Annual report 2007 Innovation through generations

Aker Philadelphia Shipyard is an Aker company. Shared values and an innovative spirit are long-standing traditions that forge active industrial development.

People create Aker companies. Ever since and strengthened through organic growth, Aker was established in 1841, innovation acquisitions, restructuring and focusing of and commitment drive us. Several Aker businesses. companies have roots that date back to People who are willing to take on the 1700s – to the industrial revolution in challenges and have the ability to deliver Great Britain and the Nordic countries. innovative solutions constitute Aker’s Aker has a long history of industrial heritage. Aker’s generations of dedication innovation. In recent decades, Aker com- and know-how, combined with today’s panies have strengthened their market technologies and tools, yield tomorrow’s position as preferred partners in global products, services, and industrial solu- growth markets: energy resources, energy tions. technologies, maritime technologies, sea- Aker companies, with a total of 27 100 food, and marine biotechnology. employees on five continents, had 2007 Aker is an active industrial holding operating revenues totaling NOK 62 bil- company. Aker companies are developed lion.

Aker Philadelphia Shipyard ASA

Aker Exploration Aker Floating Production Aker Drilling

The most modern and cost- Innovative, technology-driven Owns, operates, and charters Operator of the world’s two most effective U.S. shipyard offshore exploration company FPSO vessels advanced drilling rigs

Aker Solutions* Aker Oilfield Services Aker DOF Supply Aker American Shipping

A leading supplier to the energy Subsea well maintenance and Shipowner building a fleet of Premiere U.S. shipowner for sector worldwide intervention specialists anchor handling vessels product and shuttle tankers

Aker Seafoods Aker BioMarine Aker Clean Carbon Aker

Seafood company that harvests, Biotechnology company that devel- Pioneering CO2 capture technology Active industrial owner – creates processes, and sells white fish ops high-value products from krill with patented solution and develops companies

*The Board of Directors of Aker Kværner ASA has proposed to the annual general meeting to be held 3 April 2008 that the company changes name to Aker Solutions ASA. Aker Philadelphia Shipyard: Historical facts

Aker Philadelphia Shipyard constructs world-class quality ships for 1997 Founded by the public-private operation between ports in the United States. The company is a partnership consisting of the City market leader with experienced management and modern shipbuilding of Philadelphia, the Common- facilities that provide cost efficient building and construction. wealth of Pennsylvania, the United States Government and the Aker Philadelphia Shipyard ASA is situated in Oslo, Norway with an Kvaerner Shipbuilding Division operating subsidiary in Philadelphia, Pennsylvania, USA. The company 1998 Construction of the state-of-the- constructs merchant vessels for operation in the US Jones Act market art facility and workforce training (trade between US ports). Its customers for the current series of 2000 Began construction of the first vessels under construction are Aker American Shipping ASA and its two container vessels subsidiaries. 2002 Matson agreed to purchase the two container vessels Elements contributing to success: 2003 First container vessel delivered • State of the art shipyard with modern equipment 2004 Second container vessel delivered • Access to global shipbuilding expertise through agreements with 2005 Matson agreed to purchase two Hyundai Mipo Dockyard and Aker Yards additional container vessels • Strong orderbook with nine tankers on order and options for an additional thirteen tankers Third container vessel delivered • A solid track record demonstrated by the delivery of seven quality Aker American Shipping ASA vessels (four containerships, three product tankers) (AKASA) formed and listed on • Construction period financing commitment with a credit line of USD Oslo Børs. 150 million Construction program of ten • Attractive protected Jones Act market with new growth prospects product tankers initiated

Aker Philadelphia Shipyard ASA was listed on Oslo Axess in December 2006 Fourth container vessel delivered 2007. Aker ASA is the majority shareholder, holding 50.3 percent of 2007 First three product tankers the shares. delivered Order of additional two product tankers for later conversion to shuttle tankers

Split of AKASA’s shipbuilding and ship owning operations and listing of AKPS

*The Board of Directors of Aker Kværner ASA has proposed to the annual general meeting to be held 3 April 2008 that the company changes name to Aker Solutions ASA. About us and our goals

2007 key events

Contents Aker Philadelphia Shipyard ASA Established Order reserve and profit & loss items 2007 2006 Successful split from ship-owning company and listing on Oslo Axess com- Order backlog as of 31 December USD million 753.1 642.7 pleted in December. Operating revenues USD million 264.1 246.8 About us and our goals EBITDA USD million 13.0 9.8 5 Key figures 2007 6 Vision, goals and strategies EBITDA-margin Percent 4.9% 4.0% 8 Our values Profit for the year USD million 3.9 1.1 10 Lettter from the CEO Three Product Tankers Delivered The first three product tankers in the series of twelve vessels were delivered Cash flow 2007 2006 Our business and are successfully serving the Jones Act market. 12 Aker Philadelphia Shipyard Cash Flow from Operating Activities USD million 172.6 (63.4) 16 Health, safety and environment Cash and Cash Equivalents as of 31 December USD million 58.4 0.4 18 People and development 19 Corporatel responsibility Balance sheet 2007 2006 20 Developing business Orderbook Expanded Interest bearing debt USD million 104.8 240.4 Initial series of ten tankers was expanded to twelve with the closing of firm Our performance contracts for two vessels to later be converted to shuttle tankers. Option Total Assets USD million 253.3 347.9 24 Board of Directors’ report agreement for up to thirteen additional tankers signed with Aker American Equity ratio Percent 38.7% 20.1% 28 Group accounts Shipping ASA. 56 Auditor’s report 58 Share and shareholder information The AKPS Share 2007 2006 Share Price as of 31 December Norwegian Kroner 57.0 N/A Our organization and governance Financial Position Strengthened Dividend per Share Norwegian Kroner - - 60 Corporate governance Additional USD 27 million in working capital raised during listing and con- 63 Board of Directors struction financing commitment expanded to USD 150 million. 64 Executive Management Team Employees 2007 2006 Number of Employees as of 31 December Employees 744 722 66 Addresses

HSE 2007 2006

H-value (Accidents per million man-hours) Accidents 7.8 12.6

Hours worked Production hours 1 665 762 1 664 011

Financial Calendar 2008

3 April Annual general meeting 2008 30 April 1st quarter results 2008 12 August 2nd quarter results 2008 30 October 3rd quarter results 2008

4 Aker Philadelphia Shipyard annual report 2007 About us and our goals

Aker Philadelphia Shipyard key figures

Order reserve and profit & loss items 2007 2006

Order backlog as of 31 December USD million 753.1 642.7 Operating revenues USD million 264.1 246.8 EBITDA USD million 13.0 9.8 EBITDA-margin Percent 4.9% 4.0% Profit for the year USD million 3.9 1.1

Cash flow 2007 2006

Cash Flow from Operating Activities USD million 172.6 (63.4) Cash and Cash Equivalents as of 31 December USD million 58.4 0.4

Balance sheet 2007 2006

Interest bearing debt USD million 104.8 240.4 Total Assets USD million 253.3 347.9 Equity ratio Percent 38.7% 20.1%

The AKPS Share 2007 2006

Share Price as of 31 December Norwegian Kroner 57.0 N/A Dividend per Share Norwegian Kroner - -

Employees 2007 2006

Number of Employees as of 31 December Employees 744 722

HSE 2007 2006

H-value (Accidents per million man-hours) Accidents 7.8 12.6

Hours worked Production hours 1 665 762 1 664 011

Aker Philadelphia Shipyard annual report 2007 5 About us and our goals

Vision, goals and strategies

The preferred partner

6 Aker Philadelphia Shipyard annual report 2007 About us and our goals

Vision, goals and strategies

Mission Statement: “Be the premier provider of merchant vessels in the U.S. Jones Act market”

Goals and strategies

Zero Incidents

We will continue striving ●● We will embrace safety as our first core value for a zero-tolerance ●● We will never compromise safety standard – focusing on ●● We will communicate our safety goals and objectives the goal that all injuries ●● We will seek advice on best practices around us, within the Aker group and other can be prevented. parties who can help us improve workplace safety

Double Productivity

We will continue to ●● We have established AIM 200 and set this as the number one operational target develop and implement ●● We will measure performance and improvements week to week for everything we do Advancement and ●● We can always strive to be better and will never accept that things are good enough Improvement Measures ●● We will create accountability at all levels of the organization for our performance with “AIM” to make us “twice as good as we are today”.

Three vessels per year

We will through improved ●● We will optimize the use of our best-in-U.S. facility for production of ocean-going productivity and optimal merchant vessels use of the facility ●● We will continue to take advantage of the shipbuilding expertise of our partners maximize throughput – ●● We will focus our resources where we have the best competitive advantage and targeting three vessels create the most value per year without major ●● We will apply innovation and creativity to every step of the shipbuilding process capital expenditures.

Market Leader

We will through our ●● We will evaluate existing and new market segments superior production ●● We will evaluate best in class designs from world class shipbuilders facility, skilled workforce, ●● We will target taking a leading position within attractive market segments by weighing and unique partnerships, short term benefits versus long term opportunities and value creation maintain our position as a leader in US commercial shipbuilding.

Aker Philadelphia Shipyard annual report 2007 7 About us and our goals

Our values

Unity and commitment

Aker Philadelphia Shipyard’s business activities build on our six corporate core values, which are shared by Aker companies worldwide.

Our employees’ dedication and know-how allow Aker Philadelphia Shipyard to deliver on it commitments to customers, employees, and the communities in which we work. The values that we share have long traditions. They originated among Aker companies, and have steadily evolved over time, always reflecting the work of the generations at Aker. Although the companies that comprise Aker generally engage in distinctly different businesses, they share many common cultural features. Aker’s six core values are the nucleus of comprehensive, long-term efforts that ensure the companies’ vitality under tomorrow’s conditions. How the various Aker companies achieve their growth and profitability is no less important than the achievements themselves. Aker’s corporate values lend support and guidance in day-to- day priorities and decision-making. Acting in accordance with our corporate values promotes sound actions and reinforces Aker’s long- term relations with its many and varied stakeholders. An effective corporate culture must remain dynamic and responsive. Thus, it is with a combination of humility and pragmatism that Aker works to strengthen and cultivate its shared values. Solid values are the foundation that enables Aker to achieve sustainable, long-term industrial development. People who “speak the same language” cooperate more easily.

”Our values lend support and guidance in day-to-day priorities and decision-making”

Aker Philadelphia Shipyard – Our values in context

HSE mindset Delivering results Customer drive • We maintain an unrelenting goal of “zero • We deliver on time and within budget, to • We build customer trust by delivering incidents” in HSE matters our customer’s satisfaction projects on time and on budget, and at the agreed levels of quality • We work safely in a manner that protects • On all levels of a project, it is the final and promotes the health and well-being of result that counts, and we strive to deliver • We recognize that every employee at Aker our employees and the environment more than our stakeholders expect and do Philadelphia Shipyard is in a customer – it “right the first time” supplier relationship • We obey HSE guidelines and rules in rec- ognition that they are for the health and • We make optimal use of resources and • We know our customer’s business and we benefit of employees, and are not intended adhere to proven, defined processes in are a flexible, competent and reliable part- as restrictive or counterproductive order to produce a superior product ner at every project phase

• Every employee works proactively to • We are proactive and energetic, and we improve on his/her performance strive to generate return on the assets entrusted to us by our shareholders • We are organized and maintain a neat and clean work environment

8 Aker Philadelphia Shipyard annual report 2007 About us and our goals

Our values

Our values

HSE mindset We take personal responsibility for HSE because we care Delivering results We deliver consistently and strive to beat our goals Customer drive Building customer trust is key to our business People and teams All our major achievements are team efforts Hands-on management We know our business and get things done Open and direct dialogue We encourage early and honest communication

Aker Philadelphia Shipyard – Our values in context

People and teams Hands-on management Open and direct dialogue • We believe a teamwork relationship • We recognize our roles and responsibili- • We are committed to honest and sincere among a diverse collection of employees ties, take ownership, and accept the con- communications among all employees, is the way to productivity and continuous sequences of our actions creating an environment in which ideas are improvement fostered and shared • We act with a sense of ownership in our • We work in an inclusive environment that workplace • We speak our opinion and fight for our embraces change, new ideas, respect for ideas, but once the relevant decisions are the individual and equal opportunity to • We encourage an environment of risk made, we work together and focus all our succeed taking within the context of accountability energies on execution

• We are team players, willing to share and • We are professional and pro-active, and • We convey information so that every one utilize common knowledge discover problems early on in our company can better understand our business, our objectives and our • We empower people and provide opportu- performance nities for personal development in an ener- getic and challenging atmosphere • We deal with errors and improvements frankly and constructively

Aker Philadelphia Shipyard annual report 2007 9 About us and our goals

Letter from the President and CEO

10 Aker Philadelphia Shipyard annual report 2007 About us and our goals

Letter from the President and CEO

Transition and transformation

2007 was a year of transition and transformation for Aker Philadelphia Shipyard ASA (AKPS). We are positioned to build on our success and achieve our goal of becoming the premier commercial shipyard in the United States for merchant vessels. During 2007 we have continued our productivity improvement and cost reductions and at year end streamlined our ownership structure to enable us to focus exclusively on building ships for the Jones Act market.

Dear Shareholders, reflected in the successful equity placement. ”AKPS has proven that In the past year, Aker Philadelphia Shipyard The new structure permits us to focus on con- quality vessels can be has proven that quality vessels can be pro- tinuing our progress as a shipyard and devel- duced and delivered on time at a U.S. ship- oping new markets beyond the current prod- produced and delivered yard. This is no small feat, given recent his- uct tanker series. As part of this transaction, on time at a U.S. tory of the U.S. shipbuilding industry, and AKPS entered into an agreement with Aker one in which we take great pride. We deliv- American Shipping to build up to 13 addi- shipyard” ered three vessels during this past year, each tional product, chemical or shuttle tankers one better than the previous one by meas- to follow the completion of the current series. ure in quality, cost, and schedule. The en- This agreement provides AKPS with flexibility our company values, and although we have tire U.S. maritime industry is taking notice of to build other vessels for different customers. seen dramatic improvement in our HSE re- what is happening in Philadelphia and Aker During 2007 we implemented a program sults during 2007, we have set the loftier goal Philadelphia Shipyard can be viewed as the called AIM 200, which “aims” to double of zero-tolerance in all health, safety and en- standard by which other U.S. shipyards are our productivity, reduce costs and improve vironment (HS&E) areas. It all begins with measured. quality. This program has been embraced each person taking personal responsibility Perhaps the most notable change can by all employees and is producing results. for his or her actions because it’s the right be seen in the attitude and enthusiasm of Productivity on the fifth product tanker, which thing to do and because we care. our workforce, which is a key to our success. will be delivered in Q3 2008, is already almost All of us at Aker Philadelphia Shipyard There is an increasing and tangible atmos- 30% better than the first; and our continuous look forward to 2008 with the knowledge that phere of professionalism, pride and know- improvement program keeps us heading in we have accomplished a great deal mixed how that touches every part of the shipyard. the right direction. with the reality that the road ahead is certain We have engaged the many challenges of We must constantly strive to retain our to present even greater challenge. Our ship- the last several years and in doing so have experienced shipbuilders, and attract new yard enters 2008 with a hard gained confi- emerged stronger, smarter and more ca- people to join our industry and our company. dence in our capability to confront any chal- pable as shipbuilders. The benefits of this Key to this effort is our backlog, which cur- lenge with energy and perseverance. This change are seen in our results and the im- rently fully occupies the shipyard into 2011. It new year will bring continued success and provements we speak of are evident in each is essential that we continue to focus efforts achievement for all of us. new vessel we deliver. We recognize the en- on providing our existing employees with tire industry is watching how we perform and opportunities to advance and training in we continue to respond to the challenge of new shipbuilding methodologies and tech- this scrutiny. nologies. We must also aggressively recruit The optimal throughput capacity of Aker new people to join our team. We will continue Philadelphia Shipyard’s state of the art facili- our efforts to build the most professional ties is 3 vessels per year, and we are stead- and experienced workforce in the country ily approaching this goal. While the first ves- through our innovative apprenticeship pro- sel we delivered in early 2007 was actually gram which we operate in partnership with scheduled for a late 2006 delivery, the third our union representatives. We believe that vessel of the year was delivered in November, the surest way to accomplish our goals and on time and with no defects. Going forward continue our growth is with a home-grown we have even greater confidence that our team of professionals who share the vision David Meehan projected delivery date promises will be kept that working at Aker Philadelphia Shipyard is President and CEO providing certainty to our stakeholders and more than a job, it is a mission to be the best Aker Philadelphia Shipyard clarity to our financial projections. shipyard in the country. Aker Philadelphia Shipyard began 2007 Finally, we will never succeed unless we as a subsidiary of Aker American Shipping strive to be a safe and environmentally re- ASA. In the second half of the year our sponsible shipyard. Our entire team shares Board of Directors decided to restructure the view that even one incident is one too the ownership to create Aker Philadelphia many and in everything we do we must rec- Shipyard ASA as a separate and new public ognize the need to perform our work safely company traded on Oslo Axess. The restruc- and responsibly. Having a Health, Safety, turing has affirmed the value of “AKPS” as and Environmental “mindset” is foremost of

Aker Philadelphia Shipyard annual report 2007 11 Our business

Aker Philadelphia Shipyard

12 Aker Philadelphia Shipyard annual report 2007 Our business

Aker Philadelphia Shipyard

Leading U.S. shipbuilder

Aker Philadelphia Shipyard Inc. (APSI) is the leading U.S. commercial shipyard constructing ocean going merchant vessels for operation in the Jones Act market. During 2007, the yard delivered three vessels, the first three product tankers in a series of twelve for Aker American Shipping, and significantly increased its orderbook.

In 2007, APSI had operating revenues of four year apprenticeship program. USD 264.1 million and 744 employees. APSI has secured delivery slots and Highlights 2007 prices for the majority of the equipment Experienced player needed for the tanker series and continues Capacity in the United States for the to utilize the procurement power of our ●● Successful delivery of three Jones Act construction of large ocean going partners. APSI’s exposure to higher product tankers to Aker American commercial vessels has declined in the material prices in the future is mitigated Shipping last decade. Only five U.S. shipyards by escalation clauses in its shipbuilding have delivered ocean going commercial contracts with Aker American Shipping. ●● Firm order backlog of nine tankers with options for thirteen additional vessels vessels since 2000 and today only four APSI procures material from domestic are actively engaged in new commercial and international vendors and thus ●● Progress according to plan on product projects. APSI has delivered as many supply contracts are denominated in tankers numbers four to six merchant ships as all of these other active several currencies – primarily the Korean yards combined during this period and is Won, Euro and Norwegian Krone. In ●● Continued quality and productivity the only one to have recently delivered order to reduce its exposure to currency improvement containerships and tankers. Because fluctuation, APSI has entered into currency of its record of achievement, diverse forward contracts with maturities of 0-12 ●● Union agreement extended to 2011 experience and growing reputation for months, but APSI remains at some risk if delivering quality vessels on time, and at the USD declines further against other prices that are thus far unachievable by world currencies. other U.S. shipyards, APSI is becoming APSI is also dependent on the Jones the shipyard of choice for U.S. ship Act to ensure demand for its products. owning companies. This advantage will APSI considers it unlikely for there to be grow with each vessel APSI delivers as unfavorable modifications to the Jones its efficiencies and productivity improve Act based on its broad political support and production costs decrease. and long history of stability.

Risks Future market opportunities APSI faces a number of challenges to With the success of the product tanker sustaining the success it has achieved and container vessel programs, APSI in the last two years. Among these has established itself as the leading challenges are increasing throughput commercial shipyard in the United States to three vessels per year; achieving and has positioned itself to aggressively the anticipated learning curve gains; pursue market opportunities in all maintaining an adequate labor force; and segments of the Jones Act market. The mitigating the effects of a tight global product tanker market will continue to supply of shipbuilding materials. be a focus as APSI replaces tonnage In 2007, APSI implemented the phased out by the OPA 90 legislation. The AIM 200 program, which seeks to demand for shuttle tankers in the U.S. Gulf double productivity in all phases of the of Mexico is expected to increase with shipbuilding process. The program has the potential to reach 15-30 vessels and initiatives across a range of activities and result in Aker American Shipping utilizing has been enthusiastically embraced by some of its options for these vessels. The APSI employees. The AIM 200 program chemical tanker market, although small, has already realized gains in throughput is also in need of replacement. and productivity improvements. In addition, the age profile in the dry APSI’s strong orderbook and new cargo sector strongly suggests multiple union agreement, both of which extend vessel replacement projects for pure into 2011, will contribute to APSI’s efforts container vessels, Roll-on/roll off (Ro/Ro) to maintain its workforce. APSI also works and combination container Ro/Ro (Con/ to be the employer of choice by providing Ro) vessels. This fleet of more than 50 training for our employees, including a vessels has an average age of over 20

Aker Philadelphia Shipyard annual report 2007 13 Our business

Aker Philadelphia Shipyard

years. There also continues to be positive movement toward the establishment of U.S. domestic short-sea services with changes in the regulatory environment and multiple companies pursuing opportunities.

2007 operation During 2007 three product tankers were delivered. These tankers were the first U.S. built product tankers delivered since 1999. At the end of 2007,three additional product tankers were in various phases of construction, with the next delivery scheduled for April 2008. The total backlog is nine vessels, amounting to USD 753.1 million which occupies the shipyard into the first quarter of 2011. There is an option agreement in place with Aker American Shipping which, if all thirteen vessels are exercised, would secure the yard’s capacity until mid-2015. APSI realized operating revenues of USD 264.1 million and EBITDA of USD 13.0 million in 2007, compared with USD 246.8 million and USD 9.8 million in 2006. Revenues are recognized according to the percentage of completion method. Net profit for 2007 was USD 3.9 million in 2007. Cash flow from operations came to USD 172.6 million. A total of USD 27.0 million of new equity has been invested in AKPS. Aker Philadelphia Shipyard made USD 6.0 million in investments to enhance its production facilities during 2007.

Goals for 2008 APSI will continue to improve safety per­ formance while increasing the throughput to approximately 2.7 vessels per year by the fourth quarter of 2008. Throughput

The Jones Act

(illus trative ma p ) U.S. coastwise law, commonly referred to Alas ka as the Jones Act, requires all commercial vessels transporting merchandise between ports in the United States to be built, Was hington owned, operated and manned by U.S. citizens and to be registered under the U.S. B os ton flag. Commonly referred to as the Jones NYC Act market, it encompasses all water- Norfolk borne transportation between U.S. ports, C alifornia including between the mainland U.S. and non-contiguous areas of Alaska, Hawaii and Puerto Rico. J acks onville F lorida Hawaii

Puerto R ico

14 Aker Philadelphia Shipyard annual report 2007 Our business

Aker Philadelphia Shipyard

in the fourth quarter of 2007 was at the planned level of 2.5 ships per year. The Vessels per year fifth product tanker in the series will be Annualized throughput delivered during 2008 with an additional 3 tankers under construction. The contin- 3,0 ued implementation of the AIM 200 pro- gram will result in a 30 percent improve- 2,5 ment in productivity for the fifth product tanker compared with the first. 2,0 Outlook 2008 APSI will continue to gain experience as 1,5 it replenishes the older tankers being removed from the U.S. fleet due to OPA 90. However, when APSI’s build program 1,0 is combined with other new construc- tion programs currently announced or 0,5 underway, a shortfall in tanker (product, shuttle, and chemical) tonnage remains. Therefore it is likely that this strong mar- 0,0 ket demand will result in additional firm 2005 2006 2007 2008E orders going forward. APSI’s prior experience and strong partners make it the preferred partner for the renewal of the dry cargo fleet of Learning curve which more than 50% is older than 30 Improvements in man hours (40% completion) years. APSI will evaluate these opportuni- ties and consider delaying some vessels 100 in the tanker series in favor of the con- 16% 23% 26% 30% struction of these needed vessels. 80

60

40

20

0

Ship 005 Ship 006 Ship 007 Ship 008E Ship 009E

Delivery schedule Production schedule

Vessel Delivery 2006 2007 2008 2009 2010 2011 – 2015

PT4 April -08 PT5 Sep-08 PT6 Jan-09 PT7 May-09 PT8 (ST conv.) Oct-09 PT9 Feb-10 PT10 Jun-10 FirmP agreementsT11 (ST c owithnv. )AKASA Nov-10 PT12 Mar-11 Tanker 13 Jul-11

Tanker 25 Jul-15

AKASA options Firm agreements with AKASA AKASA options

Aker Philadelphia Shipyard annual report 2007 15 Our business

Health, safety and environment

Taking personal responsibility for HSE

One dangerous incident is one too many. Aker Philadelphia Shipyard’s guiding principle is that all accidents are preventable.

Taking care of health, safety and the envi- and individual commitment — taking per- ”We refuse to compromise ronment (HSE) is a core value among Aker sonal responsibility for HSE and demon- on our HSE zero tolerance companies that commits each and every strating concern for people, the environ- employee to promote better HSE perform- ment, and the company’s stakeholders. goals” ance through his or her daily actions. Our overarching goal is zero undesira- Attention to health, safety, and the envi- ble incidents that can or do harm to peo- ronment — and profitability — are two sides ple, the environment, or property. Although of the same coin. Excellent HSE perform- serious accidents regrettably do occur, we demonstrated HSE leadership. Everyone ance is fundamental for long-term value cre- refuse to compromise on our HSE zero tol- reporting on HSE observations, regular ation. Outstanding HSE conditions secure erance goals. follow-up on reports, and the sharing of competitive advantages, desirable work- Risk increases considerably when experience across Aker companies, help places, and sustained profitability. employees’ working procedures, safety to ensure the appropriate focus on HSE, This focus on HSE factors powers the equipment, or respect for HSE matters do along with quicker achievement of further Group’s continuous efforts to put a stop to not comply with the strictest standards. improvements. incidents that can injure people, damage Accordingly, information about HSE factors An open attitude about HSE perform- property, harm the environment, or tarnish is treated as a top priority in meetings, and ance, dangerous conditions, health hazards, our reputation. backed up by managerial action. accidents, and near-accidents increases our chances of reaching our HSE goals and Ambitious goals Driving improvement helps foster constant improvement. Building Aker Philadelphia Shipyard’s HSE culture is Aker managers drive HSE improvements — an even stronger Aker Philadelphia Shipyard driven by ambitious goals, decisive action, and they are regularly assessed as to their HSE culture is a responsibility we all share.

16 Aker Philadelphia Shipyard annual report 2007 Our business

Health, safety and environment

Developing a culture of safety

Aker Philadelphia Shipyard has made strict adherence to health, safety and environment (HSE) rules a priority in all shipyard operations. Not only is this consistent with AKPS’s business ethics, it results in higher productivity, lower costs and reinforces the concept that everyone at AKPS is responsible for the success of the shipyard. The difficulty of attaining the goal of zero incidents or lost-time injuries can not dissuade us from working to achieve that goal.

Whenever an incident does occur, AKPS con- large number of subcontractors and vendors evidence that the entire AKPS organization is ducts a thorough analysis of the causes of operating in the shipyard, the HSE efforts committed to a culture of safety. the accident and identifies remedial actions must necessarily extend beyond our own AKPS’s performance in this area in 2007 that must be taken to prevent similar occur- employees. Thus, the safety committee inter- continued to show strong improvement with rences in the future. The safety “mindset” acts with all non-AKPS personnel to ensure a one third reduction in most safety meas- which AKPS is seeking to instill in all employ- that these personnel understand and adopt urements; the number of incidents remains ees requires more than fixing problems after our HSE mindset. These efforts will continue below the industry average and the severity of they happen. Rather, there must be a con- in 2008, and all subcontractors and vendors those incidents that have occurred has been stant proactive effort to identify HSE issues understand that Aker Philadelphia Shipyard reduced. However, our job is not done and before a problem arises. To this end, the will not tolerate unsafe work practices. additional improvement is expected in 2008. submission of safety suggestions and the To reinforce this mindset, the CEO has AKPS has continued to maintain its clean reporting of “near miss” events is encour- established procedures where every inci- record of no environmental violations and aged and rewarded and is a requirement for dent, regardless of its nature or magnitude, remains a steward of the environment by obtaining one of the most important honors is reported immediately to him by the HSE reducing the energy consumed to construct at Aker Philadelphia Shipyard, the nomina- manager, and in addition to the work of the each double hulled, environmentally friendly tion as Safety Team of the Quarter. safety committee, the CEO conducts regu- tanker by approximately 30% since the Since Aker Philadelphia Shipyard has a lar inspections of the facility which is further beginning of 2006.

Lost Work Day Accident Rate

3,0

2,5

2,0

1,5

1,0

0,5

0,0

2005 2006 2007

Total injuries

250

200

150

100

50

0

2005 2006 2007

Aker Philadelphia Shipyard annual report 2007 17 Our business

People and development

People-driven performance

Aker Philadelphia Shipyard’s achievements and profitability are generated by our people, who are willing to take on challenges and deliver solutions.

Teamwork, know-how, and skills are the driv- are rewarded for their achievements — and talent ready to tackle new and more complex ing forces for enhanced performance and for adherence to our values in their work and tasks is also a priority. continual business development, and Aker interactions with staff, subcontractors, and Philadelphia Shipyard’s corporate values customers. Our commitment guide the development of our people and the Systematic appraisals of each manager’s All Aker companies share a commitment to company. These values, rooted in the tradi- performance provides a snapshot of how the their employees: to establish a working environ- tions and history of Aker define who we are company is run. The performance appraisal ment that is safe, tolerant, and fair. Employees and the ideals we live by. process also provides a platform for com- are given challenging assignments and ample parison across organizational levels, indus- opportunities for development and growth. Leadership try benchmarks, and best practices. Moreover, Continuous employee development is vital Aker companies share a common approach performance reviews provide fine-tuned guid- to Aker Philadelphia Shipyard’s competitive- to building managerial excellence. We ance that hones individuals’ capabilities. This ness. The power of the company’s collective emphasize clear expectations as to perform- interactive process also ensures that Aker know-how reinforces customer confidence ance, individual responsibility, goal follow-up, Philadelphia Shipyard assigns the right per- and enhances our ability to win new contracts and comprehensive feedback. Managers son to the right job. Recruitment of managerial and execute them profitably.

18 Aker Philadelphia Shipyard annual report 2007 Our business

Corporate responsibility

Demonstrating social responsibility

Aker Philadelphia Shipyard’s overriding concern is to provide products and services in an environmentally sound, ethical, and socially responsible manner.

Our commitment Our means for achieving growth and profit- Integrity: Aker Philadelphia Shipyard ability are as important as our achieve­ depends on a reliable and well-functioning ments. business climate. Our corporate values help Aker Philadelphia Shipyard makes the follo- Via a constant focus and actions that ensure integrity and the maintenance of high wing commitments to its customers, share- reflect our awareness, Aker Philadelphia ethical standards. Potential ethical dilemmas holders, employees, and the communities in Shipyard instills confidence among employ- are discussed regularly in forums intended which we operate. ees, investors, customers, suppliers, coop- for that purpose, in order to raise awareness Our customers can expect: eration partners, and the communities of and foster the proper use of our ethical ●● Outstanding health, safety, and which we are a part (see box). guidelines. Aker Philadelphia Shipyard is environmental performance All Aker companies are committed to building a culture that values honesty, open- ●● To be listened to and understood adhering to guidelines that ensure sound, ness, and transparency. ●● Competitive, on-time, quality deliveries ethical business conduct and responsible ●● An open, long-term and mutually corporate citizenship. Society: Through profitable investments, beneficial relationship Aker Philadelphia Shipyard’s corporate Aker Philadelphia Shipyard contributes to ●● High ethical standards and integrity social respons­ibility policy has its roots in building excellent relations with the commu- the shared corporate values of Aker and nities where the company has a presence. Our shareholders can expect: other Aker companies. Other strong influ- We want to be a good neighbor and provide ●● To be part of an active and value-creating ences are inter­nationally promulgated volunteer efforts and donations to organiza- ownership, full of energy and determination standards and guide­lines such as the UN’s tions in our community. This fundamental­ ●● Positive, long-term share-price growth Global Compact, the Global Reporting principle applies to Aker Philadelphia ●● A decisive management that closely Initiative™ (GRI), and OECD’s guide­lines. Shipyard and all Aker companies. Several supervises business activities, delivers The corporate social respons­ibility policy of Aker companies in Norway and worldwide solid profits, and inspires confidence ●● Transparency – accurate, consistent, and Aker Philadelphia Shipyard can be summa- are cornerstone employers and influential timely presentation of financial and other rized in four guidelines for our day-to-day constituents of the societies in which they relevant information work. operate. ●● Sound corporate governance

People: Competent, motivated employees, who work to achieve common goals, are key Our employees can expect: to the company’s success. Diversity as to ●● A safe and inspiring working environment cultures, religion, and ethnicity makes us ●● Challenging work assignments and opportunities for growth stronger and more adaptive. We aim to help ●● A working environment in which diversity each individual reach his or her full potential. is appreciated A key principle is that each individual must ●● Competitive compensation, relative to the take personal responsibility for health, safety, markets in which they work and the environment. Instilling a proactive, ●● To be treated fairly, and with respect cooperative spirit and reinforcing ethical and quality-conscious work benefits every- ”Aker Philadelphia Shipyard The communities in which we operate one. Efforts that reinforce sound attitudes can expect: and conduct further our commitment to pro- is building a culture that ●● Local and regional value creation tect people’s rights and the interests of the values honesty, openness, ●● Respect for its inhabitants, laws, and company’s stakeholders, local communities, culture and environment. and transparency” ●● Value-adding relationships with local partners, subcontractors, and suppliers Environment: Aker Philadelphia Shipyard ●● Socially responsible business conduct, works systematically to reduce emissions integrity, and high ethical standards ●● Openness – an open agenda, and minimize environmental stress. The transparency, and reliability greatest long-term service we can perform for the environment is to give our customers environmentally benign products and serv- ices. We continuously strive to develop tech- nology, products, and solutions that are con- sistent with sustainable development.

Aker Philadelphia Shipyard annual report 2007 19 Our business

Developing business

20 Aker Philadelphia Shipyard annual report 2007 Our business

Developing business

Aker Philadelphia Shipyard – Leading the industry Aker Philadelphia Shipyard has matured as a shipyard and the growing confidence in the ability to produce quality vessels puts it in the position to lead the entire U.S. shipbuilding industry in the recapitalization of the Jones Act fleet. While the shipyard is fully occupied through 2011, AKPS will begin actively developing new market opportunities to follow the current series of product and shuttle tankers.

AKPS’s experience in delivering four mod- commence as the age of these vessels makes be created to enable short-sea feeder serv- ern container vessels and three product them uneconomical to operate. AKPS, with ices to begin between East Coast ports and tankers provides it with a diverse capability. the only U.S. experience constructing con- elsewhere as a means to mitigate congestion AKPS has proven to U.S. ship owners that its tainerships in the last 15 years, will position and reduce fuel consumption. Once again, model of using proven designs, partnering itself to participate in these opportunities. AKPS is well-positioned to take advantage with a world-class shipbuilder and concen- The market is also set to expand into of this new market and targets a leader- trating on core competencies while maximiz- shuttle tankers with the first Jones Act shut- ship position in constructing new vessels for ing the use of turnkey subcontractors results tle tankers to start service in the U.S. Gulf of these services. in the lowest cost and highest quality vessels Mexico in early 2010. These vessels, which AKPS’s strengths lie in its balanced and obtainable in the United States. This repre- will be built by AKPS and owned by Aker flexible approach to the market, and its sents a major change in the way that ships American Shipping, are an important first adoption of a long-term view of the business. have been marketed and built in the United step in a market that will demand sophisti- The future of AKPS is secured one ship at a States but the validation of this concept is cated tankers. Aker Philadelphia Shipyard is time, and by continuing to build the best pos- sailing in U.S. waters today. one of the few yards that is capable of pro- sible merchant vessels and deliver each one viding this kind of tonnage and will continue on time. Aker Philadelphia Shipyard contin- Deliberate Process its discussions with the oil industry. ues to assure itself of new market opportuni- The mark of any organization is its ability to Finally, AKPS believes that the neces- ties and is affirming that it can and will take constantly analyze and learn from its past sary regulatory and market incentives will advantage of those opportunities. experience and to take that experience and apply it to future challenges. Regardless of the vessel type that Aker Philadelphia Shipyard constructs, it will be a new vessel design, with changes in components, proc- esses, regulatory requirements and produc- tion methods. This presents certain risks for any shipyard, but the key to success is an ability to develop a firm foundation and innate capability among the workforce to perform the basic shipbuilding skills and then to use our expertise to manage and integrate the change into our product. AKPS has proven its capability to simultaneously complete a container vessel series and begin construc- tion of product tankers, and it has every con- fidence that the transition to the next series of vessels will be equally smooth. This con- fidence is based largely on the adaptability and experience of our workforce, which will participate fully in the planning for the new project.

Market Opportunities The U.S. Jones Act market is entering a unique time where we will likely see not only the replacement of older tonnage but the expansion into new markets. The replace- ment of product tankers will continue and AKPS is positioned with the first mover advan- tage in this market. The replacement of containerships and other dry cargo vessels is also likely to

Aker Philadelphia Shipyard annual report 2007 21 Our performance

22 Aker Philadelphia Shipyard annual report 2007 Our performance

Contents

24 Board of Directors’ report

28 Group accounts: 28 Profit and loss account 29 Balance sheet 30 Statement of changes in equity

31 Cash flow statement

32 Notes to the accounts

50 Parent accounts: 50 Profit and loss account

51 Balance sheet

52 Cash flow statement 53 Notes to the accounts

56 Auditor’s report

58 Share and shareholder information

Aker Philadelphia Shipyard annual report 2007 23 Our performance

Board of Directors’ report

Building the Premier Brand

Aker Philadelphia Shipyard ASA is a leading shipbuilder in the U.S. Jones Act market. Listed on Oslo Axess during the fourth quarter of 2007, AKPS realized operational revenues of USD 264.1 million and net profit of USD 3.9 million in 2007. Three product tankers were delivered in February, June, and November of 2007.

In the fourth quarter of 2007 Aker The Master Agreement with PSDC operated and manned by U.S. citizens and American Shipping ASA and Subsidiaries Aker Philadelphia Shipyard currently oper- to be registered under U.S. flag. (AKASA) sold its ownership interest in Aker ates its shipyard under a 99-year lease The Oil Pollution Act of 1990 was enacted Philadelphia Shipyard, Inc. as part of a pri- with Philadelphia Shipyard Development as a result of the Exxon Valdez oil spill. The vate placement. In addition to the sale of Corporation (PSDC), a government-spon- Act (“OPA 90”) created a new legal regime to existing shares, Aker Philadelphia Shipyard, sored non-profit corporation. A mas- increase pollution prevention, ensure better ASA raised approximately USD 27 million ter agreement governs Aker Philadelphia spill response capability, increase liability for in new equity through the private place- Shipyard’s relationship with the various gov- spills, and facilitate prompt compensation ment and subsequent retail offering. These ernmental parties that have contributed to for cleanup and pollution damage. OPA 90 transactions completed the successful split the establishment of the shipyard. also established phase-out dates for exist- of AKASA’s ship owning and shipbuilding Under the master agreement, the govern- ing single-hull tanker vessels and required activities. mental parties have provided approximately all newly constructed tanker vessels to meet The Aker Group is the majority share- USD 400 million for the renovation and mod- double-hull standards. Beginning in 2015 all holder in Aker Philadelphia Shipyard, ASA ernization of the facility and training of the tanker vessels trading in the United States (AKPS) owning 50.3% as of 31 December workforce. Aker Philadelphia Shipyard was must meet double-hull standards. 2007. required to make certain qualified infra- structure investments totaling USD 135 mil- Strategy Activities lion, which have been fully satisfied. AKPS will through its unique partnerships The main entities in the Aker Philadelphia The master agreement also requires and series of twelve contracted identi- Shipyard, ASA Group are the Norwegian Aker Philadelphia Shipyard to employ an cal product tankers and options for thir- holding company, AKPS, and the U.S. oper- average of at least 500 full time employees teen additional similar tankers continue the ating subsidiary Aker Philadelphia Shipyard, per year during the period from 1 January development of APSI’s position as the most Inc (APSI). AKPS is situated in Oslo, Norway, 2005 through 31 December 2014. If Aker efficient shipyard in the US for production of while APSI is situated in Philadelphia, Philadelphia Shipyard fails to employ an merchant vessels. This will open up possi- Pennsylvania, USA. average of at least 200 full-time employees bilities for profitable construction of vessels As of 31 December 2007, AKPS employs during any two consecutive calendar years, within existing and new market segments. approximately 1207 people, of which 463 the lessor may terminate the shipyard lease. AKPS will continue to monitor and evaluate are subcontracted personnel. With the current business plan and order how to get the maximum benefit out of its AKPS’s business idea is for Aker back-log, Aker Philadelphia Shipyard con- competitive advantage. Philadelphia Shipyard Inc., a leading U.S. siders it highly unlikely that Aker Philadelphia commercial shipyard, to build merchant Shipyard will employ less than an average Risks vessels for operation in the U.S. Jones Act of 200 full-time employees during two con- AKPS faces risks related to construction market. secutive calendar years as long as there is of vessels. The risks related to vessel con- The vessels built by Aker Philadelphia shipbuilding activity at the shipyard. struction are primarily the shipyard’s ability Shipyard will primarily be sold to single pur- In 1997 Kvaerner issued parent com- to meet the anticipated learning curve and pose companies wholly owned by AKASA, pany guarantees with respect to the quali- through-put, as well as availability of skilled but may also be sold directly to customers. fied infrastructure investment obligation, the workers and risk for high pressure supplier Vessels sold to AKASA’s subsidiaries will be matching training funds obligation, and the markets. The overall market risk is related to bareboat chartered to a Jones Act qualified minimum employment guarantee obliga- the Jones Act. Market experts think that it is vessel operator. tion described above. The guarantees from very unlikely that this legislation will change. Cost efficient and cost competitive con- Kvaerner remain in force with Aker Maritime AKPS is also exposed to normal market risk struction of new vessels is critical for the Finance ASA. As part of the split Aker related to imbalance between supply and success of AKPS’s business model. There Philadelphia Shipyard has issued a counter demand. are several factors that position AKPS to guarantee for the benefit of Aker Maritime capitalize on this market: a state-of-the-art Finance with regard to the described shipyard with modern equipment; access employment guarantee. Key events 2007 to global shipbuilding expertise with Aker The first three product tankers were com- Yards ASA and Hyundai Mipo Dockyard; a The Jones Act market pleted in February, June and November solid track record through the delivery of U.S. coastwise law, commonly referred to 2007, and formally named the Overseas four container vessels to Matson Navigation as the Jones Act, requires all commercial Houston, Overseas Long Beach, and Company as well as three product tankers vessels transporting merchandise between Overseas Los Angeles respectively. As of delivered to AKASA. ports in the United States to be built, owned, the delivery of the Overseas Los Angeles,

24 Aker Philadelphia Shipyard annual report 2007 Our performance

Board of Directors’ report

all schedule delays caused by the delay an agreement with AKASA for the option to of new vessels, but APSI will not develop in delivery of the fourth container vessel build an additional thirteen product tank- its own designs for other vessel types, but had been recouped. At the turn of the year, ers. The firm order backlog secures full uti- rather identify and acquire existing best in construction on the product tanker project lization of shipbuilding activities until 2011, class designs and cooperate with the owner reached 18% complete. The three prod- when the twelfth product tanker is expected of such designs. uct tankers currently under construction are to be delivered. scheduled to be delivered in the second Cash flow quarter 2008, third quarter 2008 and first Profit and loss accounts The company’s cash flow from operations quarter 2009, respectively. AKPS has a firm In 2007, AKPS had revenues of USD 264.1 is volatile, as it to some extent depends on commitment for construction financing on million compared to USD 246.8 million in payment for construction and delivery set- the seven remaining product tankers under 2006. Revenues are recognized according tlement for the vessels sold to external cus- contract with AKASA. The separation from to the percentage of completion method, tomers. Total net cash flow from operating AKASA and subsequent listing of AKPS on based primarily on the scope of completed activities in 2007 amounted to USD 172.6 the Oslo Stock exchange occurred during work compared to estimated overall project million. This positive cash flow occured pri- the fourth quarter. scope. The recognized revenues in 2006 marily in Q4 and was caused by the timing represent revenues related to the progress of ship deliveries and the change in the con- Review of the annual accounts achieved on the fourth container vessel sold tracts with AKASA which resulted in AKPS AKPS prepares and presents its accounts to Matson as well as progress achieved on receiving milestone payments. according to International Financial the product tankers for AKASA. Revenues Net cash flow used in investment activi- Reporting Standards as adopted by the in 2007 represent revenues solely related to ties was USD 6.0 million in 2007. European Union. the product tankers for AKASA. Net cash flow used in financing activities AKPS was formed on 16 October 2007 The Group’s operating profit before was USD 108.6 million. to be the holding company of APSI which interest, depreciation, and amortization owns the shipyard located in Philadelphia, (EBITDA), excluding construction financing Balance sheet and liquidity Pennsylvania, U.S.A. costs, amounted to USD 13.0 million in 2007, As of 31 December 2007, Aker Philadelphia On 26 November 2007, Aker American compared to USD 9.8 million in 2006. This Shipyard had cash and cash equivalents Shipping, Inc.(AKASI) contributed its 100% corresponds to an EBITDA-margin of 4.9 totaling USD 58.4 million. The correspond- ownership interest in APSI to AKPS as a con- and 4.0 per cent respectively. ing figures for 2006 were USD 0.4 million. tribution in kind. AKASI is an intermediate Depreciation and amortization amounted The increase was primarily driven by the holding company owned 100% by AKASA to USD 7.1 million in both 2007 and 2006. timing of financing draw-downs on vessels that had acquired APSI on 28 June 2005. AKPS’s operating profit (EBIT) was USD 5.8 under construction, customer milestone Due to the common nature of owner- million in 2007 and USD 2.7 million in 2006. payments resulting from the changes to ship interests, the contribution in kind was Net financial items amounted to USD 0.4 contractual terms and the new equity raised recorded using the historical financial state- million in 2007, compared to minus USD 1.0 as part of the private placement and sub- ment amounts as reflected in the consoli- million in 2006. The positive net financial sequent retail offering. At year-end 2007, dated financial statements of AKASA. In items in 2007 are primarily attributable to AKPS’s net working capital amounted to addition, the historical consolidated finan- interest income and foreign currency gains. USD 43.0 million, compared to USD 7.7 mil- cial statements of AKPS and its subsidiary Interest cost related to construction financ- lion at year-end 2006. have been restated in this annual report as ing is charged directly to the projects and Current assets are mainly comprised if AKPS had owned APSI effective 30 June will hence not appear under financial items. of vessels under construction-receiva- 2005. Accordingly, references made to the Income tax expense for 2007 amounted bles of USD 93.2 million, prepayments on acquisition of APSI refer to the purchase of to USD 2.4 million, compared to USD 0.6 the remaining nine vessels under contract the shipyard on 28 June 2005 and all 2006 million in 2006. of USD 10.6 million and interest bearing comparable figures relate to the restated AKPS’s 2007 net profit was USD 3.9 mil- receivables of USD 5.7 million related to the 2006 consolidated financial statements of lion, which is higher than expected, prima- container vessels. AKPS. rily due to the change in the contracts with The remaining assets, USD 85.3 million, AKASA. This corresponds to basic and are property, plant and equipment, goodwill Order backlog diluted earnings per share of USD 0.50. and miscellaneous other assets. APSI’s order backlog was USD 753.1 mil- The corresponding figures for 2006 were Current liabilities of USD 125.1 million lion as of 31 December 2007. At the end net profit of USD 1.1 million and basic and are mainly related to construction financ- of the year, the order backlog was com- diluted earnings per share of USD 0.14. ing and trade payables. The corresponding prised of remaining work to be performed AKPS’s research and development is pri- figure for 2006 was USD 254.3 million. The on the nine product tankers for AKASA. The marily related to two areas. The most impor- prior year amount included the AKASA loan net backlog increase of USD 110.4 million tant is the development of the building meth- which was repaid on 30 November 2007. over 2006 is due to the two additional ves- odology and working methods to ensure that Interest-bearing debt decreased to USD sel orders, the increase in contract prices APSI takes maximum benefit of the learning 104.8 million at 31 December 2007 com- agreed to prior to the sale of AKPS and curve and produces each grand block and pared to 240.4 million as of 31 December reduced by work completed on the twelve each vessel more efficient than the previous. 2006. This decrease was attributable to the vessel order. In addition APSI has signed There is also work related to development repayment of the line of credit with AKASA

Aker Philadelphia Shipyard annual report 2007 25 Our performance

Board of Directors’ report

at 30 November 2007 and the timing of company is exposed to fluctuations in inter- and Environmental Board reviews the vari- draw-downs under the construction financ- est rates. The interest risk is deemed rela- ous HSE programs, and makes recommen- ing facility. At year-end 2007, total balance tively moderate, but with an exposure to the dations on policies and procedures. The HSE sheet equity amounted to USD 98.0 million. external capital needed for vessels under system includes safety training of employ- The equity ratio amounted to 38.7 percent of construction. ees and subcontractors, safety inspections, total assets. Corresponding figures for 2006 Ship owners and lessors are credit rated industrial health and wellness programs, were USD 70.0 and 20.1 per cent, respec- on contract signing. Typically, ship owners drug testing, emergency response and tively. The increase in equity was caused have financing approvals in place before environmental programs. by the current year earnings and the capi- contracts are entered into. At the comple- In 2007, the frequency of lost-time inci- tal raised as part of the private placement tion of a vessel, transfer of ownership takes dents (=H-value, incidents resulting in of AKPS. place upon settlement. Should a ship owner absence from work per one million hours) The Board deems that the company is fail to pay, the vessel is disposed of to was 7.8, compared with 12.6 in 2006. This financially sound and has an appropriate recover AKPS’s construction costs. Credit decrease is attributed primarily to a reduc- financing structure. risk associated with AKPS’s receivables is tion in fractures and the more serious types regarded as limited. Credit risk associated of back injuries. However, the rate still Financial market risk with cash and bank deposits is regarded as remains unacceptably high and indicates AKPS’s activities expose it to a variety of minimal. that additional work is obviously neces- financial risks: market risk including- cur sary. The accidents came from a total of rency risk, fair value interest risk and price Events after the balance sheet 1,665,762 worked hours, compared with risk, credit risk, liquidity risk and cash flow date 1,664,011 hours worked in 2006. AKPS interest-rate risk. AKPS’s overall risk man- After close of the year, AKPS has received will work proactively to further improve the agement program focuses on the unpredict- a firm commitment from Caterpillar Finance safety and reduce the number of injuries at ability of financial markets and seeks to min- Corporation regarding construction financ- the shipyard. imize potential adverse effects on AKPS’s ing for the seven firm product tanker orders To reduce the number of accidents and financial performance. AKPS uses deriva- which were not previously secured. injuries, Aker Philadelphia Shipyard will tive financial instruments to economically No other significant events have occurred continue to improve its in-house systems hedge certain risk exposures. after the balance sheet date. and procedures for exchanging knowledge Risk management is carried out under gained from past accidents and potentially policies approved by the Board of Directors The going concern assumption hazardous events. The company is also that provide principles for overall financial In view of AKPS’s profit and financial posi- working with its provider of workers com- risk management as well as policies cover- tion, the Board confirms that the 2007 annual pensation insurance to learn and get access ing specific areas such as foreign exchange accounts have been prepared based on the to best practices. risk, interest-rate risk, credit risk, use of assumption of a going concern. The working environment at AKPS is con- derivative financial instruments and non- sidered to be satisfactory. However, new ini- derivative financial instruments and invest- Parent company accounts and tiatives targeting specific types of injuries ing excess liquidity. allocation of profit for the year will be implemented during 2008. All significant foreign currency balance The profit and loss account of Aker AKPS takes its environmental respon- sheet items are hedged against currency Philadelphia Shipyard ASA shows a profit sibilities seriously. Environmental status fluctuations. Furthermore, the majority of for the year 2007 of USD 0.5 million. The reporting is an integral part of the compa- firm contracts with future settlement -in for Board of Directors proposes that the profit ny’s reporting system, on par with reporting eign currencies are hedged. There is expo- for the year be allocated as shown below: on financial matters and operations. AKPS sure for future contracts related to the nine aims to comply with applicable laws, rules, tankers not yet completed. AKPS targets Dividend payments USD 0.0 million and regulations. This commitment extends securing 60-70% of the total expected need Other equity USD 0.5 million to evaluating and adopting environmen- for currency in the next two years. Thus, the Total allocated USD 0.5 million tally beneficial improvements in production company’s net currency exposure is consid- processes, alternative materials, and serv- ered moderate to medium. Unrestricted equity amounts to USD 0.5 ices. AKPS will promote open communica- AKPS operates in business areas that million. tion on environmental issues with employ- are capital intensive. The company is ees, neighbors, public authorities, and other dependent upon having access to con- Health, safety and environment interested parties. No significant accidental struction financing facilities and other loans A healthy and safe environment is an impor- environmental emissions were recorded in and debt facilities to the extent its own cash tant part of AKPS’s strategy. AKPS develops 2006 or 2007. Aker Philadelphia Shipyard’s flow from operations and milestone pay- policies to comply with or exceed all federal companies gather and sort waste to ensure ments from customers is insufficient to fund and local requirements. Compliance with environmentally responsible handling, dis- its operations and capital expenditures. In environmental regulations is assured by posal, and recovery of any residual value. turn, AKPS must secure and maintain suffi- establishing operating procedures for best cient equity capital to support such borrow- management practices and is executed Organization ing facilities. through management and supervision. On 31 December 2007 AKPS had 744 Through construction financing, the At AKPS, the Union-Management Safety employees. During 2007 a total of 160 new

26 Aker Philadelphia Shipyard annual report 2007 Our performance

Board of Directors’ report

employees were recruited. The turnover a separation of roles ensures that goals and it is reasonable to assume significant short- came to 20 percent. strategies are prepared, that adopted cor- falls in capacity from 2008 onward. AKPS’s porate strategies are implemented, and that order backlog is strong, corresponding Equal-opportunity employer the results achieved are subject to verifica- to USD 753.1 million as of 31 December AKPS seeks to be an attractive employer tion and follow-up. Applying these principles 2007. The order backlog secures shipbuild- and maintains a human relations policy that also contributes to satisfactory group wide ing activities until 2011, when the twelfth is open and fair. All employees must be monitoring and verification of activities. An product tanker is expected to be delivered. treated equally, regardless of ethnic back- appropriate division of responsibilities and Additionally, AKASA holds options on thir- ground, gender, religion, or age. Diversity satisfactory controls will contribute to the teen additional product tankers. If exer- strengthens AKPS’s overall capacity and greatest possible value creation over time, cised the order backlog would secure ship- skills. Maritime businesses have traditionally to the benefit of shareholders and other building activities through 2015. been male-dominated. The company has interest groups. AKPS’s board of directors The high activity level in the U.S. con- recruited at schools and training programs adopted its corporate governance guide- struction industry has caused strain on with more women. The company has also lines in 2008. Prior to that the operations human resources, sub-contractors and sup- continued to train supervisors, managers of AKPS were subject to the corporate gov- pliers. With multiple ships now under con- and employees in our EEO Policy ernance policies enacted by the Board of struction, developing the capacity and cost At year-end 2007, there were no women Directors of AKASA. AKPS’s corporate gov- efficiency of the yard and the yard’s sup- in AKPS senior management, but women ernance guidelines are presented in greater pliers and sub-contractors will be the key held key positions as Finance Manager, detail on page 60 of this annual report. focus areas going forward. Project Cost Controller, Testing and AKPS thinks there will be increasing Commissioning Coordinator, and Production Outlook need for more vessels within existing and Supervisor. There are also four women in the A strong and proven productivity gain new market segments. These markets Apprenticeship Program. The entire indus- from the container vessel series, a commit- include container vessels, shuttle tankers try faces the challenge of increasing the ted contract for a series of twelve product and chemical tankers. AKPS believes that proportion of female employees. Two mem- tankers (three already delivered) and expe- there will be several opportunities coming bers of the board of directors are women. rienced management and partners give up for increasing the order backlog for APSI AKPS a leading position. in 2008. AKPS will continue to consider Corporate governance Demand for Jones Act qualified tankers is and evaluate these opportunities and try to AKPS’s corporate governance policy exists expected to remain strong as more vessels maximize the long term value for the AKPS to ensure an appropriate division of roles reach their OPA 90 retirement date. Due to group and shareholders. among the company’s owners, board of the few current vessels under construction, directors, and executive management. Such apart from our ten product tanker program,

Oslo, 27 February 2008 Board of Directors Aker Philadelphia Shipyard ASA

Karl Erik Kjelstad Gary Mandel Leif-Arne Langoy Chairman Deputy Chairman

Marianne Heien Blystad Elin Karfjell David Meehan Managing Director

Aker Philadelphia Shipyard annual report 2007 27 Our performance

Group accounts

Aker Philadelphia Shipyard ASA Group: Consolidated Profit and Loss Account

Inception - Amounts in USD thousands Note 2007 2006 Dec 2005

Operating revenues 264 106 246 835 87 594 Cost of ships 2 (246 206) (231 263) (78 588) Wages and other personnel expenses, net 3 (1 823) (1 466) (629) Other operating expenses 4 (3 117) (4 267) (1 004) Operating profit before depreciation and amortization 12 960 9 839 7 373 Depreciation and amortization 7,8 (7 135) (7 117) (3 446) Operating profit 5 825 2 722 3 927 Financial income 5 1 322 692 193 Financial expenses 5 (888) (1 704) (924) Profit before tax 6 259 1 710 3 196

Tax expense 6 (2 394) (625) (1 285) Profit for the year 3 865 1 085 1 911

Attributable to: Equity holders of the parent 3 865 1 085 1 911

Average number of shares (1) 15 7 784 995 7 600 000 7 600 000

Basic earnings per share (2) 15 0.50 0.14 0.25 Diluted earnings per share (3) 15 0.50 0.14 0.25

1) The number of outstanding shares for preparation of basic and diluted earnings per share data for all periods prior to the reorganization is based on the total shares outstanding after the completion of the reorganization described in note 1. 2) Profit attributable to the equity holders of the parent / average number of shares 3) There was no potentially dilutive securities outstanding as of 31 December 2005, 2006 and 2007

28 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

Aker Philadelphia Shipyard ASA Group: Consolidated Balance Sheet of 31 December

Amounts in USD thousands Note 2007 2006

ASSETS Property, plant and equipment 7 72 922 73 828 Intangible assets 8 11 011 11 254 Deferred tax assets 6 362 - Interest-bearing long-term receivables 9 131 300 Other non-current assets 10 835 510 Total non-current assets 85 261 85 892

Vessels under construction-receivables 11 93 202 243 221 Prepayments and other receivables 12 10 572 12 155 Income tax receivable 6 173 816 Interest-bearing short-term receivables 13 5 700 5 435 Cash and cash equivalents 14 58 351 383 Total current assets 167 998 262 010

Total assets 253 259 347 902

EQUITY AND LIABILITIES Paid in capital 16 91 111 67 000 Retained earnings 6 861 2 996 Total equity attributable to equity holders of the parent 97 972 69 996 Total equity 97 972 69 996

Interest-bearing loans 18 23 961 17 809 Deferred tax liabilities 6 6 274 5 759 Total non-current liabilities 30 235 23 568

Construction and other short term loans 18 78 700 220 580 Interest-bearing short-term debt 18,23 2 098 2 018 Trade and other payables 22 39 008 29 460 Tax payable 6 1 545 191 Current provisions 21 3 701 2 089 Total current liabilites 125 052 254 338 Total liabilites 155 287 277 906

Total equity and liabilities 253 259 347 902

Oslo, 27 February 2008 Board of Directors Aker Philadelphia Shipyard ASA

Karl Erik Kjelstad Gary Mandel Leif-Arne Langoy Chairman Deputy Chairman

Marianne Heien Blystad Elin Karfjell David Meehan Managing Director

Aker Philadelphia Shipyard annual report 2007 29 Our performance

Group accounts

Aker Philadelphia Shipyard ASA Group: Consolidated statement of changes in equity

Share Share Other Retained Total Amounts in USD thousands Note Capital Premium reserves earnings equity

Balance at 31 December 2005 13 875 53 125 - 1 911 68 911

Profit for the year 2006 - - - 1 085 1 085

Balance at 31 December 2006 16 13 875 53 125 - 2 996 69 996

Issuance of shares, net of transaction costs and liabilities assumed 16 4 834 19 277 - - 24 111

Profit for the year 2007 - - - 3 865 3 865

Balance at 31 December 2007 18 709 72 402 - 6 861 97 972

No dividends have been paid or declared through 31 December 2007.

30 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

Aker Philadelphia Shipyard ASA Group: Consolidated Cash Flow Statement

Amounts in USD thousands Note 2007 2006

Profit before tax 6 259 1 710 Unrealized foreign exchange gain/(loss) and other non-cash items (7) 43 Depreciation and amortization 7,8 7 135 7 117 Net financial expense/(income) 5 88 969 (Increase)/decrease in: Vessels under construction-receivables 11 150 159 (86 305) Other current assets 12,13 1 318 1 816 Other long-term operating assets 10 (296) 6 528 Increase/(decrease) in: Accrued liabilities and other payables 22 7 781 6 754 Income taxes received/(paid) 6 459 (1 090) Interest paid, net of capitalized interest 5 (770) (1 492) Interest received 5 470 513 Net cash flow from/(used in) operating activities 172 596 (63 437)

Investments in property, plant and equipment 7 (5 986) (11 955) Net cash flow used in investing activities (5 986) (11 955)

Proceeds from long term interest bearing debt 18 8 256 122 Repayment of long term interest bearing debt 18 (2 024) (1 934) Proceeds from short term interest bearing debt 18 173 700 147 000 Repayment of short term interest bearing debt 18 (220 000) (90 000) Net borrowing/(repayment) of parent company loan 18 (95 580) 15 535 Gross proceeds from issuance of share capital 16 27 006 - Net cash flow from/(used in) financing activities (108 642) 70 723

Net change in cash and cash equivalents 57 968 (4 669)

Cash and cash equivalents as of 1 January 383 5 052 Cash and cash equivalents as of 31 December 14 58 351 383

Aker Philadelphia Shipyard annual report 2007 31 Our performance

Group accounts

The Aker Philadelphia Shipyard ASA Group: Notes to the accounts

Note 1:Accounting principles

Statement of compliance are hedged for accounting purposes are adjus- uncertainty and is based primarily upon historical The consolidated financials statements of Aker ted to record changes in the fair values attribu- earnings, reversals of taxable temporary differen- Philadelphia Shipyard ASA and its subsidiary table to the risks that are being hedged. ces and expected earnings due to contracts in (Group) have been prepared in accordance with progress and contract backlog. International Financial Reporting Standards as Use of estimates Estimates and underlying assumptions are adopted by the European Union (IFRS) in effect The preparation of financial statements in con- reviewed on an ongoing basis. Revisions to acco- at each financial reporting period. formity with IFRS requires the use of estima- unting estimates are recognized in the period in These accounts have been approved for tes and assumptions that affect the reported which the estimates are revised if the revision issue from the Board of Directors on 27 Febru- amounts in the financial statements. Although affects that period or in the period of revision and ary 2008. these estimates are based on management’s future periods if the revision affects both current best knowledge of current events and actions, and future periods. Basis for preparation actual results may ultimately differ from those Aker Philadelphia Shipyard ASA was formed on estimates. Group accounting and consolidation 16 October 2007 to be the holding company of Critical accounting estimates and assump- principles Aker Philadelphia Shipyard, Inc. (APSI) which tions are as follows: Subsidiary owns a shipyard located in Philadelphia, Penn- The consolidated financial statements include the sylvania, U.S.A. Revenue and cost recognition financial statements of the parent company, Aker On 26 November 2007, Aker American Ship- The Group uses the percentage of completion Philadelphia Shipyard ASA, and its subsidiary, ping, Inc. (AKASI) contributed its 100% owners- method for accounting for projects in process. Aker Philadelphia Shipyard, Inc. A subsidiary is hip interest in Aker Philadelphia Shipyard, Inc. The use of the percentage of completion met- an entity in which Aker Philadelphia Shipyard ASA (APSI) to Aker Philadelphia Shipyard ASA hod requires the Group to estimate the stage of either owns, directly or indirectly, over fifty percent (AKPS) as a contribution in kind. Aker Ame- completion of contract activity at each balance of the voting rights, or otherwise has the power to rican Shipping Inc. is an intermediate holding sheet date and estimate the ultimate outcome of govern the operating and financial policies. Share company, owned 100% by Aker American Ship- costs and profit on contracts. Revenue recog- options, convertibles and other equity instruments ping ASA (AKASA), that acquired Aker Phila- nition and cost estimates depend upon varia- are considered when assessing whether an entity delphia Shipyard, Inc. on 28 June 2005. Refe- bles such as steel prices, labor costs and avai- is controlled, when applicable. rences to the “Shipyard” in these consolidated lability, and other production inputs. The Group Acquisitions of subsidiaries from entities that financial statements refer to APSI in periods must also evaluate and estimate the outcome of are not under common ownership with the Group prior to 28 June 2005. variation orders and contract claims which often are accounted for using the purchase method of Due to the common nature of ownership involve complex negotiations with customers. accounting. The cost of an acquisition under the interests, the contribution in kind was recorded Generally estimates are subject to a greater level purchase method is measured as the fair value of using the historical financial statement amounts of uncertainty when a vessel design is new to the the assets paid, shares issued or liabilities assu- as reflected in the consolidated financial sta- Group than if a vessel is being constructed later med at the date of acquisition plus costs directly tements of AKASA. In addition, the historical in a series. attributable to the acquisition. The excess cost of consolidated financial statements of Aker Phi- an acquisition over the fair value of the net assets ladelphia Shipyard ASA and its subsidiary have Estimates of the Fair Value of Cash acquired measured at the date of the change of been restated as if Aker Philadelphia Shipy- Generating Units control is recorded as goodwill. ard ASA had owned Aker Philadelphia Shipy- The Group must determine the fair value of its Entities acquired that are not under common ard, Inc. effective 30 June 2005. Accordingly, cash generating units in order to perform its control with the Group are included in the consoli- references in these financial statements to the annual goodwill impairment test. Determining the dated financial statements from the date on which acquisition of Aker Philadelphia Shipyard, Inc. fair value of the cash generating unit that inclu- control is transferred to the Group, and subsidia- refer to the purchases of the shipyard on 28 des the Group’s activities is subject to uncertainty ries sold are included up to the date that control June 2005. and requires estimates of the recoverable amount is relinquished. Aker Philadelphia Shipyard ASA is domiciled which is the higher of the fair value less costs to Acquisitions of entities under common con- in Norway. Aker Philadelphia Shipyard, Inc. is sell and value in use. The estimated recoverable trol with the Group are accounted for at histo- domiciled in the State of Pennsylvania, U.S.A. amount is determined based upon the present rical cost. In addition, the historical financial Related addresses follow: value of the future cash flows of the cash gene- statements are restated to reflect such common rating unit. Generally there will be uncertainties control acquisitions as if the acquired business Aker Philadelphia Shipyard Inc. regarding the timing and amount of cash flows for had always been owned by the Group for periods 2100 Kitty Hawk Avenue various reasons, including the costs of production when the acquired business and the Group were Philadelphia, PA 19112 and demand in the U.S. Jones Act shipping mar- under common ownership. U.S.A. ket. In addition, the Group must determine an Where necessary, the accounting policies of appropriate interest rate to discount expected subsidiaries have been adjusted to ensure consis- Aker Philadelphia Shipyard ASA future cash flows. The group also considers its tency with the policies adopted by the Group. Fjordalleen 16 market capitalization in making its analysis. All intercompany transactions, receivables, liabili- PO Box 1423 Vika ties and unrealized profits, as well as intragroup NO-0115 Oslo, Norway Deferred Income Taxes profit distributions, are eliminated. Deferred income tax assets are recognized when These consolidated financial statements have it is probable that they will be realized. Deter- Foreign currency translation and transactions been prepared on a historical cost basis, mining probability requires the Group to estimate except for derivative financial instruments that the sources of future taxable income from ope- Functional currency have been measured at fair value. The carrying rations and reversing taxable temporary diffe- Items included in the financial statements of values of recognized assets and liabilities that rences. Determining these amounts is subject to each entity in the Group are initially recorded in

32 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

the entity’s functional currency, i.e. the currency Goodwill is initially measured as the excess of any incentives received from the lessor is char- that best reflects the economic substance of the cost of a business combination over the ged to the income statement on a straight-line the underlying events and circumstances rele- acquirer’s fair value of the net assets acqui- basis over the period of the lease when annual vant to that subsidiary. red. installments vary. The consolidated financial statements are Following initial recognition, goodwill is measu- presented in United States dollar (USD), which red at cost less any accumulated impairment Other long-term receivables is the reporting currency for the consolidated losses or adjustments from utilizing unrecorded Other long-term receivables are measured at accounts and the functional currencies for all pre-acquisition net operating losses and defer- net present value when the expected payments the entities within the Group. red tax assets. Goodwill is reviewed for impair- are due after 12 months and these are not inte- ment, annually or more frequently if events or rest bearing. Transactions and balances changes in circumstances indicate that the car- Foreign currency transactions are translated rying value may be impaired. Construction contracts into the functional currency using the exchange Initially, any goodwill acquired is allocated The Group’s business activities mainly involve rates prevailing at the dates of the transactions. to cash-generating units expected to benefit deliveries of vessels and services under con- Receivables and liabilities in foreign currencies from the combination’s synergies. The Group tract to customers. Revenue related to con- are translated into the functional currency at the currently has only one cash generating unit. struction contracts is recognized using the per- exchange rates in effect on the balance sheet Impairment is determined by assessing the centage of completion method, based primarily date. Foreign exchange gains and losses resul- recoverable amount of the cash-generating on the scope of completed work compared to ting from the settlement of such transactions unit, to which the goodwill relates. Where reco- estimated overall project scope at the balance and from the translation of monetary assets and verable amount of the cash-generating unit is sheet date. The stage of completion is asses- liabilities denominated in foreign currencies are less than the carrying amount, an impairment sed by reference to costs incurred to total esti- recognized in the income statement. Foreign loss is recognized. mated costs. As soon as the outcome of the exchange differences arising in respect of ope- construction contract can be estimated reliably, rating items are included in operating profit in Other intangible assets contract revenue and expenses are recognized the appropriate income statement account, and Expenditures on acquired patents, trademarks in the profit and loss account in proportion to those arising in respect of financial assets and and licenses are capitalized and amortized the degree of completion of the contract. liabilities are recorded net as a financial item. using the straight-line method over their useful If the final outcome of a contract cannot be lives. Intangible assets are not re-valued. estimated reliably, contract revenue is recogni- Property, plant and equipment The amortization period and the amortiza- zed only to the extent costs incurred are expec- General tion method for intangible assets with a finite ted to be recovered. Any projected losses on Property, plant and equipment acquired by economic life are reviewed at least each finan- future work done under existing contracts are Group companies is stated at cost at the date cial year end. expensed and classified as accrued costs/provi- of acquisition. Depreciation is calculated on sions in the balance sheet under short term debt. a straight-line basis and adjusted for impair- Impairment of long-lived assets Losses on contracts are recognized in full when ment charges, if any. The carrying value of the Property, plant and equipment and other non- identified. Recognized contract profit includes property, plant and equipment on the balance current assets are reviewed for potential profit derived from change orders and disputed sheet represents the cost net of government impairment whenever events or changes in cir- amounts when, in management’s assessment, grants and subsidies received (if applicable) cumstances indicate that the carrying amount realization is probable and reasonable estimates less accumulated depreciation and any impair- of an asset may not be recoverable. can be made. ment charges. Interest costs on borrowings to For the purposes of assessing impairment, Project costs include costs directly related to finance the construction of property, plant and assets are grouped at the lowest levels for the specific contract and indirect costs attributa- equipment are capitalized during the period of which there are separately identifiable, mainly ble to the contract. time that is required to complete and prepare independent, cash flows. An impairment loss is Project revenue is classified as operating reve- the asset for its intended use. Other borrowing the amount by which the carrying amount of the nues in the profit and loss account. Vessels under costs are expensed. assets exceeds the recoverable amount. The construction-receivable are classified as a -cur Land is not depreciated, but otherwise other recoverable amount is the higher of the asset’s rent asset in the balance sheet. Advances from assets in use are depreciated on a straight-line net selling price and its value in use. The value customers are deducted from the value of ves- basis. Expected useful lives of long-lived assets in use is determined by reference to discounted sels under construction-receivable of the con- are reviewed annually and, where they differ future net cash flows expected to be generated tract involved or, to the extent they exceed this significantly from previous estimates, deprecia- by the asset. value, recorded as customer advances. Custo- tion periods are changed accordingly. A previously recognized impairment loss is mer advances that exceed contract offsets Ordinary repairs and maintenance costs reversed only if there has been a change in would be classified as current liabilities. are charged to the income statement during the estimates used to determine the recover- the financial period in which they are incurred. able amount, however not to an extent higher Government grants The cost of major renovations is included in the than the carrying amount that would have Government grants are recognized at their fair asset’s carrying amount when it is probable that been determined had no impairment loss been value where there is reasonable assurance the Group will derive future economic benefits recognized in prior years. that the grant will be received and all condi- in excess of the originally assessed standard of tions have been met. Grants related to capital performance of the existing asset. Major reno- Leases expenditures are recognized as a reduction of vations are depreciated over the useful lives of Leases of property, plant and equipment where the related asset cost which results in a lower the related assets. the Group has substantially all the risks and depreciation charge over the useful life of the Gains and losses on disposals are determi- rewards of ownership are classified as finance asset. Grants related to specific programs or ned by comparing the disposal proceeds with leases. Finance leases are capitalized at the projects are recognized as income over the the carrying amount and are included in opera- inception of the lease at the lower of the fair period in which work that relates to the grant is ting profit. Assets to be disposed of are repor- value of the leased property or the present performed. There were no government grants ted at the lower of the carrying amount and the value of the minimum lease payments. Lease related to capital expenditures in the periods fair value less selling costs. payments are apportioned between the finance presented. charges and reduction of the lease liability. Component cost accounting Finance charges are charged directly against Interest-bearing short-term receivables The Company allocates the amount initially income. Property, plant and equipment acqui- Interest-bearing short-term receivables are recognized in respect of an item of property, red under finance leases are depreciated over carried at their anticipated net realizable value. plant and equipment to its significant compo- the shorter of the useful life of the asset or the These balances represent holdbacks related to nents and depreciates separately each such lease term. previously delivered vessels. A valuation allo- component part over their useful lives. Leases where a significant portion of the wance is made when there is objective evi- risks and rewards of ownership are retained by dence that the Group will not be able to collect Intangible assets the lessor are classified as operating leases. all amounts due according to the original terms Goodwill Payment made under operating leases net of of the receivables.

Aker Philadelphia Shipyard annual report 2007 33 Our performance

Group accounts

Cash and cash equivalents Income tax relating to items recognized directly Cash and cash equivalents comprise cash on in equity is recognized in equity. Accounting for derivative financial hand, demand deposits with banks and other instruments and hedging activities short-term highly liquid investments with origi- Pension obligations Derivative financial instruments are recogni- nal maturities of three months or less. The Group has defined contribution pension zed initially and in subsequent periods on the plans that cover its employees whereby con- balance sheet at fair value. The method of Share capital tributions are paid to qualifying pension plans. recognizing the resulting gain or loss is depen- Ordinary shares are classified as equity. Once the contributions have been paid, there dent on the nature of the item being hedged. Incremental costs directly attributable to the are no further payment obligations. Plan con- On the date a derivative contract is entered issue of new shares or options are shown in tributions are charged to the income statement into, the Group designates the derivatives as equity as a deduction, net of tax, from the pro- in the period to which the contributions relate. either a hedge of the fair value of a recognized ceeds. Where any Group company purcha- asset or liability (fair value hedge), or a hedge ses the Company’s equity share capital (trea- Provisions of a forecasted transaction (cash flow hedge) sury shares), the consideration paid, including A provision is recognized when the Group has or of a firm commitment (fair value hedge). any directly attributable incremental costs, is a present obligation (legal or constructive) as Changes in the fair value of derivatives that deducted from equity. a result of a past event and it is probable (i.e. are designated and qualify as fair value hed- more likely than not) that an outflow of resour- ges and that are highly effective both prospec- Interest-bearing liabilities ces embodying economic benefits will be tively and retrospectively are recorded in the All loans and borrowings are initially recogni- required to settle the obligation, and a relia- income statement, along with any changes in zed at cost, being the fair value of the consi- ble estimate can be made of the amount of the fair value of the hedged asset or liability deration received net of issue costs associated the obligation. Provisions are reviewed at each that is attributable to the hedged risk. Chan- with the borrowing. balance sheet date and adjusted to reflect the ges in the fair value of derivatives that are After initial recognition, interest-bearing current estimate. designated and qualify as cash flow hedges loss and borrowings are subsequently measu- The amount of the provision is the present and that are highly effective both prospectively red at amortized cost using the effective inte- value of the risk adjusted expenditures expected and retrospectively are initially recognized in rest method; any difference between proceeds to be required to settle the obligation, determi- equity and subsequently reclassified to the (net of transaction costs) and the redemption ned using the estimated risk free interest rate as income statement when hedged transactions value is recognized in the income statement the discount rate. Where discounting is used, the are realized. AKPS currently has no derivative over the period the interest bearing liabilities carrying amount of provision increases in each instruments that qualify for hedge accounting are outstanding. Amortized cost is calculated period and is recognized as interest expense. under IFRS. by taking into account any issuance costs and Changes in the fair value of any derivative any discount or premium. Financial risk management instruments that do not qualify for hedge acco- Gains and losses are recognized in net pro- The Group’s activities expose it to a variety unting under IFRS are recognized immediately fit or loss when the liabilities are derecognized of financial risks: market risk (including cur- in the income statement. or impaired, as well as through the amortiza- rency risk, fair value interest risk and price In accordance with its treasury policy, tion process. risk), credit risk, and cash-flow interest-rate the Group does not hold or issue derivative risk. The Group’s overall risk management pro- financial instruments for trading purposes. Income taxes gram focuses on the unpredictability of finan- However, derivatives that do not qualify for Current income taxes cial markets and seeks to minimize potential hedge accounting are accounted for as tra- Income taxes receivable and payable for the adverse effects on the Group’s financial per- ding instruments. current period are measured at the amount formance. The Group uses derivative financial Estimates of the fair value for foreign cur- expected to be recovered or paid to the taxa- instruments to hedge certain risk exposures. rency contracts are obtained from a third party. tion authorities. The tax rates and tax law as Risk-management is carried out under poli- The fair value of derivative long-term financial used to compute the amount are those that cies approved by the Board of Directors. The liabilities is disclosed in note 25 regarding are enacted or substantively enacted by the Board of Directors provides principles for over- financial instruments. balance sheet date. all financial risk management as well as poli- cies covering specific areas such as foreign Related party transactions Deferred income taxes exchange risk, interest-rate risk, credit risk, All transactions, agreements and business Deferred income tax is provided, using the and use of derivative financial instruments and activities with related parties are conducted liability method, on all temporary differences non-derivative financial instruments. according on arm’s length according to ordi- at the balance sheet date between the tax nary business terms and conditions, except bases of assets and liabilities and their carry- Credit Risk for shipbuilding contracts prior to the sale from ing amounts for financial reporting purposes, Due to the nature of the Group’s operations, AKASA as discussed in note 28. except upon initial recognition of an asset or a revenues and related receivables are typically liability that does not impact income. concentrated amongst a few customers. As Segment information Deferred income tax assets are recogni- of 31 December 2007, the Group had only The Group only had one business segment zed for all deductible temporary differences, one customer. The Group continually evalua- which is building vessels for the U.S. Jones and carry-forward of unused tax losses and tes the credit risk associated with customers Act market. credits, to the extent that it is probable that and manages this risk by requiring payment taxable profit will be available against which for substantially all of the contractual amount Dividends the deductible temporary differences, and prior to delivering a vessel. Dividends are recorded in the Group’s finan- the carry-forward of unused tax losses and cial statements in the period in which they are credits can be utilized. The carrying amount Interest Rate Risk approved by the Group’s shareholders. AKPS of deferred income tax assets is reviewed at The Group is exposed to fluctuations in inte- has not issued any dividends in the periods each balance sheet date and reduced to the rest rates for its variable interest rate debt rela- presented. extent that it is no longer probable that suffici- ted to construction financing. ent taxable profit will be available to allow all Basic and diluted earnings per share or part of the deferred income tax asset to be Foreign Exchange Risk The calculation of basic earnings per share utilized. The expected utilization of tax losses The Group is exposed to foreign currency risk is based on the profit attributable to ordinary are not discounted when calculating the defer- for purchases made in currencies other than shareholders using the weighted average num- red tax asset. the U.S. Dollar which primarily relates to mate- ber of shares outstanding during the year after Deferred income tax assets and liabilities rials, supplies and costs related to expatriate deduction of the average number of treasury are measured at the tax rates that are expec- workers purchased from Korea, and Norway shares held over the period. The calculation of ted to apply to the year when the asset is reali- and other countries in Europe. The Group aims diluted earnings per share is consistent with the zed or the liability is settled, based on tax rates to economically hedge 60-70 percent of its calculation of basic earnings per share while (and tax laws) that have been enacted or sub- expected foreign currency purchases for the giving effect to all dilutive potential ordinary stantively enacted at the balance sheet date. following year using financial instruments. shares that were outstanding during the period.

34 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

The Group currently has no potentially dilutive of an earlier date however because it only has Asset, Minimum Funding Requirements and Their shares outstanding. one segment. The effects of implementing IFRS 8 Interaction should not be significant. IFRIC 14 is effective from 1 January 2008 and Events after the balance sheet date provides guidance on limitations for recognizing A distinction is made between events both favo- IFRIC 11-Group and Treasury Share Transac- assets related to defined benefit pension plans. rable and unfavorable that provide evidence of tions The Group has no defined benefit plans so does conditions that existed at the balance sheet date IFRIC 11 provides guidance on treasure share not anticipate that the adoption of IFRIC 14 will (adjusting events) and those that are indicative of transactions within a consolidated group and is impact its consolidated financial statements. conditions that arose after the balance sheet date applicable for AKPS beginning 1 January 2008. (non-adjusting events). Financial statements will AKPS currently does not believe this interpreta- Revised IAS 23 – Borrowing Costs only be adjusted to reflect adjusting events and tion will have a significant impact on its financial Revised IAS 23 will require companies to capita- not non-adjusting events (although there are dis- statements. lize borrowing costs on qualifying assets. Cur- closure requirements for such events). rently, companies have a choice to either capita- IFRIC 12-Service Concession Agreements lize or expense such costs. The Group already Recently issued accounting standards IFRIC 12 provides guidance on accounting for capitalizes borrowing costs so does not antici- and pronouncements service concession agreements and is applica- pate that Revised IAS 23 will have a significant AKPS has not applied the following IFRS Stan- ble for AKPS effective 1 January 2008. AKPS cur- impact on its consolidated financial statements. dards and IFRIC Interpretations that have been rently does not believe this interpretation is appli- issued but are not yet effective: cable to its financial statements.

IFRS 8-Operating Segments IFRIC 13-Customer Loyalty Programs This standard will change the information requi- IFRIC 13 is effective on 1 July 2008. The Group red to be presented for segment information and has no customer loyalty programs so it is not anti- is required to be implemented for annual periods cipated that IFRIC 13 will impact the consolidated beginning on 1 January 2009. AKPS has not yet financial statements. determined whether it will adopt the standard as IFRIC 14-IAS 19 The Limit on a Defined Benefit

Note 2: Cost of ships

Cost of ships consists of:

Inception - Amounts in USD thousand 2007 2006 Dec 2005

Cost of ships 246 206 231 263 78 588 Total 246 206 231 263 78 588

Cost of ships includes the cost of production, including labor, materials, and production related overheads, excluding depreciation. As noted in note 1, revenue and related costs are recognized under the percentage of completion method.

Note 3: Wages and other personnel expenses

Wages and other personnel expenses consist of:

Inception - Amounts in USD thousand 2007 2006 Dec 2005

Wages 41 923 37 205 17 178 Social security contributions 3 620 3 452 1 165 Pension costs (note 20) 773 588 327 Other expenses 10 559 9 098 3 839 Total gross expense 56 875 50 343 22 509 Expenses related to vessel construction (55 052) (48 877) (21 880) Net Wages and other personnel expenses 1 823 1 466 629 Average number of employees 730 673 617 Number of employees at year-end 744 722 639

Other expenses relate primarily to workers’ compensation and employee benefits.

Aker Philadelphia Shipyard annual report 2007 35 Our performance

Group accounts

Note 4: Other operating expenses

Other operating expenses consist of:

Inception - Amounts in USD thousand 2007 2006 Dec 2005

Rent and leasing expenses 2 101 1 709 535 Other operating expenses 1 016 2 558 469 Total other operating expenses 3 117 4 267 1 004

Other operating expenses primarily relate to selling, general and administrative expenses. Fees to auditors for the Aker Philadelphia Shipyard ASA Group were for ordinary audit services, and are included in other operating expenses. Such fees totaled USD 404 for 2007, USD 385 for 2006, and USD 239 for 2005. Additional audit fees in 2007 include USD 34 relating to the split of APSI from AKASA, which were netted against equity proceeds (see note 16).

Note 5: Financial income and financial expenses

Inception - Amounts in USD thousand 2007 2006 Dec 2005

Interest income 800 692 193 Foreign exchange gain 522 - - Financial income 1 322 692 193

Interest expense (15 640) (14 249) (3 399) Interest capitalized on construction contracts 14 752 12 588 2 537 Foreign exchange loss - (43) (62) Financial expenses (888) (1 704) (924)

Net financial items 434 (1 012) (731)

Note 6: Tax

Income tax expense Recognised in the income statement

Inception - Amounts in USD thousand 2007 2006 Dec 2005

Current tax expense: Current year - U.S. 2 242 600 986 Total current tax expense 2 242 600 986

Deferred tax expense: Origination and reversal of temporary differences - U.S. 152 25 299 Total deferred tax expense 152 25 299 Total income tax expense/(benefit) in the profit and loss account 2 394 625 1 285

Reconciliation of effective tax rate:

Amounts in USD thousand 2007 2006 2005

Profit before tax 6 259 1 710 3 196 28,0% 28,0% 28,0% Expected tax expense using nominal Norwegian tax rate of 28% 1 753 479 895 Effect of differences between nominal Norwegian tax rate and U.S. federal and state tax rate 778 231 431 Expenses not deductible for tax purposes 129 29 14 Foreign exchange (149) - - Other differences (117) (114) (55) Total income tax expense/(benefit) in income statement 2 394 625 1 285

The weighted average effective tax rate was 32.5% (31 December 2006: 36.5%; inception to Dec. 31, 2005: 40.2%).

36 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

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 2007 for the Group was primarily the U.S., the Commonwealth of Pennsylvania and the City of Philadelphia

The offset amounts for U.S. items are as follows:

Amounts in USD thousand 2007 2006

Deferred tax assets 5 358 6 417 Deferred tax liabilities (11 632) (12 176) Net deferred tax liabilities (6 274) (5 759)

Deferred tax assets and liabilities shown in the balance sheet are mainly attributable to the U.S. tax jurisdiction. At 31 December 2007, the company also had USD 362 of deferred tax assets related to the Norwegian tax jurisdiction.

The gross movement in the deferred income tax account for U.S. tax jurisdictions is as follows:

Amounts in USD thousand 2007 2006

Beginning of the period (5 759) (5 735) Deferred tax expense (153) (24) End of the year (5 912) (5 759)

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the U.S. tax jurisdiction, is as follows:

Deferred tax assets:

Provisions Amounts in USD thousand of assets Tax losses Total

31 December 2006 6 144 273 6 417 (Credited)/charged to the income statement (424) (273) (697) 31 December 2007 5 720 - 5 720

Deferred tax liabilities: Property plant and Amounts in USD thousand equipment Projects Total

31 December 2006 (11 808) (368) (12 176) Charged /(credited) to the income statement 457 87 544 31 December 2007 (11 351) (281) (11 632)

At 31 December 2007, the company also had USD 362 of deferred tax assets related to the Norwegian tax jurisdiction.

Aker Philadelphia Shipyard annual report 2007 37 Our performance

Group accounts

Note 7: Property, plant and equipment

Movements in property plant and equipment for 2007 are shown below:

Machinery Land Under Amounts in USD thousand Vehicles Buildings Improvements contruction Total

Cost at 1 January 2007 20 407 46 433 15 279 2 271 84 390 Purchases 2 357 1 104 1 232 1 294 5 987 Cost at 31 December 2007 22 764 47 537 16 511 3 565 90 377

Depreciation and impairment losses at 1 January 2007 4 630 5 041 892 - 10 563 Depreciation 3 270 3 001 621 - 6 892 Depreciation and impairment losses at 31 December 2007 7 899 8 042 1 513 - 17 455

Book value at 31 December 2007 1) 14 865 39 495 14 998 3 565 72 922

1) Book value of assets under financial leasing agreements recorded in the balance sheet: 218 - - - 218

Movements in property plant and equipment for 2006 are shown below:

Machinery Land Under Amounts in USD thousand Vehicles Buildings Improvements contruction Total

Cost at 1 January 2006 19 760 34 082 14 780 3 813 72 435 Purchases 647 12 351 499 (1 542) 11 955 Cost at 31 December 2006 20 407 46 433 15 279 2 271 84 390

Depreciation and impairment losses at 1 January 2006 1 487 1 667 292 - 3 446 Depreciation 3 143 3 374 600 - 7 117 Depreciation and impairment losses at 31 December 2006 4 630 5 041 892 - 10 563

Book value at 31 December 2006 1) 15 777 41 392 14 387 2 271 73 828

1) Book value of assets under financial leasing agreements recorded in the balance sheet: 249 - - - 249

Depreciation period 3-12 years 7-30 years 20 years Depreciation method Straight-line Straight-line Straight-line

Leased plant and machinery The Group leases production equipment under a number of finance lease agreements. At the end of each of the leases, the Group has the option to pur- chase the equipment at a beneficial price. At 31 December 2007, the net carrying amount of leased plant and machinery was USD 218 (2006 USD 249). The leased equipment secures lease obligations (see note 18).

Security Granted on Property Plant and Equipment At 31 December 2007, properties with a carrying amount of USD 72.9 million (2006: USD 73.8 million) are subject to a registered debenture to secure loans (see note 18).

Property, plant and equipment under construction The total of assets under construction relates to facilities and includes an extension of the Luffing crane rails (USD 1.7 million and USD 0.2 million in 2006) and sealing of the dry dock gate (USD 1.1 million in 2007 and USD 0 in 2006).

Depreciation Depreciation charges for equipment and property used in the construction of vessels are included in depreciation and amortization expense and capitalized in the value of vessels under construction-receivables.

38 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

Note 8: Intangible assets

Movements in intangible assets for 2007 are shown below:

Other Amounts in USD thousand Goodwill intangibles Total

Cost at 1 January 2007 11 254 - 11 254 Cost at 31 December 2007 11 254 - 11 254

Amortization and impairment losses at 1 January 2007 - - - Amortization for the year related to utilization of pre-acquisition tax net operating loss carryforwards 243 - 243 Depreciation and impairment losses at 31 December 2007 243 - 243

Book value at 31 December 2007 11 011 - 11 011

Book value of other intangibles at 31 December 2007 consist of goodwill created on 30 June 2005, when the Shipyard was acquired. Current year amortiza- tion represents realization of a previously unrecorded deferred tax asset related to the acquisition. No impairment losses have been recognized through 31 December 2007.

Movements in intangible assets for 2006 are shown below:

Other Amounts in USD thousand Goodwill intangibles Total

Cost at 1 January 2006 11 254 - 11 254 Cost at 31 December 2006 11 254 - 11 254

Amortization and impairment losses at 1 January 2006 - - - Amortization for the year - - - Depreciation and impairment losses at 31 December 2006 - - -

Book value at 31 December 2006 11 254 - 11 254

The Company performed its annual goodwill impairment test as of 31 December 2007 and determined that there was no goodwill impairment. Key assumptions used to determine fair value of the cash generating unit are explained in note 1, Use of Estimates.

Note 9: Interest-bearing long-term receivables

Financial interest-bearing long-term receivables consist of the following items:

Interest Interest rate per 31 Dec rate per 31 Dec Amounts in USD thousand annum 2007 annum 2006

Loans to employees 3.39% 131 4.38% 300 Total 131 300

The loan to employee is disclosed in note 26.

Aker Philadelphia Shipyard annual report 2007 39 Our performance

Group accounts

Note 10: Other non-current assets

Other non-current assets consist of the following items:

31 Dec 31 Dec Amounts in USD thousand 2007 2006

Prepaid lease payments 626 - Other interest-free long-term receivables 209 510 Total 835 510

The long-term receivables as of 31 December 2007 relate to security deposits. The 2006 receivables relate to security deposits and insurance receivable. They are unsecured and have no collateral.

Note 11: Construction contracts

The order backlog primarily represents an obligation to deliver vessels that have not yet been produced for AKASA. The order backlog is USD 753.1 million at 31 December 2007 and represents future sales.

Orderintake Orderbacklog Orderintake Orderbacklog Orderintake Orderbacklog Inception - Amounts in USD thousand 31 Dec. 2007 2007 31 Dec. 2006 2006 31 Dec. 2005 Dec 2005

Container vessels - - - - 34 915 - Product Tankers 753 138 374 516 642 728 - 846 928 - Total 753 138 374 516 642 728 - 881 843 -

Order backlog represents base contract price and is subject to adjustments based on change orders and material escalation as defined in the agreement as well as vessel deliveries.

The recognized profit in 2007, 2006 and 2005 are recorded as follows :

Inception - Amounts in USD thousand 2007 2006 Dec 2005

Contract revenue recognised as revenue in the period 264 106 246 835 87 594 less contract expenses (253 098) (239 362) (79 309) Recognized profit 11 008 7 473 8 285

Other construction contracts figures: Contract costs incurred in the period (252 260) (224 352) (84 069)

During 2007 AKPS received an insurance settlement of USD 4.0 million that was appllicable to vessels under construction at the time and vessels previously delivered. Accordingly, the insurance proceeds were allocated amongst the applicable vessels. Because certain of these vessels were being built at cost, the net effect on the financial statements was a reduction of cost of sales and revenues of USD 4.0 million and USD 1.0 million, respectively.

As of 31 December 2007 and 2006, the costs incurred that will be billable to customers upon delivery of the ships was USD 93.2 million and USD 243.2 million, respectively, using the percentage of completion.

Advances from customers at 31 December 2007 totaled USD 89.4 million. There were no advances from customers 31 December 2006.

Retentions related to construction contracts are disclosed in note 13. Note 12: Prepayments and other receivables

Trade and other receivables consist of the following items:

31 Dec 31 Dec Amounts in USD thousand 2007 2006

Advance payments to suppliers 9 340 12 076 Trade and other short-term interest-free receivables 1 232 79 Total 10 572 12 155

Advance payments to suppliers at 31 December 2007 includes USD 8.1 million prepayments in order to secure prices for materials and equipment for Hulls 012-018 (Product tankers 8-14)

40 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

Note 13: Interest-bearing short-term receivables

Interest-bearing short-term receivables consist of the following items:

Amounts in USD thousand Interest rate 31 Dec 2007 Interest rate 31 Dec 2006

Interest-bearing short-term receivables 4.3% 5 700 4.8% 5 435 Total 5 700 5 435

Interest-bearing short-term receivables relate to contractual hold backs from the container vessel customer and are contingent upon final closeout of warranty work, which bears interest at a floating rate. The warranty period has expired and the hold backs will be repaid once warranty matters are resolved.

Note 14: Cash and cash equivalents

Cash and cash equivalents consist of the following items: 31 Dec 31 Dec Amounts in USD thousand 2007 2006

Cash and bank deposits 58 351 383 Cash and cash equivalents in the statement of cash flows 58 351 383 Short-term investments are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposits rates.

Note 15: Earnings per share

Basic and diluted Earnings per share Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of ordi- nary shares. For purposes of determining basic and diluted earnings per share, the weighted average shares outstanding prior to the reorganization was based upon the total shares outstanding upon completion of the reorganization described in note 1.

Inception - Amounts in USD thousand (except share and per share data) 2007 2006 Dec 2005

Profit attributable to equity holders of the Company 3 865 1 085 1 911 Weighted average number of ordinary shares issued 7 784 995 7 600 000 7 600 000

Basic and diluted earnings per share (USD per share) 0.50 0.14 0.25

There were no potentially dilutive securities outstanding as of 31 December 2007, 2006 and 2005.

Note 16: Paid in capital

The current authorized share capital is 11,100,000 shares with 10,165,305 shares issued, each with a par value of NOK 10 (USD 1.85 at an exchange rate of NOK/USD 5.4:1) fully paid. On 26 November 2007 the Board authorized a share increase of 3,500,000 in connection with the sale of APSI. As of 31 Decem- ber 2007, 934,695 shares are authorized but not issued. The remaining authorization will expire on 26 May 2009.

The information presented below is shown as if the 7,500,000 shares issued in connection with the contribution in kind of APSI were outstanding from 30 June 2005.

Total Share Share paid in Amounts in USD thousand Capital premium equity

31 December 2005 13 875 53 125 67 000 31 December 2006 13 875 53 125 67 000 Private placement, initial public offering and assumption of guarantee 4 834 19 277 24 111

31 December 2007 18 709 72 402 91 111

As part of the private placement and subsequent retail offering, the Company raised USD 27 million net of expenses of USD 0.9 million (net of tax benefit) and a guarantee liability assumed (USD 2 million).

Aker Philadelphia Shipyard annual report 2007 41 Our performance

Group accounts

Note 17: Group entities

Aker Philadelphia Shipyard ASA’s Group account included the following entity:

Holding Registered Amounts in USD thousand % office Country

Aker Philadelphia Shipyard , Inc. 100 Philadelphia, Pennsylvania USA

Note 18: Interest-bearing loans and liabilities

This note provides information about the Group’s contractual terms of interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 25.

31 Dec 31 Dec Amounts in USD thousand 2007 2006

Non-current interest bearing liabilities Secured loans, net of unamortized financing costs of USD 244 in 2007 and USD 0 in 2006 23 847 17 583 Finance lease liabilities 114 226 Total non-current interest bearing liabilities 23 961 17 809

Current interest bearing liabilities Current portion of secured loans 1 992 1 919 Current portion of finance lease liabilities 106 99 Loan from AKASA - 95 580 Construction loans 78 700 125 000 Total current interest bearing liabilities 80 798 222 598

Interest Secured Loans as of 31 December 2007 Maturity Balance Rate

Philadelphia Industrial Development Authority (PIDA) Oct. 2015 11 831 3,75% Philadelphia Industrial Development Corporation (PIDC) Oct. 2015 5 752 3,75% Philadelphia Industrial Development Corporation (PIDC) Mar. 2012 8 500 2,75% Total Secured Loans 26 083

The PIDA and PIDC loans are secured against property, plant, and equipment with a carrying amount of USD 72.9 million as of 31 December 2007 (see note 7), and have a fixed interest rate until maturity. Payments are fixed and are paid monthly through maturity.

Construction Loan as of 31 December 2007 Maturity Balance Interest Rate

Caterpillar Financial Services Corporation < 12 months 78 700 7,41% LIBOR + 2.5% The construction loan is for construction of NB008 (PT4) and NB009 (PT5) and is secured by vessels under construction-receivables, valued at USD 93.2 mil- lion as of 31 December 2007. The undrawn amount as of 31 December 2007 is USD 46.3 million.

The loan balance is repayable at the delivery of each vessel (see note 25).

Finance lease liabilities Finance lease liabilities are payable as follows as of 31 December:

Payments Interest Principal Payments Interest Principal Amounts in USD thousand 2007 2007 2007 2006 2006 2006

Less than one year 119 13 106 120 21 99 Between one and five year 122 8 114 247 21 226 Total 241 21 220 367 42 325

The finance leases are for production equipment such as welding gas distribution equipment and forklifts.

Undrawn credit facilities As of 31 December 2007, the Company has USD 10.6 million of undrawn credit facilities with a bank, out of a total available balance of USD 16.8 million. The drawn amount is being used for letters of credit and certain foreign exchange contracts.

42 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

Note 19: Operating leases

Non-cancellable operating lease rentals are payable as follows as of 31 December:

Amounts in USD thousand 2007 2006

Less than one year 599 298 Between one and five year 1 391 78 Total 1 990 376

The operating leases are for facility, vehicles, printing and copying equipment.

The Group operates on land subleased from the Philadelphia Shipyard Development Corporation (PSDC) through April 2018. Lease payments include rent, taxes, and operating expenses. The lease payments are subject to annual revision based on the PSDC’s operating expenses. The Group has options to renew the lease for three consecutive periods of 20 years each and one final period of 19 years. The Group can acquire the land for USD 1 after the expira- tion of all renewal periods.

Note 20: Pensions

Pension expense recognized in the income statement:

Inception - Amounts in USD thousand 2007 2006 Dec 2005

Contribution plans (employer's contribution) 773 588 327 Total net pension expense 773 588 327

The Group has a defined contribution plan for its employees which provides for a contribution based upon a fixed matching 401(k) plus discretionary percentage of salaries (non-union) and fixed amount per hour worked (union).

Note 21: Other provisions – warranties

Amounts in USD thousand 2007 2006

Balance as of beginning of period 2 089 1 899 Provisions made during the period 2 214 500 Provisions used during the period (602) (310) Balance as of 31 December 3 701 2 089

Non-current - - Current 3 701 2 089 Balance as of 31 December 3 701 2 089

The warranty provision relates to the outstanding work for container vessels NB001, 002, 003 and 004 (CV1-4) and product tankers NB005, 006 and 007 (PT1-3) delivered in 2003 through 2007.

Note 22: Trade and other payables

Trade and other payables comprise the following items:

31 Dec 31 Dec Amounts in USD thousand 2007 2006

Trade accounts payable 5 536 7 996 Accrual of financial costs 799 333 Other short term interest free liabilities 32 673 21 131 Total 39 008 29 460

Other short term interest free liabilities at 31 December 2007 include USD 6.7 million for overhead accruals. USD 15.8 million for ship cost accruals, and USD 9.3 million for employee related costs. At 31 December 2006, other short term interest free liabilities included overhead accruals of USD 5.8 million, USD 11.9 million of ship cost accruals, and USD 2.6 million for employee related costs.

Aker Philadelphia Shipyard annual report 2007 43 Our performance

Group accounts

Net current operating assets / liabilities (-) (working capital): 31 Dec 31 Dec Amounts in USD thousand 2007 2006

Current operating assets 16 445 18 405 - Current operating liabilities (46 353) (33 758) + Project related cash 58 351 383 = Net Working capital 28 443 (14 970)

Current operating assets exclude the cost in excess of billings on construction contracts (i.e. vessels under construction-receivables) and the corresponding construction loan.

Note 23: Interest-bearing short-term debt

Interest-bearing short-term debt comprises the following items at 31 December:

Amounts in USD thousand 2007 2006

Construction loan 78 700 125 000 Loans from AKASA - 95 580 Current portion of interest bearing long term debt 2 098 2 018 Total 80 798 222 598 See note 18 for further details on interest-bearing debt.

Note 24: Net interest-bearing debt

Net interest-bearing debt comprise the following items at 31 December:

Amounts in USD thousand 2007 2006

Long-term interest-bearing debt 23 961 17 809 + Short-term interest-bearing debt (excluding Construction loans) 2 098 2 018 Total interest-bearing liabilities 26 059 19 827

- Long-term interest-bearing receivable (131) (300) - Current interest-bearing receivable (5 700) (5 435) - Cash and bank deposits (58 351) (383) Total interest-bearing assets (64 182) (6 118)

Net interest-bearing debt(+)/asset(-) (38 123) 13 709

Note 25: Financial instruments

Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. Derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates and interest rates for business purposes.

Credit risk The carrying amount of financial assets represents the maximum credit exposure. At 31 December 2007 the maximum exposure to credit risk is as follows:

Amounts in USD thousand 2007 2006

Loans and receivables 6 040 6 245 Cash and cash equivalents 58 351 383 Total 64 391 6 628

Receivables are related to one customer as noted below:

Amounts in USD thousand 2007 2006

Loans to employees 131 300 Security deposits/tax receivables 209 510 Interest bearing long term receivable 5 700 5 435 Vessels under construction-receivables 93 202 243 222 Total 99 242 249 467

The Company currently has one customer which is AKASI and its subsidiaries. The interest bearing receivable relates to monies in escrow related to the contai- ner vessels delivered to Matson.

44 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

Liquidity risk The following are the contractual maturities of financial liabilities including interest payments:

31 December 2007 Con- tractual 6 mths More than Amounts in USD thousand Book value cash flow and less 6-12 mths 1-2 years 2-5 years 5 years

Non-derivative financial liabilities Long-term portion of secured bank loans 24 090 (27 460) - - (3 014) (17 246) (7 200) Long-term portion of finance lease liabilites 114 (128) - - (89) (39) Current portion of long-term interest bearing external liabilities 2 098 (2 576) (1 278) (1 298) - - - Construction loans 78 700 (81 233) (60 903) (20 330) - - -

Derivative financial liabilities Forward exchange contracts 113 (113) (67) (46) - - -

Total 105 115 (111 510) (62 248) (21 674) (3 103 ) (17 285) (7 200)

31 December 2006 Con- tractual 6 mths More than Amounts in USD thousand Book value cash flow and less 6-12 mths 1-2 years 2-5 years 5 years

Non-derivative financial liabilities Long-term portion of secured bank loans 17 583 (20 290) - - (2 618) (7 854) (9 818) Long-term portion of finance lease liabilites 226 (247) - - (119) (128) - Current portion of long-term interest bearing external liabilities 2 018 (2 576) (1 099) (1 098) - - - Construction loans 125 000 (127 738) (127 738) - - - - Short-term related parties interest bearing liabilities 95 580 (95 580) - (95 580) - - -

Derivative financial liabilities Forward exchange contracts 105 (105) (94) (11) - - -

Total 240 512 (246 536) (128 931) (96 689 ) (2 737) (7 982) (9 818)

Book values included in the above tables are gross loan amounts. Balances included in the balance sheet are shown net of unamortized financing costs of USD 244 in 2007 and USD 0 in 2006.

Currency risk The Group incurs foreign currency risk, purchases and borrowings that are denominated in a currency other than USD. The currencies giving rise to this risk are primarily EUR, NOK and KRW (Korean Won).

As of 31 December 2007 the Aker Philadelphia Shipyard ASA Group’s portfolio of foreign exchange transaction exposures represented the following currencies and maturities. Amounts indicated represent the underlying notional amounts. Maturing in Amounts in USD thousand 2008 2009 2010 Later years Total

Buy KRW 15 005 - - - 15 005 Buy total 15 005 - - - 15 005

Net position 15 005 - - - 15 005

As of 31 December 2006 the Aker Philadelphia Shipyard ASA Group’s portfolio of foreign exchange transaction exposures represented the following currencies and maturities. Amounts indicated represent the underlying notional amounts.

Maturing in Amounts in USD thousand 2007 2008 2009 Later years Total

Buy NOK 2 815 - - - 2 815 Buy KRW 2 775 - - - 2 775 Buy total 5 590 - - - 5 590

Net position 5 590 - - - 5 590

Aker Philadelphia Shipyard annual report 2007 45 Our performance

Group accounts

Changes in the fair value of forward exchange contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied are recognized in the income statement. Both the changes in fair value of the forward contracts and the foreign exchange gains and losses relating to the monetary items are recognized as part of ”net financing costs” (see note 5). The fair value of exchange contracts used as economic hedges of monetary assets and liabilities in foreign currencies at 31 December 2007 was USD (113) thousand (2006: USD (105) thousand) recognized in current liabilities.

Exposure to currency risk The Company exposure to currency risk at 31 December was as follows based on notional amounts:

2007 2006 Amounts in USD thousand Euro KRW NOK Euro KRW NOK

Gross balance sheet exposure Trade payables (-) (130) (500) (372) (604) - (1 358) Cash - - 27 640 - - - Gross balance sheet exposure (130) (500) 27 268 (604) - (1 358) Estimated forecast expenses (-) (4 028) (18 548) (13 237) (13 935) (15 255) (10 576) Gross exposure (4 028) (18 548) (13 237) (13 935) (15 255) (10 576) Forward exchange contracts - 15 005 - - 2 775 2 815 Net exposure (4 158) (4 043) 14 031 (14 539) (12 480) (9 119)

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.

At 31 December 2007 it is estimated that a 10 percent strengthening of the company currency (USD) against other foreign currencies would decrease the Group’s profit before tax by approximately USD 410.

Exposure to interest rate risk It is estimated that a general increase of one percentage point in interest rates would decrease the Group’s profit before tax on an annual basis by approximately USD 130 for 2007 and USD 483 for 2006. The estimate for financial liabilities includes only the variable interest rate construction loan.

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:

Carrying Fair Carrying Fair amount value amount value Amounts in USD thousand 2007 2007 2006 2006

Interest-bearing long term receivables 131 131 300 300 Interest-bearing short term receivables 5 700 5 700 5 435 5 435 Cash and cash equivalents 58 351 58 351 383 383

Forward exchange contracts (113) (113) (105) (105) Secured loans (26 082) (22 198) (19 502) (16 841) Construction loans (78 700) (78 700) (125 000) (125 000) Parent company loan - - (95 580) (95 580) Finance lease liabilities (220) (213) (325) (318)

Estimates of the fair value for foreign currency contracts are 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 6.0% for 2007 and 6.8% for 2006.

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.

Carrying amounts shown above are gross loan amounts. Balances included in the balance sheet are shown net of unamortized financing costs of USD 244 in 2007 and USD 0 in 2006.

46 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

Note 26: Shares owned or controlled by the President and Chief Executive Officer, Board of Directors and senior employees of the Aker Philadelphia Shipyard ASA Group

The board of directors of Aker Philadelphia Shipyard ASA took office on 14 December 2007. Prior to that, the board of directors of Aker American Shipping ASA (which were the same board members) was effectively responsible for the board level decisions on behalf of the consolidated Group which included Aker Philadelphia Shipyard ASA. David E. Meehan was the sole director of APSI as of 31 December 2007.

Shares owned in Aker Philadelphia Shipyard ASA as of 31 December 2007

AKPS Name Position Company No. of shares

Karl Erik Kjelstad Chairman AKPS 2 000 Elin Karfjell Board Member AKPS 1 200 Dave Meehan CEO AKPS 27 500 Steinar Nerbøvik Vice President APSI 1 000

There is no share option agreement between Aker Philadelphia Shipyard ASA and senior management or Directors.

Remuneration to the Board of Directors for the year ended 31 December 2007

Name Position Company Remuneration

Karl Erik Kjelstad Chairman AKPS 4 652 To be paid to Aker ASA Gary Mandel Deputy Chairman AKPS 3 102 To be paid to Aker ASA Marianne Heien Blystad Board Member AKPS 3 102 Leif-Arne Langøy Board Member AKPS 3 102 To be paid to Aker ASA Elin Karfjell Board Member AKPS 3 102 Sum Directors' fee 17 060

The Chairman and the Board of Directors have not received benefits other than Directors’ fees. Total remuneration to the board of directors of AKASA, which included APSI up through 4 December 2007, was USD 237,580.

Remuneration to the nomination committee

The nomination committee of Aker Philadelphia Shipyard ASA has the following members: Kjell Inge Røkke, Rune Bjerke and Gerhard Heiberg. No remune- ration has been paid to the nomination committee in 2007.

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 shareholder value.

The CEO receives a base salary. In addition, a variable pay is awarded. This program was implemented in 2007. This variable pay is based on the achie- vement of financial and personal performance targets, leadership performance in accordance with the Company’s values and the development of the Company’s share price.

The variable pay program represents a potential for an additional variable pay up to the value of 60 percent of base salary depending on the achievement of defined short-term and long-term results such as financial targets (profit and working capital) and personal targets (project targets, development of com- mercial solutions, alignment with values and improvement of Health, Safety & Environment).

The first half of the variable pay is paid the following year. After a further two years, the following is paid (a) the remaining half of the earned amount, plus interest (b) a corresponding amount (exclusive of interest) to encourage executives to maintain their employment in Aker American Shipping ASA. (c) an amount which corresponds to the sum of (a) and (b) multiplied by the percentage by which the annual development of the Aker American Shipping ASA share price exceeds the development of the general stock index (OSBEX) at Oslo Stock exchange.

These agreements have not been modified for the restructuring described in note 1.

The President and CEO and members of the Executive Management Team are eligible for participation in the variable pay program.

The President and CEO and Executive Management Team participate in the standard pension and insurance schemes, applicable to all employees. The Company practices standard employment contracts and standard terms and conditions regarding notice period and severance pay for the President and CEO and the members of the Executive Management Team.

The Company does not offer share option programs to executive managers.

Aker Philadelphia Shipyard annual report 2007 47 Our performance

Group accounts

Remuneration to senior management during 2007

Other Pension Severance Base salary Bonus Benefits Contribution Total (USD) pay

David E. Meehan Jan. - Dec. 295 740 68 450 391 622 5 915 761 727 12 months Jan Ivar Nielsen Jan. - Jul. 109 506 68 543 26 919 6 539 211 507 9 months Jeffrey Theisen May - Dec. 123 212 7 386 2 464 133 062 9 months

The President and CEO had a loan of USD 300,000 which was forgiven in the current year. A new loan amounting to USD 130,642 was given equal to the taxes owed on the forgiveness of the old loan. The loan forgiveness is included in other benefits above. The loan is unsecured and the Company imputes interest based on prevailing market rates (3.39% for 2007) that is accounted for as additional compensation for the CEO.

Remuneration to senior management during 2006

Other Pension Severance Base salary Bonus Benefits Contribution Total (USD) pay

David E. Meehan Jan. - Dec. 273 000 57 500 162 891 5 114 498 505 12 months Jan Ivar Nielsen Jan. - Dec. 175 750 29 300 42 035 10 000 257 085 9 months

All remuneration for 2006 and 2007 was paid out through APSI which up until 30 November 2007 was a wholly owned subsidiary of AKASA.

Note 27: Commitments and contingencies

Government grants funded by the financing under the Master Agre- ted to a fixed assessment of approximately USD The Shipyard has been funded by various ement, the Shipyard was obligated to make 3,304,000 to USD 3,552,000 per year, commen- federal, state, and local government agency USD 135,000,000 of additional capital inves- cing in 2003. subsidies for periods including those prior to tments through December 2014. The Shipy- As of 31 December 2007, the Company has the purchase on 30 June 2005, totaling USD ard fulfilled the last USD 3,000,000 remaining entered into non-cancellable commitments with 438,600,000, as set forth in the Master Agre- of this obligation during the year ended 31 various third-party suppliers for approximately ement between the Government Parties and the December 2006. USD 138.4 million of ship production and over- Shipyard, dated 16 December 1997, as amen- Under the terms of the Master Agreement, head related expenditures. ded 30 July 1999. the Shipyard, and the former Kvaerner ASA are The Company has issued a USD 20 million Funding under the Master Agreement subject to various operating covenants, restric- counter guarantee to Aker Maritime Finance was allocated as follows: USD 42,000,000 tions, and obligations throughout an approxi- ASA and Aker American Shipping ASA as part for preliminary Shipyard development, USD mately 15-year period. The Shipyard anticipates of the sale of Aker Philadelphia Shipyard Inc. in 259,600,000 for initial construction costs, and that it will continue to comply with the terms and December 2007. USD 137,000,000 for employee training pro- requirements of the Master Agreement and that grams. In 2001, the Shipyard was granted a the Master Agreement will continue to remain Legal matters transfer of USD 50,000,000 from the preliminary in effect. The Group is involved in various legal disputes Shipyard development budget to the initial con- During 2001, the Shipyard received USD in the ordinary course of business related pri- struction costs budget, but the overall amount 50,000,000 from the PSDC for construction marily to employment matters and commercial of USD 438,600,000 did not change. Funding costs, which was originally stipulated as fun- matters. Provisions have been made to cover was provided through loans to the Shipyard ding for training costs. As a result, the Shipyard the expected outcomes when it is probable that (see note 18) as well as grants. agreed to match government funding for trai- a liability has been incurred and the amount is The Shipyard has exhausted the funding ning costs commencing on 1 April 2002, until all reasonably estimable. Although the final out- under the preliminary Shipyard development of the remaining training funding was utilized. come of these matters is subject to uncertainty, costs and the initial constructions costs, and The Shipyard utilized the last USD 1,700,000 in the Group’s opinion the ultimate resolution therefore did not receive any related reimburse- during the year ended 31 December 2006. As of such legal matters will not have a material ments in 2007, 2006 or 2005. of 31 December 2007, the Shipyard has fulfilled adverse effect on the Group’s financial position, For the year ended 31 December 2007, the matching funding obligation. or results of operations. United States Coast the Shipyard received no reimbursment of In addition, under the Master Agreement, Guard approval of the Company’s production employee training costs (USD 2.1 million in the Shipyard is required to pay a common area practices is currently the subject of a lawsuit. 2006 and USD 8.6 million in 2005). maintenance charge each month to the PSDC Should the court decide that the United Sta- Through 31 December 2007, the Shipyard of approximately USD 30,250 through the term tes Coast Guard acted incorrectly it could have has cumulatively received USD 134,084,000 of of the agreement. an adverse effect on the Company’s results of the amount available for training costs and does On 13 September 2002, the Shipyard finali- operations and financial condition. not expect to receive any more training funding. zed an agreement with the City of Philadelphia (and others), whereby the Real Estate and Use Other commitments and contingencies and Occupancy Tax for the years 2001 through In addition to the construction costs that were 2017 were agreed to. The Shipyard is commit-

48 Aker Philadelphia Shipyard annual report 2007 Our performance

Group accounts

Note 28: Transactions, guarantees and agreements with related parties

The ultimate parent company of Aker Philadelphia Shipyard ASA is Aker ASA. Through 4 December 2007 Aker ASA owned the Group’s activities through its majority owned subsidiary Aker American Shipping ASA. Except as described elsewhere, the Group believes that related party transactions are made on terms equivalent to those that prevail in arm’s length transactions. APSI has business relations with several companies which are ultimately controlled by Aker ASA.

Transactions The Group has a service agreement with Aker ASA which provides certain specified accounting, financial and administrative services.

Related administrative costs and financial statement amounts were as follows:

Expenses Expenses Expenses Payables Payables Amounts in USD thousand 2007 2006 2005 31 Dec 2007 31 Dec 2006

Aker ASA 1 240 157 75 - -

In its shipbuilding activities AKPS subcontracts and hires services from several Aker controlled companies on behalf of APSI. Related balances were as follows:

Expenses Expenses Expenses Payables Payables Amounts in USD thousand 2007 2006 2005 31 Dec 2007 31 Dec 2006

Aker ASA 13 328 1 327 267 - - Aker Kvaerner 185 245 48 - 260

Related loans and financial instruments were as follows:

Loan and accrued Interest expense interest balance

Amounts in USD thousand 31 Dec 2007 31 Dec 2006 2007 2006 2005

AKASA - 95 580 7 670 5 870 2 132

Operating revenues were as follows:

Vessels under construction-receivables

Revenue Revenue Revenue Amounts in USD thousand 2007 2006 2005 31 Dec 2007 31 Dec 2006

American Shipping Corporation (ASC), owned 100% by AKASI 264 106 210 060 34 067 93 202 243 222

Agreements as well as other administrative services. Through 30 November 2007, the Group had A service agreement with Aker ASA exists for A line of credit agreement with Aker American agreements to construct product tankers with economic and accounting services, IT support Shipping ASA existed for the purpose of financing ASC for the cost of production. The contractual and operation, and administrative services. the construction of vessels, and other operating agreement for vessels constructed for ASC was The agreement with Aker ASA was made with and administrative costs. The AKASA loan was changed subsequent to 30 November 2007 to AKASA and its subsidiaries in 2006. The agre- unsecured and had a limit of USD 100 million. allow for profit margin on future ships. The counter ement was assigned to AKPS in 2007. There was no maturity date and either party could guarantee to Aker Maritime Finance ASA is APSI has a management service agreement terminate the agreement with immediate effect. disclosed in note 27. with AKASA to provide financial and accounting Concurrent with the sale of Aker Philadelphia services, HR, payroll, IT and information services Shipyard Inc., the loan was fully repaid.

Aker Philadelphia Shipyard annual report 2007 49 Our performance

Parent accounts

Aker Philadelphia Shipyard ASA: Profit and loss accounts

Amounts in USD thousands Note Inception - Dec 2007

Operating revenues 1 4 Other operating expences 2 (162) Operating loss (148)

Other interest and financial income 643 Profit after financial items 495

Taxes 4 - Net profit 495

Allocation of net profit: Net Profit 495 Other equity 6 (495) Total -

50 Aker Philadelphia Shipyard annual report 2007 Our performance

Parent accounts

Aker Philadelphia Shipyard ASA: Balance sheet as of December 31

Amounts in USD thousands Note 2007

Assets Deferred tax asset 4 362 Total intangible asset 362 Shares in subsidiaries 3 67 000 Total financial non current asset 67 000 Total non-current assets 67 362

Other short term receivables 14 Cash and cash equivalents 6 27 639 Total current assets 27 653 Total assets 95 015

Equity and liabilities Share capital 18 709 Share premium reserve 72 402 Total paid in capital 91 110

Other equity 495 Total equity 5 91 606

Short term liabilities to group companies 16 Other short term liabilities 3 394 Total short term liabilities 3 410 Total equity and liabilities 95 016

Oslo, 27 February 2008 Board of Directors Aker Philadelphia Shipyard ASA

Karl Erik Kjelstad Gary Mandel Leif-Arne Langoy Chairman Deputy Chairman

Marianne Heien Blystad Elin Karfjell David Meehan Managing Director

Aker Philadelphia Shipyard annual report 2007 51 Our performance

Parent accounts

Cash flow statement

Amounts in USD thousands Inception December 31, 2007

Profit before tax 495 Change in short term receivables (14) Change in short term liabilities 152 Cash flow from operating activities 633

Gross proceeds from share issuance 27 006 Cash flow from financial activities 27 006

Cash flow for the year 27 639 Cash and cash equivalent open balance - Cash and cash equivalent as of 31 December 27 639

52 Aker Philadelphia Shipyard annual report 2007 Our performance

Parent accounts

The Aker Philadelphia Shipyard ASA: Notes to the accounts

Note 1:Basis for preparation

Aker Philadelphia Shipyard ASA (Company) downs are reversed when the basis for the write Deferred tax is calculated using 28 percent was formed on 16 October 2007 in connection down no longer exists. income tax rate utilizing the difference that exists with an internal reorganization of its former Dividends and other payments are taken between book values and tax values and the net parent, Aker American Shipping ASA domi- to income in the year they are accrued in the operating losses that can be carried forward on ciled in Norway. On 26 November 2007, the subsidiary. If dividends exceed retained ear- the balance sheet date. Tax increasing and tax Company became the owner of Aker Philadel- nings after the purchase, the excess represents reducing temporary differences that are rever- phia Shipyard, Inc., an owner and operator of repayment of invested capital and the payments sing or can reverse in the same period are offset a shipyard in Philadelphia, Pennsylvania, USA. are deducted from the invested value in the against each other. Net tax assets are shown in The Company’s former intermediate parent Company’s balance sheet. the balance sheet to the extent it is probable that was Aker American Shipping, Inc. domiciled in these assets can be utilized. Philadelphia, Pennsylvania, USA, which owned all Classification and valuation of balance To the extent a group contribution is not shown of the outstanding shares. Aker American Ship- sheet items in the income statement, the tax effect is taken ping, Inc. is 100 percent owned by Aker American Current assets and short term liabilities include directly against the investment item in the balance Shipping ASA. On 4 December 2007, Aker Ame- items that have less than one year to maturity, and sheet. rican Shipping Inc. sold its 100% interest to new other items that are deemed operational working and existing shareholders of Aker American Ship- capital. Other items are classified as long term Cash flow statement ping ASA via a private placement. assets/long term debt. The cash flow statement is shown using the indi- The accounts of Aker Philadelphia Shipyard Current assets are valued at the lower of his- rect method. Cash and cash equivalents com- ASA are presented in conformity with Norwegian torical cost and fair value. Current liabilities are prises cash, bank deposits and other short term legislation and generally accepted accounting valued at its nominal historical value at the time liquid placements. principles in Norway. The Company’s functional the liability arises. and reporting currency is the U.S. Dollar (USD). Non current assets are valued at historical Use of estimates cost, but are written down to fair value if impair- Preparation of financial statements in conformity Subsidiaries/associated companies ment is deemed to be of a permanent nature. with generally accepted accounting principles Subsidiaries and associated companies are pre- Non current liabilities are valued at nominal histo- requires management to make estimates and sented on a historical cost basis in the parent rical value. assumptions that affect the income statement, company accounts. The investment is valued at the reported amounts of assets and liabilities and historical cost for the shares unless impairment Tax also the disclosure of contingent assets and liabi- write downs have been deemed necessary. The Tax cost in the income statement comprises both lities on the balance sheet date. shares are written down to fair value if the impair- current payable taxes and the change in deferred Contingent losses that are probable and quanti- ment is not of temporary nature and is necessi- tax. Payable tax is calculated on the basis of the fiable are expensed when they are identified. tated by accepted accounting principles. Write profit for the period in Norwegian Kroner (NOK).

Note 2: Other operating expenses

Fees to the auditors of USD 72 000 for ordinary audit has been expensed in 2007. In addition, fees paid to the auditors in connection with raising new equity are included in equity (USD 34 000). There has been no fee for other audit work in 2007. The company has no employees. The senior management is employed in the operating companies. Fees to the Board of Directors of USD 17 000 was expensed in 2007.

Note 3: Shares

Ownership and Business Amounts in USD thousand voting rights (%) address Historical cost Book value

Aker Philadelphia Shipyard Inc 100% Philadelphia 67 000 67 000 Total shares 67 000

APSI’s result after tax in 2007 and equity by the end of 2007 are:

Results after tax 2007 in USD thousand 3 370 Equity at 31 December 2007 in USD thousand 73 365

Aker Philadelphia Shipyard annual report 2007 53 Our performance

Parent accounts

Note 4: Taxes

The table below shows the difference between book and tax values by the end of 2007 and 2006, and the amounts of deferred taxes at these dates and the change in deferred taxes.

Amounts in USD thousand 2006 2007

Operating loss carried forward (1 292) Total differences - (1 292) Net deferred tax asset, 28 % - (362)

Estimated result for tax purposes:

Amounts in USD thousand 2007

Result before tax measured in NOK for taxation purposes (34) Foreign currency differences included in taxable but not financial statement income (1 258) Change in temporary differences - Estimated result for tax purposes (1 292) Payable current tax -

A deferred tax asset of USD 362 was recognized as of 31 December 2007 for deductible transaction costs that were offset against equity.

Note 5: Total equity

Changes in equity are:

Share Share Total paid-in Other Total Amounts in USD thousand capital premium capital equity equity

Equity as of 1 January 2007 - - - - - Paid in capital (1) 4 834 19 277 24 110 - 24 110 Payment in kind 13 875 53 125 67 000 - 67 000 Net result - - - 495 495 Equity as of 31 December 2007 18 709 72 402 91 111 495 91 606

The share capital of NOK 102 million consists of 10 165 305 shares with a par value of NOK 10 and has been converted to USD using an average exchange rate of NOK 5.43:USD 1.The company is a part of the consolidated accounts of Aker ASA, Fjordalleen 16, 0115 Oslo.

(1) As part of the private placement and subsequent retail offering the company raised USD 27 million net of expenses of USD 0.9 million (net of tax benefit) and a guarantee liability assumed of USD 2.0 million (See note 9).

54 Aker Philadelphia Shipyard annual report 2007 Our performance

Parent accounts

The shares were owned by the following 20 largest parties as of 20 February 2008

Name Number of shares held Ownership in per cent

Aker ASA 5 112 750 50,3% Deutsche Bank AG Lon Prime Brokerage Full 1 432 486 14,1% Deutsche Bank Ag Lon S/A Prime Brokerage 702 302 6,9% Goldman Sachs & Co - Security Client Segr 474 989 4,7% Jpmorgan Chase Bank M.Stanley Norway EQU 474 989 4,7% State Street Bank An A/C Client Omnibus D 456 800 4,5% Dresdner Bank Ag Lon S/A Prime Brokerage 444 343 4,4% Jpmorgan Chase Bank S/A Escrow Account 403 740 4,0% Fokus Bank, Filial A Meglerkonto Utland 131 407 1,3% Deutsche Bank Ag Lon Deutsche Bank Ag NY 131 346 1,3% Credit Suisse Securi (Europe) Ltd./Firms 124 348 1,2% Merrill Lynch Intern A/C Mli Equities 71 249 0,7% Seb Enskilda Asa Egenhandelskonto 29 480 0,3%

Meehan David 27 500 0,3% Seb Private Bank S.A 25 376 0,2% Elsjo AS (Erling Sigvart Joh) 10 200 0,1% Camelback Holding As (Tore Bjark) 9 800 0,1% Seb London A/C Non Treaty 9 600 0,1% Seb London A/C Nominee 15% 8 600 0,1% Byesvollen As 2 000 0,0% Total, 20 largest shareholders 10 083 305 99,2% Other shareholders 82 000 0,8% Total 10 165 305 100,0%

Note 6: Cash and cash equivalents

There is no restricted cash.

Note 7: Events after the balance sheet date

There have been no significant events after the balance sheet date.

Note 8: 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 26 to the Consolidated Accounts.

Note 9: Guarantee on behalf of other companies in the group

The company has made the following guarantees:

Description Beneficiary Amount (USD thousands) Borrower

Capital expenditure facility PIDC Regional Center, LP XV 20 000 APSI Construction loan facility Caterpillar Financial Services Corp 125 000 APSI Working capital facility Commerce Bank 16 800 APSI

The capital expenditure facility is for capital improvements at the yard.

The construction loan facility is for the construction of the product tankers.

The working capital facility supports the foreign exchange deals and issuance of letters of credit.

Additionally, the Company has issued a USD 20 million counter guarantee to Aker Maritime Finance ASA and Aker American Shipping ASA as part of the sale of Aker Philadelphia Shipyard Inc. in December 2007 related to minimum employment levels.

Aker Philadelphia Shipyard annual report 2007 55 Our performance

Auditor’s report

56 Aker Philadelphia Shipyard annual report 2007 Our performance

Auditors’s report

Aker Philadelphia Shipyard annual report 2007 57 Our performance

Share and shareholder information

Share and shareholder information

Aker Philadelphia Shipyard 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 Aker Philadelphia shipyard’s share price reflects its underlying value.

Aker Philadelphia Shipyard’s goal is that the Share price development company’s shareholders will, over time, re- ■ Aker Philadelphia Shipyard ■ OAAX ceive competitive returns on their investments 150 through a combination of dividends and share price growth. 120 The Board considers the amount of divi- dend, if any, to be recommended for approval 90 by the shareholders on an annual basis. The 60 recommendation will be based upon earnings for the year just ended, the financial situation at 30 the relevant point in time and applicable restric- tions under AKPS’s financial agreements. 17-12-07 19-12-07 21-12-07 28-12-07 03-01-08 07-01-08 09-01-08 11-01-08 15-01-08 17-01-08 21-01-08 23-01-08 25-01-08 29-01-08 31-01-08 04-02-08 06-02-08 08-02-08 12-02-08 14-02-08 18-02-08 20-02-08 The Board of Directors will propose to Aker Philadelphia Shipyard’s annual shareholders’ meeting that a per-share dividend of NOK 0 be ASA, which holds 50.3 percent of the compa- Stock option plans paid for the 2007 accounting year ny’s shares. The Aker group comprises compa- The company does not currently have any nies that legally and financially are independ- stock option plans. Shares and share capital ent units — as is Aker Philadelphia Shipyard Aker Philadelphia Shipyard ASA has 10,165,305 ASA. Nevertheless, Aker companies have Investor relations ordinary shares; each share has a par value of many commonalities, and the active ownership Aker Philadelphia Shipyard seeks to maintain NOK 10 (see Note 16 to the company’s 2007 of Aker ASA provides a unifying influence. an open and direct dialogue with shareholders, accounts). As of 31 December 2007, the com- Aker’s long-term industrial approach, its financial analysts, and the financial market in pany had 106 shareholders, of whom 15.1 per- shareholder structure and its management general. In addition to meetings with analysts cent were non-Norwegian shareholders. model imbue Aker companies with autonomy and investors, the company schedules regu- Aker Philadelphia Shipyard has a single and decisiveness. Just as Aker ASA carries lar presentations at major financial centers in share class. Each share is entitled to one vote. the imprint of its main shareholder Kjell Inge Europe and the United States. The company held no own (treasury) shares Røkke (via his privately held company TRG), Visitors to Aker Philadelphia Shipyard’s as of 31 December 2007. Aker Philadelphia Aker puts its mark on the development of each website at: www.akerphiladelphia.com sub- Shipyard ASA was incorporated in 2007 and, company. scribe to email delivery of Aker Philadelphia accordingly, all of the shares were issued in Through the exercise of active ownership, Shipyard news releases. 2007. Aker intends to create value that benefits all All Aker Philadelphia Shipyard press stakeholders. releases, and investor relations (IR) publica- Dividend policy From time to time, agreements are entered tions, including archived material, are availa- The Company´s objective is to provide its share- into between two or more Aker companies. The ble at the company’s website: www.akerphila- holders with a competitive return over time boards of directors and other parties involved delphia.com. This online resource includes the based on its earnings. Any dividends will be in the decision-making processes related to company’s quarterly and annual reports, pro- considered in conjunction with the Company´s such agreements are all critically aware of the spectuses, corporate presentations, articles of financial position, debt covenants, its capital re- need to handle such matters in the best inter- association, financial calendar, along with other quirements and potential strengthening of the ests of the involved companies, in accordance information. Company´s financial structure. The Company with good corporate governance practice. If Shareholders can contact the company at aims to pay out between 50% and 100% of its needed, external, independent opinions are [email protected]. net profits. sought. Electronic interim and annual Stock-exchange listing Current Board authorizations reports Aker Philadelphia Shipyard was listed on Oslo On 26 November 2007, the board of directors Aker Philadelphia Shipyard encourages its Axess on 17 December 2007 under the ticker was given authorization to issue new shares by shareholders to subscribe to the company’s an- “AKPS”. Aker Philadelphia Shipyard shares are increasing the share capital with up to NOK 35 nual reports via the electronic delivery system registered in the Norwegian Central Securities million. The authorization has partly been used, of the Norwegian Central Securities Depository Depository; the shares have the securities reg- but the board of directors is currently author- (VPS). Please note that VPS services (VPS istration number ISIN NO 0010395577. DnB ized to increase the share capital with another Investortjenester) are designed primarily for NOR is the company’s registrar. NOK 9,346,950. The authorization will expire Norwegian shareholders. Subscribers to this on 26 May 2009. service receive annual reports in PDF format Majority shareholder The authorization was given in order to issue by email. VPS distribution takes place at the Aker Philadelphia Shipyard ASA’s largest major- shares in connection with the shares issue to same time as distribution of the printed version ity shareholder is the industrial company Aker the market completed in 2007. of Aker Philadelphia Shipyard’s annual report

58 Aker Philadelphia Shipyard annual report 2007 Our performance

Share and shareholder information

to shareholders who have requested it. Twenty largest shareholders Quarterly reports, which are generally only As of 20 February 2008 distributed electronically, are available from the company’s website and other sources. Name Number Ownership in % Most recent Shareholders who are unable to receive the of shares OSE notifica- electronic version of interim reports may sub- held tion (flagging) scribe to the printed version by contacting Aker Aker ASA 5 112 750 50.3% Philadelphia Shipyard’s investor relations staff. Deutsche Bank AG Lon Prime Brokerage Full 1 432 486 14.1% Nomination committee Deutsche Bank Ag Lon S/A Prime Brokerage 702 302 6.9% The company’s nomination committee has the Goldman Sachs & Co - Security Client Segr 474 989 4.7% following members: Kjell Inge Røkke, Gerhard Jpmorgan Chase Bank M.Stanley Norway 474 989 4.7% Heiberg and Kjeld Rimberg. EQU Annual shareholders’ meeting State Street Bank An A/C Client Omnibus D 456 800 4.5% Aker Philadelphia Shipyard ASA’s annual share- Dresdner Bank Ag Lon S/A Prime Brokerage 444 343 4.4% holders’ meeting is normally held in late March or early in April. Written notification is sent to all Jpmorgan Chase Bank S/A Escrow Account 403 740 4.0% shareholders individually or to the sharehold- Fokus Bank, Filial A Meglerkonto Utland 131 407 1.3% ers’ nominee. To vote at shareholders’ meet- Deutsche Bank Ag Lon Deutsche Bank Ag 131 346 1.3% ings, shareholders (or their duly authorized rep- Ny resentatives) must either be physically present or must vote by proxy. Credit Suisse Securi (Europe) Ltd./Firms 124 348 1.2% Merrill Lynch Intern A/C Mli Equities 71 249 0.7% 2007 share data Seb Enskilda Asa Egenhandelskonto 29 480 0.3% The company’s total market capitalization as of 31 December 2007 was NOK 579.4 mil- Meehan David 27 500 0.3% 17.12.2007 lion. During 2007, a total of 1,370,278 Aker - Purchased 27,500 shares Philadelphia Shipyard shares traded, corre- sponding to 13.5 percent of the company’s Seb Private Bank S.A 25 376 0.2% stock. The shares traded on 5 of 7 possible Elsjo AS (Erling Sigvart Joh) 10 200 0.1% trading days; the average daily trading vol- ume was 195,754 shares. Camelback Holding As (Tore Bjark) 9 800 0.1% Seb London A/C Non Treaty 9 600 0.1% Seb London A/C Nominee 15% 8 600 0.1% Byesvollen As 2 000 0.0% Geographic distribution of ownership Total, 20 largest shareholders 10 083 305 99.2% As of 20 February 2008 Other shareholders 82 000 0.8% Nationality Number of Owner­ Total 10 165 305 100.0% shares held ship Non-Norwegian 4 794 268 47.2% Ownership structure by number of shares held Norwegian 5 371 037 52.8% Per 20 February 2008 Total 10 165 305 100,0% Shares held No. of shareholders No. of shares held % share capital

1 - 100 0 0 0.00 % 2007 share data 101 - 1,000 38 15 600 0.15 % Highest traded NOK 60.00 Lowest traded NOK 57.00 1,001 - 10,000 46 96 400 0.95 % Share price as of NOK 57.00 10,001 - 100,000 5 163 805 1.61 % 31 December 100,001 - 500,000 10 4 776 750 46.99 % Shares issued as of 10 165 305 31 December Over 500,000 1 5 112 750 50.30 % Own (treasury) sha- 0 Total 100 10 165 305 100.00 % res as of 31 Dec. Shares issued and 10 165 305 outstanding as of Share capital development over the past three years: 31 Dec. Date Change in Share capital Number of Par value Market capitaliza- NOK 579.4 share capital in NOK shares in NOK tion as of 31 Dec. million January 1 or date of Turnover ratio for % 13.5 incorporation 2007 Change in 2007 101 165 305 Proposed per-share NOK per 0 dividend share 31 December 2007 101 165 305 10 165 305 10.00

Aker Philadelphia Shipyard annual report 2007 59 Our organization and governance

Corporate governance

Appropriate division for roles and good control measures

Aker Philadelphia Shipyard ASA’a corporate governance principles are based on the Norwegian Code of Practice for Coperate Governance, dated 4 December 2007.

The Group’s Corporate Gover­nance goals and main strategies are presented Aker Philadelphia Shipyard ASA has pre- policy was adopted by the Board of Aker on page 6 of this report and in the Board pared guidelines designed to ensure that Philadelphia Shipyard ASA in February of Director’s report. members of the Board of Directors and 2008. Prior to this date, the operations executive management notify the Board of of Aker Philadelphia Shipyard ASA were Equity and dividends any direct or indirect stake they may have in governed by the corporate governance Equity agreements entered into by the Group. See policy of Aker American Shipping ASA. The Group’s equity as of 31 December 2007 additional information on transactions with The corporate governance principles amounted to USD 98.0 million, which cor- related parties in Note 28 to the consolidated are based on the Norwegian Code of responds to an equity ratio of 38.7 percent. accounts. For further details on the relation- Practice for Corporate Governance, dated Aker Philadelphia Shipyard ASA regards the ship between Aker Philadelphia Shipyard 4 December 2007. The following presents Group’s current equity structure as appro- ASA and Aker ASA, which owns 50.3% of Aker Philadelphia Shipyard ASA’s practice priate and adapted to its objectives, strategy, Aker Philadelphia Shipyard ASA. regarding each of the recommendations and risk profile. contained in the Code of Practice. Any Freely negotiable shares deviations from the recommendations are Dividends Aker Philadelphia Shipyard ASA’s shares are found under the item in question. Aker Philadelphia Shipyard ASA’s dividend freely negotiable. No restrictions on transfer- policy is included in the section Shares and ability are found in the company’s articles of Purpose Shareholder Information, see page 58 of this association/incorporation. Aker Philadelphia Shipyard ASA’s annual report. The Group’s dividend policy Corporate Governance principles ensure is among the factors considered as part of Annual shareholders’ meetings an appropriate division of roles and the Board’s proposal for allocation of profit The company encourages shareholders to responsibilities among the company’s for 2007. participate in shareholders’ meetings. It is owners, its Board of Directors, and its the company’s priority to hold the annual executive management and that business Board authorizations general meeting as early as possible after activities are subject to satisfactory It is the intention that the Board’s proposals the year-end. Notice of general shareholders’ control. The appropriate division of roles for future Board authorizations are to be lim- meetings and comprehensive supporting in- and satisfactory control contribute to ited to defined issues and to be valid only un- formation is made available for the sharehold- the greatest possible value creation over til the next annual shareholders’ meeting. ers on the company’s homepage and sent to time, to the benefit of owners and other Current Board authorizations to increase the shareholders according to the deadlines stakeholders. share capital and acquire own (treasury) stated in the Norwegian Public Company Act shares are presented in the section Shares (allmennaksjeloven). The deadline for share- Values and ethical guidelines and Shareholder information on page 58 of holders to register to the general sharehold- The Board has adopted the Group’s this annual report. er’s meetings is set as close to the date of corporate values and ethical guidelines. the meeting as possible. Shareholders who Aker Philadelphia Shipyard ASA’s Equal treatment of shareholders are unable to attend the meeting in person corporate values are presented on page and transactions with close may vote by proxy. Both on the attendance 8 of this annual report. associates and proxy form and the notice of meeting, The company has a single class of shares, all procedures for registration are thoroughly Business and all shares carry the same rights in the explained. In addition, information on how Aker Philadelphia Shipyard ASA’s business company. Equal treatment of all sharehold- to propose a resolution to the items on the purpose clause is as follows: ers is crucial. If existing shareholders’ pre- agenda at the General Meeting will be in- “The company’s activities consist of emptive rights are waived upon an increase cluded in the notice. owning and operating businesses related in share capital, the Board must justify the Pursuant to Aker Philadelphia Shipyard to building ships,including participating in waiver. Transactions in own (treasury) shares ASA’s articles of association, the Chairman or acquiring other related businesses.” are executed on the Oslo Stock Exchange or of the Board, or other person appointed by The function of the business purpose by other means at the listed price. the Chairman, chairs general sharehold- clause ensures that shareholders have If there are material transactions between ers’ meetings. To the extent possible, Board control of the business and its risk the company and a shareholder, Board mem- members, the nomination committee leader, profile, without limiting the Board or ber, member of executive management, or a and auditor attend annual shareholders’ management’s ability to carry out strategic party closely related to any of the aforemen- meetings. and financially viable decisions within the tioned, the Board shall ensure that independ- In its work, the nomination committee defined purpose. The Group’s financial ent valuations are available. emphasize on composing a board that works

60 Aker Philadelphia Shipyard annual report 2007 Our organization and governance

Corporate governance

as a team, and that the Board members’ company’s shareholders elect the chair- Notes 1 and 25 to the accounts. experience and qualifications supply each man of the Board at the annual sharehold- other. The shareholder’s meeting is therefore ers’ meeting. The Board elects its own Remuneration of the Board of invited to vote for a complete Board. Deputy Chairman. Board members are Directors Minutes of shareholders’ meetings elected for a period of two years. Board remuneration reflects the Board’s re- are published as soon as practically The majority of the shareholder-elected sponsibility, expertise, time spent, and the possible on the Oslo Stock Exchange, Board members are independent of the complexity of the business. Remuneration www.newsweb.no (ticker: AKPS) and on the company’s executive management and does not depend on Aker Philadelphia company’s homepage www.akerphiladel- its significant business associates. Aker Shipyard ASA’s financial performance. Board phia.com, under the heading “Investors”. Philadelphia Shipyard ASA does not have members and companies with whom they any Board committees. are associated are not to take on special Nomination committee The current composition of the Board tasks for the company beyond their Board Aker Philadelphia Shipyard ASA has a nomi- is presented on page 63 of this annual appointments. nation committee, as set forth in the compa- report; the Board members’ expertise, Additional information on remuneration ny’s articles of association. Pursuant to the capabilities, and independence are also paid to Board members for 2007 is presented articles of association, the nomination com- presented. Board members’ sharehold- in Note 26 to the consolidated accounts. mittee is to comprise no fewer than three ings are presented in Note 26 to the con- Remuneration of executive management members. Each member is normally elected solidated accounts. The company encour- The Board has adopted guidelines for for a two-year period. The composition of ages the Board members to invest in the remuneration of executive management the nomination committee reflects the in- company shares. The shareholder-elected in accordance with the Norwegian Public terests of the shareholders, and the nom- Board members represent a combination Limited Company Act (Allmennaksjeloven ination committee members’ independ- of expertise, capabilities, and experience § 6-16a). Salary and other remuneration of ence from Aker Philadelphia Shipyard from the finance business, industry, and the President and CEO of Aker Philadelphia ASA’s Board and executive management. non-governmental organizations. Shipyard ASA’s, are determined in a Board of Nomination committee members and None of the shareholder-elected Board Directors meeting. Chairman are elected by the company’s members are up for election in 2008. Aker Philadelphia Shipyard ASA does not annual shareholders’ meeting, which also have stock option plans or other such share determines remuneration payable to com- The work of the Board of award programs for employees. Further infor- mittee members. Directors mation on remuneration for 2007 for members Pursuant to Aker Philadelphia Shipyard The Board of Aker Philadelphia Shipyard of Aker Philadelphia Shipyard ASA’s executive ASA’s articles of association, the nomina- ASA annually adopts a plan for its work, em- management is presented in Note 26 to the tion committee recommends candidates phasizing goals, strategies, and implemen- consolidated accounts. The Group’s guide- for members of the Board of Directors. The tation. Also, the Board has adopted board lines for remuneration to executive manage- nomination committee also makes recom- instructions that regulate areas of respon- ment are discussed on page 47 of this annual mendations as to remuneration of Board sibility, tasks, and division of roles of the report and will be presented to the share- members. The nomination committee Board, Board Chairman, and President and holder at the annual general meeting. should justify its recommendation. CEO/managing director. The Board instruc- Aker Philadelphia Shipyard’s nomina- tions also feature rules governing Board Information and communications tion committee comprises the following schedules, rules for notice and chairing Aker Philadelphia Shipyard’s reporting of fi- members: of Board meetings, decision-making rules, nancial and other information is based on the President and CEO’s/managing direc- openness and on equal treatment of share- ●● Kjell Inge Røkke, Chairman (2007-2009) tor’s duty and right to disclose information holders, the financial community, and other ●● Gerhard Heiberg (2007-2009) to the Board, professional secrecy, imparti- interested parties. ●● Kjeld Rimberg (2007-2009). ality, and other issues. The long-term purpose of Aker The Board evaluates its own perform- Philadelphia Shipyard ASA’s IR activities is Board composition and ance and expertise once a year. to ensure the company’s access to capital at independence competitive terms and to ensure sharehold- The company does not have corporate Risk management and internal ers correct pricing of shares. These goals assembly. control are to be accomplished through correct and Pursuant to the company’s articles of The Board is to ensure that the company timely distribution of information that can association, the Board comprises between maintains solid in-house control practices affect the company’s share price; the com- three and seven members. Pursuant to and appropriate risk management systems pany is also to comply with current rules and the company’s corporate governance pol- tailored to the company’s business activi- market practices, including the requirement icy, the Board is to comprise a total of five ties. The Board annually reviews the com- of equal treatment. members. Due to the company being in the pany’s most important risk areas and inter- All stock exchange notifications and press start up phase in 2007, the Board chair- nal control systems and procedures, and releases are made available on the compa- man was elected by the Board and not by the main elements of these assessments ny’s homepage www.akerphiladelphia.com; the company’s shareholders’ meeting. In are mentioned in the Board of Directors’ re- stock exchange notices are also available future elections the company will have the port. The issue is further described in the from www.newsweb.no. All information that is

Aker Philadelphia Shipyard annual report 2007 61 Our organization and governance

Corporate governance

distributed to shareholders is simultaneously meeting after the take-over offer has become Board with a written confirmation that the re- published on Aker Philadelphia Shipyard public knowledge. quirement of independence is met. ASA’s homepage. The company endeavors Upon the issuance of an offer for the The auditor participates in the Board to hold open presentations in connection company’s shares, the Board will make a meeting that deals with the annual accounts, with the reporting of the results and the pres- statement to the shareholders that provides and the auditor has reviewed the companies’ entations are often transmitted directly on the an assesment of the bid, the Board’s rec- internal control with the Board. Once a year a internet. ommendations, and the reasons for these meeting is held between the auditor and the The company’s financial calendar is found recommendations. For each instance, an Board, at which no representatives of execu- on page 4 of this annual report. assessment will be made as to the necessity tive management are present. of bringing in independent expertise and if Guidelines have been established for Takeovers a third party valuation is to be obtained. If executive management’s use of auditors for The company has not produced special prin- a third party valuation is obtained the Board services other than auditing. Auditors are to ciples for how it will act in the event of a take- will aim at recording such valuation in its provide the Board with an annual overview of over bid. However, if a takeover bid occured, statement. services other than auditing that have been the board would follow the overriding princi- Transactions that have the effect of sale supplied to the company. ple of equal treatment for all shareholders. of the company or a major component of it Remuneration for auditors is presented Unless the board has particular reasons are to be decided on by shareholders at a in Note 4 to the consolidated accounts, for so doing, it will not take steps to prevent shareholder’s meeting. detailed in auditing and other services. In or obstruct a take-over bid for the compa- addition these details are presented at the ny’s business or shares, nor use share issue Auditor annual general meeting. authorizations or other measures to hinder The auditor makes an annual presentation to the progress of the bid, without such actions the Board of a plan for the auditing work for being approved by the general shareholders’ the year. Further, the auditor has provided the

62 Aker Philadelphia Shipyard annual report 2007 Our organization and governance

Board of Directors

Karl Erik Kjelstad Mr. Karl Erik Kjelstad (born 1966) Shipyard ASA, Aker Oilfield Services is Senior Partner & President, Mari- Ltd., Aker DOF Supply AS and Board Board Chairman time Technologies of Aker ASA. He member of Aker Kvaerner ASA. Mr has been with the Aker Group since Kjelstad holds a MSc in Marine Engi- 1998. Mr. Kjelstad was President & neering from the Norwegian Uni- CEO of Aker Yards ASA from Janu- versity of Science and Technology ary 2003–June 2007. Prior to joining (NTNU), Trondheim. Mr. Kjelstad is a Aker, Mr. Kjelstad held the position Norwegian citizen. As of 1 February as senior consultant at PA Consulting 2008, Mr. Kjelstad holds 2,000 sha- Group. From 1992 to 1996 Mr. Kjel- res in the company and has no stock stad held various management posi- options. He has been elected for tions in the TTS Group. Mr. Kjelstad the period 2007-2009. is Chairman of Aker Philadelphia

Gary Mandel Mr. Gary Mandel (born 1960) construction, project manage- is Chairman of the Aker Ameri- ment, maintenance, and operations Deputy Board Chairman can Shipping Board of Directors, for the power, petrochemical, and having been nominated to the posi- hydrocarbon industries. Mr. Mandel tion in December 2007. Prior to this, is a graduate from the University of Mr. Mandel served as Executive Nuevo Leon, Mexico. Mr. Mandel Vice President of Aker Kvaerner’s is a U.S. citizen. As of 1 February Oil, Gas, Process and Energy busi- 2008, Mr. Mandel holds 0 shares ness area. For more than 25 years, in the company and has no stock Mr. Mandel has worked within the options. He has been elected for oil and gas industry, with empha- the period 2007-2009. sis on engineering, procurement,

Leif-Arne Langøy Mr. Leif Arne Langøy (born 1956) BioMarine and Aker Exploration, has been President & CEO of Aker deputy chairman of TRG Holding Board member ASA, former Aker RGI, since 2003. and board member of Aker Phila- Since 2006 he has also been the delphia Shipyard. Langøy holds an board chairman. He has previously MBA degree from the Norwegian served as President & CEO of the School of Economics and Business Aker Yards Group, and as a Mana- Administration. Mr. Langøy is a Nor- ging Director for Aker Brattvaag wegian citizen. As of 1 February for 13 years. He is also chairman 2008, Mr. Langøy holds 0 shares of the board of Aker Holding, Aker in the company and has no stock Kværner, Aker Seafoods, Aker Dril- options. He has been elected for ling, Aker Floating Production, Aker the period 2007-2009.

Marianne Heien Ms. Marianne Heien Blystad (born Administration (MBA) from the Nor- 1958) is Attorney at Law with the wegian School of Management; BI, Blystad law firm Nordia DA since 2005. and a law degree from the Univer- Board member During the period between 2003 sity of Oslo; UIO. Ms. Blystad is a and 2005 she held the same posi- Norwegian citizen. As of 1 February tion with the law firm Bull & Co. Prior 2008, Ms. Blystad holds 0 shares to this, Ms. Blystad held positions in in the company and has no stock Blystad Shipping and Trading, Eks- options. She has been elected for portfinans and Citibank. Ms. Blys- the period 2007-2009. tad holds a Master of Business and

Elin Karfjell Ms. Elin Karfjell (born 1965) is she has experience from a broad director of finance and administra- spectre of industries. Ms. Karfjell Board member tion of Ementor Norge AS. She is is a state authorized public acco- former partner of Ernst & Young AS. untant, and has an accountant‘s Ms. Karfjell joined Ernst & Young degree from the Norwegian School AS in 2002. Prior to this, Ms. Kar- of Management; BI. Ms. Karfjell is fjell held various positions including a Norwegian citizen. As of 1 Febru- as a partner in Arthur Andersen. ary 2008, Ms. Karfjell holds 1,200 At Ernst & Young/Arthur Andersen, shares in the company and has no she held various leading positions stock options. She has been elec- both within advisory and audit, and ted for the period 2007-2009.

Aker Philadelphia Shipyard annual report 2007 63 Our organization and governance

Management

David Meehan Mr. Meehan (born 1953) joined Aker president of sales and technology, Philadelphia Shipyard, Inc as CEO vice president of operations, mana- President and CEO on October 2003. In his 25 years at ger of construction, project mana- Aker Kvaerner’s Engineering and ger, and construction site mana- Construction Group, he has had an ger of several large projects both extensive background in the engi- domestically and internationally. neering and construction of heavy Mr. Meehan holds a Bachelor of industrial projects in the steel, Science in Civil Engineering from power and chemical industries. Pennsylvania State University. Mr. Prior to his current role at APSI, Mr. Meehan is a U.S. citizen. As of 1 Meehan was general manager of February 2008, Mr. Meehan holds Aker Kvaerner’s Pittsburgh office. 27,500 shares in the company and There he held the positions of vice has no stock options.

Jeffrey Theisen Mr. Theisen (born 1968) joined institutions and commercial end- APSI in May 2007. Mr. Theisen has users. Mr. Theisen holds a Bachelor Chief Financial Officer over 17 years experience in finan- of Science in Accounting from cial and strategic planning, organi- Villanova University and is a certi- zational leadership, budgeting and fied public accountant ( inactive) in cost management, including seven the state of Pennsylvania. Mr. Thei- years with Arthur Andersen. Prior sen lives in Lansdale, PA USA. Mr. to joining APSI, Mr. Theisen ser- Theisen is a U.S. citizen. As of 1 ved as Chief Financial Officer for February 2008, Mr. Theisen holds The Regulus Group, a market lea- 1,000 shares in the company and der in transaction and information has no stock options. processing services to financial

Bengt Rem Mr. Rem (born 1961) holds the he has, among other things, held position as CFO in Aker ASA, and the position as CFO and Chief of Vice President took on additional responsibility as Staff. Before joining the Aker RGI Vice President for Aker Philadel- group, Mr. Rem‘s work experience phia Shipyard ASA in December included employment with Arthur 2007. Mr. Rem is a state authori- Andersen & Company as well as zed accountant and holds a Mas- Oslo Bors. Mr. Rem resides in Oslo, ter of Business and Economics Norway. Mr. Rem is a Norwegian degree from the Norwegian School citizen. As of 1 February 2008, Mr. of Management. Mr. Rem joined Rem holds 0 shares in the company the Aker RGI Group in 1995 where and has no stock options.

Scott Clapham Mr. Clapham (born 1974) has been responsible for APSI‘s marke- been with Aker Philadelphia Shipy- ting efforts, advanced projects, and Vice President Business ard since its inception in 1998 other business development issues Development and and has been involved in every at the shipyard. Mr. Clapham holds Engineering project undertaken by the shipy- a degree in Naval Architecture and ard. Mr. Clapham provided critical Marine Engineering from the Uni- support to the CV 2600 and CV versity of Michigan. Mr. Clapham 2500 containership projects from lives in Fort Washington, PA, USA. design through production, and Mr. Clapham is a U.S. citizen. As he is responsible for APSI‘s engi- of 1 February 2008, Mr. Clapham neering and design efforts for the holds 1,000 shares in the company OSG project. Since assuming this and has no stock options. position in 2005, Mr. Clapham has

Robert Fitzpatrick Mr. Fitzpatrick (born 1964) joi- for the fabrication of naval circuit ned APSI in 2001 and had held breakers and switchgear. Mr. Fitz- Vice President Production numerous key positions including patrick holds a Bachelor of Science Prefabrication Manager and Senior in Mechanical Engineering from Production Manager before being Spring Garden College in Philadel- promoted to VP Production in Janu- phia, PA. Mr. Fitzpatrick lives in Bur- ary 2007. Prior to coming to APSI, lington, NJ, USA. Mr. Fitzpatrick is a Mr. Fitzpatrick amassed 16 years U.S. citizen. As of 1 February 2008,, experience in industrial manufac- Mr. Fitzpatrick holds 0 shares in the turing including twelve years as a company and has no stock options. production manager responsible

64 Aker Philadelphia Shipyard annual report 2007 Our organization and governance

Management

Michael Giantomaso Mr. Giantomaso (born 1966) joined Mr. Giantomaso holds a Bachelor Aker Philadelphia Shipyard, Inc as of Arts in Business Administration Vice President Human Human Resources Manager on May and Human Resources from Tem- Resources 8, 1998 and was APSI’s first locally ple University. Mr. Giantomaso lives hired manager. Mr. Giantomaso was in Huntingdon Valley, PA, USA. Mr. promoted to VP on August 1, 2001. Giantomaso is a U.S. citizen. As of He has over 14 years of human 1 February 2008, Mr. Giantomaso resources experience in the manu- holds 0 shares in the company and facturing and health care fields. has no stock options.

Steinar Nerbøvik Mr. Nerbøvik (born 1961) joined 2003. Mr. Nerbøvik holds a Master Aker Philadelphia Shipyard, Inc in of Science in Ship Naval Enginee- Vice President Projects and October 2003. His background is ring from the Norwegian Institute of AIM200 Offshore/Naval Engineering wit- Technology (NTNU) in Trondheim. hin Aker Verdal and Aker Engi- Mr. Nerbovik lives in Swarthmore, neering in the period from 1987 to PA, USA. Mr. Nerbovik is a Norwe- 1991. Mr. Nerbøvik has held mana- gian citizen. As of 1 February 2008, gement positions as combined Mr. Nerbovik holds 1,000 shares Design Manager and Project Mana- in the company and has no stock ger at Aker Langsten from 1991 to options.

Pertti Rinta-Panttila Mr. Rinta-Panttila (born 1954) was ding several management positions appointed VP Planning & Quality in different areas of shipbuilding, Vice President Planning and Control in November 2007. Mr. Rinta- most recently as VP Planning at Aker QC Panttila has previously worked at Yards Finland (formerly Kvaerner the Shipyard during the start-up Masa Yards). Mr. Rinta-Panttila has period in 1998-2003 in several posi- been personally involved in over 100 tions, including VP Production & large new-building projects during VP Planning, and returned to APSI his career. Mr. Rinta-Panttila lives from Aker Yards Finland in Novem- with is family in Philadelphia, PA, ber 2007. Mr. Rinta-Panttila started USA. Mr. Rinta-Panttila is a Finnish his shipbuilding career in Finland in citizen. As of 1 February 2008, Mr. 1980, and has in total 27 years wide Rinta-Panttila holds 0 shares in the experience of shipbuilding, inclu- company and has no stock options.

Anton Roaldset Mr. Roaldset (born 1948) started his experience also includes time at Aker Philadelphia Shipyard, Inc as a sailor, shipbuilder, and pro- Vice President Procurement in March 2006. Prior to coming to ject manager. Mr. Roaldset holds a APSI, Mr. Roaldset served as VP degree in Mechanical Engineering Procurement at Aker Ostsee (for- from Narvik Technical College in merly Kvaerner Warnow Werft) Norway. Mr. Roaldset lives in Phila- during the period 1995 to 2006. Mr. delphia, PA, USA. Mr. Roaldset is a Roaldset began his career in the Norwegian citizen. As of 1 February maritime field as a Technical Super- 2008, Mr. Roaldset holds 0 shares intendent with OVDS, a Norwegian in the company and has no stock ship owner of passenger vessels, options. car ferries and fast ferries, and

Aker Philadelphia Shipyard annual report 2007 65 Our organization and governance

Addresses

Aker Philadelphia Shipyard ASA Aker Philadelphia Shipyard, Inc Fjordalleen 16 2100 Kitty Hawk Avenue P.O. Box 1423 Vika Philadelphia, NO-0115 Oslo PA 19112-1808 Norway USA

Tel: +47 24 13 00 00 Tel: +1 (215) 875 2600 Fax: +47 24 13 01 01 Fax: +1 (215) 875 2700

[email protected] [email protected] www.akerphiladelphia.com www.akerphiladelphia.com

Concept & design: Haugvar Kommunikasjon & Design

Consulting: Apeland Informasjon

Photos: Page 20, courtesy Matson Navigation Company Page 21, courtesy Overseas Shipholding Group, Inc. All other photos, courtesy Aker Philadelphia Shipyard. Inc.

Production: Apeland Informasjon

Print: Kampen Grafisk

66 Aker Philadelphia Shipyard annual report 2007 www.akerphiladelphia.com