as used to licies approved by the Board of Directors. The estimates used to determine the recoverable compute the amount are those that are enacted Board of Directors provides principles for overall amount, however not to an extent higher than or substantively enacted at the balance sheet financial risk management as well as policies co- the carrying amount that would have been deter- date. vering specific areas such as foreign exchange mined had no impairment loss been recognized risk, interest-rate risk, credit risk, and use of de- in prior years. Deferred income taxes rivative financial instruments and non-derivative Deferred income tax is provided, using the liabi- financial instruments. LEASES lity method, on all temporary differences at the Leases where a significant portion of the risks balance sheet date between the tax bases of Credit Risk and rewards of ownership are retained by the assets and liabilities and their carrying amounts Due to the nature of the Group’s operations, lessor are classified as operating leases. Pay- for financial reporting purposes. revenues and related receivables are currently ment made under operating leases net of any Deferred income tax assets are recognized for concentrated amongst two customers. The incentives received from the lessor is charged all deductible temporary differences, carry-for- Group continually evaluates the credit risk asso- to the income statement on a straight-line basis ward of unused tax assets and unused tax los- ciated with customers. over the period of the lease. ses, to the extent that it is probable that taxable profit will be available against which the deducti- Interest Rate Risk OTHER NON-CURRENT ASSETS ble temporary differences, and the carry-forward The Group is exposed to fluctuations in interest Other non-current assets include milestone pay- of unused tax assets and unused tax losses rates for its variable interest rate debt related to ments made on future committed tankers and can be utilized. The carrying amount of deferred the bond financing. With regards to the Fortis the balance of the deferred principal obligation income tax assets is reviewed at each balance takeout financing, the Group has entered into (DPO) due from a customer. sheet date and reduced to the extent that it is interest swap agreements to lock in the interest no longer probable that sufficient taxable profit rate paid. TRADE RECEIVABLES will be available to allow all or part of the defer- Trade receivables are carried at their anticipated red income tax asset to be utilized. Expected Foreign Exchange Risk realizable value, which is the original invoice utilization of tax losses are not discounted when The Group is exposed to foreign currency risk for amount less an estimated valuation allowance calculating the deferred tax asset. purchases made by Aker Philadelphia Shipyard for impairment of these receivables. A valuation Deferred income tax assets and liabilities are pursuant to the shipbuilding and option agre- allowance for impairment of trade receivables is measured at the tax rates that are expected to ements in currencies other than the U.S. Dollar made when there is objective evidence that the apply to the year when the asset is realized or which primarily relates to materials. In addition, Group will not be able to collect all amounts due the liability is settled, based on tax rates (and tax American Shipping Company is exposed to according to the original terms of the receiva- laws) that have been enacted or substantively foreign currency risk related to its Norwegian bles. enacted at the balance sheet date. Kroner (NOK) 700 million bond and certain cash Income tax relating to items recognized di- accounts, however, the Group has some foreign CASH AND CASH EQUIVALENTS rectly in equity is recognized in equity and not in exchange derivative instruments in place to miti- Cash and cash equivalents comprise cash on the income statement. gate that risk. hand, deposits held at call with banks, other short-term highly liquid investments with original PROVISIONS Counter-party Credit Risk maturities of three months or less, and bank A provision is recognized when the Group has AMSC’s take-out financing has certain cross- overdrafts. a present obligation (legal or constructive) as defaults to AKPS’s construction financing. a result of a past event and it is probable (i.e. AMSC closely monitors this link to AKPS and its SHARE CAPITAL more likely than not) that an outflow of resources impact on operations through frequent updates Ordinary shares are classified as equity. In- embodying economic benefits will be required to with AKPS’s management. If there is an event of cremental costs directly attributable to the issue settle the obligation, and a reliable estimate can default under AKPS’s construction financing and of new shares or options are shown in equity be made of the amount of the obligation. Provi- the construction debt is accelerated, AMSC’s as a deduction, net of tax, from the proceeds. sions are reviewed at each balance sheet date take-out financing would also be in default, Preferred shares of a subsidiary are classified as and adjusted to reflect the current best estimate. which would require AMSC to seek waivers from equity. Where any Group company purchases The amount of the provision is the present its lending syndicate. As a condition to any such the Company’s equity share capital (treasury value of the risk adjusted expenditures expected waiver, a lender might, among other things, re- shares), the consideration paid, including any di- to be required to settle the obligation, determi- quire additional collateral or guarantees, increase rectly attributable incremental costs, is deducted ned using the estimated risk free interest rate as the interest rate, and/or impose fees. There is no from equity. the discount rate. Where discounting is used, guarantee the lending syndicate would grant any the carrying amount of the provision increases such waiver, in which case they could demand INTEREST-BEARING LIABILITIES in each period to reflect the unwinding of the immediate repayment of their loans, foreclose on All loans and borrowings are initially recognized discount by the passage of time. This increase is their collateral and/or exercise their other rights at cost, being the fair value of the consideration recognized as interest expense. and remedies. received net of issue costs associated with the borrowing. PENSIONS Capital Management Risk After initial recognition, interest-bearing loans The Group has a defined contribution pension AMSC’s objectives when managing capital are and borrowings are subsequently measured plan that covers its employees whereby con- to safeguard its ability to continue as a going at amortized cost using the effective interest tributions are paid to qualifying pension plans. concern in order to provide returns for sharehol-
American Shipping Company annual report 2008 31 Our performance Group accounts
ders and benefits for other stakeholders, while vatives that do not qualify for hedge accounting of conditions that existed at the balance sheet maintaining an optimal capital structure to mi- are accounted for as trading instruments. date (adjusting events) and those that are indi- nimize the cost of capital. To meet these capital Estimates of the fair value of foreign currency cative of conditions that arose after the balance structure objectives, AMSC will review annually contracts and interest rate swaps are obtained sheet date (non-adjusting events). Financial with its Board any proposed dividends as well from a third party. The fair value of derivative statements will only be adjusted to reflect ad- as any needs to raise additional equity for future long-term financial liabilities is disclosed in note justing events and not non-adjusting events business opportunities or to reduce debt. 19 regarding financial instruments. (although there are disclosure requirements for such events). Funding/Investment Risk RELATED PARTY TRANSACTIONS The current global financial crisis has placed All transactions, agreements and business ac- RECENTLY ISSUED ACCOUNTING STAN- existing and future financing sources at risk. tivities with related parties are, in the Group’s DARDS AND PRONOUNCEMENTS AMSC regularly monitors the health of its take- opinion, conducted on an arm’s length basis AMSC has not applied the following IFRS Stan- out financing lending syndicate. Additionally, according to ordinary business terms and con- dards and IFRIC Interpretations that have been AMSC monitors the financial health of the finan- ditions. issued but are not yet effective: cial institutions which it uses for cash manage- ment services and in which it make deposits and REVENUE RECOGNITION Amendments to IAS 1, Presentation of Financial other investments. AMSC responds to changes Revenue is recognized only if it is probable that Statements: A Revised Presentation is applica- in conditions affecting its financing sources and future economic benefits will flow to the Com- ble to the company effective 1 January 2009. deposit relationships as situations warrant. pany, and these benefits can be measured relia- This will require the Company to present equity bly. Revenues related to vessel bareboat charter in a single statement of comprehensive income Accounting for derivative financial instru- agreements are recognized over the charter (which will include the current income statement) ments and hedging activities period. Time-charter agreements may contain and owner changes in equity in the statement of Derivative financial instruments are recognized a revenue sharing agreement with the charterer. changes in equity. Reclassification adjustments initially and in subsequent periods on the balan- Revenue related to profit sharing agreements and income tax relating to each component of ce sheet at fair value. The method of recognizing is recognized when the amount becomes fixed other comprehensive income will be disclosed the resulting gain or loss is dependent on the and determinable. Revenue related to the defer- on the face of the statement of comprehensive nature of the item being hedged. On the date red payment obligation (DPO) is discounted in income. Currently there are no such compo- a derivative contract is entered into, the Group cases where a payment period extends beyond nents applicable to the Company. designates the derivatives as either a hedge of 12 months. the fair value of a recognized asset or liability IFRS 8-Operating Segments (fair value hedge), or a hedge of a forecasted SEGMENT INFORMATION This standard will change the information requi- transaction (cash flow hedge) or of a firm com- AMSC has only one business segment. red to be presented for segment information and mitment (fair value hedge). is required to be implemented for annual periods Changes in the fair value of derivatives that DIVIDENDS beginning on 1 January 2009. The effects of im- are designated and qualify as fair value hedges Dividends are recorded in the Group’s financial plementing IFRS 8 should not be significant, as and that are highly effective both prospectively statements in the period in which they are ap- the Company has only one business segment. and retrospectively are recorded in the income proved by the Group’s shareholders. statement, along with any changes in the fair Revised IAS 23 – Borrowing Costs value of the hedged asset or liability that is at- BASIC AND DILUTED EARNINGS PER SHARE Revised IAS 23 will require companies to capi- tributable to the hedged risk. Changes in the The calculation of basic earnings per share talize borrowing costs on qualifying assets. Cur- fair value of derivatives that are designated and is based on the profit attributable to ordinary rently, companies have a choice to either capi- qualify as cash flow hedges and that are highly shareholders using the weighted average num- talize or expense such costs. The Group already effective both prospectively and retrospectively ber of shares outstanding during the year after capitalizes borrowing costs, as a result, Revised are initially recognized in equity and subsequ- deduction of the average number of treasury IAS 23 will not have a significant impact on its ently reclassified to the income statement when shares held over the period. The calculation of consolidated financial statements. hedged transactions are realized. AMSC cur- diluted earnings per share is consistent with the rently has no derivative instruments that qualify calculation of basic earnings per share while for hedge accounting under IFRS. giving effect to all dilutive potential ordinary Changes in the fair value of any derivative shares that were outstanding during the period. instruments that do not qualify for hedge acco- The Group currently has no potentially dilutive unting under IFRS are recognized immediately in shares outstanding. the income statement. In accordance with its treasury policy, the EVENTS AFTER THE BALANCE SHEET DATE Group does not hold or issue derivative financial A distinction is made between events both fa- instruments for trading purposes. However, deri- vorable and unfavorable that provide evidence
■■ Note 2: Wages and other personnel expenses
Wages and other personnel expenses consist of:
Amounts in USD thousands 2008 2007
Wages 829 287 Social security contributions 29 14 Pension costs (see note 17) 5 - Other expenses 33 2 Total expense 896 303 Average number of employees 3 1 Number of employees at year-end 4 1
32 American Shipping Company annual report 2008 Our performance Group accounts
■■ Note 3: Other operating expenses
Other operating expenses consist of:
Amounts in USD thousands 2008 2007
Rent and leasing expenses 79 1 Other operating expenses 4 483 1 489 Total other operating expenses 4 562 1 490
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 fees were as follows:
Amounts in USD thousands 2008 2007
Ordinary auditing 194 215 Total 194 215
Additional audit and audit related fees of USD 154 were paid to KPMG in 2007 related to the sale of AKPS and are included in discontinued operations.
■■ Note 4: Financial income and financial expenses
Amounts in USD thousands 2008 2007
Interest income 5 432 4 281 Other financial income - 1 853 Financial income 5 432 6 134
Interest expense (36 652) (19 135) Interest capitalized on vessels 10 053 7 350 Net foreign exchange gain/(loss) 4 915 (347) Other financial expenses (68 637) (41 526) Financial expenses (90 321) (53 658)
Net financial items (84 889) (47 524)
Interest income in 2008 includes income on bank deposits of USD 4.7 million and accrued interest on a note receivable from Aker ASA (see note 9) of USD 0.7 million. Interest income on bank deposits in 2007 was USD 4.3 million.
The Company recognized a realized gain on the termination of DnB NOR interest swaps in February 2007 totaling USD 1.9 million, which is included in other financial income in 2007.
The DnBNOR loan commitment was subsequently refinanced with Fortis Capital Corp. (Fortis) in 2007 and new interest swaps were entered into. For the years ended 31 December 2008 and 2007, a mark-to-market unrealized loss on the interest swaps of USD 66.1 million and USD 34.5 million, respectively, is included in other financial expenses. Furthermore, in connection with the refinancing, a write-off of loan origination fees of USD 6.1 million relating to the DnB NOR facility is included in other financial expenses in 2007.
Also included in other financial expenses are amortization of lending fees and miscellaneous other financial costs of USD 2.5 million in 2008 and USD 0.9 million in 2007.
Interest expense in 2008 includes interest paid to Fortis of USD 20.9 million and accrued interest relating to the bond of USD 15.8 million. Interest expense in 2007 includes interest paid to Fortis of USD 8.5 million, accrued interest on the bond of USD 10.4 million and miscellaneous interest expense of USD 0.2 million.
Capitalized interest relates to the prepayments made to Aker Philadelphia Shipyard (see note 8). Interest is capitalized at a rate equal to the interest rate on the NOK bond, or the Norwegian Inter Bank Offered Rate (NIBOR) plus 4.75%.
Net foreign exchange gain in 2008 includes a USD 35.3 million unrealized gain on the bond (see note 15), partially offset by a USD 4.4 million loss on the NOK cash balance, a USD 22.8 loss on foreign exchange contracts and other foreign exchange losses of USD 3.2 million. Net foreign exchange loss in 2007 includes a USD 16.2 million unrealized loss on the bond, partially offset by a USD 9.0 million gain on the NOK cash balance and a USD 6.9 million gain on foreign exchange contracts.
American Shipping Company annual report 2008 33 Our performance Group accounts
■■ Note 5: Tax
Income tax expense Recognized in the income statement
Amounts in USD thousands 2008 2007
Current tax expense Current year 232 (14) Total current tax expense/(benefit) 232 (14)
Deferred tax expense Origination and reversal of temporary differences - 634 Adjustment for discontinued operations - - Total deferred tax expense - 634 Total income tax expense/(benefit) in income statement 232 620
Reconciliation of effective tax rate
Amounts in USD thousands 2008 2007
Profit before tax including discontinued operations (74 488) (35 304) 28.0% 28.0% Expected tax expense using nominal Norwegian tax rate of 28% (20 857) (9 885) Effect of differences between nominal Norwegian tax rate and U.S. federal and state tax rate (10 693) (4 842) Income not subject to tax - (1 137) Foreign exchange (1 521) (444) Tax losses for which no deferred income tax asset was recognised and write-off of existing deferred tax assets 33 311 16 149 Tax gain in excess of book gain on sale - 1 170 Tax losses used by member leaving the Group (142) (537) Other differences 134 146 Total income tax expense/(benefit) in income statement 232 620
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 2008 for the Group was primarily the U.S., the Common- wealth of Pennsylvania and the City of Philadelphia.
The offset amounts for U.S. items are as follows:
Amounts in USD thousands 2008 2007
Deferred tax assets - 270 Deferred tax liabilities - (270) Net deferred tax assets - -
Deferred assets have not been recognized in respect of the following items The Group has net operating losses carryforwards as of 31 December 2008 of USD 55.9 million in the U.S. and USD 12.5 million in Norway. Deferred tax as- sets have not been recognized in respect of these items because it is not probable that future taxable profit in the short term will be available against which the Group can utilize the benefits therefrom. In addition, no deferred tax assets have been established for unrealized net losses on derivative financial in- struments of USD 102.4 million. On 6 June 2008, American Tanker, Inc. (ATI, formerly known as Aker American Shipping, Inc.) & Subsidiaries experienced a change of control in the U.S. as defined by Internal Revenue Code due to the sale of shares to SEB Enskilda. Net operating losses carryfowards at that date are expected to be available for use under the tax laws.
The gross movement in the deferred income tax account for U.S. tax jurisdictions is as follows: Amounts in USD thousands 2008 2007 - Beginning of the year - (5 260) Deferred tax expense - (635) Discontinued operations - 5 895 End of the year - -
34 American Shipping Company annual report 2008 Our performance Group accounts
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the U.S. tax jurisdic- tion, is as follows:
Deferred tax assets: Provisions Amounts in USD thousands of assets Tax losses Other Total
Balance at 01 January 2007 6 007 482 1 856 8 345 (Credited)/charged to the income statement - (209) (1 586) (1 795) Discontinued Operations (6 007) (273) - (6 280) Balance at 31 December 2007 - - 270 270 (Credited)/charged to the income statement - - (270) (270) Discontinued Operations - - - - Balance at 31 December 2008 - - - -
Deferred tax liabilities: Accelereated tax Amounts in USD thousands depreciation Projects Other Total
Balance at 01 January 2007 (11 808) (368) (2 551) (14 727) (Credited)/charged to the income statement - - 2 281 2 281 Discontinued Operations 11 808 368 - 12 176 Balance at 31 December 2007 - - (270) (270) (Credited)/charged to the income statement - - 270 270 Discontinued Operations - - - - Balance at 31 December 2008 - - - -
American Shipping Company annual report 2008 35 Our performance Group accounts
■■ Note 6: Property, plant and equipment
Movements in property, plant and equipment for 2008 are shown below: Machinery Land Under Amounts in USD thousands Ships Vehicles Buildings Improvements Construction Total
Cost balance at 1 January 2008 322 093 - - - 944 323 037 Purchases 165 000 - - - 10 667 175 667 Reclassification from other long term assets 49 671 - - - (3 200) 46 471 Cost balance at 31 December 2008 536 764 - - - 8 411 545 175
Depreciation at 1 January 2008 6 865 - - - - 6 865 Depreciation charge for the year 17 482 - - - - 17 482 Depreciation at 31 December 2008 24 347 - - - - 24 347
Book value at 31 December 2008 512 417 - - - 8 411 520 828
Movements in property, plant and equipment for 2007 are shown below: Machinery Land Under Amounts in USD thousands Ships Vehicles Buildings Improvements Construction Total
Cost balance at 1 January 2007 - 30 836 56 953 17 275 234 631 339 695 Purchases 87 462 - - - 944 88 406 Reclassification 234 631 - - - (234 631) - Disposals through sale of business - (30 836) (56 953) (17 275) - (105 064) Cost balance at 31 December 2007 322 093 - - - 944 323 037
Depreciation at 1 January 2007 - 15 058 15 561 2 888 (6 390) 27 117 Depreciation charge for the year 6 865 - - - - 6 865 Disposals through sale of business - (15 058) (15 561) (2 888) 6 390 (27 117) Depreciation at 31 December 2007 6 865 - - - - 6 865
Book value at 31 December 2007 315 228 - - - 944 316 172
Depreciation period 25 years Depreciation method straight-line
Secured property, plant and equipment At 31 December 2008 vessels with a carrying amount of USD 512.4 million are subject to a registered debenture to secure bank loans (see note 15).
The Fortis credit facility is secured by, among other things, a first preferred mortgage on each of the first 10 product tankers, which is granted when such vessel is delivered, and a blanket lien on substantially all assets of the owners of those vessels. In addition, the Fortis credit facility is secured by collateral assignments of the earnings and bareboat charters for those vessels (and certain related guarantees of those bareboat charters and related supplemental indemnifications by OSG), and collateral assignments of the shipbuilding contracts and insurances for each of the first 10 product tankers, which are gran- ted when such vessel is delivered.
AMSC is contractually obligated to purchase seven tankers at USD 103.675 million each, subject to escalation as defined in the agreement with Aker Philadelphia Shipyard, Inc. (APSI).
Property, plant and equipment under construction The total of USD 8.4 million asset under construction includes USD 7.9 million of capitalized interest on milestone payments for vessels under construction and USD 0.5 million for other ship related costs.
36 American Shipping Company annual report 2008 Our performance Group accounts
■■ Note 7: Interest-bearing long-term receivables
Financial interest-bearing long-term receivables consist of the following items:
Amounts in USD thousands Interest rate 2008 Interest rate 2007
Restricted deposits 3.87% 2 582 4.75% 2 953 Other interest-bearing long-term receivables 6.06% 3 719 6.06% 983 Total 6 301 3 936
The restricted deposits relate to collateral deposited as security for foreign exchange swaps entered into, which bears interest at a floating rate based upon the Norwegian Inter Bank Offered Rate (NIBOR).
Other interest-bearing long-term receivables relate to a deferred payment obligation (DPO). Pursuant to the current charter and financing agreements, OSG America L.P. has the right to defer payment of a portion of the bareboat charter hire for the first five vessels during the initial seven year fixed bare- boat charter periods. OSG America L.P. will pay a reduced bareboat charter rate and assume the DPO. The DPO accrues on a daily basis to a maximum liability of USD 7 million per vessel subject to adjustments as defined in the agreements. The DPO during the initial seven year period is discounted. After the initial seven years, the DPO is repaid over 18 years including interest unless the bareboat charter is terminated earlier at which time the DPO becomes due immediately. Interest accreted to the receivable in 2008 was USD 126 thousand (USD 18 thousand in 2007).
■■ Note 8: Other non-current assets
Other non-current assets consist of the following items:
Amounts in USD thousands 2008 2007
Deposits for ships 92 931 94 596 Total 92 931 94 596
Deposits for ships in 2008 include milestone payments for seven vessels which the company has committed to purchase from APSI. Also included is USD 3.0 million for long lead items which the company has agreed to fund for the first two option vessels. In 2007, deposits included milestone payments for nine vessels which the company had committed to purchase from APSI, of which two were delivered in 2008.
■■ Note 9: Trade and other receivables
Trade and other receivables consist of the following items:
Amounts in USD thousands 2008 2007
Trade receivables - 186 Advance payment to suppliers 521 145 Other short-term interest-free receivables 888 4 526 Other short-term interest-bearing receivables 20 715 - Total 22 124 4 857
Advance payments to suppliers as of 31 December 2008 and 2007 include prepaid fees and deferred costs. Other short-term interest-free receivables are mainly from AKPS.
The interest-bearing receivable is issued from a company subsidiary to Aker ASA for USD 20 million from the proceeds of the sale of preferred stock (see note 13). The receivable bears interest at LIBOR plus 1.5%. Accrued interest through 31 December 2008 was USD 0.7 million. The note is repayable upon demand by the company.
American Shipping Company annual report 2008 37 Our performance Group accounts
■■ Note 10: Derivative financial assets and liabilities
Derivative financial assets and liabilities comprise the following items:
Amounts in USD thousands 2008 2007
Fair value of foreign currency forward contracts - 1 545 Derivative financial assets - 1 545
Fair value of interest rate swaps 100 601 34 505 Fair value of foreign currency forward contracts 1 824 - Derivative financial liabilities 102 425 34 505
In connection with the Fortis loan, interest swap agreements were entered into in 2007 and as of 31 December 2008 and 2007 the market value was negative USD 100.6 million and negative USD 34.5 million, respectively. The fair value of the interest swaps is obtained from a third party. 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 400 basis points at 31 December 2008. The result of the credit spread differential had a positive impact of USD 11.1 million on fair value at 31 December 2008 and was not significant in 2007.
The foreign currency forward contracts are a combination of foreign currency swap contracts in order to hedge the profit and loss exposure to foreign exchange fluctuations and a forward contract for part of the NOK bond interest payment. Estimates of the fair value of these contracts are obtained from a third party. The impact of the Company’s own credit risk on the foreign currency valuations was not significant in 2008 or 2007.
■■ Note 11: Cash and cash equivalents
Cash and cash equivalents comprise the following items:
Amounts in USD thousands 2008 2007
Cash and bank deposits 71 805 151 865 Cash and cash equivalents 71 805 151 865
Short-term investments are made for varying periods of between one day and three months depending on the immediate cash requirements of AMSC, and earn interest at the respective short-term deposit rates.
■■ Note 12: Earnings per common share
Basic and diluted 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.
Amounts in USD thousands (except share and per share data) 2008 2007
Profit/(loss) attributable to equity holders of the Company from continuing operations (74 720) (44 104) Profit attributable to equity holders of the Company from discontinued operations - 8 180 Profit/(loss) attributable to equity holders of the Company for the period (74 720) (35 924) Weighted average number of ordinary shares in issue 27 600 000 27 600 000
Basic and diluted earnings/(loss) per share (USD per share) from continuing operations (2.71) (1.60) Basic and diluted earnings per share (USD per share) from discontinued operations - 0.30 Basic and diluted earnings/(loss) per share (USD per share) (2.71) (1.30)
There were no potentially dilutive securities outstanding as of 31 December 2008 and 2007.
38 American Shipping Company annual report 2008 Our performance Group accounts
■■ Note 13: Paid in capital
The current authorized and issued share capital of AMSC is 27,600,000 ordinary shares, each with a par value of NOK 10 (USD 1.54 at an exchange rate of NOK/USD 6.50), fully paid. No common shares were issued in 2008.
The changes in equity are:
Common shares of equity holders of the parent Total paid in capital attributable to Preferred shares Amounts in USD thousands Share Capital Share premium holders of the parent in subsidiary Total paid in equity
1 January 2007 42 462 137 946 180 408 180 408
31 December 2007 42 462 137 946 180 408 - 180 408
Issuance of preferred shares by subsidiary - - - 20 000 20 000
31 December 2008 42 462 137 946 180 408 20 000 200 408
There were 3,500 preferred shares authorized in 2008 by a subsidiary of AMSC, of which 500 were issued. The 500 issued preferred shares are non-diluti- ve, redeemable preferred stock with a par value of USD 40,000 per share that were issued to Aker ASA. The preferred stock is redeemable only at the op- tion of AMSC and holders have no voting rights. Dividends are declared only at the Company’s discretion equal to 5% annually and are payable in arrears. There have been no dividends declared. The redemption amount is equal to par value plus cumulative undeclared dividends.
■■ Note 14: Group entities
The largest subsidiaries included in the American Shipping Company ASA’s Group account were as follows. Companies owned directly by American Ship- ping Company ASA are highlighted. AMSC’s AMSC’s Registered common holding % voting share % office Country
American Tanker, Inc. 100 % 100 % Philadelphia, PA USA American Shipping Corporation 100 % 100 % Philadelphia, PA USA American Tanker II, Inc. 100 % 100 % Philadelphia, PA USA American Shipping Corporation II 100 % 100 % Philadelphia, PA USA American Tanker III, Inc. 1) 100 % 100 % Wilmington, DE USA American Shuttle Tanker, LLC 100 % 100 % Philadelphia, PA USA
1) This entity has issued non-dilutive, non-voting shares of redeemable preferred stock (see note 13).
Restrictions on dividend payments Subject to certain exceptions, the Fortis credit agreement restricts the payment of dividends by American Shipping Company ASA (“AMSC”) and Ame- rican Shipping Corporation (“ASC”). Specifically, AMSC may pay dividends only if it has a Fixed Charge Coverage Ratio of at least 1.1:1.0 for the most recent 12-month period and satisfies certain other requirements. In that case, it may pay a dividend of up to 50 percent of Net Cash Earnings for the most recent 12-month period provided that it also either (i) makes an equal prepayment on the Fortis loan or (ii) deposits an equal amount in an account pledged to the lenders as additional collateral for the Fortis loan. ASC may pay dividends only if it has a Fixed Charge Coverage Ratio of at least 1.05:1.0 for the most recent 12-month period and satisfies certain other requirements. Dividends may be paid by the leasing companies to ASC and by American Tanker, Inc. (“ATI”) to AMSC.
Subject to certain exceptions, the Fortis Credit Agreement prohibits ATI and its subsidiaries from lending money, or making investments in other entities, including their affiliates. ATI may, however, make capital contributions to ASC, and ASC may make capital contributions to the leasing companies. These restrictions do not apply to AMSC.
Subject to certain exceptions, the Fortis credit agreement prohibits ATI and its subsidiaries from incurring additional indebtedness other than intercompany loans from AMSC that are not due prior to the maturity date of the Fortis loan and are fully subordinated to the Fortis loan. The Fortis credit agreement prohibits ATI and its subsidiaries from making any prepayment on any indebtedness (other than the Fortis loan), including any prepayment on subordinated indebtedness owing to AMSC. These restrictions do not apply to AMSC.
American Shipping Company annual report 2008 39 Our performance Group accounts
■■ Note 15: Interest-bearing loans and liabilities
This note provides information about the contractual terms of AMSC’s interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 19.
Amounts in USD thousands 2008 2007
Non-current liabilities Secured loans - 225 685 Unsecured bond issues - 138 167 Total long term interest bearing loans - 363 852
Current liabilities Current portion of secured loans 385 200 7 150 Unsecured bond issues 119 160 - Total interest-bearing short term debt 504 360 7 150
Secured Loans as of 31 December Maturities 2008 2007
Fortis Capital Corp. gross borrowings 2014-2016 405 926 254 260 Less unamortized loan fees (20 726) (21 425) Sum Secured Loans 385 200 232 835
American Shipping Company has secured long-term take-out financing of USD 770 million for ten product tankers with Fortis. The facility is structured so that upon delivery of each vessel, AMSC will draw down approximately USD 80 million with partial repayment to Fortis over the initial fixed bareboat charter period.
In connection with the Fortis facility, AMSC has entered into interest rate swap agreements which, in effect, lock in the interest rate AMSC pays to Fortis. The fixed interest rates vary between 6.1% and 6.2% p.a.
Unsecured bond issue as of 31 December Maturity 2008 2007
Bond issue 2012 114 170 114 170 Interest added to bonds outstanding 24 946 8 956 Foreign currency impact (19 052) 16 230 Less unamortized loan fees (904) (1 189) Sum Unsecured bond issue 119 160 138 167
On 16 February 2007 AMSC issued a NOK 700 million bond. The interest rate on the bond is NIBOR plus a margin of 4.75%. AMSC has the option to make any of the interest payments for the first three years as payment-in-kind (PIK) where the interest is added to the principal. AMSC also has the option to call the bond, or parts of the bond, at certain dates. The first call date is August 2009 at which AMSC can redeem the bond at a call price of 104.75% of par. The Company has elected PIK for all of its interest periods to date. The bond along with any PIK interest is due in full in February 2012. As of 31 December 2008, the bond loan balance including PIK interest is NOK 839.0 million (NOK 751.6 million as of 31 December 2007).
The covenants on the Company’s NOK denominated bond require that consolidated equity be maintained at a level not less than USD 140 million at a quarterly measurement date. As of 31 December 2008, the Company’s total consolidated equity was USD 101.0 million, including unrealized swap losses of USD 100.6 million. The decrease in equity as compared to 31 December 2007 has occurred primarily due to unrealized losses on derivatives used to fix the interest rate the Company pays on its USD 770 million credit facility which is used to finance the purchase of vessels. These unrealized losses have resulted from the decrease in interest rates compared to rates at the commencement of the credit facility and related interest rate swap agreements.
On 25 February 2009, a bondholders meeting was convened whereupon the Company’s bondholders agreed to modify the covenant to exclude unrealized gains and losses on the interest rate swaps from the minimum consolidated equity calculation for the duration of the bond term. Therefore, with the bondholders’ approval, the calculation of equity under the amended covenants as of 31 December 2008 was approximately USD 202 million and the Company believes it is highly probable that it will remain in compliance with this covenant for the remaining term of the bonds. However, because as of 31 December 2008, equity was less than the required minimum amount, all of the Company’s debt is classified as current on its balance sheet due to IFRS requirements, as well as cross-default provisions which impact the Company’s other debt facility.
Due to the approved modification in the minimum consolidated equity covenant subsequent to 31 December 2008, the Company expects to again classify the majority of its debt as long-term for its 31 March 2009 interim reporting.
In addition, the bondholders voted to approve the Company’s request to extend the PIK interest option through the end of the loan term.
The Company has entered into a NOK 90 million foreign currency forward contract to hedge part of the NOK interest payment associated with its NOK denominated bond. The mark-to-market adjustment on this contract was negative USD 3.2 million in 2008 and positive USD 0.6 million in 2007. As of 31 December 2008 and 2007, the fair value of the contract was negative USD 2.6 million and positive USD 0.6 million, respectively.
The Company has also entered into a NOK 600 million foreign currency swap to hedge the translation of its NOK denominated bond. As of 31 December 2008 and 2007, the fair value of these contracts was positive USD 803 thousand and positive USD 894 thousand, respectively.
40 American Shipping Company annual report 2008 Our performance Group accounts
■■ Note 16: Operating leases
Non-cancellable operating lease rentals are payable as follows:
Amounts in USD thousands 2008 2007
Less than one year 74 74 Between one and five years 263 298 More than five years - 25 Total 337 397
In 2007 AMSC signed a new lease for office space in Philadelphia, Pennsylvania.
The Company has non-cancellable bareboat charter lease agreements with its customers, OSG Shipholding Group and OSG America LP, for periods of up to ten years. The bareboat charter revenue backlog totals approximately USD 715 million as of 31 December 2008.
■■ Note 17: Pensions
Pension expense recognised in the income statement:
Amounts in USD thousands 2008 2007
Contribution plans (employer's contribution) 5 - Total net pension expense 5 -
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.
■■ Note 18: Trade and other payables
Trade and other payables comprise the following items:
Amounts in USD thousands 2008 2007
Trade accounts payable 644 764 Accrual of financial costs 1 161 1 363 Other short-term interest free liabilities 4 382 9 080 Total 6 187 11 207
Other short-term interest free liabilities at 31 December 2008 include deferred revenue of USD 3.2 million and guarantees and other accrued costs of USD 1.2 million.
Other short-term interest free liabilities at 31 December 2007 include transaction cost accruals of USD 3.5 million, deferred revenue of USD 1.9 million and guarantees and other accrued costs of USD 3.7 million.
American Shipping Company annual report 2008 41 Our performance Group accounts
■■ Note 19: 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 to hedge exposure to fluctuations in foreign exchange rates and interest rates for business purposes.
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 2008 2007
Deposits 92 931 94 596 Loans and receivables 27 016 3 936 Cash and cash equivalents 71 805 151 865 Derivative financial assets - 1 545 Total 191 752 251 942
Receivables are to be collected from the following types of counterparties:
Amounts in USD thousands 2008 2007
Type of counterparty: Security deposits receivable 2 582 2 953 Interest bearing short term receivable 20 715 - End-user customer 3 719 983 Total 27 016 3 936
Liquidity risk The following are the contractual maturities of financial liabilities including interest payments:
31 December 2008
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 bond issues (gross) 120 063 (162 065) - (6 672) (13 344) (142 049) - Current portion of long-term interest bearing external liabilities (gross) 405 926 (527 993) (18 617) (21 407) (46 107) (143 954) (297 908)
Derivative financial liabilities Interest rate swaps 100 601 (118 671) (7 132) (8 709) (20 564) (63 776) (18 490) Forward exchange contracts 1 824 (1 824) 802 (2 626)
Total as of 31 December 2008 628 414 (810 553) (24 947) (39 414) (80 015) (349 779) (316 398)
The cash flows associated with non-derivative financial liabilities reflect the confirmed bondholder actions discussed in note 15 and therefore are presented according to the original contractual maturities.
42 American Shipping Company annual report 2008 Our performance Group accounts
31 December 2007
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 Long-term portion of secured bank loans (gross) 247 110 (308 518) - - (24 398) (116 227) (167 893) Unsecured bond issues (gross) 139 356 (209 638) - - (8 707) (200 931) Current portion of long-term interest bearing external liabilities 7 150 (22 661) (11 361) (11 300) - - -
Derivative financial (assets)/ liabilities Interest rate swaps 34 505 (40 788) (1 410) (1 790) (5 116) (26 972) (5 500) Forward exchange contracts (1 545) 1 545 894 - 651 - -
Total as of 31 December 2007 426 576 (580 060) (11 877) (13 090) (37 570) (344 130) (173 393)
Currency 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.
As of 31 December 2008 the American Shipping Company ASA Group’s portofolio of other foreign exchange transaction exposures represented the fol- lowing currency and maturities. Amounts indicated represent the underlying notional amounts.
Amounts in USD thousands Maturing in 2009 2010 2011 Later years Total
Buy NOK 100 669 - - - 100 669 Buy total 100 669 - - - 100 669
Net position 100 669 - - - 100 669
As of 31 December 2007 the American Shipping Company ASA Group’s portofolio of other foreign exchange transaction exposures represented the following currency and maturities. Amounts indicated represent the underlying notional amounts.
Amounts in USD thousands Maturing in 2008 2009 2010 Later years Total
Buy NOK 68 294 15 482 - - 83 776 Buy total 68 294 15 482 - - 83 776
Changes in the fair value of forward exchange contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied are recognized in the income statement. Both the changes in fair value of the forward contracts and the foreign exchange gains and losses relating to the monetary items are recognized as part of ”net financing costs” (see note 4). The fair value of exchange contracts used as economic hedges of monetary assets and liabilities in foreign currencies at 31 December 2008 was negative USD 1.8 million recognized in derivative liabilities.
Exposure to currency risk The company’s exposure to currency risk at 31 December 2008 and 2007 was the Norwegian Kroner, as follows:
Amounts in USD thousands 2008 2007
Gross balance sheet exposure Trade payables (-) - (226) Bond (119 160) (138 167) Cash 303 58 927 Gross balance sheet exposure (118 857) (79 466) Estimated forecast expenses (-) (704) (1 339) Gross forecasted exposure (704) (1 339) Forward exchange contracts 100 669 83 776 Net exposure (18 892) 2 971
In addition to the above, at 31 December 2008 we expect to incur NOK-denominated PIK interest (non-cash) of approximately USD 16 million in 2009, a portion of which is hedged through the use of foreign currency contracts described in note 15.
American Shipping Company annual report 2008 43 Our performance Group accounts
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 other foreign currencies would have decreased the Group’s profit before tax by approximately USD 4.4 million for the year ended 31 December 2008 and approximately USD 7.4 million for the year ended 31 December 2007. This analysis assumes that all other variables remain constant.
Exposure to interest rate risk
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 amounts shown below. This analysis assumes thal all other variables remain constant.
Amounts in USD thousands 2008 2007
Increase/(decrease) Bank deposits 1 223 973 Other financial assets 157 22 Financial liabilities (1 440) (1 072) Interest swap 36 200 36 900 P&L sensitivity (net) 36 140 36 823
For 2008 and 2007, estimates of the interest swap valuation following the change in interest rates are obtained from a third party, with an adjustment for the Company’s credit risk as described in note 10.
Fair values The fair values of finacial instruments together with the carrying amounts shown in the balance sheet as of 31 December are as follows:
Carrying Fair Carrying Fair amount value amount value Amounts in USD thousands 2008 2008 2007 2007
Interest-bearing loans to external companies, maturity greater than 3 years 3 719 4 625 983 983 Interest-bearing loans to external companies, maturity less than 1 year 20 715 20 715 - - Interest swap used for hedging: Liabilities (100 601) (100 601) (34 505) (34 505) Interest-bearing long term receivables 2 582 2 582 2 953 2 953 Cash and cash equivalents 71 805 71 805 151 865 151 865 Forward exchange contracts used for hedging: Assets - - 1 545 1 545 Liabilities (1 824) (1 824) - - Unsecured bond issue (gross) (120 063) (84 044) (139 356) (139 356) Secured loans (gross) (405 926) (368 890) (254 260) (254 260)
Estimates of the fair value for foreign currency contracts are obtained from a third party. 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.
44 American Shipping Company annual report 2008 Our performance Group accounts
■■ Note 20: Shares owned or controlled by the President and Chief Executive Officer, Board of Directors and Senior Employees of the American Shipping Company Group
Shares in American Shipping Company ASA of 31 December 2008
Name Position Company No. of shares
Robert K. Kurz President & CEO AMSC 4 000 Bengt A. Rem Vice President AMSC 8 500
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 2008 Name Position Company Remuneration
Robert N Caruso Chairman AMSC 12 965 Gary Mandel Board Member AMSC 19 483 John Rose Board Member AMSC - Annette Malm Justad Board Member AMSC 15 196 Hege Yli Melus Board Member AMSC 15 196 Ørjan Svanevik Board Member AMSC 13 318 Sum Directors' fee 76 158
The Chairman and the Board of Directors have not received benefits other than Directors’ fees, except for Robert N. Caruso who, through B/3 Management Resources, also received USD 24,000 for consulting services.
Following the sale by Aker ASA of its majority ownership position in AMSC in June 2008, Gary Mandel stepped down as Chairman of the Board of Direc- tors, but continues to serve as a member of the board. Also at that time, Orjan Svanevik resigned from his position as a member of the Board of Directors. On 25 June 2008, an extraordinary general meeting was held whereupon Robert N. Caruso was elected to the position of Chairman of the Board of Direc- tors and John Rose was elected as a member of the Board of Directors.
Remuneration to the nomination committee AMSC’s nomination committee members withdrew their membership on 25 June 2008 and as such there are no nomination committee fees for 2008. The company’s nomination committee for 2007 consisted of the following members: Kjell Inge Røkke, Rune Bjerke and Gerhard Heiberg. Each of the members received a fee in 2008 for 2007 service of USD 5,993 (NOK 30,000).
Guidelines for remuneration to the President and CEO and members of the executive team The basis of the remuneration of the President and CEO has been developed in order to create a performance-based system which is founded on the Company’s values. This system of reward is designed to contribute to the achievement of good financial results and increase in shareholder value.
The CEO receives a base salary. In addition a variable pay is awarded. This variable pay is based on the achievement of financial and personal performan- ce targets, leadership performance in accordance with the Company’s values and the development of the Company’s share price.
The variable pay program represents a potential for an additional variable pay up to the value of 60 percent of base salary depending on the achievement of defined short-term and long-term results such as financial targets (profit and working capital) and personal targets (project targets, development of commercial solutions and alignment with values).
The President and CEO and Executive Management Team participate in the standard pension and insurance schemes, applicable to all employees. The Company practices standard employment contracts and standard terms and conditions regarding notice period and severance pay for the President and CEO and the members of the Executive Management Team.
The Company does not offer share option programs to executive managers.
Remuneration to senior management during 2008 Pension Base salary Bonus Other Benefits Contribution Total (USD) Severance pay
Robert K. Kurz Jan. - Dec. 358 615 10 000 35 565 2 355 406 535 12 months Gregory J. Matecki Jun. - Dec. 125 481 - 7 525 2 197 135 203 6 months
American Shipping Company annual report 2008 45 Our performance Group accounts
Remuneration to senior management during 2007 Pension Base salary Bonus Other Benefits Contribution Total (USD) Severance pay
Robert K. Kurz Nov. - Dec. 55 385 - 2 460 - 57 845 12 months David E. Meehan Jan. - Dec. 295 740 68 450 391 622 5 915 761 727 12 months Jan Ivar Nielsen Jan. - Aug. 109 506 68 543 26 919 6 539 211 507 9 months Jeffrey Theisen May - Dec. 123 212 - 7 386 2 464 133 062 9 months
Remuneration to Mssrs. Meehan, Nielsen and Theisen were paid out of Aker Philadelphia Shipyard, Inc. which was a wholly owned subisidiary of AMSC through 30 November 2007. Mr. Meehan had a loan of USD 300,000 which was forgiven in 2007. The loan forgiveness is included in other benefits above. Fredrik Nygaard, who served as the interim Finance Director in 2008, did not receive any compensation from the company in 2008 or 2007. His services were paid through a management service agreement with Aker ASA (see note 21).
■■ Note 21: Transactions, guarantees and agreements with related parties
The ultimate parent company of American Shipping Company ASA prior to 6 June 2008 was Aker ASA. As of 6 June 2008, Aker ASA sold its majority ownership in AMSC.
Except as described elsewhere, the Company believes that related party transactions are made on terms equivalent to those that prevail in arm’s length transactions. All payables are paid within the normal course of business.
Transactions The Group has service agreements with Aker ASA and Aker Philadelphia Shipyard, Inc. (APSI) which provide certain specified accounting, financial and administrative services. The agreement with Aker ASA also included reimbursement of personnel costs dedicated to AMSC for the interim Finance Director. The agreement with APSI also includes shared services of legal counsel. The cost of these services was not material, however they are important to the Company’s operations.
■■ Note 22: Guarantees and other material transactions
The company has made the following guarantees:
Description Beneficiary Amount (USD thousands) Guarantee party
Construction loan facility Caterpillar Financial Services Corp. 150 000 1) Aker Philadelphia Shipyard, Inc. Capital expenditure facility PIDC Regional Center L.P. XV 20 000 Aker Philadelphia Shipyard, Inc. Counter guarantee Aker Maritime Finance AS 20 000 2) Aker Philadelphia Shipyard, Inc.
1) The construction loan facility is for the construction of the tankers under which AMSC and the lender have a put/call agreement. 2) Employment level guarantee related to APSI.
Other material transactions
Shipbuilding contracts with Aker Philadelphia Shipyard, Inc. AMSC has entered into shipbuilding contracts for nine tankers, of which two have been delivered. The purchase price is USD 103.675 million (including construction financing). This price is subject to escalation due to actual increases in material cost for product tankers six through twelve and foreign exchange currency losses. As such, the total contract value is approximately USD 933.1 million before any escalation. In addition, AMSC has option agreements with AKPS to build an additional 13 tankers.
Deposits made to APSI for vessels under construction total USD 92.9 million as of 31 December 2008 for vessels six through twelve and USD 94.6 million as of 31 December 2007 for vessels four through twelve.
Other outstanding balances related to Aker Philadelphia Shipyard, Inc. were not material.
The Company and AKPS are jointly and severally liable to Overseas Shipholding Group for breaches by them under the framework agreement and related transaction documents governing the construction and leasing of the initial ten Jones Act tankers. The Company and AKPS have entered into a cross- indemnity agreement to allocate these liabilities among themselves based on relative fault.
46 American Shipping Company annual report 2008 Our performance Group accounts
■■ Note 23: Discontinued operations
On 5 December 2007 American Shipping Company ASA sold its subsidiary Aker Philadelphia Shipyard ASA (AKPS) to existing and new shareholders in a private placement. AMSC received approximately USD 80 million in gross proceeds. The purpose of the sale was to split AMSC’s shipbuilding and ship owning operations and to establish a solid foundation for further development of two leading US maritime companies and highlight shareholder value.
The table below shows summary financial data for AKPS including the gain on sale of the shipbuilding business. The net cash flow from disposal of AKPS was USD 65.0 million reflecting the gross amount received of USD 79.9 million less transaction costs of USD 3.4 million less AKPS cash sold of USD 11.5 million.
Aker Philadelphia Shipyard is a leading U.S. commercial shipyard constructing vessels for operation in the U.S. Jones Act market. It possesses some of the most modern shipyard facilities in the United States and has earned a reputation as the preferred provider of oceangoing merchant vessels. Aker Philadelphia Shipyard is currently in the process of constructing twelve product tankers, of which two will be converted to shuttle tankers, for wholly owned subsidiaries of American Shipping Company. Through 31 December 2008, five of the twelve product tankers have been delivered.
Profit and Loss Statement after elimination of intercompany amounts Amounts in USD millions YTD 30 Nov 2007
Operating revenues - Operating expenses (1 590) EBITDA (1 590) Depreciation - Operating profit/(loss) (1 590) Financial items (190) Profit before tax (1 780) Tax (expense)/benefit 593 Net profit (1 187) Sales gain net of tax 9 367 Profit for the period from discontinued operations 8 180
Cash flow from disposal upon completion Amounts in USD millions 31 Dec 2007
Cash received 79 890 Cash sold (11 515) Gross cash 68 375 Sales cost (unpaid as of 31 December 2007) (3 365) Net cash flow from disposal of APSI business 65 010
■■ Note 24: Events after the balance sheet date
On 19 February 2009, the Company took delivery of its sixth product tanker, the Overseas Boston, and immediately bareboat chartered it to OSG America L.P., who subsequently time chartered the vessel to Tesoro for operation in the U.S. west coast trade.
On 25 February 2009, a bondholders meeting was held whereupon two changes to the loan agreement for the Company’s NOK 700 million bond, requested by the Company, were successfully passed in accordance with the required vote of the bondholders. The first change requested an amendment to the minimum equity covenant contained in the loan agreement to disregard any effect of non-cash gain or loss from the change in fair market value of interest rate hedging agreements. The minimum equity covenant requires the consolidated equity to be maintained at a level not less than USD 140 million. The Company has entered into interest rate swap agreements to hedge the fluctuation of interest rate movements on its variable rate debt associated with the Company’s take-out vessel financing. The interest rate swap instruments, in accordance with IFRS, are marked-to-market as of the last day of each reporting period. Consequently, any resulting gain or loss from the change in fair market value of the hedge, are non-cash and unrealized, and are recorded on the Company’s books through the income statement. Thus, the balance sheet impact is either an increase or decrease in equity. Due to unprecedented volatility in the credit markets and the resulting significant swings in interest rates during the latter half of 2008, the mark-to-market valuation of those interest swap instruments was approximately negative USD 101 million. At the meeting, the bondholders voted to accept the Company’s proposal. Therefore, with the bondholders’ approval, the calculation of equity under the amended covenants as of 31 December 2008 was approximately USD 202 million and the Company believes it is highly probable that it will remain in compliance with this covenant for the remaining term of the bonds. However, because as of 31 December 2008, equity was less than the required minimum, all of the Company’s debt is classified as current on its balance sheet due to IFRS requirements, as well as cross-default provisions which impact the Company’s other debt facility. Due to the approved modification in the minimum equity covenant subsequent to 31 December 2008, the Company expects to again classify the majority of its debt as long-term for its 31 March 2009 interim reporting. The second change requested an extension of the PIK interest period to the end of the loan term. The extension of the option to declare PIK interest on a quarterly basis will help the Company’s liquidity position to the benefit of all stakeholders. This will also enable the Company to take advantage of anticipated opportunities in the Jones Act market. At the meeting, the bondholders voted to accept the Company’s proposal.
Subsequent to 31 December 2008, the Company and Overseas Shipholding Group, Inc. (“OSG”) have agreed to stop, temporarily, the arbitration between the two parties and have signed a Nonbinding Agreement in principle to settle all of their outstanding commercial disagreements, including the arbitration. The Nonbinding Agreement provides for the dismissal with prejudice of all the claims in the arbitration and contains a number of provisions materially altering the prior agreements between the parties. There is no assurance that AMSC and OSG will enter into the definitive agreements on these terms or on any terms.
American Shipping Company annual report 2008 47 Our performance Parent company accounts
American Shipping Company ASA: Profit and loss account
Amounts in USD thousands Note 2008 2007
Operating revenues 152 777 Other operating expenses 2 (845) (1 339) Operating loss (693) (562)
Interest revenues from group companies 10 552 10 301 Other interest and financial revenues 43 838 12 306 Other interest and financial expenses 2 (49 114) (20 458) Income/(loss) after financial items 4 583 1 587
Taxes 4 - (1 121)
Profit/(loss) for the period 4 583 466
Allocation of net profit: Profit 4 583 466 Other equity 6 (4 583) (466) Total - -
48 American Shipping Company annual report 2008 Our performance Parent company accounts
American Shipping Company ASA: Balance Sheet as of 31 December
Amounts in USD thousands Note 2008 2007
ASSETS Investments in subsidiaries 3 218 015 165 608 Other non-current assets 2 582 2 953 Long-term receivable group companies 5 92 684 95 465 Total financial non-current assets 313 281 264 026 Total non-current assets 313 281 264 026
Short-term receivables group companies - 21 Other short-term receivables 982 3 218 Cash and cash equivalents 8 850 64 333 Total current assets 1 832 67 572 Total assets 315 113 331 598
EQUITY AND LIABILITIES Share capital 42 462 42 462 Share premium reserve 137 946 137 946 Total paid in capital 180 408 180 408
Other equity 13 647 9 064 Total retained earnings 13 647 9 064 Total equity 6 194 055 189 472
Bond obligation 7 - 138 167 Total long term liabilities - 138 167
Bond obligation 7 119 160 - Other short-term debt 1 898 3 959 Total short-term liabilities 121 058 3 959 Total equity and liabilities 315 113 331 598
American Shipping Company annual report 2008 49 Our performance Parent company accounts
American Shipping Company ASA: Cash Flow Statement
Amounts in USD thousands 2008 2007
Profit before tax 4 583 1 587 Unrealized foreign exchange (gain)/loss and unpaid interest expense (15 861) 25 187 Changes in short term receivables 2 257 (2 958) Changes in short term liabilities (2 062) 1 773 Cash flow from operating activities (11 083) 25 589
Change in long term investments (52 400) (85 552) Cash flow from investing activities (52 400) (85 552)
Gross bond proceeds - 114 170 Cash flow from financial activities - 114 170
Cash flow for the year (63 483) 54 207 Cash and cash equivalents 1 January 64 333 10 126 Cash and cash equivalents 31 December 850 64 333
50 American Shipping Company annual report 2008 Our performance Parent company accounts
American Shipping Company ASA: Notes to the accounts
■■ Note 1: Accounting Principles
The annual report is prepared according to the value, the asset will be written down to the fair Income tax Norwegian Accounting Act and generally value amount. Long term creditors are recogni- Tax expenses in the profit and loss account com- accepted accounting principles in Norway. zed at nominal value. prise both tax payable for the accounting period The bond loans with fixed interest are recorded and changes in deferred tax. Deferred tax is Subsidiaries and investment in associates at amortized cost. calculated at 28 percent on the basis of existing Subsidiaries and investments in associates temporary differences between accounting profit are valued by the cost method in the company Trade and other receivables and taxable profit together with tax deductible accounts. The investment is valued at the cost of Trade receivables and other current receivables deficits at year end. Temporary differences, both acquiring shares in the subsidiary, providing that are recorded in the balance sheet at nominal positive and negative, are balanced out within the a write down is not required. A write down to fair value less provisions for doubtful debts. same period. Deferred tax assets are recorded value will be carried out if the reduction in value in the balance sheet to the extent it is more likely is caused by circumstances which may not be Foreign currency translation than not that the tax assets will be utilized. regarded as incidental, and deemed necessary The company’s functional currency is U.S. dollars by generally accepted accounting principles. (USD). Foreign currency transactions are transla- Cash flow statement Write downs are reversed when the cause of the ted into USD using the exchange rates prevailing The cash flow statement is presented using the initial write down is no longer present. at the dates of the transactions. Receivables indirect method. Cash and cash equivalents If dividends exceed withheld profits after and liabilities in foreign currencies are translated includes cash, bank deposits and other short- acquisition, the exceeding amount represents into USD at the exchange rates in effect on the term highly liquid deposits with original maturities reimbursement of invested capital, and the dis- balance sheet date. Foreign exchange gains of three months or less. tribution will be subtracted from the value of the and losses resulting from the settlement of such acquisition in the balance sheet. transactions and from the translation of monetary Use of estimates assets and liabilities denominated in foreign cur- The preparation of the financial statements Balance sheet classification rencies are recognized in the income statement. requires management to make estimates and Net current assets comprise creditors due within assumptions that affect the reported amounts in one year. Other entries are classified as fixed Short term investments the profit and loss statement, the measurement assets and/or long-term creditors. Short term investments (stocks, short-term of assets and liabilities and the disclosure of Current assets are valued at the lower of bonds, liquid placements and shares) are valued contingent assets and liablilities on the balance acquisition cost or fair value. Short-term creditors at the lower of acquisition cost or fair value at the sheet date. Actual results can differ from these are recognized at nominal value. balance sheet date. Dividends and other distribu- estimates. Fixed assets are valued at the cost of acqui- tions are recognized as other investment income. Contingent losses that are probable and sition. In the case of non-incidental reduction in quantifiable are expensed as occurred.
■■ Note 2: Other operating and financial expenses
Fees to the auditors of USD 86 000 for ordinary audit was expensed in 2008. For more information on fees paid to KPMG, see note 3 in the consolidated accounts.
The company has no employees. The senior management is employed in the operating companies (see note 20 in the consolidated accounts). Board of directors expenses were USD 224 130 in 2008.
Other interest and financial expenses include a net foreign exchange loss of USD 4.4 million relating to translating NOK denominated cash and debt balan- ces to USD.
■■ Note 3: Shares
This item comprises the following as of 31 December 2008:
Ownership Amounts in USD thousands of common shares(%) Voting rights (%) Business address Historical cost Book value
American Tanker, Inc. (ATI) 100 % 100 % Philadelphia, PA 215 173 215 173 American Tanker II, Inc. (ATI II) 100 % 100 % Philadelphia, PA 1 001 1 001 American Tanker III, Inc. (ATI III) 1) 100 % 100 % Wilmington, DE 1 841 1 841 Total shares 218 015 218 015
ATI ATI II ATI III Subsidiaries' 2008 results after tax in USD thousands (2 768) (890) (787) Subsidiaries’ equity attributable to common shareholders at 31 December 2008 in USD thousands 219 054 111 1 054
1) This entity has issued non-dilutive, non-voting shares of redeemable preferred stock (see note 13 in the consolidated accounts).
American Shipping Company annual report 2008 51 Our performance Parent company accounts
■■ Note 4: Tax
The table below shows the difference between book and tax values at the end of 2008 and 2007, and the amounts of deferred taxes at these dates and the change in deferred taxes.
Amounts in USD thousands 2008 2007
Operating loss carried forward (12 477) (15 065) Total differences (12 477) (15 065) Net deferred tax asset, 28 percent (3 494) (4 218) Restrictions regarding balance tax asset 3 494 4 218 Book value tax asset - -
Estimated result for tax purposes:
Amounts in USD thousands 2008 2007
Result before tax measured in NOK for taxation purposes (850) (8 772) Permanent differences gain on shares - (1 650) Estimated result for tax purposes (850) (10 422) Payable current tax - -
The result before taxes in NOK are different from the result before taxes in USD primarily due to currency exchange differences.
Taxes:
Amounts in USD thousands 2008 2007
Current payable tax charged to the income statement - - Change in deferred tax - 1 121 Total tax cost - 1 121
■■ Note 5: Long-term receivables
Long-term receivables are:
Amounts in USD thousands 2008 2007
American Shipping Corporation 92 684 95 465 Total 92 684 95 465
The receivables have the following installment plan:
Amounts in USD thousands 2008 2007
Maturity within five years - - Maturity later than five years 92 684 95 465 Total 92 684 95 465
The interest conditions on the receivables are at market conditions.
■■ Note 6: Total equity
Changes in equity are:
Share Share Total paid-in Other Total Amounts in USD thousands capital premium capital equity equity
Equity as of 1 January 2008 42 462 137 946 180 408 9 064 189 472 Net result - 4 583 4 583 Equity as of 31 December 2008 42 462 137 946 180 408 13 647 194 055
52 American Shipping Company annual report 2008 Our performance Parent company accounts
Share Share Total paid-in Other Total Amounts in USD thousands capital premium capital equity equity
Equity as of 1 January 2007 42 462 137 946 180 408 8 597 189 005 Net result - 466 466 Equity as of 31 December 2007 42 462 137 946 180 408 9 063 189 471
The share capital of NOK 276 million consists of 27,600,000 shares with a par value of NOK 10.
The shares were owned by the following 20 largest parties as of 13 February 2009: Number Percent
SEB ENSKILDA ASA EGENHANDELSKONTO 9 025 920 32.70% AKER AMERICAN SHIP HOLDING 5 493 430 19.90% GOLDMAN SACHS & CO - SECURITY CLIENT SEGR 4 136 623 14.99% DEUTSCHE BANK AG LON S/A PRIME BROKERAGE 1 369 553 4.96% VERDIPAPIRFOND ODIN 1 195 178 4.33% STATE STREET BANK AN A/C CLIENT OMNIBUS F 1 114 000 4.04% DRESDNER BANK AG LON A/C DBL ARB 808 626 2.93% STATE STREET BANK AN A/C CLIENT OMNIBUS D 732 600 2.65% VERDIPAPIRFOND ODIN 704 300 2.55% VERDIPAPIRFOND ODIN 600 000 2.17% BANK OF AMERICA SECU C/O JPMORGAN CHASE B 514 038 1.86% MUSLIK AS 306 250 1.11% DANSKE BANK A/S 3887 OPERATIONS SEC. 298 100 1.08% KOLBERG MOTORS AS 166 600 0.60% DEUTSCHE BANK AG LON PRIME BROKERAGE FULL 150 650 0.55% DNB NOR NORGE SELEKT VPF 130 515 0.47% AKSJEFONDET ODIN NOR C/O ODIN FORVALTNING 101 947 0.37% FRATERNITAS A/S 81 200 0.29% DEUTSCHE BANK AG S/A HOLDING ACCOUNT 76 100 0.28% AUSTBØ EDVIN 50 000 0.18% Total, 20 largest shareholders 27 055 630 98.03% Other shareholders 544 370 1.97% Total 27 600 000 100%
■■ Note 7: Bond obligation
The bond obligation is as follows as of 31 December 2008:
Amounts in USD thousands Maturity Balance Interest Rate
Bond issue 2012 114 170 NIBOR + 4.75% Interest added to bonds outstanding 24 946 1) Foreign currency impact (19 052) 2) Less unamortized loan fees (904) Sum Unsecured bond issue 119 160
1) Included in other interest and financial expenses. 2) Included in other interest and financial revenues.
On 16 February 2007 AMSC issued a NOK 700 million bond. The interest rate on the bond is NIBOR plus a margin of 4.75%. AMSC has the option to make any of the interest payments for the first three years as payment-in-kind (PIK) where the interest is added to the principal. AMSC also has the option to call the bond, or parts of the bond, at certain dates. The first call date is August 2009 at which AMSC can redeem the bond at a call price of 104.75% of par. The Company has elected PIK for all of its interest periods to date. The bond along with any PIK interest is due in full in February 2012. As of 31 December 2008, the bond loan balance including PIK interest is NOK 839.0 million (NOK 751.6 million as of 31 December 2007).
The covenants on the Company’s NOK denominated bond require that consolidated equity be maintained at a level not less than USD 140 million at a quarterly measurement date. As of 31 December 2008, the Company’s total consolidated equity was USD 101.0 million, including unrealized swap losses of USD 100.6 million . The decrease in equity as compared to 31 December 2007 has occurred primarily due to unrealized losses on derivatives held by a subsidiary and used to fix the interest rate the Company pays on its USD 770 million credit facility which is used to finance the purchase of vessels at a subsidiary. These unrealized losses have resulted from the decreases in interest rates compared to rates at the commencement of the credit facility and related interest rate swap agreements.
On 25 February 2009, a bondholders meeting was convened whereupon the Company’s bondholders agreed to modify the covenant to exclude unrealized gains and losses on the interest rate swaps from the minimum consolidated equity calculation for the duration of the bond term. Therefore, with the bond- holders’ approval, the calculation of equity under the amended covenants as of 31 December 2008 was approximately USD 202 million and the Company
American Shipping Company annual report 2008 53 Our performance Parent company accounts
believes it is highly probable that it will remain in compliance with this covenant for the remaining term of the bonds. However, because as of 31 December 2008, equity was less than the required minimum amount, all of the Company’s debt is classified as current on its balance sheet due to IFRS requirements, as well as cross-default provisions which impact the Company’s other debt facility.
Due to the approved modification in the minimum consolidated equity covenant subsequent to 31 December 2008, the Company expects to again classify the majority of its debt as long term for its 31 March 2009 interim reporting.
In addition, the bondholders voted to approve the Company’s request to extend the PIK interest option through the end of the loan term.
The Company has entered into a NOK 90 million foreign currency forward contract to hedge part of the NOK interest payment associated with its NOK denominated bond. The mark-to-market adjustment on this contract was negative USD 3.2 million in 2008 and positive USD 0.6 million in 2007. As of 31 December 2008 and 2007, the fair value of the contract was negative USD 2.6 million and positive USD 0.6 million, respectively.
The Company has also entered into a NOK 600 million foreign currency swap to hedge the translation of its NOK denominated bond. As of 31 December 2008 and 2007, the fair value of these contracts was positive USD 803 thousand and positive USD 894 thousand, respectively.
■■ Note 8: Cash and cash equivalents
There is no restricted cash.
■■ Note 9: Events after the balance sheet date
On 19 February 2009, the Company took delivery of its sixth product tanker, the Overseas Boston, and immediately bareboat chartered it to OSG America L.P., who subsequently time chartered the vessel to Tesoro for operation in the U.S. west coast trade.
On 25 February 2009, a bondholders meeting was held whereupon two changes to the loan agreement for the Company’s NOK 700 million bond, requested by the Company, were successfully passed in accordance with the required vote of the bondholders. The first change requested an amendment to the minimum equity covenant contained in the loan agreement to disregard any effect of non-cash gain or loss from the change in fair market value of interest rate hedging agreements. The minimum equity covenant requires the consolidated equity to be maintained at a level not less than USD 140 million. The Company has entered into interest rate swap agreements to hedge the fluctuation of interest rate movements on its variable rate debt associated with the Company’s take-out vessel financing. The interest rate swap instruments, in accordance with IFRS, are marked-to-market as of the last day of each reporting period. Consequently, any resulting gain or loss from the change in fair market value of the hedge, are non-cash and unrealized, and are recorded on the Company’s books through the income statement. Thus, the balance sheet impact is either an increase or decrease in equity. Due to unprecedented volatility in the credit markets and the resulting significant swings in interest rates during the latter half of 2008, the mark-to-market valuation of those interest swap instruments was approximately negative USD 101 million. At the meeting, the bondholders voted to accept the Company’s proposal. Therefore, with the bondholders’ approval, the calculation of equity under the amended covenants as of 31 December 2008 was approximately USD 202 million and the Company believes it is highly probable that it will remain in compliance with this covenant for the remaining term of the bonds. However, because as of 31 December 2008, equity was less than the required minimum, all of the Company’s debt is classified as current on its balance sheet due to IFRS requirements, as well as cross-default provisions which impact the Company’s other debt facility. Due to the approved modification in the minimum equity covenant subsequent to 31 December 2008, the Company expects to again classify the majority of its debt as long-term for its 31 March 2009 interim reporting. The second change requested an extension of the PIK interest period to the end of the loan term. The extension of the option to declare PIK interest on a quarterly basis will help the Company’s liquidity position to the benefit of all stakeholders. This will also enable the Company to take advantage of anticipated opportunities in the Jones Act market. At the meeting, the bondholders voted to accept the Company’s proposal.
Subsequent to 31 December 2008, the Company and Overseas Shipholding Group, Inc. (“OSG”) have agreed to stop, temporarily, the arbitration between the two parties and have signed a Nonbinding Agreement in principle to settle all of their outstanding commercial disagreements, including the arbitration. The Nonbinding Agreement provides for the dismissal with prejudice of all the claims in the arbitration and contains a number of provisions materially altering the prior agreements between the parties. There is no assurance that AMSC and OSG will enter into the definitive agreements on these terms or on any terms.
■■ Note 10: 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 20 in the Consolidated Accounts.
■■ Note 11: Guarantee on behalf of other companies in the group
The company has made the following guarantees: Amount Description Beneficiary (USD thousands) Related party
Senior secured credit facility Fortis Capital Corp 770 000 1) ASC Leasing I-X Construction loan facility Caterpillar Financial Services Corp 150 000 2) Aker Philadelphia Shipyard, Inc. Capital expenditure facility PIDC Regional Center LP XV 20 000 Aker Philadelphia Shipyard, Inc. Counter guarantee Aker Maritime Finance AS 20 000 3) Aker Philadelphia Shipyard, Inc.
1) The senior secured facility is for the financing of 10 product tankers which the company entered into with Fortis on 9 February 2007. 2) The construction loan facility is for the construction of the tankers under which AMSC and the lender have a put/call agreement. 3) Employment level guarantee related to APSI.
54 American Shipping Company annual report 2008 Our performance Auditors’ report
American Shipping Company annual report 2008 55 Our performance Auditors’ report
56 American Shipping Company annual report 2008 Our performance 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’s share price reflects its underlying value.
American Shipping Company’s goal is that ownership restrictions due to the fact that swap (TRS) agreement that can be rolled the Company’s shareholders will, over time, the Company is operating under an excep- over every 3 months with the final expira- receive competitive returns on their invest- tion from the U.S ownership requirement tion of the TRS agreement set at 9 June ment. The Board considers the amount of in the Jones Act (see Articles of Asso- 2009. dividend, if any, to be recommended for ciation available on the Company’s web From time to time, agreements are approval by the shareholders on an annual page). The Company held no own (treas- entered into between two or more former basis. The recommendation will be based ury) shares as of 31 December 2008. In related companies. The boards of directors upon earnings for the year just ended, the 2008, no new common share issues were and other parties involved in the decision- financial situation at the relevant point in carried out. making processes related to such agree- time and applicable restrictions under ments are all critically aware of the need to AMSC’s financial agreements. Stock-exchange listing handle such matters in the best interests Due to the fact that AMSC is currently in American Shipping Company was listed on of the involved companies, in accordance the middle of funding its new tanker fleet the Oslo Stock Exchange on 11 July 2005. with good corporate governance practice. build program, the Board of Directors will At that time the Company was called Aker If needed, external, independent opinions propose at American Shipping Company’s American Shipping ASA and traded un- are sought. annual shareholders’ meeting that no divi- der the ticker symbol “AKASA”. The name dend is paid for the 2008 accounting year. change was the result of Aker ASA reduc- Current Board authorizations ing its majority ownership in the Company. The Board of Directors has currently no Year Dividend Approval for the name change was de- authorizations to issue any new common cided upon at the Extraordinary General shares. 2007 0 Meeting held on 25 June 2008 and it was 2008 – proposed 0 officially registered with the Norwegian Stock option plans Registry of Business Enterprises (NRBE) The Company currently does not have any Shares and share capital on 21 July 2008. The Company’s shares stock option plans. American Shipping Company ASA has are listed on the Oslo Stock Exchange’s 27,600,000 ordinary common shares; each main (OSEBX) list (ticker: AMSC). Ameri- Investor relations share has a par value of NOK 10 (see Note can Shipping Company shares are regis- American Shipping Company seeks to 13 to the Company’s 2008 accounts). As of tered in the Norwegian Central Securities maintain an open and direct dialogue with 31 December 2008, the Company had 201 Depository; the shares have the securities shareholders, potential investors, financial shareholders, of whom 17.9 percent were registration number ISIN NO 0010272065. analysts, brokers and the financial market non-Norwegian shareholders. DnB NOR is the Company’s registrar. in general. In addition to meetings with an- During 2008 American Shipping Com- alysts and investors, the Company posts pany, through one of its wholly-owned Majority shareholder presentations and press releases on its subsidiaries, issued 500 shares of pre- American Shipping Company ASA’s larg- web page. ferred redeemable shares. These shares est/majority shareholder is SEB Enskilda, Visitors to American Shipping Company’s are non-voting shares. which holds 32.7 percent of the Compa- website at www.americanshippingco.com Each common share is entitled to one ny’s shares. These shares were purchased can subscribe to email delivery of Ameri- vote, but is subject to certain voting and from Aker ASA as part of a total return can Shipping Company news releases.
Share capital development over the past two years
Date Change in share capital Share capital in NOK Number of shares Par value in NOK
31 December 2006 276 000 000 27 600 000 10.00 Change in 2007 0 31 December 2007 276 000 000 27 600 000 10.00 Change in 2008 0 31 December 2008 276 000 000 27 600 000 10.00
American Shipping Company annual report 2008 57 Our performance Share and shareholder information
All American Shipping Company press VPS services (VPS Investortjenester) are Annual shareholders’ meeting releases, and investor relations (IR) pub- designed primarily for Norwegian share- American Shipping Company ASA’s an- lications, including archived material, holders. Subscribers to this service re- nual shareholders’ meeting is normally are available at the Company’s website: ceive annual reports in PDF format by held in late March or early in April. Written www.americanshippingco.com. This online email. VPS distribution takes place at the notification is sent to all shareholders in- resource includes the Company’s quarterly same time as distribution of the printed dividually or to the shareholders’ nominee. and annual reports, prospectuses, corpo- version of American Shipping Company’s To vote at shareholders’ meetings, share- rate presentations, articles of association, annual report to shareholders who have re- holders (or their duly authorized represent- financial calendar, and its Investor Rela- quested it. atives) must either be physically present, tions and Corporate Governance policies, Quarterly reports, which are generally or must vote by proxy. along with other information. only distributed electronically, are availa- American Shipping Company plans to ble from the Company’s website and other 2008 share data have an annual capital markets day which sources. Shareholders who are unable to The Company’s total market capitalization will be open to all stakeholders, and key receive the electronic version of interim as of 31 December 2008 was NOK 924.6 executives provide detailed, up-to-date report may subscribe to the printed ver- million. During 2008, a total of 10,628,283 information about the Company’s busi- sion by contacting American Shipping American Shipping Company shares ness activities and market conditions. Company. traded, inlcuding TRS shares of 9,182,520, corresponding to 38.5 percent of the Com- Shareholders can contact the Company at Analyst coverage pany’s stock. The shares traded on 100 of [email protected]. The following securities broker provides 252 possible trading days; the average analytic coverage of American Shipping daily trading volume was 41,036 shares. Electronic interim and annual reports Company (as of 31 December 2008): American Shipping Company encourages its shareholders to subscribe to the Com- Analyst Telephone pany’s annual reports via the electronic de- Nicolay Dyvik livery system of the Norwegian Central Se- (SEB Enskilda) +47 2100 8649 curities Depository (VPS). Please note that
Twenty largest shareholders As of 13 February 2009 Name Number of Shares Held Ownership
SEB ENSKILDA ASA EGENHANDELSKONTO 9 025 920 32.70% AKER AMERICAN SHIP HOLDING 5 493 430 19.90% GOLDMAN SACHS & CO - SECURITY CLIENT SEGR 4 136 623 14.99% DEUTSCHE BANK AG LON S/A PRIME BROKERAGE 1 369 553 4.96% VERDIPAPIRFOND ODIN 1 195 178 4.33% STATE STREET BANK AN A/C CLIENT OMNIBUS F 1 114 000 4.04% DRESDNER BANK AG LON A/C DBL ARB 808 626 2.93% STATE STREET BANK AN A/C CLIENT OMNIBUS D 732 600 2.65% VERDIPAPIRFOND ODIN 704 300 2.55% VERDIPAPIRFOND ODIN 600 000 2.17% BANK OF AMERICA SECU C/O JPMORGAN CHASE B 514 038 1.86% MUSLIK AS 306 250 1.11% DANSKE BANK A/S 3887 OPERATIONS SEC. 298 100 1.08% KOLBERG MOTORS AS 166 600 0.60% DEUTSCHE BANK AG LON PRIME BROKERAGE FULL 150 650 0.55% DNB NOR NORGE SELEKT VPF 130 515 0.47% AKSJEFONDET ODIN NOR C/O ODIN FORVALTNING 101 947 0.37% FRATERNITAS A/S 81 200 0.29% DEUTSCHE BANK AG S/A HOLDING ACCOUNT 76 100 0.28% AUSTBØ EDVIN 50 000 0.18% Total, 20 largest shareholders 27 055 630 98.03% Other shareholders 544 370 1.97% Total 27 600 000 100%
58 American Shipping Company annual report 2008 Our performance Share and shareholder information
Ownership structure by number of shares held As of 13 February 2009
Shares # of Shareholders # Shares Held % of Share Capital
1 - 100 49 2 831 0.01 % 101 - 1,000 103 52 166 0.19 % 1,001 - 10,000 54 217 197 0.79 % 10,001 - 100,000 17 479 476 1.74 % 100,001 - 500,000 6 1 154 062 4.18 % Over 500,000 11 25 694 268 93.10 % Total 240 27 600 000 100 %
Geographic distribution of ownership As of 13 February 2009
Nationality # of Shares Held Ownership
Non-Norwegian 9 297 760 33.7% Norwegian 18 302 240 66.3% Total 27 600 000 100%
2008 Share Data
Highest traded NOK 126.00 Lowest traded NOK 33.50 Share price as of 31 December NOK 33.50 Shares issued as of 31 December 27 600 000 Own (treasury) shares as of 31 Dec. - Shares issued and outstanding as of 31 Dec. 27 600 000 Market capitalization as of 31 Dec. NOK million 924.6 Turnover ratio for 2008 % 38.5 Proposed per-share dividend NOK per share -
Share Price Development ■ American Shipping Company ASA ■ OAAX
250
200
150
100
50
0
Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Feb 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009
American Shipping Company annual report 2008 59 Our organization and governance Corporate governance
Corporate governance
American Shipping Company ASA’s Corporate Governance policy was adopted by the Board of Directors in February 2008. The Company’s corporate governance principles are based on the Norwegian Code of Practice for Corporate Governance, dated 4 December 2007.
The following presents American Shipping on page 7 of this report and in the Board of crucial. If existing shareholders’ pre-emp- Company ASA’s (hereinafter American Director’s report. tive rights are waived upon an increase Shipping Company, AMSC, the Company in share capital, the Board must justify or the Group) practice regarding each of Equity and dividends the waiver. Transactions in own (treasury) the recommendations contained in the Equity shares must be executed on the Oslo Code of Practice. Any deviations from the The Group’s equity as of 31 December Stock Exchange or by other means at the recommendations are found under the 2008 was USD 101.0 million corresponding listed price. item in question. to an equity ratio of 14 percent. American If there are material transactions Shipping Company regards the Group’s between the Company and a shareholder, Purpose current equity structure as appropriate and board member, member of executive American Shipping Company’s Corporate adapted to its objectives, strategy and risk management, or a party closely related to Governance principles are intended to profile. any of the aforementioned, the Board shall ensure an appropriate division of roles ensure that independent valuations are and responsibilities among the Company’s Dividends available. owners, its Board of Directors, and its American Shipping Company’s dividend American Shipping Company ASA has executive management and that the Com- policy is included in the section Shares prepared guidelines designed to ensure pany’s activities are subject to satisfactory and shareholder information, see pages that members of the Board of Directors control. The appropriate division of roles 57-59 of this annual report. and executive management notify the and satisfactory control contribute to the Board of any direct or indirect stake they greatest possible value creation over time, Board authorizations may have in agreements entered into by to the benefit of owners and other stake- The Board’s proposals for future Board the Group/Company. holders. authorizations are to be limited to defined See information on transactions with issues and to be valid only until the next related parties in Note 21 to the consoli- Values and ethical guidelines annual shareholders’ meeting. dated accounts. The Board has adopted AMSC’s corporate Current Board authorizations to increase values and ethical guidelines. American share capital and acquire own (treasury) Freely negotiable shares Shipping Company’s corporate values shares are presented in the section Shares American Shipping Company’s shares are are presented on pages 16 and 17 of this and Shareholder information on pages freely negotiable. However, the transfer- annual report. 57-59 of this annual report. ability of shares is subject to certain voting and ownership restrictions due to the fact Business Equal treatment of shareholders and that the Company is operating under an American Shipping Company’s business transactions with close associates exception from the U.S ownership require- purpose clause is as follows: At the parent level, the Company has a ment in the Jones Act (see the Company’s The business purpose of the Company single class of shares, and all shares carry articles of association, which are available is to own and carry out industrial business the same rights in the Company. However, on the Company’s web page). and other activities related hereto, including the shares are subject to certain voting ownership of vessels, capital management and ownership restrictions due to the fact Annual shareholders’ meetings and other functions for the group, as well that the Company is operating under an The Company encourages shareholders as participation in or acquisition of other exception from the U.S ownership require- to participate in shareholders’ meet- companies. ment in the Jones Act (see the Company’s ings. It is the Company’s priority to hold The function of the business purpose articles of association, which are available the annual general meeting as early as clause is to ensure that shareholders on the Company’s web page). possible after the year-end. Notice of have control of the business and its risk During 2008, one of the subsidiaries general shareholders’ meetings and profile, without limiting the Board or man- in the consolidated group of companies comprehensive supporting information is agement’s ability to carry out strategic issued preferred redeemable shares of made available for the shareholders on and financially viable decisions within the stock. This stock is non-voting and is not the Company’s website and sent to the defined purpose. The Group’s financial dilutive to the shareholders of AMSC. shareholders according to the deadlines goals and main strategies are presented Equal treatment of all shareholders is stated in the Norwegian Public Company
60 American Shipping Company annual report 2008 Our organization and governance Corporate governance
Act (allmennaksjeloven). The deadline for members. The nomination committee decision-making rules, the President and shareholders to register to the general should justify its recommendation. CEO’s/General Manager’s duty and right shareholder’s meetings is set as close to to disclose information to the Board, pro- the date of the meeting as possible. Both Board composition and fessional secrecy, impartiality, and other on the attendance and proxy form and independence issues. the notice of meeting, all procedures for The Company does not have a corporate The Board itself assesses the need to registration are thoroughly explained. In assembly. elect a deputy chairman. addition, information on how to propose a Pursuant to the Company’s articles of The Board evaluates its own perform- resolution to the items on the agenda at association, the Board comprises between ance and expertise once a year. the General Meeting will be included in the 3 and 9 members. Further, up to 3 share- notice. holder-elected deputy board members Risk management and Pursuant to the Company’s articles of may be elected annually. Pursuant to the internal control association, the Chairman of the Board Company’s corporate governance policy, The Board is to ensure that the Company or an individual appointed by the Board the Board is to comprise a total of 5 maintains solid in-house control prac- Chairman will chair general shareholders’ members. The Board chairman is elected tices and appropriate risk management meetings. To the extent possible, Board at the Company’s shareholders’ meeting. systems tailored to the Company’s busi- members, the nomination committee The Board elects its own Deputy Board ness activities. The Board annually reviews leader, and auditor attend annual share- Chairman. the Company’s most important risk areas holders’ meetings. The majority of the shareholder-elected and internal control systems and proce- Minutes of shareholders’ meetings are Board members are to be independent of dures, and the main elements of these published as soon as practically possible the Company’s executive management assessments are mentioned in the Board via the Oslo Stock Exchange messag- and its significant business associates. of Directors’ report. The issue is further ing service www.newsweb.no (ticker: Further, no fewer than two of the share- described in Note 1 to the consolidated AMSC) and on the Company’s website holder-elected Board members are to accounts. www.americanshippingco.com. be independent of the Company’s main shareholder. Representatives of American Remuneration of the Nomination committee Shipping Company’s executive manage- Board of Directors American Shipping Company currently ment are not to be Board members. The Board remuneration is to reflect the does not have a nomination committee. Board has not deemed it necessary to Board’s responsibility, expertise, time Upon the reduction by Aker ASA of its establish Board committees at this time. spent, and the complexity of the business. majority ownership position in American The current composition of the Board Remuneration does not depend on Ameri- Shipping Company in June 2008, the is presented on page 64 of this annual can Shipping Company ASA’s financial former nomination committee members report; the Board members’ expertise, performance. Board members and compa- stepped down from their positions and capabilities, and independence are also nies with whom they are associated must were not replaced. As provided in our presented. Board members’ sharehold- not take on special tasks for the Company articles of association, the shareholders ings are presented in Note 20 to the beyond their Board appointments unless may decide to reconstitute the nomination consolidated accounts. The Company such assignments are disclosed to the committee at the general meeting. If the encourages the board members to invest full Board and remuneration for such ad- nomination committee is reconstituted, in the Company shares. The shareholder- ditional duties is approved by the Board. pursuant to the articles of association, the elected Board members represent a Additional information on remunera- nomination committee is to comprise no combination of expertise, capabilities, and tion paid to Board members for 2008 is fewer than three members. The composi- experience from various finance, industry, presented in Note 20 to the consolidated tion of the nomination committee must and non-governmental organizations. accounts. reflect the interests of the shareholders, Four of the five shareholder-elected and must ensure nomination committee Board members are up for election in Remuneration of members’ independence from American 2009. executive management Shipping Company’s Board and executive The Board has adopted guidelines for management. Nomination committee The work of the Board of Directors remuneration of executive management members and chair are elected by the The Board of American Shipping Company in accordance with the Allmennaksjeloven shareholders at the Company’s annual ASA annually adopts a plan for its work, (Norwegian Public Limited Company Act) shareholders’ meeting, which also deter- emphasizing goals, strategies, and imple- § 6-16a. Salary and other remuneration mines remuneration payable to committee mentation. Also, the Board has adopted of American Shipping Company ASA’s members. board instructions that regulate areas President and CEO/General Manager are Pursuant to American Shipping Compa- of responsibility, tasks, and division of determined by a meeting of the Board of ny’s articles of association, the nomination roles of the Board, Board Chairman, and Directors. committee recommends candidates for President and CEO/General Manager. American Shipping Company ASA does members of the Board of Directors. The The Board instructions also feature rules not have stock option plans or other such nomination committee also makes recom- governing Board schedules, rules for share award programs for employees. mendations as to remuneration of Board notice and chairing of Board meetings, Further, information on remuneration for
American Shipping Company annual report 2008 61 Our organization and governance Corporate governance
2008 for members of American Shipping and the presentations are often available the Board’s statement. Company ASA’s executive management is on the web. Transactions that have the effect of sale presented in Note 20 to the consolidated The Company’s financial calendar is of the Company or a major component of accounts. The Group’s guidelines for re- found on page 4 of this annual report. it are to be decided on by shareholders at muneration to executive management are a shareholders’ meeting. discussed on page 45 of this annual report Takeovers and will be presented to the shareholders The overriding principle is equal treatment Auditor at the annual general meeting. of shareholders. The principles are based The auditor will make an annual presenta- on the bidder, the target company and the tion to the Board of a plan for the auditing Information and communications management all having an independent work for the year. Further, the auditor is to American Shipping Company’s reporting responsibility for fair and equal treatment provide the Board with an annual written of financial and other information is to be of the shareholders in a takeover process, confirmation that the requirement of inde- based on openness and on equal treatment and that the target company is not unnec- pendence has been met. of shareholders, the financial community essarily disturbed. It is the responsibility of The auditor participates in the Board and other interested parties. the target company’s board to ensure that meeting that deals with the annual ac- The long-term goal of American Ship- the shareholders are kept informed and counts. One meeting a year is to be held ping Company’s investor relations activities that they have reasonable time to assess between the auditor and the Board, at is to ensure the Company’s access to the offer. which no representatives of executive capital at competitive terms and to ensure Unless the Board has particular management are present. shareholders correct pricing of shares. reasons for so doing, it will not take steps Guidelines have been established for These goals are to be accomplished to prevent or obstruct a take-over bid for executive management’s use of auditors through correct and timely distribution the Company’s business or shares, nor for services other than auditing. Auditors of information that can affect the Com- use share issue authorizations or other are to provide the Board with an annual pany’s share price; the Company is also measures to hinder the progress of the overview of services other than auditing to comply with current rules and market bid, without such actions being approved that have been supplied to the Company. practices, including the requirement of by the general shareholders’ meeting after Remuneration for auditors, presented equal treatment. All stock exchange no- the take-over offer has become public in Note 3 to the consolidated accounts, tifications and press releases are made knowledge. is stated for the two categories of audit- available on the Company’s website Upon the issuance of an offer for the ing and other services. In addition these www.americanshippingco.com; stock Company’s shares, the Board will make details are presented at the annual general exchange notices are also available from a statement to the shareholders that meeting. www.newsweb.no. All information that is provides an assessment of the bid, the distributed to shareholders is simultane- Board’s recommendations, and reasons ously published on American Shipping for these recommendations. For each Company ASA’s website. The Company instance, an assessment will be made as endeavors to hold open presentations in to the necessity of bringing in independent connection with the reporting of the results expertise. A valuation is to be recorded in
62 American Shipping Company annual report 2008 Our organization and governance Corporate governance
American Shipping Company annual report 2008 63 Our organization and governance Presentation of the Board of Directors
Presentation of the Board of Directors
Robert N. Caruso Chairman
Mr. Caruso (born 1951) has been a Board Member of American Shipping Company ASA since December 2007. He was elected Chairman of the Board in June 2008. Since 1998 he has worked as Managing Partner of B/3 Management Resources, LLC and VP/Partner in Ingenium Technology. His career history also includes several officer-level leadership positions spanning a wide range of commercial, technical and operational disciplines. He has industry background in high-tech and industrial products manufacturing, capital equipment, technical services, engineering products/materials and consulting. Mr. Caruso also serves on the Board of Directors, and as Nominating and Governance Committee Chairman, of ADA-ES, Inc., an environmental technology and solutions company. Mr. Caruso has a B.S. and a B.A. from Penn State University and a Masters Degree in Business Administration from Wayne State University. Mr. Caruso is a U.S. citizen. As of 31 December 2008, Mr. Caruso holds zero shares in the company and has no stock options. He has been elected for the period 2007-2009.
Gary Mandel Board member
Mr. Mandel (born 1960) is a member of American Shipping Company ASA’s Board of Directors, having been nominated to the position in December 2007. Prior to June 2008, Mr. Mandel served as Chairman of the AMSC Board of Directors. He currently serves as Executive Vice President at Aker Solutions. He previously served as Aker Kvaerner ASA’s Oil, Gas, Process and Energy business from 2002 to 2007. For more than 25 years, Mr. Mandel has worked within the oil and gas industry, petrochemical, and power and shipping industries, with emphasis on engineering, procurement, construction, project management, maintenance, and operations. Mr. Mandel is a graduate from the University of Nuevo Leon, Mexico. Mr. Mandel is a U.S. citizen. As of 31 December 2008, Mr. Mandel holds zero shares in the company and has no stock options. He has been elected for the period 2007-2009.
Annette Malm Justad Board member
Ms. Justad (born 1958) has been a member of American Shipping Company ASA’s Board of Directors since December 2007. Since 2006, she has 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 companies such as Yara International ASA, Norgas Carriers/IM Skaugen ASA, and Norsk Hydro ASA. Ms. Justad is also a member of the Board of Camillo Eitzen ASA and Petroleum GEO Services ASA. Ms. Justad holds a Master degree of Technology Management from MIT (Sloan School)/NTH/NHH in addition to a MSc in Chemical Engineering from NTH. Ms. Justad is a Norwegian citizen. As of 31 December 2008, Ms. Justad holds zero shares in the company and has no stock options. She has been elected for the period 2007-2009.
Hege Yli Melhus Board member
Ms. Melhus (born 1974) has been a member of American Shipping Company ASA’s Board of Directors since December 2007. Since 2006, she has worked as Group Senior Vice President of Hafslund Markets, a business area of Hafslund ASA. She has previously been Director Markets Retail and has headed the Group’s Secretarial office of the Board & Executive Committee. From 1998-2002 she held positions as Associate in Kistefos Venture Capital AS, Senior Consultant in Framfab AS (now EDB Business Partner ASA) and Research Associate at INSEAD, France. Ms. Melhus is Chairman of the Board in a number of Hafslund companies in addition to Board Member in Sakorninvest Sor AS. Ms. Melhus holds an MSc in Business from the Universite Paris IX Dauphine, France. Ms. Melhus is a Norwegian citizen. As of 31 December 2008, Ms. Melhus holds zero shares in the company and has no stock options. She has been elected for the period 2007-2009.
John Rose Board member
Mr. Rose (born 1953) became a member of the American Shipping Company ASA’s Board of Directors in June 2008. He is currently an Independent Management Consultant with worldwide experience in shipping and logistics. He has over 35 years of experience with extensive senior management employment in worldwide shipping and port operations. Specializing in strategic support for shipping companies and those involved in Oil Trading, Downstream Supply Distribution, Dry Bulk, Upstream Exploration & Productions and Liquid Natural Gas (LNG) business. Previous management experience is largely based on 28 years of employment with Shell. Mr. Rose holds a Master of Laws LLM from the University of Southampton. Mr. Rose is a British citizen. As of 31 December 2008, Mr. Rose holds zero shares in the company and has no stock options. He has been elected for the period 2008-2010.
64 American Shipping Company annual report 2008 Our organization and governance Presentation of the Management Team
Presentation of the Management Team
Robert Kurz President & CEO
Mr. Kurz (born 1956) joined American Shipping Company ASA as President and CEO in 2007. Mr. Kurz’s background includes over 25 years experience in the Jones Act shipping industry. Mr. Kurz has extensive knowledge of the U.S. maritime industry through his dealings with the U.S. Maritime Administration, the Military Sealift Command and the U.S. Transportation Command. Mr. Kurz holds a Bachelor of Arts degree from Lafayette College, and received a Master of Science degree in Trans- portation Management (along with a USCG Third Mate License) from the State University of New York Maritime College. As of 31 December 2008, Mr. Kurz holds 4,000 shares in the company and has no stock options. Mr. Kurz is a U.S. citizen.
Gregory Matecki CFO
Mr. Matecki (born 1960) joined American Shipping Company as Chief Financial Officer (CFO) in June 2008. Mr. Matecki has 25 years of corporate financial experience including strategic planning, reporting and analysis. Prior to joining American Shipping Company, Mr. Matecki was employed by Binswanger, an international full-service real estate firm, where he was Vice President and Chief Financial Officer. Mr. Matecki has a Masters of Business Administration from Villanova University, a Bachelors Degree in Accounting and Finance from LaSalle University, and is a certified Public Accountant in the Commonwealth of Pennsylvania. As of 31 December 2008, Mr. Matecki holds zero shares in the company and has no stock options. Mr. Matecki is a U.S. citizen.
Dean Grabelle General Counsel
Mr. Grabelle (born 1970) was appointed General Counsel at American Shipping Company in May 2008. Prior to joining AMSC, Mr. Grabelle was employed with the law firm of Drinker Biddle & Reath LLP in Philadelphia, PA, where he established a legal career spanning 12 years. Past experience includes mergers and acquisitions, business counseling, lending, private equity and corporate finance. Mr. Grabelle graduated from Duke University with a Bachelor of Arts in Economics and Public Policy Studies. He also holds a Juris Doctor from the University of Pennsylvania Law School. Mr. Grabelle’s services are shared with Aker Philadelphia Shipyard. As of 31 December 2008, Mr. Grabelle holds zero shares in the company and has no stock options. Mr. Grabelle is a U.S. citizen.
American Shipping Company annual report 2008 65 Our organization and governance Addresses
American Shipping Company ASA American Tanker, Inc. Fjordalleen 16 Philadelphia Naval Business Center P.O. Box 1423 Vika One Crescent Drive, Suite 104 NO-0115 Oslo Philadelphia, PA 19112-1808 Norway USA
Tel: +47 24 13 00 00 Tel: +1 (866) 588 6106 Fax: +47 24 13 01 01 Fax: +1 (215) 468 2378 www.americanshippingco.com www.americanshippingco.com
Disclaimer and market conditions in the geographic areas resulting from your use of the information in the This annual report includes and is based, inter and industries that are or will be major markets annual report. alia, on forward-looking information and state- for the American Shipping Company Group’s American Shipping Company ASA undertakes ments that are subject to risks and uncertainties businesses, oil prices, market acceptance of no obligation to publicly update or revise any that could cause actual results to differ. Such new products and services, changes in govern- forward-looking information or statements in the forward-looking information and statements are mental regulations, interest rates, fluctuations in annual report, other than what is required by law. based on current expectations, estimates and currency exchange rates and such other factors The American Shipping Company Group projections about global economic conditions, as may be discussed from time to time. Although consists of many legally independent entities, the economic conditions of the regions and American Shipping Company ASA believes constituting their own separate identities. industries that are major markets for American that its expectations and the information in this American Shipping Company is used as the Shipping Company ASA and its subsidiaries annual report were based upon reasonable as- common brand or trade mark for most of these and affiliates (the “American Shipping Company sumptions at the time when they were made, it entities. In this annual report we may sometimes Group”) lines of business. These expectations, can give no assurance that those expectations use “American Shipping Company”, “Group”, estimates, and projections are generally iden- will be achieved or that the actual results will be “we”, or “us”, when we refer to American Shipping tifiable by statements containing words such as set out in this annual report. Neither American Company Group companies in general or where as “expects,” “believes,” “estimates” or similar Shipping Company ASA, any other company no useful purpose is served by identifying expressions. Important factors that could cause within the American Shipping Company Group any particular company of American Shipping actual results to differ materially from those nor any of their directors, officers or employees Company. expectations include, among others, economic will have any liability to you or any other persons
66 American Shipping Company annual report 2008 Concept & design: Haugvar Kommunikasjon & Design
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Fjordalleen 16 P.O. Box 1423 Vika NO-0115 Oslo Norway
Tel: +47 24 13 00 00 Fax: +47 24 13 01 01
www.americanshippingco.com