Annual report 2009 Contents
In review
3 Company Overview 5 Goals and strategies
Performance 2009
6 Board of directors’ report 12 Annual accounts - group 12 Statement of financial position 13 Income statement and statement of comprehensive income 14 Statement of changes in equity 15 Cash flow statement 16 Notes to the accounts 32 Annual accounts - parent company 32 Statement of financial position 33 Income statement and statement of comprehensive income 34 Cash flow statement 35 Notes to the accounts 40 Auditor's report 42 Share and shareholder information
Corporate gorvernance
45 Corporate governance statement 2009 48 Presentation of the board of directors 49 Presentation of management
50 Company information In review Company overview
History
2005 ■■ Closed a ten ship bareboat charter agreement with Overseas Shipholding Group, Inc. (OSG) ■■ Aker American Shipping ASA (AKASA) established and listed on Oslo Stock Exchange. Purchased the former Kvaerner Philadelphia This is American Shipyard
2007 Shipping Company ■■ Obtained permanent ownership financing for ten vessels and issued NOK 700 million bond American Shipping Company ASA (AMSC) is a shipping company for investments in vessels and that owns and leases world-class quality U.S. Jones Act vessels operations for operations between ports in the United States. The Company ■■ Split of Aker American Shipping’s is headquartered in Oslo, Norway, with its principal operating ship owning operations from its ship building operations. Aker subsidiaries located in Philadelphia, Pennsylvania, USA. American Shipping sold Aker Philadelphia Shipyard AMSC’s business model is to own and bareboat charter vessels ■■ Took delivery of the first three for operation in the U.S. Jones Act market through its wholly product tankers owned subsidiary leasing companies. All of its vessels are fully qualified to participate in the domestic maritime trades of the 2008 United States. ■■ Aker ASA reduced its ownership interest, as planned, to 19.9% due to U.S. Jones Act restrictions The vessels which AMSC owns are the most modern product which would have limited its tankers in operation and use the proven design of Hyundai Mipo further ambition for developing Dockyard. These 46,000 dwt vessels are state-of-the-art, fuel maritime business outside the efficient vessels with highly flexible cargo systems. Their U.S. ■■ Name changed from Aker outstanding performance, reliability and quality have been American Shipping ASA to recognized by those chartering these vessels over the last three American Shipping Company years. ASA. Trading ticker also changed from AKASA to AMSC ■■ Took delivery of two more product tankers
2009 ■■ Finalized settlement agreement Financial calendar 2010 with Overseas Shipholding Group, Inc. that settled commercial 7 April Annual General Meeting 2010 disputes between the companies 23 April 1st quarter interim results ■■ Stronger balance sheet and better 6 August 2nd quarter interim results positioned for future opportunities 5 November 3rd quarter interim results ■■ Took delivery of two additional product tankers (Dates subject to change)
American Shipping Company annual report 2009 3 In review
4 American Shipping Company annual report 2009 In review Goals and Strategies
Goals and Strategies
Be the preferred ship owning and lease finance Company in the Jones Act market
■■ Generate stable cash flow from long term bareboat charters protected from short term market movements, but with exposure to the long term positive outlook for Jones Act shipping ■■ Work closely with OSG 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 manage- ment 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 than will ensure the safest, highest quality and most environmentally friendly fleet ■■ Maintain close relationship with Aker Philadelphia Shipyard to secure timely delivery of vessels
Explore and invest in value creation opportunities for our shareholders
■■ Continue to focus our efforts on value creation opportunities in both the Jones Act market and the financial markets and position ourselves to take advantage of these opportunities ■■ Create shareholder value through optimal structuring and financial transactions
American Shipping Company annual report 2009 5 Performance 2009 Board of Directors’ report
Navigating in the Jones Act during economic slowdown
Introduction The shipbuilding contracts for the two the U.S. coastwise or “Jones Act” trade. American Shipping Company ASA vessels that will be converted to shuttle Compliance with the lease finance excep- (“AMSC” or the “Company”) is a ship tankers have been assigned to OSG. tion requires, among other things, that owning and leasing company with a mod- AMSC’s subsidiaries bareboat charter ern fleet of tanker vessels operating in the Goals and strategies their vessels to qualified U.S. citizen oper- U.S. domestic (“Jones Act”) trades. Dur- AMSC’s primary goal is to be the pre- ators. ing 2009, AMSC took delivery of its sixth ferred ship owning and lease finance The Oil Pollution Act of 1990 (“OPA and seventh product tankers, realizing company in the U.S. Jones Act market. 90”) was enacted as a result of the Exxon total operational revenues of USD 54.4 The Group will continue to explore and Valdez oil spill. OPA 90 created a new million with operating income before inter- invest in value creation opportunities for legal regime to increase pollution preven- est, taxes, depreciation and amortization our shareholders. tion, ensure better spill response capabil- of USD 45.2 million. In connection with AMSC employs several strategies to ity, increase liability for spills, and facili- the Settlement Agreement (discussed ensure the attainment of our goals. The tate prompt compensation for cleanup below), AMSC assigned all of its rights Group will continue to work closely with its and pollution damage. OPA 90 also estab- under the shipbuilding contracts for the customer to ensure that maximum value is lished phase-out dates for existing single- two shuttle tankers to Overseas Shiphold- gained from each of the time charters and hull tanker vessels and required all newly ing Group, Inc. in 2009. AMSC currently the profit sharing arrangements. AMSC constructed tanker vessels to meet dou- has three additional tankers on order with focuses on long-term charters to generate ble-hull standards. Beginning in 2015 all Aker Philadelphia Shipyard, Inc. (Aker stable cash flows so as to protect the tanker vessels trading in the United Philadelphia Shipyard, Inc. is a wholly Group’s revenue from short-term market States must meet double-hull standards. owned subsidiary of Aker Philadelphia movements. The Group will maintain strin- In the 1990’s, there was a surplus Shipyard ASA; collectively “AKPS”) and gent controls on all of its costs. In addition, capacity of product tankers and barges. options for four additional tankers. The by maintaining a close, commercial rela- As more vessels reach their OPA 90 retire- seven product tankers in operation and tionship with Aker Philadelphia Shipyard, ment date, we expect capacity will the three product tankers on order have the Group seeks to secure the timely deliv- decrease and eventually create a supply all been, or will be bareboat chartered to ery of all of our vessels. deficit. Although the end of 2008 and Overseas Shipholding Group, Inc. or one AMSC has the most modern fleet in 2009 marked a lower demand for oil prod- of its subsidiaries (collectively “OSG”). the market. The ship design achieves high ucts due to the poor global economy, we standards and AMSC will continue to remain optimistic about the long term The Group’s business activities seek improvements for the safety of per- demand for tankers. Due to a limited The main entities in the AMSC Group sonnel and protection of the environment. number of vessels under construction, it (“Group”) are the Norwegian holding com- The Group will continue to focus our is reasonable to assume a stronger mar- pany American Shipping Company ASA, efforts on additional value creation oppor- ket for new tankers in the future. the U.S. intermediate holding company tunities, both in the Jones Act market as American Tanker Holding Company, Inc. well as in the financial markets. It is the Key events 2009 (ATHC), American Tanker, Inc. (ATI), Amer- Group’s plan to be in a position to take The sixth and seventh product tankers ican Shipping Corporation (ASC) and the advantage of these opportunities in order were delivered to AMSC in February and ten separate leasing companies (ASC to create value for our shareholders. June, respectively. The sixth and seventh Leasing I through X, Inc.) that own (or will vessels, the Overseas Boston and the own) each of the ten product tankers. The Jones Act market Overseas Nikiski, are both on long-term American Shipping Company ASA is The U.S. cabotage law, commonly time charter from OSG to Tesoro. The domiciled in Oslo, Norway, with the U.S. referred to as the Jones Act, requires all long-term bareboat charter agreements subsidiaries and operations located in commercial vessels transporting cargoes that the Group has with subsidiaries of Philadelphia, Pennsylvania, and Wilming- between ports in the United States to be OSG have different fixed charter periods ton, Delaware, USA. built, owned, operated and manned by of between five and ten years from deliv- AMSC’s current business model is to U.S. citizens and to be registered under ery and, as such, these vessels have own and bareboat charter vessels for the U.S. flag. secure, stable cash flows with charters operation in the U.S. Jones Act market. Since AMSC is not a U.S. citizen quali- expiring between 2014 and 2021, with The vessels are being built at AKPS, a fied to operate vessels in the Jones Act, it options for OSG to extend the bareboat leading U.S. commercial shipyard. AMSC, is dependent on the lease finance excep- charter term. As noted below, upon satis- through its subsidiaries, will own and tion which permits foreign ownership of faction of certain conditions in the Settle- bareboat charter the vessels to vessel Jones Act ships under certain conditions. ment Agreement, all of the charters will be operating companies. Ten vessels (either If AMSC does not fully comply with the extended to ten years, with option exten- delivered or to be delivered) are all on terms of the lease finance exception, its sions remaining in place. Further, in a U.S. bareboat charter to subsidiaries of OSG. vessels will not be qualified to operate in product tanker market with strong funda-
6 American Shipping Company annual report 2009 Performance 2009 Board of Director’s report
mentals, the charter agreements have agreements with AKPS have been modi- 2009 compared to USD 27.9 million in upside potential above the fixed bareboat fied including the elimination of exclusivity, 2008. charter rates through a profit sharing reduction of purchase prices on remaining Depreciation was USD 27.9 million in mechanism. vessels to be delivered, and cancellation 2009 versus USD 17.5 million in 2008. of nine option agreements for tankers AMSC’s operating profit (EBIT) was USD Settlement Agreement beyond AKPS’s hull 020. AMSC maintains 17.3 million in 2009 versus USD 10.4 mil- In December 2009, the Company entered four options with AKPS for product tank- lion in 2008. into a settlement agreement (“Settlement ers. In exchange for these agreements Net financial items and other gain was Agreement”) with OSG that settled all of and relieving the Group of future obliga- negative USD 18.8 million in 2009 com- the outstanding commercial disputes tions and cash payments, the Group pared to negative USD 84.9 million in between AMSC and OSG. (Aker ASA and transferred to AKPS its ownership interest 2008. Gain on the sale of the first shuttle Converto Capital Fund AS (formerly in USD 3.0 million of assets (“long-lead tanker shipbuilding contract was USD named Aker Capital Fund AS) (collectively items”) that had been purchased (on our 11.2 million in 2009. Net financial items of “Aker”) and AKPS were also parties to the behalf by AKPS) for future option vessels. negative USD 30.0 million in 2009 consist Settlement Agreement.) The Settlement In addition, as part of the Settlement primarily of an unrealized, non-cash gain Agreement will enable the Group to com- Agreement, Converto Capital Fund AS on the mark-to-market valuation of inter- plete the twelve vessel build series (ten has made an unsecured, subordinated est rate swap agreements of USD 21.6 product tankers and two shuttle tankers) loan of USD 20 million to AMSC, which million, offset by net interest expense of with AKPS. The Settlement Agreement will provide additional liquidity to the USD 34.9 million and other financial provides for the dismissal with prejudice Group. Interest under this loan will be expense of USD 16.7 million. Net financial of all claims in the arbitration with OSG. payment-in-kind interest. Loan repayment items of negative USD 84.9 million in As part of the settlement, the fixed restrictions apply until specific conditions 2008 related primarily to an unrealized, terms of the bareboat charters of the ten are met including the timely delivery of the non-cash loss on the mark-to-market val- product tankers (seven of which have remaining vessels in the twelve ship order uation of interest swap contracts of USD been delivered with the remaining three to and the satisfactory refinancing or exten- 66.1 million. The remaining negative USD be delivered before 30 September 2011) sion of AMSC’s vessel debt and bond 18.8 million in 2008 reflected net interest will be extended to a common expiration obligations. The loan’s maturity date is expense of USD 21.2 million and other date that is ten years from the date of the three years from the date that those con- financial income of USD 2.4 million. Settlement Agreement (December 2019) ditions are satisfied, which is not Income tax benefit for 2009 was USD upon satisfaction of certain conditions expected to occur before 2013. 0.2 million, compared to expense of USD including the timely delivery of the remain- With the Settlement Agreement, AMSC 0.2 million in 2008. ing vessels in the twelve ship order and resolved its inability to fund the purchase AMSC’s 2009 net loss was USD 1.3 the satisfactory refinancing or extension of the two shuttle tankers as well as the million versus a 2008 net loss of USD 74.7 of AMSC’s vessel debt and bond obliga- anticipated shortfall in debt service cover- million. The net loss of 2008 includes the tions. Various other agreements with OSG age on its senior debt resulting from the negative effect of the unrealized, non- have been modified including the elimina- absence of profit sharing under the bare- cash loss on the mark-to-market valua- tion of exclusivity, the sale (to OSG) of the boat charters. In addition, with the modifi- tion of the interest rate swap contracts. two shuttle tanker shipbuilding contracts cation of the agreements with AKPS, the The 2009 earnings per share (EPS) was and changes to the profit sharing agree- Group has improved its cash position negative USD 0.08 and the diluted EPS ment. The assignment of the two shuttle with the elimination of future obligations was negative USD 0.08. The correspond- tanker shipbuilding contracts for USD 35 and fees associated with the option con- ing figures for 2008 were negative USD million each (reflecting a return of capital tracts. 2.71, for both basic and diluted EPS. paid per vessel of approximately USD 20 million each) resolves AMSC’s inability to Review of the annual accounts Cash flow obtain permanent financing for these two AMSC prepares and presents its accounts The Group’s cash flow is primarily com- vessels under the continuing challenging according to International Financial posed of bareboat charter hire paid. Total credit markets and allows AMSC to con- Reporting Standards (IFRS) as adopted net cash flow from operating activities in tinue with the full twelve ship order from by the EU, and has one operating seg- 2009 was positive USD 39.4 million, and OSG. The proceeds from the sale also ment. in 2008 was negative USD 15.5 million. provide AMSC with needed liquidity to The increase in 2009 versus 2008 is pri- assist the Group in meeting its debt serv- Profit and loss accounts marily due to cash losses incurred in 2008 ice obligations to its senior lenders. The In 2009, AMSC had operating revenues of versus current year cash gains on the set- changes to the profit sharing agreement USD 54.4 million versus operating reve- tlement of foreign currency swaps and the include overall simplification of the calcu- nues of USD 33.3 million in 2008 as the net gain on the sale of the first shuttle lations, a change to increase AMSC’s fleet grew from five to seven vessels. Rev- tanker shipbuilding contract in 2009. sharing percentage to fifty percent under enues are recognized on a monthly basis Net cash flow from investment activities all circumstances, and a provision allow- and represent the income from the bare- was negative USD 192.6 million in 2009 ing OSG to retain the first USD 18.2 mil- boat charter agreements. No revenue compared to a negative USD 230.4 million lion of profit sharing otherwise payable to from the profit sharing arrangement with in 2008. This is mainly attributable to the AMSC (such retained profit sharing to OSG was recognized in 2009 or 2008. vessels delivered in each year as well as to accrue interest until paid). The Group’s operating profit before inter- milestone payments made to AKPS for the In connection with the Settlement est, taxes, depreciation and amortization vessels currently on order. In addition, Agreement with OSG, several of AMSC’s (EBITDA) amounted to USD 45.2 million in 2009 includes the return of our capital
American Shipping Company annual report 2009 7 Performance 2009 Board of directors’ report
investment in the first shuttle tanker ship- additional vessels in 2009. other payables and USD 31.8 for short- building contract that was sold in 2009. At 31 December 2009, total equity was term interest bearing debt. The corre- Net cash flow from financing activities USD 78.8 million. The equity ratio was 9% sponding total current liabilities as of 31 was USD 113.6 million in 2009 related to of total assets. Corresponding amounts December 2008 of USD 613.1 million the take-out financing of the two vessels for 2008 were USD 101.0 million and 14%, were mainly related to the current classifi- delivered versus USD 170.3 million in respectively. This decrease in total equity cation of debt referred to above. Total 2008 related to the take-out financing of is primarily due to the redemption of a debt included in this amount was USD three vessels delivered. subsidiary of AMSC’s preferred shares in 504.4 million, of which USD 385.2 million 2009. relates to bank debt for the first five ves- Balance sheet and liquidity One of the covenants on the Compa- sels and USD 119.2 million relates to the As of 31 December 2009, American Ship- ny’s NOK denominated bond requires that Norwegian Kroner (NOK) denominated ping Company had cash on deposit with consolidated equity be maintained at a bond. Also included in current liabilities is banks totaling USD 57.8 million. Of this level not less than USD 140 million. As a the mark-to-market valuation of the inter- total amount, USD 25.2 million is non-cur- result of changes in interest rates and est rate swap contracts of USD 100.6 mil- rent cash held for specified uses. The cor- their impact on total equity, resulting from lion, trade and other payables of USD 6.3 responding amounts for 2008 were USD recording interest rate swap arrange- million and other derivative financial liabili- 71.8 million in cash on deposit with banks ments at fair value, AMSC approached ties of USD 1.8 million. and USD 0.0 million in non-current cash the Loan Trustee early in 2009 on its NOK Non-current liabilities totaled USD held for specified uses. The decreased 700 million bond loan to request that the 673.9 million at 31 December 2009, con- cash in 2009 is primarily related to the Trustee convene a bondholders meeting sisting of bank debt of USD 496.3 million purchase of vessels from AKPS. Cash to consider a request for consent to disre- related to the seven vessels owned by held for specified uses, in accordance gard any effect of any non-cash gain or AMSC, a bond payable of USD 157.6 mil- with the Settlement Agreement, can be loss from the change in fair market value lion and a subordinated loan of USD 20.0 used to pay any remaining milestone pay- of interest rate hedging agreements in million. Non-current liabilities at 31 ments due and final purchase price pay- connection with the calculation of the December 2008 were USD 0.0 million. ments for the three product tankers and required equity balance. In addition to the the shuttle tanker, debt service require- minimum equity covenant change, AMSC Risks ments, selling, general and administrative also requested consent to extend the AMSC faces risks related to construction expenses (subject to a maximum of USD option to select Payment-in-Kind (PIK) of vessels and to market risk related to 1.0 million per quarter), tax expenses, and interest throughout the loan term. The financing and ownership of vessels. The prepayments of the Fortis loan. Trustee agreed with our request and con- risks related to vessel construction are Other current assets were USD 22.5 vened a bondholders meeting on 25 Feb- primarily AKPS’s ability to deliver the ves- million as of 31 December 2009, mainly ruary 2009. At that meeting, the bond- sels on time. The overall market risk is representing assets held for sale related holders voted to accept both of the Com- related to the future of the Jones Act, but to the second shuttle tanker shipbuilding pany’s proposals. Therefore, with the market experts think it is very unlikely that contract which is expected to be deliv- bondholders’ approval, the calculation of the Jones Act will be overturned or that ered in the fourth quarter of 2010. Other equity under the amended covenants as waivers to bring in foreign built vessels current assets as of 31 December 2008 of 31 December 2009 and 2008 was will be granted. Although the Group’s ves- were USD 22.2 million, mainly represent- approximately USD 158 and USD 202 mil- sels are all on long term bareboat charter ing receivables from AKPS and Aker ASA. lion, respectively. However, because as of contracts, AMSC is exposed to normal Property, plant and equipment as of 31 31 December 2008 equity was less than market risk related to imbalance between December 2009 and 2008 was USD 703.9 the required minimum at that time, all of supply and demand for the future growth million and USD 520.8 million, respec- the Group’s debt was classified as current of its fleet. tively, and includes seven vessels in 2009 on its balance sheet due to IFRS require- AMSC and its subsidiaries have imple- versus five vessels in 2008. Prepayments ments as well as cross-default provisions mented sound, comprehensive risk man- made to AKPS in accordance with the which impact the Group’s other debt facil- agement systems and procedures. Main- shipbuilding contracts for the vessels ity. Due to the approved modification in taining open and effective communication under construction were USD 74.7 million 2009 of the bond covenant, the Group is stressed by the Board of Directors. It is at 31 December 2009 and USD 92.9 mil- was able to classify the majority of its important that any deviations from plan lion at 31 December 2008. debt as long-term for its 31 March 2009 specifications or expected performance Interest-bearing long-term receivables interim reporting and for the balance of are identified quickly so that corrective totaled USD 7.3 million and USD 6.3 mil- the year. measures can be taken at an early stage, lion as of 31 December 2009 and 2008, Given the challenges in global financial thus limiting the consequences of such respectively. These amounts include the markets and tightness in credit, the exten- deviations. deferred principal obligation (DPO) receiv- sion of the option to declare PIK interest AMSC and its subsidiaries adhere to a able from OSG and in 2008 also included on a quarterly basis will help the Group’s risk policy designed to minimize exposure a restricted cash deposit serving as secu- cash position to the benefit of all stake- to financial market risk, such as foreign rity for the foreign exchange swap agree- holders. exchange, interest risk and counterparty ments. Total current liabilities as of 31 Decem- risk. At 31 December 2009, total assets ber 2009 were USD 113.6 million, consist- were USD 866.3 million versus USD 714.1 ing of USD 79.0 million for the mark-to- Financial risk and risk management million at 31 December 2008. The market valuation of the interest rate swap AMSC’s activities expose it to a variety of increase represents the delivery of two contracts, USD 2.8 million for trade and financial risks: market risk, including cur-
8 American Shipping Company annual report 2009 Performance 2009 Board of Directors’ report
rency risk, interest rate risk, price risk, Through both the take-out financing things, require additional collateral or credit risk, and liquidity risk. AMSC’s and the NOK bond, the Group is exposed guarantees, increase the interest rate, overall risk management program focuses to fluctuations in interest rates. The inter- and/or impose fees. There is no guaran- on the unpredictability of financial mar- est rate risk related to the permanent term tee the lending syndicate would grant any kets and seeks to minimize potential loan for the ten product tankers is offset such waiver, in which case they could adverse effects on AMSC’s financial per- by use of financial instruments, namely demand immediate repayment of their formance. AMSC uses derivative financial interest rate swap agreements to hedge loans, foreclose on their collateral and/or instruments to hedge certain risk expo- the interest risk. The Group entered into exercise their other rights and remedies. sure. interest rate swaps to convert its floating In view of AKPS’s financial condition and AMSC operates in a business environ- rate debt to a fixed rate under their USD record of delivering vessels on time, this ment that is capital intensive. The Group 770 million loan facility. counter-party credit risk is presently is dependent upon having access to long- AMSC’s take-out financing has certain regarded as minimal. term funding for vessels and other loans cross-defaults to AKPS’s construction In addition to the above mentioned and debt facilities to the extent its own financing. AMSC closely monitors this link cross default on AKPS’s construction cash flow from operations is insufficient to to AKPS and its impact on operations financing, AMSC also has additional risk fund its operations and capital expendi- through frequent updates with AKPS’s associated with AKPS in the form of guar- tures. AMSC has secured take-out financ- management. If there is an event of antees on a loan that AKPS has with the ing for the first ten product tankers. The default under AKPS’s construction financ- Pennsylvania Industrial Development Cor- Settlement Agreement with OSG, includ- ing and the construction debt repayment poration Regional Center, LP XV and the ing the sale of both shuttle tanker ship- is accelerated, AMSC’s take-out financing Counter Guarantee (an agreement building contracts, has resolved AMSC’s would also be in default, which would between AKPS and the governmental par- inability to obtain permanent financing for require AMSC to seek waivers from its ties which provided funding for the ship- the two shuttle tankers under the current lending syndicate. As a condition to any yard renovation and for workforce training) challenging credit markets. such waiver, a lender might, among other that calls for a minimum level of employ-
American Shipping Company annual report 2009 9 Performance 2009 Board of Directors’ report
ment at the shipyard through 31 Decem- Parent company accounts and Aker ASA and Resource Group Interna- ber 2014. If certain levels of employment allocation of profit for the year tional which primarily includes accounting are not maintained, then liquidated dam- The profit and loss account of American and tax services. As such, the equivalent ages will be incurred. These guarantees Shipping Company ASA shows a loss for full time staff of AMSC would be approxi- are approximately USD 20.0 million each. the year 2009 of USD 22.8 million. The mately four persons as of 31 December In the event the AKPS is unable to pay the Board of Directors proposes that the 2009. loan when due, or if the shipyard reduces profit for the year be allocated as shown or ceases its operation, then AMSC may below: Equal-opportunity employer be liable under these guarantees. We American Shipping Company ASA seeks closely monitor the factors associated with Dividend payments - to be an attractive employer and main- the cross defaults and guarantees to Other equity negative USD 22.8 million tains a human relations policy that is open determine the probability and materiality of Total allocated negative USD 22.8 million and fair. AMSC is committed to providing the risk. This counterparty risk is presently Unrestricted equity equal employment opportunity to all not regarded as material. amounts to negative USD 9.1 million employees and applicants for employ- Credit risk associated with OSG or its ment, regardless of race, ethnic back- subsidiaries is regarded as minimal. ground, gender, religion, age or any other Credit risk associated with cash and bank Safety, quality and environment legally protected status. Diversity deposits is regarded as minimal. Safety of personnel and protection of the strengthens AMSC’s overall capacity and AMSC is also faced with the risk of refi- environment is an important part of skills. nancing its vessels when the current term AMSC’s strategy. AMSC takes its environ- The entire industry faces the challenge loan is due and under conditions imposed mental responsibilities seriously. Begin- of developing and sustaining diversity in upon the Company by the Settlement ning with our fifth product tanker, our ves- the workplace. At year-end 2009, two of Agreement. Although this particular risk sels have been modified to incorporate AMSC’s three full time employees are does not exist in the short term (as the three improved diesel-powered electrical women (controller and office manager). In refinancing is not required before 2014), generating sets to power the vessel’s addition, two of the five members of the there can be no assurance that the Group electrical system. These diesel engines board of directors are women. will be able to refinance its debt when due comply with the Environmental Protection depending on the market conditions as Agency’s Tier II requirements. When in Corporate governance well as the availability of credit. operation, these new engines produce American Shipping Company ASA’s cor- AMSC is subject to a covenant in its lower levels of pollutants and particulate porate governance policy exists to ensure bond obligation that requires the Group to than previous versions. The vessel’s an appropriate division of roles among the maintain a minimum level of USD 140.0 emergency diesel generator, hydraulic company’s owners, board of directors, million of consolidated equity. Consoli- power packs and rescue and lifeboat and executive management. Such a sepa- dated equity for the Group is primarily engines have all been upgraded as well. ration of roles ensures that goals and impacted through the results of its opera- No significant accidental environmen- strategies are prepared, adopted corpo- tions and through the foreign currency tal emissions were recorded in 2009 or in rate strategies are implemented, and the translation impact of its Norwegian Kroner 2008. results achieved are subject to verification (NOK) denominated bond. The Group AMSC focuses on the safety of our and follow-up. Applying these principles closely monitors changes to the USD/ employees and their surroundings. We also contributes to satisfactory group NOK foreign currency rate and is pre- work safely and in a manner that protects wide monitoring and verification of activi- pared to act quickly to put in place the and promotes the health and well-being ties. An appropriate division of responsi- appropriate measures to prevent a nega- of our employees and the environment. bilities and satisfactory internal controls tive impact to the equity covenant require- will contribute to the greatest possible ment. The Group’s equity under the cov- Organization value creation over time, to the benefit of enant calculation was USD 157.8 million Effective 31 December 2009, Robert K. shareholders and other stakeholders. as of 31 December 2009. The Group cur- Kurz resigned from his position as Presi- AMSC’s corporate governance guidelines rently views this risk as minimal. dent and CEO, and is no longer employed are presented in greater detail on page 45 Based on the information known today, by the Group. Coinciding with Mr. Kurz’s of this annual report. and subject to the above noted risks, the resignation, board member John Rose Good corporate governance, that is, Board deems that the Group is financially assumed the position of General Manager proper board conduct and company man- sound and has an appropriate financing on an interim basis. On 18 January 2010, agement, are key to AMSC’s efforts to structure. the Board of Directors announced the build and maintain trust. AMSC is com- appointment of Gregory J. Matecki as its mitted to maintaining an appropriate divi- Events after the balance sheet date new President and CEO. Mr. Matecki is sion of responsibilities between the Com- There were no significant events that the Group’s Chief Financial Officer and pany’s governing bodies, its Board of occurred after the balance sheet date. will continue to hold that position. It is Directors, and management. AMSC has expected that Mr. Matecki will assume the compared the Norwegian requirements The going concern assumption role of General Manager upon obtaining and recommendations on corporate gov- In view of AMSC’s financial position and regulatory approval. AMSC has a services ernance for listed companies with the its projections, the Board confirms that agreement with Aker Philadelphia Ship- Group’s own corporate governance pro- the 2009 annual accounts have been pre- yard for services related to IT, human cedures and practice. The findings show pared based on the assumption of a resources and certain other services. Fur- that the Company is in compliance with going concern. thermore, AMSC has agreements with respect to the requirements and substan-
10 American Shipping Company annual report 2009 Performance 2009 Board of Directors’ report
tially in conformance with those recom- agreements with OSG and its subsidiaries, closure requirements in the Norwegian mendations. The Company’s board chair- assuming ten year charter terms under Accounting Act. The separate financial man is elected at the Company’s annual the Settlement Agreement, would secure statements for American Shipping Com- shareholders’ meeting and the share- AMSC’s leasing backlog in excess of USD pany ASA have been prepared in accord- holder-elected directors are elected for 830 million from bareboat charter reve- ance with the Norwegian Accounting Act two year terms. At the Company’s annual nues. Any profit sharing contribution will and Norwegian accounting standards as general meeting in April 2009, Dag Fas- come in addition to the fixed bareboat of 31 December 2009. The Board of mer Wittusen and Mavis Hawkes were charter revenues. Directors’ Report for the group and the elected as new board members. The extent of profit sharing contribu- parent company is in accordance with the Following the April 2009 annual gen- tions will depend on the time charter rates requirements in the Norwegian Account- eral meeting, the Board members of obtained by OSG as well as OSG’s ability ing Act and Norwegian Accounting Stand- AMSC are as follows: to operate the vessels in a cost efficient ard no. 16 as of 31 December 2009. manner. Chairman Robert N Caruso AMSC believes there will be an To the best of our knowledge: Board Member and increasing need for more vessels within The consolidated and parent annual finan- Vice Chairman Annette Malm Justad existing and new market segments. cial statements for 2009 have been pre- Board Member John Rose AMSC will continue to evaluate opportuni- pared in accordance with the applicable Board Member Dag Fasmer Wittusen ties in the various market segments with accounting standards. Board Member Mavis Hawkes the goal of growing the Group and creat- The consolidated and parent annual ing long-term shareholder value. financial statements give a true and fair Further description of the Board Members view of the assets, liabilities, financial is on page 48. Responsibility statement position and profit (or loss) as a whole as Today, the Board of Directors and the of 31 December 2009 for the group and Outlook General Manager reviewed and approved the parent company. The U.S. Jones Act market, which has the Board of Directors’ Report and the The Board of Directors’ Report for the been in existence since 1920, is expected consolidated and parent company annual group and the parent company includes a to remain positive as more vessels reach financial statements for American Ship- true and fair review of: their OPA 90 retirement dates. Due to a ping Company ASA as of and for the year ■■ the development and performance of limited number of vessels under construc- ending 31 December 2009 (Annual Report the business and the position of the tion, apart from the remaining vessels 2009). group and the parent company under our ten product tankers and the American Shipping Company ASA’s ■■ the principal risks and uncertainties the two shuttle tankers, it is reasonable to consolidated financial statements have group and the parent company face assume charter rates will rise as the OPA been prepared in accordance with IFRSs 90 deadline approaches. The fixed charter as adopted by the EU and additional dis-
Oslo, 18 February 2010 The Board of Directors American Shipping Company ASA
Robert N. Caruso Annette Malm Justad John Rose Chairman Vice Chairman Board Member/Interim General Manager
Mavis Hawkes Dag Fasmer Wittusen Board Member Board Member
American Shipping Company annual report 2009 11 Performance 2009 Group accounts
American Shipping Company ASA Group Consolidated Statement of Financial Position as of 31 December
Amounts in USD thousands Note 2009 2008
ASSETS Property, plant and equipment 6 703 898 520 828 Interest-bearing long-term receivables 7 7 341 6 301 Non-current cash held for specified uses 12 25 226 - Other non-current assets 8 74 711 92 931 Total non-current assets 811 176 620 060
Assets held for sale 9 21 250 - Trade and other receivables 10 1 001 22 124 Tax receivable 292 84 Cash held for specified uses 12 12 076 6 733 Cash and cash equivalents 12 20 481 65 072 Total current assets 55 100 94 013
Total assets 866 276 714 073
EQUITY AND LIABILITIES Share capital and share premium 14 180 408 180 408 Retained earnings/(Accumulated deficit) (101 641) (99 394) Total equity attributable to equity holders of the parent 78 767 81 014 Preferred shares in subsidiary 14 - 20 000
Total equity 78 767 101 014
Interest-bearing loans 16 673 936 - Total non-current liabilities 673 936 -
Interest-bearing loans 16 31 803 504 360 Trade and other payables 19 2 712 6 187 Tax payable 82 87 Derivative financial liabilities 11 78 976 102 425 Total current liabilites 113 573 613 059
Total liabilites 787 509 613 059
Total equity and liabilities 866 276 714 073
12 American Shipping Company annual report 2009 Performance 2009 Group accounts
American Shipping Company ASA Group Consolidated Income Statement
Amounts in USD thousands Note 2009 2008
Operating revenues 54 363 33 341 Wages and other personnel expenses 2 (996) (896) Other operating expenses 3 (8 178) (4 562) Operating profit before depreciation 45 189 27 883
Depreciation 6 (27 932) (17 482) Operating profit 17 257 10 401
Gain on sale of shipbuilding contract 4 11 215 - Financial income 4 22 241 5 432 Financial expenses 4 (52 266) (90 321) Loss before income tax (1 553) (74 488)
Income tax (expense)/benefit 5 247 (232)
Net loss for the year (1 306) (74 720)
American Shipping Company ASA Group Consolidated Statement of Comprehensive Income
Amounts in USD thousands (except per share amounts) Note 2009 2008
Net loss for the year (1 306) (74 720) Other comprehensive income for the period, net of tax - - Total comprehensive income for the year (1) (1 306) (74 720)
Attributable to: Equity holders of the parent (1 306) (74 720)
Basic earnings/(loss) per share 13 (0.08) (2.71) Diluted earnings/(loss) per share (2) 13 (0.08) (2.71)
1) Applicable to common stockholders of the parent company. 2) There was no potentially dilutive securities outstanding as of 31 December 2009 and 2008.
American Shipping Company annual report 2009 13 Performance 2009 Group accounts
American Shipping Company ASA Group Consolidated Statement of Changes in Equity
Retained earnings/ Equity of common Preferred Share (Accumulated shareholders Shares Total Amounts in USD thousands Share Capital Premium deficit) of the Parent of subsidiary equity
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
Total comprehensive 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
Dividends paid from subsidiary - - (941) (941) - (941)
Preferred stock redeemed by subsidiary - - - - (20 000) (20 000)
Total comprehensive loss for the year - - (1 306) (1 306) - (1 306)
Balance at 31 December 2009 42 462 137 946 (101 641) 78 767 - 78 767
14 American Shipping Company annual report 2009 Performance 2009 Group accounts
American Shipping Company ASA Group Consolidated Cash Flow Statement
Amounts in USD thousands Note 2009 2008
Net loss before tax (1 553) (74 488) Unrealized foreign exchange gain/loss and other non-cash items 36 211 (21 867) Unrealized (gain)/loss interest swaps 11 (21 626) 66 096 Net financial expense/(income) 4 34 942 21 243 Non-cash interest expense 4 10 869 14 743 Depreciation 6 27 932 17 482 (Increase)/decrease in: Other current assets 10 (245) 1 377 Other long-term operating assets 7 (994) (5 510) Increase/(decrease) in: Accrued liabilities and other payables 19 (21 692) (27 147) Taxes paid 5 (306) (1 072) Interest paid, net of capitalized interest 4 (24 581) (10 807) Interest received 4 396 4 417 Net cash flow from operating activities 39 353 (15 533)
Investments in ships 6, 8 (234 447) (210 419) Sale of assets 21 025 - Note receivable 10 20 867 (20 000) Net cash flow used in investing activities (192 555) (230 419)
Proceeds from interest bearing loans 16 180 000 160 000 Repayment of interest bearing loans 16 (20 278) (9 741) Non-current cash held for specified uses 12 (25 226) - Proceeds from/(redemption of) a subsidiary's issuance of preferred shares 14 (20 000) 20 000 Dividends paid 14 (941) - Net cash flow from financing activities 113 555 170 259
Net change in cash and cash equivalents (39 647) (75 693) Effects of changes in exchange rates on cash 4 399 (4 367)
Cash and cash equivalents, including cash for specified uses as of 1 January 71 805 151 865 Cash and cash equivalents, including cash for specified uses as of 31 December 12 32 557 71 805
American Shipping Company annual report 2009 15 Performance 2009 Group accounts
American Shipping Company ASA Group Notes to the consolidated accounts
Note 1: Accounting principles
CORPORATE INFORMATION ASA and its subsidiaries. Subsidiaries are those carrying amount when it is probable that the American Shipping Company ASA (the Com- entities in which AMSC Group either owns, di- Group will derive future economic benefits in pany, the Group or AMSC) is incorporated and rectly or indirectly, over fifty percent of the voting excess of the originally assessed standard of domiciled in Norway. The address of the main rights, or otherwise has the power to govern their performance of the existing asset. Improvements office is Fjordalleen 16, P.O. Box 1423 Vika, NO- operating and financial policies. Share options, are depreciated over the useful lives of the re- 0115 Oslo, Norway. American Shipping Com- convertible debt and other equity instruments are lated assets. pany ASA is listed on the Oslo Stock Exchange. considered when assessing whether an entity is Gains and losses on disposals are deter- The principle activity of the business is to pur- controlled. mined by comparing the disposal proceeds with chase and bareboat charter product tankers, the carrying amount. Assets to be disposed of shuttle tankers and other vessels to operators FOREIGN CURRENCY are reported at the lower of the carrying amount and end users in the U.S. Jones Act market. TRANSLATION AND TRANSACTIONS and the fair value less selling costs. Functional currency STATEMENT OF COMPLIANCE Items included in the financial statements of The consolidated financial statements of Ameri- each subsidiary in the Group are initially record- FINANCIAL INVESTMENTS can Shipping Company and all its subsidiaries ed in the functional currency, i.e. the currency All investments are initially recognized at cost, (AMSC Group, the Group) have been prepared that best reflects the economic substance of the being the fair value of the consideration given in accordance with International Financial Re- underlying events and circumstances relevant to and including acquisition charges associated porting Standards as adopted by the European that subsidiary. with the investment. Union (IFRS). The consolidated financial statements are Other long-term investments that are in- These accounts have been approved for is- presented in United States dollars (USD), which tended to be held-to-maturity are subsequently sue from the Board of Directors on 18 February is the functional and reporting currency of the measured at amortized cost using the effective 2010. parent company and subsidiaries. interest method. Amortized cost is calculated by taking into account any discount or premium BASIS FOR PREPARATION Transactions and balances on acquisition, over the year to maturity. For These consolidated financial statements have Foreign currency transactions are translated into investments carried at amortized cost, gains and been prepared on a historical cost basis, except USD using the exchange rates prevailing at the losses are recognized in income when the invest- for derivative financial instruments that have dates of the transactions. Receivables and li- ments are derecognized or impaired, as well as been measured at fair value. The carrying val- abilities in foreign currencies are translated into through the amortization process. ues of recognized assets and liabilities that are USD at the exchange rates ruling on the balance hedged are adjusted to record changes in the sheet date. Foreign exchange gains and losses IMPAIRMENT OF LONG-LIVED ASSETS fair values attributable to the risks that are being resulting from the settlement of such transac- Property, plant and equipment and other non- hedged. tions and from the translation of monetary assets current assets are reviewed for potential impair- The consolidated financial statements are and liabilities denominated in foreign currencies ment whenever events or changes in circum- presented in USD (thousands), except when indi- are recognized in the income statement. Foreign stances indicate that the carrying amount of an cated otherwise. exchange differences arising in respect of oper- asset may not be recoverable. ating business items are included in operating For the purposes of assessing impairment, USE OF ESTIMATES profit in the appropriate income statement ac- assets are grouped at the lowest levels for The preparation of financial statements in count, and those arising in respect of financial which there are separately identifiable, mainly conformity with IFRS requires the use of esti- assets and liabilities are recorded net as a finan- independent, cash flows. An impairment loss is mates and assumptions that affect the reported cial item. the amount by which the carrying amount of the amounts in the financial statements. Although assets exceeds the recoverable amount. The re- these estimates are based on management’s PROPERTY, PLANT AND EQUIPMENT coverable amount is the higher of the asset’s net best knowledge of current events and actions, Property, plant and equipment acquired by selling price and its value in use. The value in use actual results may ultimately differ from those Group companies are stated at historical cost. is determined by reference to discounted future estimates. Depreciation is calculated on a straight-line basis net cash flows expected to be generated by the Estimates and underlying assumptions are and adjusted for impairment charges, if any. The asset. Most critical in determining the value in reviewed on an ongoing basis. Revisions to ac- carrying value of the property, plant and equip- use of vessels is determining the estimated profit counting estimates are recognized in the period ment on the balance sheet represents the cost share on existing contracts and estimating future in which the estimates are revised if the revision less accumulated depreciation and any impair- revenues from new leases. These estimates are affects that period or in the period of revision and ment charges. Cost includes expenditures that primarily influenced by expectations of future future periods if the revision affects both current are directly attributable to the acquisition of the demand in the Jones Act market. and future periods. asset. Interest costs on borrowings to finance A previously recognized impairment loss is Critical accounting estimates and assump- the construction of property, plant and equip- reversed only if there has been a change in the tions include revenue recognition, accounting ment are capitalized during the period of time estimates used to determine the recoverable for fixed assets, impairment and accounting for that is required to complete and prepare the as- amount, however not to an extent higher than financial instruments. The significant factors that set for its intended use. Other borrowing costs the carrying amount that would have been deter- affect these estimates and assumptions are de- are expensed. mined had no impairment loss been recognized tailed in the accompanying financial statements Expected useful lives of long-lived assets in prior years. and footnotes. are reviewed annually and, where they differ sig- nificantly from previous estimates, depreciation LEASES GROUP ACCOUNTING periods are changed accordingly. Leases where a significant portion of the risks AND CONSOLIDATION PRINCIPLES Ordinary repairs and maintenance costs are and rewards of ownership are retained by the The consolidated financial statements of AMSC charged to the income statement during the lessor are classified as operating leases. Pay- Group include the financial statements of the financial period in which they are incurred. The ment made under operating leases net of any parent company American Shipping Company cost of improvements is included in the asset’s incentives received from the lessor is charged
16 American Shipping Company annual report 2009 Performance 2009 Group accounts
to the income statement on a straight-line basis Deferred income tax is provided, using the li- The Group uses derivative financial instruments over the period of the lease. ability method, on all temporary differences at to hedge certain risk exposures. the balance sheet date between the tax bases of Risk-management is carried out under poli- OTHER NON-CURRENT ASSETS assets and liabilities and their carrying amounts cies approved by the Board of Directors. The Other non-current assets include milestone pay- for financial reporting purposes. Board of Directors provides principles for overall ments made on future committed tankers and Deferred income tax assets are recognized financial risk management as well as policies the balance of the deferred principal obligation for all deductible temporary differences, carry- covering specific areas such as foreign exchange (DPO) from a customer. forward of unused tax assets and unused tax risk, interest-rate risk, credit risk, and use of de- losses, to the extent that it is probable that tax- rivative financial instruments and non-derivative TRADE RECEIVABLES able profit will be available against which the financial instruments. Trade receivables are carried at their anticipated deductible temporary differences, and the carry- realizable value, which is the original invoice forward of unused tax assets and unused tax Credit Risk amount less an estimated valuation allowance losses can be utilized. The carrying amount of Due to the nature of the Group’s operations, for impairment of these receivables. A valuation deferred income tax assets is reviewed at each revenues and related receivables, including the allowance for impairment of trade receivables is balance sheet date and reduced to the extent DPO, are currently concentrated amongst two made when there is objective evidence that the that it is no longer probable that sufficient tax- parties. The Group continually evaluates the Group will not be able to collect all amounts due able profit will be available to allow all or part credit risk associated with customers. according to the original terms of the receivables. of the deferred income tax asset to be utilized. Expected utilization of tax losses are not dis- Interest Rate Risk CASH AND CASH EQUIVALENTS counted when calculating the deferred tax asset. The Group is exposed to fluctuations in interest Cash and cash equivalents comprise cash on Deferred income tax assets are recognized rates for its variable interest rate debt related to hand, deposits held at call with banks, other when it is probable that they will be realized. the bond financing. With regards to the Fortis short-term highly liquid investments with original Determining probability requires the Group to takeout financing, the Group has entered into maturities of three months or less. estimate the sources of future taxable income interest swap agreements to lock in the interest Cash held for specified uses, in accordance from operations and reversing taxable tempo- rate paid. with the Settlement Agreement, can be used to rary differences. Determining these amounts is pay any remaining deposits and final purchase subject to uncertainty and is based primarily on Foreign Exchange Risk price payments for the ten product tankers and expected earnings from existing contracts and American Shipping Company is exposed to for- the shuttle tanker, debt service requirements, expected profit sharing participation. eign currency risk related to its Norwegian Kro- selling, general and administrative expenses Deferred income tax assets and liabilities are ner (NOK) bond (NOK 909.9 million outstanding (subject to a maximum of USD 1.0 million per measured at the tax rates that are expected to as of 31 December 2009) and certain cash ac- quarter), tax expenses, and prepayments of the apply to the year when the asset is realized or counts, however, the Group will enter into foreign Fortis loan. the liability is settled, based on tax rates (and tax exchange derivative instruments, from time to Certain prior year reclassifications were made laws) that have been enacted or substantively time, to mitigate that risk. to conform with current year presentation. enacted at the balance sheet date. Income tax relating to items recognized di- Counter-party Credit Risk SHARE CAPITAL rectly in equity is recognized in equity and not in AMSC’s take-out financing has certain cross- Ordinary shares are classified as equity. Incre- the income statement. defaults to Aker Philadelphia Shipyard, Inc.’s mental costs directly attributable to the issue (Aker Philadelphia Shipyard, Inc. is a wholly of new shares options are shown in equity as a PROVISIONS owned subsidiary of Aker Philadelphia Shipyard deduction, net of tax, from the proceeds. Pre- A provision is recognized when the Group has ASA; collectively “AKPS”) construction financing. ferred shares of a subsidiary are classified as a present obligation (legal or constructive) as AMSC closely monitors this link to AKPS and its equity. Where any Group company purchases a result of a past event and it is probable (i.e. impact on operations through frequent updates the Company’s equity share capital (treasury more likely than not) that an outflow of resources with AKPS’s management. If there is an event of shares), the consideration paid, including any di- embodying economic benefits will be required to default under AKPS’s construction financing and rectly attributable incremental costs, is deducted settle the obligation, and a reliable estimate can the construction debt is accelerated, AMSC’s from equity. be made of the amount of the obligation. Provi- take-out financing would also be in default, sions are reviewed at each balance sheet date which would require AMSC to seek waivers from INTEREST-BEARING LIABILITIES and adjusted to reflect the current best estimate. its lending syndicate. As a condition to any such All loans and borrowings are initially recognized The amount of the provision is the present waiver, a lender might, among other things, re- at cost, being the fair value of the consideration value of the risk adjusted expenditures expected quire additional collateral or guarantees, increase received net of issue costs associated with the to be required to settle the obligation, deter- the interest rate, and/or impose fees. There is no borrowing. mined using the estimated risk free interest rate guarantee the lending syndicate would grant any After initial recognition, interest-bearing loans as the discount rate. Where discounting is used, such waiver, in which case they could demand and borrowings are subsequently measured the carrying amount of provision increases in immediate repayment of their loans, foreclose on at amortized cost using the effective interest each period to reflect the unwinding of the dis- their collateral and/or exercise their other rights method; any difference between proceeds (net count by the passage of time. This increase is and remedies. of transaction costs) and the redemption value recognized as interest expense. AKPS currently has no orders for vessels is recognized on the income statement over the beyond the twelve ship order from AMSC, which period of the interest-bearing liabilities. Amor- PENSIONS will be completed early in 2011. With respect to tized cost is calculated by taking into account The Group has a defined contribution pension the AKPS construction financing, the counter- any issue costs, and any discount or premium on plan that covers its employees whereby con- party credit risk is currently regarded as minimal. settlement. tributions are paid to qualifying pension plans. Gains and losses are recognized in net profit Once the contributions have been paid, there are Capital Management Risk or loss when the liabilities are derecognized or no further payment obligations. Plan contribu- AMSC’s objectives when managing capital are to impaired, as well as through the amortization tions are charged to the income statement in the safeguard its ability to continue as a going con- process. period to which the contributions relate. cern in order to provide returns for shareholders and benefits for other stakeholders, while main- INCOME TAXES FINANCIAL RISK MANAGEMENT taining an optimal capital structure to minimize Current income taxes The Group’s activities expose it to a variety of fi- the cost of capital. To meet these capital struc- Income tax receivable and payable for the current nancial risks: market risk (including currency risk, ture objectives, AMSC will review annually with period are measured at the amount expected to fair value interest risk and price risk), credit risk, its Board any proposed dividends as well as any be recovered or paid to the taxation authorities. cash-flow interest-rate risk and foreign exchange needs to raise additional equity for future busi- The tax rates and tax law as used to compute the risk. The Group’s overall risk management pro- ness opportunities or to reduce debt. amount are those that are enacted or substan- gram focuses on the unpredictability of financial tively enacted at the balance sheet date. markets and seeks to minimize potential adverse Deferred income taxes effects on the Group’s financial performance.
American Shipping Company annual report 2009 17 Performance 2009 Group accounts
Funding/Investment Risk would incur significant additional expense. Due The current global financial crisis has placed ex- to the guarantees that AMSC has made on be- BASIC AND DILUTED EARNINGS PER SHARE isting and future financing sources at risk. AMSC half of AKPS (see note 23), AMSC’s liquidity risk The calculation of basic earnings per share is regularly monitors the health of its take-out could change and become a significant risk to based on the profit attributable to ordinary share- financing lending syndicate. Additionally, AMSC the Company. holders adjusted for preferred share dividends monitors the financial health of the financial using the weighted average number of shares institutions which it uses for cash management Accounting for derivative financial instru- outstanding during the year after deduction of services and in which it makes deposits and ments and hedging activities the average number of treasury shares held over other investments. AMSC responds to changes Derivative financial instruments are recognized the period. The calculation of diluted earnings in conditions affecting its financing sources and initially and in subsequent periods on the bal- per share is consistent with the calculation of deposit relationships as situations warrant. ance sheet at fair value. AMSC currently has no basic earnings per share while giving effect to all derivative instruments that qualify for hedge ac- dilutive potential ordinary shares that were out- Liquidity risk counting under IFRS. standing during the period. The Group currently Liquidity risk is the risk that the Group will en- Changes in the fair value of any derivative has no potentially dilutive shares outstanding. counter difficulty in meeting the obligations asso- instruments that do not qualify for hedge ac- ciated with its financial liabilities that are settled counting under IFRS are recognized immediately EVENTS AFTER THE BALANCE SHEET DATE by delivering cash or another financial asset. in the income statement. A distinction is made between events both favo- The Group’s approach to managing liquidity is to In accordance with its treasury policy, the rable and unfavorable that provide evidence of ensure, as far as possible, that it will always have Group does not hold or issue derivative financial conditions that existed at the balance sheet date sufficient liquidity to meet its liabilities when due, instruments for trading purposes. However, de- (adjusting events) and those that are indicative under both normal and stressed conditions. rivatives that do not qualify for hedge accounting of conditions that arose after the balance sheet With regards to making the debt service pay- are accounted for as trading instruments. date (non-adjusting events). Financial statements ments on the Fortis loan, the Group has estab- Estimates of the fair value of foreign currency will only be adjusted to reflect adjusting events lished cash retention accounts whereby all char- contracts and interest rate swaps are obtained and not non-adjusting events (although there are ter hire payments are deposited and utilized for from a third party, with an adjustment for the disclosure requirements for such events). debt service prior to being available for general Company’s credit risk as described in note 11. corporate purposes. The fair value of derivative long-term financial RECENTLY ISSUED ACCOUNTING STAND- AMSC is subject to a covenant in its bond liabilities is disclosed in note 20 regarding finan- ARDS AND PRONOUNCEMENTS obligation that requires the Company to maintain cial instruments. Effective 1 January 2009, AMSC has changed its a minimum level of USD 140.0 million of consoli- accounting policy for the following accounting dated equity (see note 16). Consolidated equity RELATED PARTY TRANSACTIONS standards: for the Company is primarily impacted through All transactions, agreements and business activi- Amendments to IAS 1, Presentation of Finan- the results of its operations and through the for- ties with related parties are, in the Group’s opin- cial Statements: A Revised Presentation is appli- eign currency translation impact of its Norwegian ion, conducted on an arm’s length basis accord- cable to the company effective 1 January 2009. Kroner (NOK) denominated bond. If the NOK sig- ing to ordinary business terms and conditions. This requires the Company to present a new nificantly strengthens (greater than 10% based statement on comprehensive income, which is on 31 December 2009 USD/NOK exchange rate) REVENUE RECOGNITION shown as a separate statement, following the or if the results of operations are significantly Revenue is recognized only if it is probable that income statement. The Group presents in the negatively different from what the Company future economic benefits will flow to American consolidated statement of changes in equity all projects, the risk of failing the covenant will in- Shipping Company, and these benefits can be owner changes in equity, whereas all non-owner crease accordingly. The Company monitors the measured reliably. Revenues related to vessel changes in equity are presented in the con- USD/NOK foreign exchange rate and its impact bareboat charter agreements are recognized solidated statement of comprehensive income. on the bond covenant daily. As of 31 December over the charter period. Time-charter agree- Reclassification adjustments and income tax 2009, a foreign exchange rate of 5.17 NOK/USD ments may contain a revenue sharing agreement relating to each component of other comprehen- would have caused a breach in the minimum with the charterer. Revenue related to profit shar- sive income will be disclosed on the face of the consolidated equity covenant (the actual rate as ing agreements is recognized when the amount statement of comprehensive income. Currently of 31 December 2009 was 5.75 NOK/USD). The becomes fixed and determinable. Revenue re- there are no such components applicable to the Company’s equity under the covenant calcula- lated to the deferred principal obligation (note 7) Company. tion was USD 157.8 million as of 31 December is discounted in cases where a payment period The Group also adopted International Finan- 2009. Thus, the Company currently views this extends beyond 12 months. cial Reporting Standard 8, Operating Segments risk as minimal. on 1 January 2009 which did not impact the con- As mentioned above, AKPS has no orders SEGMENT INFORMATION solidated financial statements as the Group has for vessels beyond the twelve ship order from AMSC has only one operating segment. All op- only one operating segment. AMSC. AKPS has entered into non-cancellable erations and bareboat charter revenues are in No other accounting standards effective in commitments with various third party suppliers the U.S. 2009 impacted the Group’s consolidated finan- for four additional vessels (AKPS Hulls 017-020). cial statements. In addition, no standards effec- If AKPS does not build its Hull 017, then it is DIVIDENDS tive in 2010 are expected to significantly impact estimated that AKPS would incur expenses in Dividends are recorded in the Group’s financial the Group. excess of USD 15 million. If AKPS does not build statements in the period in which they are ap- the three remaining option vessels, then AKPS proved by the Group’s shareholders.
Note 2: Wages and other personnel expenses
Wages and other personnel expenses consist of:
Amounts in USD thousands 2009 2008
Wages 901 829 Social security contributions 38 29 Pension costs (see note 18) 9 5 Other expenses 48 33 Total expense 996 896 Average number of employees 4 3 Number of employees at year-end 3 4
18 American Shipping Company annual report 2009 Performance 2009 Group accounts
Note 3: Other operating expenses
Other operating expenses consist of:
Amounts in USD thousands 2009 2008
Rent and leasing expenses 108 79 Transfer of long lead items 3 520 - Other operating expenses 4 550 4 483 Total other operating expenses 8 178 4 562
The transfer of long lead items relates to the transfer of assets to Aker Philadelphia Shipyard as part of a settlement with AKPS (see note 23). 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 2009 2008
Audit fee 123 194 Total 123 194
Note 4: Financial items and other gain
Amounts in USD thousands 2009 2008
Other gain Gain on sale of shipbuilding contract 11 215 -
Financial income Interest income 615 5 432 Change in mark to market value of interest rate swaps 21 626 - Financial income 22 241 5 432
Financial expenses Interest expense (43 487) (36 652) Interest capitalized on vessels 7 930 10 053 Net foreign exchange gain/(loss) (8 823) 4 915 Change in mark to market value of interest rate swaps - (66 097) Other financial expenses (7 886) (2 540) Financial expenses (52 266) (90 321)
NET FINANCIAL ITEMS AND OTHER GAIN (18 810) (84 889)
As a result of finalizing the Settlement agreement, the Company sold its shipbuilding contract for the first shuttle tanker in the fourth quarter of 2009 for USD 35.0 million. The Company’s cost basis in the shuttle tanker was USD 23.8 million and recorded a gain on the sale of USD 11.2 million (see note 23).
Interest income in 2009 includes income on bank deposits of USD 0.2 million, interest accreted on the DPO receivable from OSG (see note 7) of USD 0.2 million and accrued interest on a note receivable from Aker ASA (see note 10) of USD 0.2 million. Interest income in 2008 includes income on bank deposits of USD 4.7 million and accrued interest on a note receivable from Aker ASA of USD 0.7 million.
The Company has interest rate swaps, related to its take-out financing, with Fortis Capital Corp. (Fortis) Estimates of the fair value of the interest rate swaps are obtained from a third party, with an adjustment for the Company’s credit risk as described in note 11.
Interest expense in 2009 includes interest paid to Fortis of USD 32.5 million, accrued interest relating to the NOK denominated bond of USD 10.9 million and accrued interest relating to the USD 20.0 million loan from Converto Capital Fund AS (formerly named Aker Capital Fund AS) of USD 0.1 million. Interest expense in 2008 includes interest paid to Fortis of USD 20.9 million and accrued interest relating to the NOK denominated bond of USD 15.8 million.
Capitalized interest relates to the prepayments made to AKPS (see note 8). Interest is capitalized at a rate equal to the interest rate on the NOK denominated bond, which is the Norwegian Inter Bank Offered Rate (NIBOR) plus 4.75% (6.80% as of 31 December 2009).
Net foreign exchange loss in 2009 includes a USD 27.2 million unrealized loss on the NOK denominated bond (see note 16), partially offset by a USD 0.4 million gain on the NOK cash balance and a USD 18.0 million gain on foreign exchange contracts. Net foreign exchange gain in 2008 includes a USD 35.3 million unrealized gain on the NOK denominated bond (see note 16), partially offset by a USD 4.4 million loss on the NOK cash balance, a USD 22.8 million loss on foreign exchange contracts and other foreign exchange loss of USD 3.2 million.
Other financial expenses in 2009 include USD 4.5 million for lender and guarantor fees associated with finalizing the settlement agreement (see note 23) and USD 3.4 million for amortization of lending fees. Included in other financial expenses in 2008 are amortization of lending fees and miscellaneous other financial costs of USD 2.5 million.
American Shipping Company annual report 2009 19 Performance 2009 Group accounts
Note 5: Tax
INCOME TAX EXPENSE Recognized in the income statement
Amounts in USD thousands 2009 2008
Current tax expense: Current year (247) 232 Total current tax expense/(benefit) (247) 232
Deferred tax expense: Origination and reversal of temporary differences - - Adjustment for discontinued operations - - Total deferred tax expense - - Total income tax expense/(benefit) in income statement (247) 232
Reconciliation of effective tax rate
Amounts in USD thousands 2009 2008
Profit/(loss) before tax (1 553) (74 488) 28.0% 28.0% Expected tax benefit using nominal Norwegian tax rate of 28% (435) (20 857) Effect of differences between nominal Norwegian tax rate and U.S. federal and state tax rate 1 748 (10 693) Foreign exchange 3 384 (1 521) Tax losses used in the current year for which no deferred income tax asset was previously recognised (6 377) - Tax losses for which no deferred income tax asset was recognised and write-off of existing deferred tax assets 1 414 33 311 Tax losses used by member leaving the Group - (142) Other differences 19 134 Total income tax expense/(benefit) in income statement (247) 232
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 2009 for the Group were primarily the U.S., the Commonwealth of Pennsylvania and the City of Philadelphia.
The offset amounts for US items are as follows:
Amounts in USD thousands 2009 2008
Deferred tax assets - - Deferred tax liabilities - - 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 2009 of USD 123.8 million in the U.S. and USD 20.2 million in Norway. Deferred tax assets 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 there from. In addition, no deferred tax assets have been established for unrealized net losses on derivative financial instruments of USD 79.0 million. On 6 June 2008, American Tanker, Inc. (ATI, formerly known as Aker American Shipping, Inc.) and Subsidiaries experienced a change of control in the U.S. as defined by Internal Revenue Code due to the sale of shares from Aker ASA 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 US tax jurisdictions is as follows:
Amounts in USD thousands 2009 2008
Beginning of the year - - Deferred tax expense - - Discontinued operations - - End of the year - -
20 American Shipping Company annual report 2009 Performance 2009 Group accounts
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the US tax jurisdiction, is as follows:
Deferred tax assets: Amounts in USD thousands Provisions of assets Tax losses Other Total
Balance at 1 January 2008 - - 270 270 (Credited)/charged to the income statement - - (270) (270) Discontinued Operations - - - - Balance at 31 December 2008 - - - - (Credited)/charged to the income statement - - - Discontinued Operations - - - - Balance at 31 December 2009 - - - -
Deferred tax liabilities: Accelerated tax Amounts in USD thousands depreciation Projects Other Total
Balance at 1 January 2008 - - (270) (270) (Credited)/charged to the income statement - - 270 270 Discontinued Operations - - - - Balance at 31 December 2008 - - - - (Credited)/charged to the income statement - - - Discontinued Operations - - - - Balance at 31 December 2009 - - - -
The Company is currently under audit by the Internal Revenue Service for the year ended 31 December 2007. The Company does not anticipate any adjustments resulting from the audit.
Note 6: Property, plant and equipment
Movements in property, plant and equipment for 2009 are shown below:
Amounts in USD thousands Ships Under construction Total
Cost balance at 1 January 2009 536 764 8 411 545 175 Purchases 165 508 8 391 173 899 Reclassification from other long term assets 48 477 (6 307) 42 170 Disposals - (3 817) (3 817) Transfer to assets held for sale - (1 250) (1 250) Cost balance at 31 December 2009 750 749 5 428 756 177
Depreciation at 1 January 2009 24 347 - 24 347 Depreciation charge for the year 27 932 - 27 932 Depreciation at 31 December 2009 52 279 - 52 279
Book value at 31 December 2009 698 470 5 428 703 898
Movements in property, plant and equipment for 2008 are shown below:
Amounts in USD thousands Ships Under 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
Depreciation period 25 years Depreciation method straight-line
American Shipping Company annual report 2009 21 Performance 2009 Group accounts
Secured property, plant and equipment At 31 December 2009 vessels with a carrying amount of USD 698.5 million are subject to a registered debenture to secure bank loans (see note 16).
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 granted when such vessel is delivered.
As of 31 December 2009, AMSC is contractually obligated to purchase three tankers at USD 103.675 million each, plus a fixed escalation as defined in the agreement with AKPS.
Property, plant and equipment under construction The total of USD 5.4 million asset under construction includes USD 5.2 million of capitalized interest on milestone payments for vessels under construction and USD 0.2 million for other ship related costs.
Disposals in 2009 include USD 3.3 million in capitalized interest and other capitalized costs related to the shuttle tanker shipbuilding contract, which was sold in connection with the Settlement Agreement. The remaining USD 0.5 million is capitalized interest related to the deposits for long lead items made to AKPS for the first two option vessels. The title to those deposits were transferred to Aker Philadelphia Shipyard in connection with the settlement with AKPS. See note 23 for further details.
Note 7: Interest-bearing long-term receivables
Financial interest-bearing long-term receivables consist of the following items:
Amounts in USD thousands Interest rate 2009 Interest rate 2008
Restricted deposits - 3.87% 2 582 Other interest-bearing long-term receivables 6.06% 7 341 6.06% 3 719 Total 7 341 6 301
The restricted deposits in 2008 relate to collateral deposited as security for foreign exchange swaps entered into, which bore interest at a floating rate based upon NIBOR. The swap contract matured in 2009 and the Company had not entered into a new swap contract as of 31 December 2009.
Other interest-bearing long-term receivables relate to a deferred principal obligation. 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 bareboat charter periods. OSG America L.P. will pay a reduced bareboat charter rate and assume the deferred principal obligation (DPO). The DPO accrues on a daily basis to a maximum liability of USD 7.0 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 2009 was USD 219 thousand (USD 126 thousand in 2008).
Note 8: Other non-current assets
Other non-current assets consist of the following items:
Amounts in USD thousands 2009 2008
Deposits for ships 74 711 92 931 Total 74 711 92 931
Deposits for ships in 2009 include milestone payments for three vessels which the company has committed to purchase from AKPS. In 2008, deposits included milestone payments for seven vessels which the company had committed to purchase from AKPS, of which two vessels were delivered, one shipbuilding contract was sold to OSG in 2009, and one has been reclassified to assets held for sale (see note 9).
Also included in 2008 was USD 3.0 million for long lead items which the company had agreed to fund for the first two option vessels. As part of the Settlement Agreement (see note 23), the title to these deposits were transferred to Aker Philadelphia Shipyard as part of the settlement between AMSC and AKPS (see note 3).
Note 9: Assets held for sale
Amounts in USD thousands 2009 2008
Property, plant and equipment 1 250 - Deposits for ships 20 000 - Total 21 250 -
In connection with the Settlement Agreement with OSG (see note 23 for further details), the Company has agreed to sell its shipbuilding contract for the shuttle tanker which is expected to be delivered in the fourth quarter of 2010.
22 American Shipping Company annual report 2009 Performance 2009 Group accounts
Note 10: Trade and other receivables
Trade and other receivables consist of the following items:
Amounts in USD thousands 2009 2008
Advance payments to suppliers 392 521 Other short-term interest-free receivables 609 888 Other short-term interest-bearing receivables - 20 715 Total 1 001 22 124
Advance payments to suppliers as of 31 December 2009 and 2008 include prepaid fees and deferred costs.
Other short-term interest-free receivables in 2009 are mainly from OSG and AKPS.
The interest-bearing receivable in 2008 was a note issued from a Company subsidiary to Aker ASA for USD 20.0 million from the proceeds of the sale of preferred stock (see note 14). The receivable bore interest at LIBOR plus 1.5 percent. Accrued interest through 31 December 2008 was USD 0.7 million. The note was called in Q1 2009 for USD 20.0 million plus accrued interest of USD 0.9 million.
Note 11: Derivative financial assets and liabilities
Derivative financial assets and liabilities comprise the following items:
Amounts in USD thousands 2009 2008
Fair value of interest rate swaps 78 976 100 601 Fair value of foreign currency forward contracts - 1 824 Derivative financial liabilities 78 976 102 425
In connection with the Fortis loan, interest rate swap agreements were entered into in 2007 and as of 31 December 2009 and 2008 the market value was negative USD 79.0 million and negative USD 100.6 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 2009 and 2008. The result of the credit spread differential had a positive impact of USD 5.1 million on the fair value of interest rate swaps at 31 December 2009 and USD 11.1 million in 2008.
The foreign currency forward contracts in 2008 were 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. Due to the bondholders’ agreement in February 2009 to extend payment-in-kind interest through the end of the loan term, the Company did not enter into any new forward contracts for the NOK bond interest payments. Estimates of the fair value of these contracts were obtained from a third party. The impact of the Company’s own credit risk on the foreign currency valuations was not significant in 2008. These contracts matured in 2009 and the Company did not enter into any new foreign currency contracts.
Note 12: Cash on deposit with banks
Cash on deposit with banks comprise the following items:
Amounts in USD thousands 2009 2008
Cash and bank deposits 20 481 65 072 Cash held for specified uses 12 076 6 733 Cash and cash equivalents 32 557 71 805
Non-current cash held for specified uses 25 226 -
Total cash on deposit with banks 57 783 71 805
Cash on deposits with banks is invested 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.
Portions of the cash received in connection with the Settlement Agreement with OSG (see note 23), including funds received from the sale of the shuttle tanker shipbuilding contract and the funds received under the subordinated loan (see note 16), are held for specified uses in accordance with the Settlement Agreement. Cash held for specified uses can be used to pay any remaining deposits and final purchase price payments for the ten product tankers and the shuttle tanker, debt service requirements, selling, general and administrative expenses (subject to a maximum of USD 1.0 million per quarter), tax expenses, and prepayments of the Fortis loan (see note 16).
American Shipping Company annual report 2009 23 Performance 2009 Group accounts
Note 13: 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) 2009 2008
Profit/(loss) for the period (1 306) (74 720) Dividends paid on preferred shares in subsidiary (941) - Profit/(loss) attributable to equity holders of the Company for the period for determination of earnings per share (2 247) (74 720)
Weighted average number of ordinary shares in issue 27 600 000 27 600 000
Basic and diluted earnings/(loss) per share (0.08) (2.71)
There were no potentially dilutive securities outstanding as of 31 December 2009 and 2008.
Note 14: 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 2009 or 2008.
Common shares of equity holders of the parent Total paid in capital Share Share attributable to Preferred shares Total Amounts in USD thousands Capital premium holders of the parent in a subsidiary paid in equity
1 January 2008 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
Redemption of preferred shares by subsidiary - - - (20 000) (20 000)
31 December 2009 42 462 137 946 180 408 - 180 408
There were 3,500 preferred shares authorized in 2008 by a subsidiary of AMSC, of which 500 were issued. The 500 issued preferred shares were non- dilutive, redeemable preferred shares with a par value of USD 40,000 per share that were issued to Aker ASA. The preferred stock was redeemable only at the option of AMSC and holders had no voting rights. Dividends on the preferred shares are declared only at the Company’s discretion equal to 5% annually and are payable in arrears. In the first quarter of 2009, the subsidiary declared and paid a dividend of USD 0.9 million on the preferred stock (USD 1,882 per share) and then redeemed all of the oustanding preferred shares.
Note 15: Group entities
The largest subsidiaries included in the American Shipping Company ASA’s Group account were as follows. Companies owned directly by American Shipping Company ASA are highlighted.
AMSC’s common AMSC’s Principal holding % voting share % place of business Country
American Tanker Holding Company, Inc. (ATHC) (1) 100% 100% Philadelphia, PA USA American Tanker, Inc. (ATI) 100% 100% Philadelphia, PA USA American Shipping Corporation (ASC) 100% 100% Philadelphia, PA USA American Tanker II, Inc. (ATI II) 100% 100% Philadelphia, PA USA American Shipping Corporation II (ASC II) 100% 100% Philadelphia, PA USA American Tanker III, Inc. (ATI III) (2) 100% 100% Wilmington, DE USA American Shuttle Tanker, LLC (AST) 100% 100% Philadelphia, PA USA
1) ATHC was formed in 2009 and is now the holder of shares of ATI and ATI II, previously owned directly by AMSC. 2) This entity issued non-dilutive, non-voting shares of redeemable preferred stock in 2008 which were redeemed in 2009 (see note 14).
Restrictions on dividend payments Subject to certain exceptions, the Fortis credit agreement restricts the payment of dividends by American Shipping Company ASA (“AMSC”) and American 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
24 American Shipping Company annual report 2009 Performance 2009 Group accounts
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.
Note 16: 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 20.
Amounts in USD thousands 2009 2008
Non-current liabilities Secured loans 496 296 - Unsecured bond issues 157 640 - Subordinated loan from Converto Capital Fund AS 20 000 - Total long term interest bearing loans 673 936 -
Current liabilities Current portion of secured loans 31 803 385 200 Unsecured bond issues - 119 160 Total interest-bearing short term debt 31 803 504 360
Secured Loans as of 31 December Maturities 2009 2008
Fortis Capital Corp. gross borrowings 2014-2016 546 619 405 926 Less unamortized loan fees (18 520) (20 726) Sum Secured Loans 528 099 385 200
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, locks in the interest rate AMSC pays to Fortis. The fixed interest rates vary between 6.1percent and 6.2 percent per annum.
Unsecured bond issue as of 31 December Maturity 2009 2008
Bond issue 2012 114 170 114 170 Interest added to bonds outstanding 36 051 24 946 Cumulative foreign currency impact 8 124 (19 052) Less unamortized loan fees (705) (904) Sum Unsecured bond issue 157 640 119 160
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 percent. AMSC has the option to make any of the interest payments for the loan term as payment-in-kind (PIK) where the interest is added to the principal (as approved by the bondholders in the February 2009 bondholders’ meeting discussed below). AMSC also has the option to call the bond, or parts of the bond, at certain dates. The first call date was August 2009 at which AMSC could redeem the bond at a call price of 104.75 percent of par. The Company did not call any parts of the bond in August 2009. The Company has elected PIK interest 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 2009, the bond loan balance including PIK interest is NOK 909.9 million (NOK 839.0 million as of 31 December 2008).
One of the original covenants on the Company’s NOK denominated bond required that consolidated equity be maintained at a level not less than USD 140 million at a quarterly measurement date.
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. However, because as of 31 December 2008, equity was less than the required minimum amount, all of the Company’s debt was 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. As of 31 December 2009, consolidated shareholders equity for determining compliance with debt covenants was approximately USD 158 million. See note 20 for an analysis of how foreign exchange fluctuations could impact consolidated equity.
Due to the approved modification in the minimum consolidated equity covenant subsequent to 31 December 2008, the Company again classified the majority of its debt as long-term beginning with its 31 March 2009 interim reporting.
American Shipping Company annual report 2009 25 Performance 2009 Group accounts
In addition, the bondholders voted to approve the Company’s request to extend the PIK interest option through the end of the loan term.
In 2007, the Company had 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 fair value on this contract was negative USD 2.6 million at 31 December 2008. This forward contract matured on 1 September 2009 and the Company took a charge of USD 0.5 million to settle the contract. Due to the bondholders’ agreement in February 2009 to extend PIK interest, the Company did not enter into any new foreign currency forward contracts to hedge interest payments on the NOK bond, thus, the Company did not have any foreign currency contracts as of 31 December 2009.
The Company had also entered into a NOK 600 million foreign currency swap to hedge the translation of its NOK denominated bond. As of 31 December 2008, the fair value of those contracts was positive USD 803 thousand. The swap contract matured in 2009 and the Company had not entered into a new swap contract as of 31 December 2009.
Subordinated loan from Converto Capital Fund AS In connection with the Settlement Agreement with OSG (see note 23), Converto Capital Fund AS has issued a USD 20.0 million loan to the Company. The loan is subordinated to the Fortis Credit Agreement, as well as any potential obligations and liabilities due to OSG and any potential liability associated with AKPS’s construction financing which contains a put option to AMSC. The loan bears interest at the higher of 9.5% or LIBOR plus 5.75% (9.5% at 31 December 2009). Interest is payment in kind until certain conditions are met. It is expected that cash interest will not be paid in the next four years. The loan matures on 11 December 2017.
Note 17: Operating leases
Non-cancellable operating lease rentals are payable as follows:
Amounts in USD thousands 2009 2008
Less than one year 61 74 Between one and five years 129 263 More than five years - - Total 190 337
In 2007 AMSC signed a new lease for office space in Philadelphia, Pennsylvania through 2012.
The Company has non-cancellable bareboat charter lease agreements with its customers, OSG Shipholding Group and OSG America LP, for periods of up to 10 years. The non-cancellable bareboat charter revenue backlog totals approximately USD 448.1 million as of 31 December 2009.
Note 18: Pensions
Pension expense recognised in the income statement:
Amounts in USD thousands 2009 2008
Contribution plans (employer's contribution) 9 5 Total net pension expense 9 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. This expense is included in wages and other personnel expenses in the income statement.
Note 19: Trade and other payables
Trade and other payables comprise the following items:
Amounts in USD thousands 2009 2008
Trade accounts payable 24 644 Accrual of financial costs 1 033 1 161 Other short-term interest free liabilities 1 655 4 382 Total 2 712 6 187
Other short-term interest free liabilities at 31 December 2009 include deferred revenue of USD 0.6 million and guarantees and other accrued costs of USD 1.1 million. 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.
26 American Shipping Company annual report 2009 Performance 2009 Group accounts
Note 20: Financial instruments
Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. Derivative financial instruments are used from time to time to hedge exposure to fluctuations in foreign exchange rates and interest rates for business purposes.
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 2009 2008
Deposits 74 711 92 931 Loans and receivables 8 342 28 425 Cash and cash equivalents 20 481 71 805 Cash held for specified uses (current and non-current) 37 302 - Total 140 836 191 752
AMSC regularly monitors the financial health of the financial institutions which it uses for cash management services and in which it makes deposits and other investments. AMSC responds to changes in conditions affecting its deposit relationships as situations warrant.
Receivables are to be collected from the following types of counterparties:
Amounts in USD thousands 2009 2008
Type of counterparty: Security deposits receivable - 2 582 Interest bearing short term receivable - 20 715 End-user customer (1) 7 700 3 719 Other receivables 642 1 409 Total 8 342 28 425
1) Due to the nature of the Group’s operations, revenues and related receivables, including the DPO, are currently concentrated amongst two parties.
Liquidity risk The following are the contractual maturities of financial liabilities including interest payments: 31 December 2009 Contractual 6 mths and More than Amounts in USD thousands Book value cash flow less 6-12 mths 1-2 years 2-5 years 5 years
Non-derivative financial liabilities Unsecured bond issues (gross) 158 345 (185 105) - - - (185 105) - Long-term interest bearing external liabilities (gross) 566 619 (728 305) (32 530) (33 736) (67 431) (440 787) (153 821)
Derivative financial liabilities Interest rate swaps 78 976 (76 951) (15 463) (15 582) (21 579) (23 766) (561)
Total as of 31 December 2009 803 940 (990 361) (47 993) (49 318) (89 010) (649 658) (154 382)
31 December 2008 Contractual 6 mths and More than Amounts in USD thousands Book value cash flow 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 in 2008 associated with non-derivative financial liabilities reflect the confirmed bondholder actions discussed in note 16 and therefore are presented according to the original contractual maturities.
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.
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
American Shipping Company annual report 2009 27 Performance 2009 Group accounts
gains and losses relating to the monetary items are recognized as part of “net financing costs” (see note 4). The Company did not have any exchange contracts at 31 December 2009. 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.
As of 31 December 2008 the American Shipping Company ASA Group’s portfolio 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 2009 2010 2011 Later years Total
Buy NOK 100 669 - - - 100 669 Buy total 100 669 - - - 100 669
Exposure to currency risk The company’s exposure to currency risk at 31 December 2009 and 2008 primarily related to amounts denominated in NOK, as follows:
Amounts in USD thousands 2009 2008
Gross balance sheet exposure Trade payables (-) (7) - Bond (157 640) (119 160) Cash 392 303 Gross balance sheet exposure (157 255) (118 857) Estimated forecast expenses (-) (510) (704) Gross forecasted exposure (510) (704) Forward exchange contracts - 100 669 Net exposure (157 765) (18 892)
In addition to the above, at 31 December 2009 we expect to incur NOK-denominated PIK interest (non-cash) of approximately USD 11.2 million in 2010.
Sensitivity analysis In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates would have an impact on consolidated earnings.
It is estimated that a general strengthening of ten percent in the value of the USD against the NOK would have increased the Group’s profit before tax by approximately USD 4.7 million for the year ended 31 December 2009 and decreased the Group’s profit before tax by approximately USD 4.4 million for the year ended 31 December 2008. This analysis assumes that all other variables remain constant.
AMSC is subject to a covenant in its bond obligation that requires the Company to maintain a minimum level of USD 140.0 million of consolidated equity (see note 16). Consolidated equity for the Company is primarily impacted through the results of its operations and through the foreign currency translation impact of its Norwegian Kroner (NOK) denominated bond. If the NOK significantly strengthens (greater than 10% based on 31 December 2009 USD/ NOK exchange rate) or if the results of operations are significantly negatively different from what the Company projects, the risk of failing the covenant will increase accordingly. The Company monitors the USD/NOK foreign exchange rate and its impact on the bond covenant daily. As of 31 December 2009, a foreign exchange rate of 5.17 NOK/USD would have caused a breach in the minimum consolidated equity covenant (the actual rate at 31 December 2009 was 5.75 NOK/USD).
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 2009 2008
Increase/(decrease) Bank deposits 493 1 223 Other financial assets 53 157 Financial liabilities (1 431) (1 440) Interest swap 30 780 36 200 P&L sensitivity (net) 29 895 36 140
For 2009 and 2008, 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 11.
Fair values The fair values of financial instruments together with the carrying amounts shown in the balance sheet as of 31 December are as follows:
28 American Shipping Company annual report 2009 Performance 2009 Group accounts
Amounts in USD thousands Carrying amount 2009 Fair value 2009 Carrying amount 2008 Fair value 2008
Interest-bearing loans to external companies, maturity greater than 3 years 7 341 8 904 3 719 4 625 Interest-bearing loans to external companies, maturity less than 1 year - - 20 715 20 715 Interest swap used for hedging: Liabilities (78 976) (78 976) (100 601) (100 601) Interest-bearing long term receivables - - 2 582 2 582 Cash on deposit with banks 57 783 57 783 71 805 71 805 Forward exchange contracts used for hedging: Liabilities - - (1 824) (1 824) Unsecured bond issue (gross) (158 345) (102 925) (120 063) (84 044) Secured loans (gross) (546 619) (499 169) (405 926) (368 890) Subordinated loans (gross) (20 000) (20 000) - -
Estimates of the fair value for foreign currency contracts are obtained from a third party.
The fair value of the interest-bearing loans to external companies is calculated based on the present value of the gross principal balance, discounted at a market rate of 2 percent in both 2009 and 2008.
The fair value of the unsecured bond issue was obtained from a third party.
The fair value of fixed interest long-term debt is calculated based on the present value of future principle and interest cash flows, discounted at the market rate of 2.25 percent for 2009 and 3.22 percent for 2008.
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.
Fair value hierarchy IFRS requires companies to disclose certain information about how fair value is determined in a “fair value hierarchy” for financial instruments recorded at fair value, which for AMSC are derivative financial instruments. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 includes assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly.
The only financial instruments that the Company accounts for at fair value are the interest rate swaps as of 31 December 2009, which are classified in the Level 2 category described above. As of 31 December 2008, the Company accounted for interest rate swaps and foreign currency contracts at fair value, which are both classified in the Level 2 category described above.
Note 21: 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 2009
Name Position Company No. of shares
Dag Fasmer Wittusen Board Member AMSC 10 000
Robert K. Kurz, President and CEO, resigned from the Company on 31 December 2009. At the time of his resignation, Mr. Kurz owned 4 000 shares in the Company.
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 2009
Name Position Company Remuneration
Robert N Caruso Chairman AMSC 40 827 Gary Mandel Board Member AMSC 35 377 John Rose Board Member AMSC 22 495 Annette Malm Justad Board Member AMSC 37 528 Hege Yli Melhus Board Member AMSC 17 755 Dag Fasmer Wittusen Board Member AMSC - Mavis Hawkes Board Member AMSC - Sum Directors' fee 153 982
The Chairman and the Board of Directors have not received benefits other than Directors’ fees.
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 Directors, but continued to serve as a member of the board through the first quarter of 2009. Also at that time, Hege Melhus also resigned from her position as a member of the Board of Directors. At the Annual General Meeting in 2009, Dag Fasmer Wittusen and Mavis Hawkes were elected as members of the Board of Directors.
American Shipping Company annual report 2009 29 Performance 2009 Group accounts
Remuneration to the nomination committee AMSC’s nomination committee members withdrew their membership on 25 June 2008 and no new nomination committee has been elected.
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.
Effective 31 December 2009, Robert K. Kurz resigned from his position as President and CEO, and is no longer employed by the Company. Coinciding with Mr. Kurz’s resignation, board member John Rose assumed the position of General Manager on an interim basis. On 18 January 2010, the Board of Directors announced the appointment of Gregory J. Matecki as its new President and CEO. Mr. Matecki is the Company’s Chief Financial Officer and will continue to hold that position. It is expected that Mr. Matecki will assume the role of General Manager pending regulatory approval.
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 performance targets in accordance with the Company’s values.
The variable pay program represents a potential for an additional variable pay of between 25 and 150 percent of base salary depending on the achievement of defined performance targets.
The President and CEO participates 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. The Company does not offer share option programs to executive managers.
Remuneration to senior management during 2009 Pension Base salary Bonus Other Benefits Contribution Total (USD) Severance pay
Robert K. Kurz Jan - Dec 370 800 186 136 24 364 3 263 584 563 12 months Gregory J. Matecki Jan - Dec 231 750 24 881 13 813 5 382 275 826 12 months
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
Fredrik Nygaard, who served as the interim Finance Director in 2008, did not receive any compensation from the Company in 2008. His services were paid through a management services agreement with Aker ASA (see note 22).
Note 22: 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, AKPS and Resource Group International which provide certain specified accounting, financial and administrative services. The agreement with AKPS also included shared services of legal counsel for 2008 and part of the year 2009. Upon Aker ASA’s sale of its majority ownership in the Company in 2008, Aker ASA and its subsidiaries are no longer related parties. The cost of these services was not material, however they are important to the Company’s operations.
The Group entered into certain foreign exchange hedging instruments with SEB Merchant Banking on an arm’s length basis. At 31 December 2009, there were no outstanding agreements with SEB Merchant Banking. SEB Enskilda ASA owns 33.3 percent of the outstanding shares of AMSC.
Note 23: 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 (2) Aker Philadelphia Shipyard, Inc. Counter guarantee Aker Maritime Finance AS 20 000 (3) Aker Philadelphia Shipyard, Inc.
1) The construction loan facility is provided by Caterpillar Financial Services Corp. (CFSC) to AKPS for the construction of the remaining tankers in the twelve ship series. In connection with this facility, AMSC and CFSC entered into a put/call agreement. In the event that an event of default occurs and is continuing under the construction loan facility, CFSC may “put” the entire facility to AMSC, whereupon AMSC would be required to purchase 100% of the loans from CFSC at par plus accrued interest and unpaid expenses. The principal balance is approximately USD 48 million as of 31 December 2009. 2) The capital expenditure facility represents a loan from the Pennsylvania Industrial Development Corporation Regional Center, L.P. XV (Welcome Fund) to AKPS that is secured by a second mortgage against the property, plant and equipment of AKPS. This loan has a current outstanding balance of USD 19.8 million at 31 December 2009, interest is paid semi-annually and the principal is due March 2012. In connection with this facility, AMSC has agreed to guarantee the entire loan to the lender. 3) The counter guarantee relates to an agreement by AKPS to maintain minimum employment levels at the shipyard until 31 December 2014. AKPS will be required to pay liquidated damages
30 American Shipping Company annual report 2009 Performance 2009 Group accounts
in the event that the average number of full-time employees during a given year falls below the required minimum, subject to an aggregate cap of USD 20.0 million. This agreement is part of a Master Agreement between AKPS and the governmental parties which provided funding to the shipyard for the renovation and modernization of its facility and training of its workforce, and it is guaranteed by Aker Maritime Finance AS (as successor by merger to the former Kvaerner ASA). The counter guarantee was issued by AMSC to Aker Maritime Finance AS in connection with the organization of the AMSC Group in 2005. As part of the sale of AKPS in December 2007, AKPS issued a USD 20.0 million counter guarantee to AMSC and Aker Maritime Finance AS related to the minimum employment levels.
Other material transactions: Shipbuilding contracts with Aker Philadelphia Shipyard, Inc. AMSC had entered into shipbuilding contracts for ten product tankers in 2005. In 2007, two additional product tankers were ordered. These two additional tankers will be converted to shuttle tankers. At the end of 2007, AMSC split from the shipbuilding operation and modified the contracts for the remaining nine tankers on order, of which four tankers have been delivered and one shipbuilding contract was sold to OSG. The purchase price is USD 103.675 million (including construction financing). This price is subject to fixed escalation due to increases in material cost. As such, the total contract value for all nine tankers is approximately USD 933.1 million before any escalation. In addition, AMSC has option agreements with AKPS to build an additional four tankers.
Deposits made to AKPS for vessels under construction total USD 74.7 million as of 31 December 2009 for tankers eight through ten and USD 92.9 million as of 31 December 2008 for tankers six through twelve. An additional USD 20.0 million of deposits to AKPS are classified as held for sale (see note 9) in 2009.
Other outstanding balances related to AKPS 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.
Settlement Agreement with Overseas Shipholding Group, Inc. and OSG America, L.P. In the fourth quarter of 2009, the Company announced that it had entered into a settlement agreement (“Settlement Agreement”) with Overseas Shipholding Group, Inc. and OSG America L.P. (collectively “OSG”) that settled all of the outstanding commercial disputes between AMSC and OSG. Aker ASA, Converto Capital Fund AS and AKPS are also parties to the Settlement Agreement. The Settlement Agreement will enable the Company to complete the twelve vessel build series with AKPS. The Settlement Agreement has received all necessary third party approvals, including approval of the Company’s senior lenders and the U.S. Coast Guard. The Settlement Agreement provides for the dismissal with prejudice of all claims in the arbitration with OSG.
As part of the Settlement Agreement, the fixed terms of the bareboat charters of the ten product tankers (seven of which have been delivered with the remaining three to be delivered before 30 September 2011) will be extended to a common expiration date that is ten years from the settlement date upon satisfaction of certain conditions including the timely delivery of the remaining vessels in the twelve ship order and the satisfactory refinancing or extension of AMSC’s vessel debt and bond obligations. Various other agreements with OSG have been modified including the elimination of exclusivity, the sale to OSG of the two shuttle tanker shipbuilding contracts and changes to the profit sharing agreement.
The shipbuilding contracts were assigned on the settlement date and the second shuttle tanker is expected to be delivered in the fourth quarter of 2010. The sale of the two shuttle tanker shipbuilding contracts for USD 35.0 million each (reflecting a return of capital paid per vessel of approximately USD 20.0 million each) resolves AMSC’s inability to obtain permanent financing under the current challenging credit markets and allows AMSC to continue with the full twelve ship order. The proceeds from the sale also provide AMSC with needed liquidity to assist the Company in meeting its debt service obligations to its senior lenders. The changes to the profit sharing agreement include overall simplification of the calculations, a change to increase AMSC’s sharing percentage to fifty percent under all circumstances, and a provision allowing OSG to retain the first USD 18.2 million of profit sharing otherwise payable to AMSC (such retained profit sharing to accrue interest until paid).
In connection with the Settlement Agreement, several of AMSC’s agreements with AKPS have been modified including the elimination of exclusivity, reduction of purchase prices on remaining vessels to be delivered, and cancellation of nine option agreements for tankers beyond AKPS’s hull 020. AMSC maintains four options with AKPS for product tankers.
In addition, as part of the Settlement Agreement, Converto Capital Fund AS has agreed to make an unsecured, subordinated loan of USD 20.0 million to AMSC, which will provide additional liquidity to the Company. Interest under this loan is payment in kind interest. Loan repayment restrictions apply until specific conditions are met including the timely delivery of the remaining vessels in the twelve ship order and the satisfactory refinancing or extension of AMSC’s vessel debt and bond obligations. The loan’s maturity date is three years from the date that those conditions are satisfied.
As a result of finalizing the Settlement agreement, the Company sold its shipbuilding contract for the first shuttle tanker in the fourth quarter of 2009 for USD 35.0 million. The Company’s cost basis in the shuttle tanker was USD 23.8 million and recorded a gain on the sale of USD 11.2 million, shown as a separate line item below operating income (see note 4). In addition, the Company transferred title of the long lead items purchased in 2008 for the first two option vessels to AKPS. As a result of transferring title of the long lead items, the Company recorded a charge of USD 3.5 million in other operating expenses (see note 3). The Company also took a charge of USD 4.5 million for lender and guarantor fees (see note 4). With the Settlement Agreement, AMSC has resolved its inability to fund the purchase of the two shuttle tankers as well as the anticipated shortfall in debt service coverage on its senior debt resulting from the absence of profit sharing under the bareboat charters.
American Shipping Company annual report 2009 31 Performance 2009 Parent company accounts
American Shipping Company ASA Statement of Financial Position as of 31 December
Amounts in USD thousands Note 2009 2008
ASSETS Shares in subsidiaries 3 287 813 218 015 Other non-current assets - 2 582 Long-term receivable group companies 5 61 535 92 684 Total financial non-current assets 349 348 313 281 Total non-current assets 349 348 313 281
Other short-term receivables 170 982 Cash and cash equivalents 8 1 199 850 Total current assets 1 369 1 832 Total assets 350 717 315 113
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 (9 120) 13 647 Total retained earnings (9 120) 13 647 Total equity 6 171 288 194 055
Bond obligation 7 157 640 - Other interest-bearing debt 7 20 000 - Total long-term liabilities 177 640 -
Bond obligation 7 - 119 160 Other short-term debt 1 789 1 898 Total short-term liabilities 1 789 121 058 Total equity and liabilities 350 717 315 113
32 American Shipping Company annual report 2009 Performance 2009 Parent company accounts
American Shipping Company ASA Income Statement
Amounts in USD thousands Note 2009 2008
Operating revenues 106 152 Other operating expenses 2 (673) (845) Operating loss (567) (693)
Interest income from group companies 5 615 10 552 Other interest and financial revenues 20 240 43 838 Other interest and financial expenses 2 (48 055) (49 114) Income/(loss) after financial items (22 767) 4 583
Taxes 4 - -
Profit/(loss) for the period (22 767) 4 583
Allocation of net profit: Profit (22 767) 4 583 Other equity 6 22 767 (4 583) Total - -
American Shipping Company ASA Statement of Comprehensive Income
Amounts in USD thousands 2009 2008
Net income/(loss) for the period (22 767) 4 583 Other comprehensive income for the period, net of tax - - Total comprehensive income for the period (22 767) 4 583
American Shipping Company annual report 2009 33 Performance 2009 Parent company accounts
American Shipping Company ASA Cash Flow Statement
Amounts in USD thousands 2009 2008
Profit before tax (22 767) 4 583 Unrealized foreign exchange (gain)/loss and unpaid interest expense 38 602 (15 861) Impairment of shares in subsidiaries 5 631 - Changes in short term receivables 812 2 257 Changes in short term liabilities (109) (2 062) Cash flow from operating activities 22 169 (11 083)
Other changes in long term investments (41 698) (52 400) Cash flow from investing activities (41 698) (52 400)
Debt fees paid (122) - Proceeds from other interest-bearing debt 20 000 - Cash flow from financial activities 19 878 -
Cash flow for the year 349 (63 483) Cash and cash equivalents 1 January 850 64 333 Cash and cash equivalents 31 December 1 199 850
34 American Shipping Company annual report 2009 Performance 2009 Parent company accounts
American Shipping Company ASA: Notes to the accounts
Note 1: Accounting principles
The annual report is prepared according to the Trade and other receivables the same period. Deferred tax assets are record- Norwegian Accounting Act and generally ac- Trade receivables and other current receivables ed in the balance sheet to the extent it is more cepted accounting principles in Norway. are recorded in the balance sheet at nominal likely than not that the tax assets will be utilized. value less provisions for doubtful accounts. Subsidiaries and investment in associates Cash flow statement Subsidiaries are valued by the cost method in Foreign currency translation The cash flow statement is presented using the the company accounts. The investment is valued The company’s functional currency is U.S. dol- indirect method. Cash and cash equivalents in- at the cost of acquiring shares in the subsidiary, lars (USD). Foreign currency transactions are cludes cash, bank deposits and other short-term providing that a write down is not required. A translated into USD using the exchange rates highly liquid deposits with original maturities of write down to fair value will be carried out if the prevailing at the dates of the transactions. Re- three months or less. reduction in value is caused by circumstances ceivables and liabilities in foreign currencies are which may not be regarded as incidental, and translated into USD at the exchange rates ruling Use of estimates deemed necessary by generally accepted ac- on the balance sheet date. Foreign exchange The preparation of the financial statements counting principles. Write downs are reversed gains and losses resulting from the settlement requires management to make estimates and when the cause of the initial write down is no of such transactions and from the translation of assumptions that affect the reported amounts in longer present. monetary assets and liabilities denominated in the profit and loss statement, the measurement If dividends exceed withheld profits after foreign currencies are recognized in the income of assets and liabilities and the disclosure of acquisition, the exceeding amount represents statement. contingent assets and liabilities on the balance reimbursement of invested capital, and the dis- sheet date. Actual results can differ from these tribution will be subtracted from the value of the Short term investments estimates. acquisition in the balance sheet. Short term investments (stocks, short-term Contingent losses that are probable and bonds, liquid placements and shares) are valued quantifiable are expensed as occurred. Balance sheet classification at the lower of acquisition cost or fair value at Certain prior year reclassifications were made Net current assets comprise creditors due within the balance sheet date. Dividends and other to conform with current year presentation. one year. Other entries are classified as fixed distributions are recognized as other investment assets and/or long-term creditors. income. Current assets are valued at the lower of ac- quisition cost or fair value. Short-term creditors Income tax are recognized at nominal value. Tax expenses in the profit and loss account com- Fixed assets are valued at the cost of acqui- prise both tax payable for the accounting period sition. In the case of non-incidental reduction in and changes in deferred tax. Deferred tax is value, the asset will be written down to the fair calculated at 28 percent on the basis of existing value amount. Long-term creditors are recog- temporary differences between accounting profit nized at nominal value. and taxable profit together with tax deductible The bond loan with fixed interest are record- deficits at year end. Temporary differences, both ed at amortized cost. positive and negative, are balanced out within
American Shipping Company annual report 2009 35 Performance 2009 Parent company accounts
Note 2: Other operating and financial expenses
Fees to the auditors of USD 35 thousand for ordinary audit was expensed in 2009. 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 21 in the consolidated accounts). Board of directors expenses were USD 159 thousand in 2009.
Other interest and financial expenses include an impairment loss of USD 5.6 million on one of the Company’s subsidiaries (see note 3).
Note 3: Shares
This item comprises the following as of 31 December 2009:
Ownership of common Voting rights Business Historical Book Amounts in USD thousands shares(%) (%) address cost value
American Tanker Holding Company, Inc. (ATHC) (1) 100% 100% Philadelphia, PA 287 484 287 484 American Tanker III, Inc. (ATI III) (2) 100% 100% Wilmington, DE 329 329 Total shares 287 813 287 813
ATHC ATI III Subsidiaries’ 2009 results after tax in USD thousands 17 100 (3 903) Subsidiaries’ equity attributable to common shareholders at 31 December 2009 in USD thousands 197 484 329
1) ATHC was formed in 2009 and is now the holder of shares of ATI and ATI II, previously owned directly by AMSC. 2) This entity issued non-dilutive, non-voting shares of redeemable preferred stock in 2008 which were redeemed in 2009 (see note 14 in the consolidated accounts). The book value is net of USD 5.6 million impairment charges.
American Shipping Company ASA (AMSC) analyzes the value of its investments in subsidiaries on an annual basis, or sooner if conditions change or events occur which could cause the carrying values to change. Detailed analysis, including discounted cash flows and third party appraisals, are prepared and reviewed by management supporting the carrying value of each of its investments. AMSC considers many factors, including the appropriate cost of capital, asset (investment) lives, market values and likelihood of events, in reviewing its investment value. For the year ending 31 December 2009, AMSC wrote down its investment in ATI III and took a charge of USD 5.6 million.
Note 4: Tax
The table below shows the difference between book and tax values at the end of 2009 and 2008, and the amounts of deferred taxes at these dates and the change in deferred taxes.
Amounts in USD thousands 2009 2008
Operating loss carried forward (20 226) (12 477) Total differences (20 226) (12 477) Net deferred tax asset, 28 percent (5 663) (3 494) Restrictions regarding balance tax asset 5 663 3 494 Book value tax asset - -
Estimated result for tax purposes:
Amounts in USD thousands 2009 2008
Result before tax measured in NOK for taxation purposes (10 683) (850) Permanent differences for impairment on shares 5 631 - Estimated result for tax purposes (5 052) (850) Payable current tax - -
The result before taxes in NOK are different from the result before taxes in USD primarily due to currency exchange differences.
36 American Shipping Company annual report 2009 Performance 2009 Parent company accounts
Taxes:
Amounts in USD thousands 2009 2008
Current payable tax charged to the income statement - - Change in deferred tax - - Total tax cost - -
Note 5: Long-term receivables
Long-term receivables are:
Amounts in USD thousands 2009 2008
American Shipping Corporation (ASC) 20 240 64 780 American Shipping Corporation II (ASC II) 21 189 24 636 American Shuttle Tanker, LLC (AST) - 3 268 American Tanker, Inc. (ATI) 20 106 - Total 61 535 92 684
The receivables have the following installment plan:
Amounts in USD thousands 2009 2008
Maturity within five years 41 429 92 684 Maturity later than five years 20 106 - Total 61 535 92 684
The interest conditions on the receivables are at market conditions.
The loan amounts to ASC and ASC II will be converted to equity upon the delivery of vessels on order from Aker Philadelphia Shipyard, Inc. (Aker Philadelphia Shipyard, Inc. is a wholly owned subsidiary of Aker Philadelphia Shipyard ASA; collectively “AKPS”). The last of those vessels is expected to be delivered in March 2011. The loan to ATI is a result of the Settlement Agreement with OSG (see note 23 in the consolidated accounts). This unsecured, subordinated loan of USD 20 million will become a three year term loan upon the timely delivery of the remaining vessels in the twelve ship order and the satisfactory refinancing or extension of the vessel debt and AMSC’s bond obligations. This loan has interest that is payment-in-kind until it becomes a three year term loan.
Note 6: Total equity
Changes in equity are:
Total paid-in Amounts in USD thousands Share capital Share premium capital Other equity Total equity
Equity as of 1 January 2009 42 462 137 946 180 408 13 647 194 055 Net result - (22 767) (22 767) Equity as of 31 December 2009 42 462 137 946 180 408 (9 120) 171 288
Total paid-in Amounts in USD thousands Share capital Share premium capital Other equity Total 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
The share capital of NOK 276 million consists of 27 600 000 shares with a par value of NOK 10.
American Shipping Company annual report 2009 37 Performance 2009 Parent company accounts
The shares were owned by the following 20 largest parties as of 15 February 2010: Number of shares held Ownership (in %)
SEB ENSKILDA ASA EGENHANDELSKONTO 9 183 274 33.3% CONVERTO CAPITAL FUND AS 5 493 430 19.9% GOLDMAN SACHS & CO - SECURITY CLIENT SEGR 4 175 520 15.1% CREDIT SUISSE SECURI SPECIAL CUSTODY A/C 1 369 553 5.0% ODIN NORGE 1 245 978 4.5% COMMERZBANK AG LONDO A/C DBL ARB 799 026 2.9% STATE STREET BANK AN A/C CLIENT OMNIBUS D 732 600 2.7% ODIN MARITIM 710 000 2.6% ODIN NORDEN 670 800 2.4% STATE STREET BANK AN A/C CLIENT OMNIBUS F 534 000 1.9% FRATERNITAS A/S 315 200 1.1% RO LARS 212 121 0.8% DEUTSCHE BANK AG LON PRIME BROKERAGE FULL 150 650 0.5% DNB NOR NORGE SELEKT VPF 149 175 0.5% MUSLIK AS 111 600 0.4% DEUTSCHE BANK AG S/A HOLDING ACCOUNT 76 100 0.3% JP MORGAN CLEARING C A/C CUSTOMER SAFE KE 70 379 0.3% HØGELI AS 69 800 0.3% ODIN NORGE II 51 147 0.2% O. HOVDE AS 50 000 0.2% Total, 20 largest shareholders 26 170 353 94.8% Other shareholders 1 429 647 5.2% Total 27 600 000 100.0%
Note 7: Other long term interest-bearing debt
The bond obligation is as follows as of 31 December 2009:
Amounts in USD thousands Maturity Balance Interest Rate
Bond issue 2012 114 170 NIBOR + 4.75% Interest added to bonds outstanding 36 051 (1) Cumulative foreign currency impact 8 124 (1) Less unamortized loan fees (705) Total Unsecured bond issue 157 640
1) Included in other interest and financial expenses.
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 percent. AMSC has the option to make any of the interest payments for the loan term as payment-in-kind (PIK) where the interest is added to the principal (as approved by the bondholders in the February 2009 bondholders’ meeting discussed below). AMSC also has the option to call the bond, or parts of the bond, at certain dates. The first call date was August 2009 at which AMSC could redeem the bond at a call price of 104.75 percent of par. The Company did not call any parts of the bond in August 2009. The Company has elected PIK interest 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 2009, the bond loan balance including PIK interest is NOK 909.9 million (NOK 839.0 million as of 31 December 2008).
One of the original covenants on the Company’s NOK denominated bond required that consolidated equity be maintained at a level not less than USD 140 million at a quarterly measurement date.
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. 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. As of 31 December 2009, consolidated shareholders equity for determining compliance with debt covenants was approximately USD 158 million. See note 20 in the consolidated accounts for an analysis of how foreign exchange fluctuations could impact consolidated equity.
Due to the approved modification in the minimum consolidated equity covenant subsequent to 31 December 2008, the Company again classified the majority of its debt as long term beginning with 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.
In 2007, the Company had 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 fair value on this contract was negative USD 2.6 million at 31 December 2008. This forward contract matured on 1 September 2009 and the Company took a charge of USD 0.5 million to settle the contract. Due to the bondholders’ agreement in February 2009 to extend PIK interest, the Company did not enter into any new foreign currency forward contracts to hedge interest payments on the NOK bond, thus, the Company did not have any foreign currency contracts as of 31 December 2009.
The Company had also entered into a NOK 600 million foreign currency swap to hedge the translation of its NOK denominated bond. As of 31 December 2008, the fair value of those contracts was positive USD 803 thousand. The swap contract matured in 2009 and the Company had not entered into a new swap contract as of 31 December 2009.
38 American Shipping Company annual report 2009 Performance 2009 Parent company accounts
Subordinated loan from Converto Capital Fund AS In connection with the Settlement Agreement with OSG (see note 23 in the consolidated accounts), Converto Capital Fund AS has issued a USD 20.0 million loan to the Company. The loan is subordinated to various matters involving subsidiary companies, including the Fortis Credit Agreement, as well as any potential obligations and liabilities due to OSG and any potential liability associated with AKPS’s construction financing which contains a put option to AMSC (see note 10). The loan bears interest at the higher of 9.5% or LIBOR plus 5.75% (9.5% at 31 December 2009). Interest is payment in kind until certain conditions are met. It is expected that cash interest will not be paid in the next four years. The loan matures on 11 December 2017.
Note 8: Cash and cash equivalents
There is no restricted cash.
Note 9: Shares owned by the board of directors and the senior management
For information regarding shares owned by the members of the board of directors and the senior management, see note 21 in the Consolidated Accounts.
Note 10: Guarantees
The company has made the following guarantees:
Amount Description Beneficiary (USD thousands) Guarantee 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 (3) Aker Philadelphia Shipyard, Inc. Counter guarantee Aker Maritime Finance AS 20 000 (4) 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 provided by Caterpillar Financial Services Corp. (CFSC) to AKPS for the construction of the remaining tankers in the twelve ship series. In connection with this facility, AMSC and CFSC entered into a put/call agreement. In the event that an event of default occurs and is continuing under the construction loan facility, CFSC may “put” the entire facility to AMSC, whereupon AMSC would be required to purchase 100% of the loans from CFSC at par plus accrued interest and unpaid expenses. The principal balance is approximately USD 48 million as of 31 December 2009. 3) The capital expenditure facility represents a loan from the Pennsylvania Industrial Development Corporation Regional Center, L.P. XV (Welcome Fund) to AKPS that is secured by a second mortgage against the property, plant and equipment of AKPS. This loan has a current outstanding balance of USD 19.8 million at 31 December 2009, interest is paid semi-annually and the principal is due March 2012. In connection with this facility, AMSC has agreed to guarantee the entire loan to the lender. 4) The counter guarantee relates to an agreement by AKPS to maintain minimum employment levels at the shipyard until 31 December 2014. AKPS will be required to pay liquidated damages in the event that the average number of full-time employees during a given year falls below the required minimum, subject to an aggregate cap of USD 20.0 million. This agreement is part of a Master Agreement between AKPS and the governmental parties which provided funding to the shipyard for the renovation and modernization of its facility and training of its workforce, and it is guaranteed by Aker Maritime Finance AS (as successor by merger to the former Kvaerner ASA). The counter guarantee was issued by AMSC to Aker Maritime Finance AS in connection with the organization of the AMSC Group in 2005. As part of the sale of AKPS in December 2007, AKPS issued a USD 20.0 million counter guarantee to AMSC and Aker Maritime Finance AS related to the minimum employment levels.
American Shipping Company annual report 2009 39 Performance 2009 Auditor’s report
40 American Shipping Company annual report 2009 Performance 2009 Auditor’s report
American Shipping Company annual report 2009 41 Performance 2009 Share and shareholder information
Share and shareholder information
American Shipping Company is committed to maintaining an open and direct dialogue with its shareholders, potential investors, analysts, brokers, and the financial community in general. The timely release of information to the market that could affect the Company’s share price helps ensure that American Shipping Company ASA’s share price reflects its underlying value.
American Shipping Company’s goal is that rently has a single share class. Each share chased from Aker ASA as part of a total the Company’s shareholders will, over time, is entitled to one vote, but is subject to return swap (TRS) agreement. receive competitive returns on their invest- certain voting and ownership restrictions From time to time, agreements are ment. The Board considers the amount of due to the fact that the Company is oper- entered into between two or more former dividend, if any, to be recommended for ating under an exception from the U.S. related companies. The boards of direc- approval by the shareholders on an annual ownership requirement in the Jones Act tors and other parties involved in the deci- basis. The recommendation is based upon (see Articles of Association available on sion-making processes related to such earnings for the year just ended, the finan- the Company’s web page). The Company agreements are all critically aware of the cial situation at the relevant point in time held no own (treasury) shares as of 31 need to handle such matters in the best and applicable restrictions under AMSC’s December 2009. No share issues were interests of the involved companies, in financial agreements. carried out in 2009. accordance with good corporate govern- Due to the fact that AMSC is currently ance practice and on an arm’s length in the middle of funding its new tanker Stock-exchange listing basis. If needed, external, independent fleet build program, the Board of Directors American Shipping Company ASA was opinions are sought. will propose at American Shipping Com- listed on the Oslo Stock Exchange on 11 pany’s annual shareholders’ meeting that July 2005. At that time the Company was Current Board authorizations no dividend is paid for the 2009 account- called Aker American Shipping ASA and The Board of Directors has currently no ing year. traded under the ticker symbol “AKASA”. authorizations to issue any new common The name change was the result of Aker shares. Year Dividend (in NOK) ASA reducing its majority ownership in the Company during 2008. Approval for Stock option plans 2008 - 2009 Proposed - the name change was decided upon at The Company currently does not have any the Extraordinary General Meeting held stock option plans. on 25 June 2008 and it was officially reg- Shares and share capital istered with the Norwegian Registry of Investor relations American Shipping Company ASA has Business Enterprises (NRBE) on 21 July American Shipping Company ASA seeks 27 600 000 ordinary common shares; each 2008. The Company’s shares are listed on to maintain an open and direct dialogue share has a par value of NOK 10 (see Note the Oslo Stock Exchange’s main (OSEBX) with shareholders, financial analysts, and 14 to the Company’s 2009 accounts). As list (ticker: AMSC). American Shipping the financial market in general. In addition of 31 December 2009, the Company had Company’s shares are registered in the to meetings with analysts and investors, 323 shareholders, of whom 12.1 percent Norwegian Central Securities Depository; the Company posts presentations and were non-Norwegian shareholders. the shares have the securities registration press releases on it web page. During 2009, one of American Ship- number ISIN NO 0010272065. DnB NOR Visitors to American Shipping Compa- ping Company’s wholly owned subsidiar- is the Company’s registrar. ny’s website at www.americanshippingco. ies declared and paid a dividend of USD com can subscribe to email delivery of 0.9 million on its preferred stock and then Majority shareholder American Shipping Company news redeemed all of the 500 preferred shares American Shipping Company ASA’s larg- releases. outstanding. These shares were non-vot- est/majority shareholder is SEB Enskilda, American Shipping Company press ing and non-dilutive. which holds 33.3 percent of the Compa- releases and investor relations (IR) publi- American Shipping Company ASA cur- ny’s shares. These shares were pur- cations for the current and prior year are
Share capital development over the past three years
Date Change in share capital Share capital (in NOK million) No. of shares Par value (in NOK)
1 January 2007 276 000 000 276 000 000 10.00 Change in 2007 - 31 December 2007 276 000 000 276 000 000 10.00 Change in 2008 - 31 December 2008 276 000 000 276 000 000 10.00 Change in 2009 - 31 December 2009 276 000 000 276 000 000 10.00
42 American Shipping Company annual report 2009 Performance 2009 Share and shareholder information
available at the Company’s website: www. 20 largest shareholders americanshippingco.com. This online As of 15 February 2010 resource includes the Company’s quar- Shareholder Number of shares held Ownership (in %) terly and annual reports, prospectuses, Seb Enskilda ASA Egenhandelskonto 9 183 274 33.3% corporate presentations, articles of asso- Converto Capital Fund AS 5 493 430 19.9% ciation, financial calendar, and its Investor Goldman Sachs & Co - Security Client Segr 4 175 520 15.1% Relations and Corporate Governance pol- Credit Suisse Securi Special Custody A/C 1 369 553 5.0% icies, along with other information. Odin Norge 1 245 978 4.5% Shareholders can contact the Com- Commerzbank AG Londo A/C Dbl Arb 799 026 2.9% pany at [email protected]. State Street Bank AN A/C Client Omnibus D 732 600 2.7% Odin Maritim 710 000 2.6% Save the environment – Odin Norden 670 800 2.4% State Street Bank AN A/C Client Omnibus F 534 000 1.9% read reports online Fraternitas A/S 315 200 1.1% American Shipping Company ASA encour- Ro Lars 212 121 0.8% ages its shareholders to subscribe to the Deutsche Bank AG Lon Prime Brokerage Full 150 650 0.5% electronic version of the Company’s annual Dnb Nor Norge Selekt Vpf 149 175 0.5% reports. Annual reports are published on Muslik AS 111 600 0.4% the Company’s website (www.american- Deutsche Bank AG S/A Holding Account 76 100 0.3% shippingco.com) at the same time as they Jp Morgan Clearing C A/C Customer Safe Ke 70 379 0.3% Høgeli As 69 800 0.3% are made available via website release by Odin Norge II 51 147 0.2% the Oslo Stock Exchange/Oslo Axess: O. Hovde AS 50 000 0.2% www.newsweb.no (ticker: AMSC). Sub- Total, 20 largest shareholders 26 170 353 94.8% scribers to this service receive annual Other shareholders 1 429 647 5.2% reports in PDF format by email. Total 27 600 000 100.0% American Shipping Company ASA encourages its shareholders to subscribe to the Company’s annual reports via the Geographic distribution of shareholders electronic delivery system of the Norwe- As of 15 February 2010 gian Central Securities Depository (VPS). Please note that VPS services (VPS Nationality No. of Shares Held Ownership (in %) Investortjenester) are designed primarily Non-Norwegian shareholders 8 159 884 29.6% for Norwegian shareholders. Subscribers Norwegian shareholders 19 440 116 70.4% to this service receive annual reports in Total 27 600 000 100.0% PDF format by email. VPS distribution takes place at the same time as distribu- tion of the printed version of AMSC’s annual report to shareholders who have requested it. Ownership structure by number of shares held Electronic distribution is the fastest As of 15 February 2010 channel for accessing Company informa- Number of Percent of tion; it is also cost-effective and environ- Shares owned shareholders share capital mentally friendly. 1 – 100 48 0.01% Quarterly reports, which are generally 101 – 1 000 115 0.25% only distributed electronically, are availa- 1001 – 10 000 120 1.92% ble from the Company’s website and 10 001 – 100 000 44 4.16% other sources. Shareholders who are una- 100 001 – 500 000 5 3.40% ble to receive the electronic version of Over 500 000 10 90.27% interim and annual reports, may subscribe Total 342 100.00% to the printed version by contacting American Shipping Company.
American Shipping Company annual report 2009 43 Performance 2009 Share and shareholder information
Analyst coverage Share price development in 2009 The following securities broker provides analyst coverage of American Shipping Highest traded NOK 35.00 Company ASA (as of 31 December 2009): Lowest traded NOK 5.56 Share price as of 31 December NOK 6.50 Company Telephone Shares issued as of 31 December 27 600 000 Own (treasury) shares as of 31 Dec. 0 Nicolay Dyvik (SEB Enskilda) + 47 21 00 86 46 Shares issued and outstanding as of 31 Dec. 27 600 000 Market capitalization as of 31 Dec. NOK million 179.4 Annual shareholders’ meeting Proposed share dividend NOK per share 0.0 American Shipping Company ASA’s annual shareholders’ meeting is normally held in late March or early April. Written notification is sent to all shareholders indi- vidually or to shareholders’ nominee. To Share Price Development vote at shareholders’ meetings, share- ■ American Shipping Company ASA ■ OSEBX holders (or their duly authorized repre- 240 sentatives) must either be physically 200 present or must vote by proxy. 160
2009 share data 120 The Company’s total market capitalization 80 as of 31 December 2009 was NOK 179.4 million. During 2009, a total of 2,290,793 40
American Shipping Company ASA shares 0 traded, corresponding to 8.3 percent of Jul Feb 2005 2010 the Company’s freely tradable stock. The shares traded on 155 trading days.
44 American Shipping Company annual report 2009 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 is to own and carry out industrial business the shares are subject to certain voting Company ASA’s (hereinafter American and other activities related hereto, includ- and ownership restrictions due to the fact Shipping Company, AMSC, the Company ing ownership of vessels, capital manage- that the Company is operating under an or the Group) practice regarding each of ment and other functions for the group, as exception from the U.S ownership the recommendations contained in the well as participation in or acquisition of requirement in the Jones Act (see the Code of Practice. Any deviations from the other companies. Company’s articles of association, which recommendations are found under the The function of the business purpose are available on the Company’s web item in question. clause is to ensure that shareholders have page). control of the business and its risk profile, During 2008, one of the subsidiaries in Purpose without limiting the Board or manage- the consolidated group of companies American Shipping Company’s Corporate ment’s ability to carry out strategic and issued preferred redeemable shares of Governance principles are intended to financially viable decisions within the stock. This stock is non-voting and is not ensure an appropriate division of roles defined purpose. The Group’s financial dilutive to the shareholders of AMSC. Dur- and responsibilities among the Compa- goals and main strategies are presented ing 2009, the subsidiary declared and ny’s owners, its Board of Directors, and on page 5 of this report and in the Board paid a dividend of USD 0.9 milion and its executive management and that the of Director’s report. then redeemed all outstanding preferred Company’s activities are subject to satis- shares. factory control. These principles contrib- Equity and dividends Equal treatment of all shareholders is ute to the greatest possible value creation Equity crucial. If existing shareholders’ pre-emp- over time, to the benefit of owners and The Group’s equity as of 31 December tive rights are waived upon an increase in other stakeholders. 2009 was USD 78.8 million corresponding share capital, the Board must justify the to an equity ratio of 9 percent. American waiver. Transactions in own (treasury) Values and ethical guidelines Shipping Company regards the Group’s shares must be executed on the Oslo The Board has adopted the AMSC’s cor- current equity structure as appropriate Stock Exchange or by other means at the porate values and ethical guidelines. and adapted to its objectives, strategy, listed price. American Shipping Company’s corporate and risk profile. If there are material transactions values are presented below. between the Company and a shareholder, Dividends board member, member of executive SQE mindset American Shipping Company’s dividend management, or a party closely related to We take personal responsibility because policy is included in the section Shares any of the aforementioned, the Board we care and shareholder information, see pages shall ensure that independent valuations Delivering results 42-44 of this annual report. are available. We deliver consistently and strive to beat American Shipping Company ASA has our goals Board authorizations prepared guidelines designed to ensure Customer drive The Board’s proposals for future Board that members of the Board of Directors Building customer trust is key to our busi- authorizations are to be limited to defined and executive management notify the ness issues and to be valid only until the next Board of any direct or indirect stake they People and teams annual shareholders’ meeting. may have in agreements entered into by All our major achievements are team the Group/Company. efforts Current Board authorizations to increase See information on transactions with Hands-on management share capital and acquire own (treasury) related parties in Note 22 to the consoli- We know our business and get things shares are presented in the section dated accounts. done Shares and Shareholder information on Open and direct dialogue pages 42-44 of this annual report. Freely negotiable shares We encourage early and honest commu- American Shipping Company’s shares are nication freely negotiable. However, the transfer- Equal treatment of shareholders and ability of shares is subject to certain vot- Business transactions with close associates ing and ownership restrictions due to the American Shipping Company’s business At the parent level, the Company has a fact that the Company is operating under purpose clause is as follows: single class of shares, and all shares carry an exception from the U.S ownership The business purpose of the Company the same rights in the Company. However, requirement in the Jones Act (see the
American Shipping Company annual report 2009 45 Our organization and governance Corporate governance
Company’s articles of association, which and chair are elected by shareholders at elected Board members represent a com- are available on the Company’s web the Company’s annual shareholders’ bination of expertise, capabilities, and page). meeting, which also determines remuner- experience from various finance, industry, ation payable to committee members. and non-governmental organizations. Annual shareholders’ meetings Pursuant to American Shipping Com- One of the five shareholder-elected The Company encourages shareholders pany’s articles of association, the nomina- Board members are up for election in to participate in shareholders’ meetings. It tion committee recommends candidates 2010. is the Company’s priority to hold the for members of the Board of Directors. annual general meeting as early as possi- The nomination committee also makes The work of the Board of Directors ble after the year-end. Notice of general recommendations as to remuneration of The Board of American Shipping Com- shareholders’ meetings and comprehen- Board members. The nomination commit- pany ASA annually adopts a plan for its sive supporting information is made avail- tee should justify its recommendation. work, emphasizing goals, strategies, and able for the shareholders on the Compa- implementation. Also, the Board has ny’s website and sent to the shareholders Audit committee adopted board instructions that regulate according to the deadlines stated in the As of 1 July 2009, the Public Limited Lia- areas of responsibility, tasks, and division Norwegian Public Company Act (allmen- bility Companies Act requires that compa- of roles of the Board, Board Chairman, naksjeloven). The deadline for sharehold- nies listed on a regulated market shall and President and CEO/General Manager. ers to register to the general shareholder’s have an audit committee. Prior to this The Board instructions also feature rules meetings is set as close to the date of the date, the Company did not have an audit governing Board schedules, rules for meeting as possible. Both on the attend- committee. The Board has recently notice and chairing of Board meetings, ance and proxy form and the notice of resolved that the entire Board of Directors decision-making rules, the President and meeting, all procedures for registration shall act as the audit committee and will CEO’s/General Manager’s duty and right are thoroughly explained. In addition, seek to amend the Company’s articles of to disclose information to the Board, pro- information on how to propose a resolu- association to reflect this decision at the fessional secrecy, impartiality, and other tion to the items on the agenda at the annual general meeting in April 2010. issues. General Meeting will be included in the The Board itself assesses the need to notice. Board composition and elect a deputy chairman. Pursuant to the Company’s articles of independence The Board evaluates its own perform- association, the Chairman of the Board or The Company does not have corporate ance and expertise once a year. an individual appointed by the Board assembly. Chairman will chair general shareholder’s Pursuant to the Company’s articles of Risk management and internal meetings. To the extent possible, Board association, the Board comprises control members and auditor attend annual between 3 and 9 members. Further, up to The Board is to ensure that the Company shareholders’ meetings. 3 shareholder-elected deputy board mem- maintains solid in-house control practices Minutes of shareholders’ meetings are bers may be elected annually. Pursuant to and appropriate risk management sys- published as soon as practically possible the Company’s corporate governance tems tailored to the Company’s business via the Oslo Stock Exchange messaging policy, the Board is to comprise a total of activities. The Board annually reviews the service www.newsweb.no (ticker: AMSC) 5 members. The Board chairman is Company’s most important risk areas and and on the Company’s website www. elected at the Company’s shareholders’ internal control systems and procedures, americanshippingco.com. meeting. The Board elects its own Deputy and the main elements of these assess- Board Chairman. ments are mentioned in the Board of Nomination committee The majority of the shareholder-elected Directors’ report. The issue is further American Shipping currently does not Board members are to be independent of described in Note 1 to the consolidated have a nomination committee. Upon the the Company’s executive management accounts. reduction by Aker ASA of its majority and its significant business associates. ownership position in American Shipping Further, no fewer than two of the share- Remuneration of the Board of Company in June 2008, the former nomi- holder-elected Board members are to be Directors nation committee members stepped independent of the Company’s main Board remuneration is to reflect the Board’s down from their positions and were not shareholder. Representatives of American responsibility, expertise, time spent, and replaced. As provided in our articles of Shipping Company’s executive manage- the complexity of the business. Remunera- association, the shareholders may decide ment are not to be Board members. With tion does not depend on American Ship- to reconstitute the nomination committee the exception of the audit committe, the ping Company ASA’s financial performance. at the general meeting. If the nomination Board has not deemed it necessary to Board members and companies with committee is reconstituted, pursuant to establish Board committees at this time. whom they are associated must not take the articles of association, the nomination The current composition of the Board on special tasks for the Company beyond committee is to comprise no fewer than is presented on page 48 of this annual their Board appointments unless such three members. The composition of the report; the Board members’ expertise, assignments are disclosed to the full Board nomination committee must reflect the capabilities, and independence are also and remuneration for such additional duties interests of the shareholders, and must presented. Board members’ sharehold- is approved by the Board. ensure nomination committee members’ ings are presented in Note 21 to the con- Additional information on remuneration independence from American Shipping solidated accounts. The Company paid to Board members for 2009 is pre- Company’s Board and executive manage- encourages the board members to invest sented in Note 21 to the consolidated ment. Nomination committee members in the Company shares. The shareholder- accounts.
46 American Shipping Company annual report 2009 Our organization and governance Corporate governance
Remuneration of executive tices, including the requirement of equal Company’s shares, the Board will make a management treatment. All stock exchange notifica- statement to the shareholders that pro- The Board has adopted guidelines for tions and press releases are made avail- vides an assessment of the bid, the remuneration of executive management in able on the Company’s website www. Board’s recommendations, and reasons accordance with the Allmennaksjeloven americanshippingco.com; stock for these recommendations. For each (Norwegian Public Limited Company Act) exchange notices are also available from instance, an assessment will be made as § 6-16a. Salary and other remuneration of www.newsweb.no. All information that is to the necessity of bringing in independ- American Shipping Company ASA’s Presi- distributed to shareholders is simultane- ent expertise. A valuation is to be dent and CEO/General Manager are ously published on American Shipping recorded in the Board’s statement. determined by a meeting of the Board of Company ASA’s website. The Company Transactions that have the effect of Directors. endeavors to hold open presentations in sale of the Company or a major compo- American Shipping Company ASA connection with the reporting of the nent of it are to be decided on by share- does not have stock option plans or other results and the presentations are often holders at a shareholders’ meeting. such share award programs for employ- available on the web. ees. Further information on remuneration The Company’s financial calendar is Auditor for 2009 for members of American Ship- found on page 3 of this annual report. The auditor will make an annual presenta- ping Company ASA’s executive manage- tion to the Board of a plan for the auditing ment is presented in Note 21 to the con- Takeovers work for the year. Further, the auditor is to solidated accounts. The Group’s guide- The overriding principle is equal treatment provide the Board with an annual written lines for remuneration to executive man- of shareholders. The principles are based confirmation that the requirement of inde- agement are discussed on page 29 of this on the bidder, the target company and the pendence has been met. annual report and will be presented to the management all having an independent The auditor participates in the Board shareholders at the annual general meet- responsibility for fair and equal treatment meeting that deals with the annual ing. of the shareholders in a takeover process, accounts. One meeting a year is held and that the target company is not unnec- between the auditor and the Board, at Information and communications essarily disturbed. It is the responsibility which no representatives of executive American Shipping Company’s reporting of the target company’s board to ensure management are present. of financial and other information is to be that the shareholders are kept informed Guidelines have been established for based on openness and on equal treat- and that have reasonable time to assess executive management’s use of auditors ment of shareholders, the financial com- the offer. for services other than auditing. Auditors munity, and other interested parties. Unless the Board has particular rea- are to provide the Board with an annual The long-term goal of American Ship- sons for so doing, it will not take steps to overview of services other than auditing ping Company’s investor relations activi- prevent or obstruct a take-over bid for the that have been supplied to the Company. ties is to ensure the Company’s access to Company’s business or shares, nor use Remuneration for auditors, presented capital at competitive terms and to ensure share issue authorizations or other meas- in Note 3 to the consolidated accounts, is shareholders correct pricing of shares. ures to hinder the progress of the bid, stated for the two categories of auditing These goals are to be accomplished without such actions being approved by and other services. In addition, these through correct and timely distribution of the general shareholders’ meeting after details are presented at the annual gen- information that can affect the Company’s the take-over offer has become public eral meeting. share price; the Company is also to com- knowledge. ply with current rules and market prac- Upon the issuance of an offer for the
American Shipping Company annual report 2009 47 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. 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 has a BS and a BA from Penn State University and a Masters Degree in Business Administration from Wayne State University. Mr. Caruso is a U.S. citizen. Mr. Caruso holds zero shares in the Company and no stock options. He has been elected for the period 2009-2011.
Annette Malm Justad Vice Chairman
Ms. Justad (born 1958) has been a member of the 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 a member of the Board of 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. Ms. Justad holds zero shares in the Company and has no stock options. She has been elected for the period 2009-2011.
John Rose
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. 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, 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. Mr. Rose holds zero shares in the Company and has no stock options. He has been elected for the period 2008-2010.
Mavis Hawkes
Ms. Hawkes (born 1952) is recently retired from BP after a career of over 30 years that included a range of senior level leadership/management roles encompassing Finance, Planning and Control, Logistics, Commercial and Strategy/Business Development. Ms. Hawkes has spent 16 years of her career in the domestic as well as international shipping business and has specific experience in the U.S. Jones Act market having been the project manager of several U.S. Flag Vessel Replacement Strategies and Implementation efforts. Ms. Hawkes holds a BS in Chemical Engineering from Howard University, a MS in Chemical Engineering from Illinois Institute of Technology and an MBA from the University of Chicago, majoring in finance. Ms. Hawkes is a U.S. Citizen. Ms. Hawkes holds zero shares in the Company. She has been elected for the period 2009-2011.
Dag Fasmer Wittusen
Mr. Wittusen (born 1944) is a Senior Advisor and Partner of Aker ASA. He has extensive experience in international finance, investment banking, restructuring and management. He has held numerous positions within the Aker Group, including Executive Director of TH Global (ex Kvaerner plc), head of Aker Finans AS, member of various Aker boards, Executive Vice President of Aker RGI, and Managing Director of RGI. Co-founder of Orkla Finans Group and principal advisor to RGI. Also former Vice President of Eksportfinans and Loan Officer at the World Bank. He holds a BA from Brown University and an MPA from Princeton University. Mr. Wittusen is a Norwegian citizen. He holds 10,000 shares in the Company. He has been elected for the period 2009-2011.
48 American Shipping Company annual report 2009 Our organization and governance Presentation of Management
Presentation of Management
Gregory Matecki President, CEO and CFO
Mr. Matecki (born 1960) joined American Shipping Company as CFO in June 2008. In January 2010, he was appointed by the Board of Directors as the President and CEO and will continue to hold the position of CFO. 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 2009, Mr. Matecki holds zero shares in the Company and no stock options. Mr. Matecki is a U.S. citizen.
American Shipping Company annual report 2009 49 Our organization and governance Contact information
American Shipping Company ASA Oslo Office Fjordalleen 16, P.O. BOX 1423, Vika, NO-0115 Oslo, NORWAY Tel: + 47 24 13 00 00, Fax: + 47 24 13 01 01
Philadelphia Office Philadelphia Naval Business Center One Crescent Drive, Suite 104 Philadelphia, PA 19112 USA Tel: + 1 (866) 588-6106, Fax: +1 (215) 468-2378
50 American Shipping Company annual report 2009
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Annual report 2009
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