Annual report 2009 Contents In review 3 Company Overview 5 Goals and strategies Performance 2009 6 Board of directors’ report 12 Annual accounts - group 12 Statement of financial position 13 Income statement and statement of comprehensive income 14 Statement of changes in equity 15 Cash flow statement 16 Notes to the accounts 32 Annual accounts - parent company 32 Statement of financial position 33 Income statement and statement of comprehensive income 34 Cash flow statement 35 Notes to the accounts 40 Auditor's report 42 Share and shareholder information Corporate gorvernance 45 Corporate governance statement 2009 48 Presentation of the board of directors 49 Presentation of management 50 Company information In review Company overview History 2005 ■ Closed a ten ship bareboat charter agreement with Overseas Shipholding Group, Inc. (OSG) ■ Aker American Shipping ASA (AKASA) established and listed on Oslo Stock Exchange. Purchased the former Kvaerner Philadelphia This is American Shipyard 2007 Shipping Company ■ Obtained permanent ownership financing for ten vessels and issued NOK 700 million bond American Shipping Company ASA (AMSC) is a shipping company for investments in vessels and that owns and leases world-class quality U.S. Jones Act vessels operations for operations between ports in the United States. The Company ■ Split of Aker American Shipping’s is head quartered in Oslo, Norway, with its principal operating ship owning operations from its ship building operations. Aker subsidiaries located in Philadelphia, Pennsylvania, USA. American Shipping sold Aker Philadelphia Shipyard AMSC’s business model is to own and bareboat charter vessels ■ Took delivery of the first three for operation in the U.S. Jones Act market through its wholly product tankers owned subsidiary leasing companies. All of its vessels are fully qualified to participate in the domestic maritime trades of the 2008 United States. ■ Aker ASA reduced its ownership interest, as planned, to 19.9% due to U.S. Jones Act restrictions The vessels which AMSC owns are the most modern product which would have limited its tankers in operation and use the proven design of Hyundai Mipo further ambition for developing Dockyard. These 46,000 dwt vessels are state-of-the-art, fuel maritime business outside the efficient vessels with highly flexible cargo systems. Their U.S. ■ Name changed from Aker outstanding performance, reliability and quality have been American Shipping ASA to recognized by those chartering these vessels over the last three American Shipping Company years. ASA. Trading ticker also changed from AKASA to AMSC ■ Took delivery of two more product tankers 2009 ■ Finalized settlement agreement Financial calendar 2010 with Overseas Shipholding Group, Inc. that settled commercial 7 April Annual General Meeting 2010 disputes between the companies 23 April 1st quarter interim results ■ Stronger balance sheet and better 6 August 2nd quarter interim results positioned for future opportunities 5 November 3rd quarter interim results ■ Took delivery of two additional product tankers (Dates subject to change) American Shipping Company annual report 2009 3 In review <cmd+shift+click> 4 American Shipping Company annual report 2009 In review Goals and Strategies Goals and Strategies Be the preferred ship owning and lease finance Company in the Jones Act market ■ Generate stable cash flow from long term bareboat charters protected from short term market movements, but with exposure to the long term positive outlook for Jones Act shipping ■ Work closely with OSG to ensure that maximum value is gained from each of the time charters and the profit sharing arrangements ■ Maintain stringent controls on all costs associated with the manage- ment of AMSC Have the newest, safest and most modern and operationally friendly fleet ■ Continue to seek improvements in the design and operation of our vessels in a manner than will ensure the safest, highest quality and most environmentally friendly fleet ■ Maintain close relationship with Aker Philadelphia Shipyard to secure timely delivery of vessels Explore and invest in value creation opportunities for our shareholders ■ Continue to focus our efforts on value creation opportunities in both the Jones Act market and the financial markets and position ourselves to take advantage of these opportunities ■ Create shareholder value through optimal structuring and financial transactions American Shipping Company annual report 2009 5 Performance 2009 Board of Directors’ report Navigating in the Jones Act during economic slowdown Introduction The shipbuilding contracts for the two the U.S. coastwise or “Jones Act” trade. American Shipping Company ASA vessels that will be converted to shuttle Compliance with the lease finance excep- (“AMSC” or the “Company”) is a ship tankers have been assigned to OSG. tion requires, among other things, that owning and leasing company with a mod- AMSC’s subsidiaries bareboat charter ern fleet of tanker vessels operating in the Goals and strategies their vessels to qualified U.S. citizen oper- U.S. domestic (“Jones Act”) trades. Dur- AMSC’s primary goal is to be the pre- ators. ing 2009, AMSC took delivery of its sixth ferred ship owning and lease finance The Oil Pollution Act of 1990 (“OPA and seventh product tankers, realizing company in the U.S. Jones Act market. 90”) was enacted as a result of the Exxon total operational revenues of USD 54.4 The Group will continue to explore and Valdez oil spill. OPA 90 created a new million with operating income before inter- invest in value creation opportunities for legal regime to increase pollution preven- est, taxes, depreciation and amortization our shareholders. tion, ensure better spill response capabil- of USD 45.2 million. In connection with AMSC employs several strategies to ity, increase liability for spills, and facili- the Settlement Agreement (discussed ensure the attainment of our goals. The tate prompt compensation for cleanup below), AMSC assigned all of its rights Group will continue to work closely with its and pollution damage. OPA 90 also estab- under the shipbuilding contracts for the customer to ensure that maximum value is lished phase-out dates for existing single- two shuttle tankers to Overseas Shiphold- gained from each of the time charters and hull tanker vessels and required all newly ing Group, Inc. in 2009. AMSC currently the profit sharing arrangements. AMSC constructed tanker vessels to meet dou- has three additional tankers on order with focuses on long-term charters to generate ble-hull standards. Beginning in 2015 all Aker Philadelphia Shipyard, Inc. (Aker stable cash flows so as to protect the tanker vessels trading in the United Philadelphia Shipyard, Inc. is a wholly Group’s revenue from short-term market States must meet double-hull standards. owned subsidiary of Aker Philadelphia movements. The Group will maintain strin- In the 1990’s, there was a surplus Shipyard ASA; collectively “AKPS”) and gent controls on all of its costs. In addition, capacity of product tankers and barges. options for four additional tankers. The by maintaining a close, commercial rela- As more vessels reach their OPA 90 retire- seven product tankers in operation and tionship with Aker Philadelphia Shipyard, ment date, we expect capacity will the three product tankers on order have the Group seeks to secure the timely deliv- decrease and eventually create a supply all been, or will be bareboat chartered to ery of all of our vessels. deficit. Although the end of 2008 and Overseas Shipholding Group, Inc. or one AMSC has the most modern fleet in 2009 marked a lower demand for oil prod- of its subsidiaries (collectively “OSG”). the market. The ship design achieves high ucts due to the poor global economy, we standards and AMSC will continue to remain optimistic about the long term The Group’s business activities seek improvements for the safety of per- demand for tankers. Due to a limited The main entities in the AMSC Group sonnel and protection of the environment. number of vessels under construction, it (“Group”) are the Norwegian holding com- The Group will continue to focus our is reasonable to assume a stronger mar- pany American Shipping Company ASA, efforts on additional value creation oppor- ket for new tankers in the future. the U.S. intermediate holding company tunities, both in the Jones Act market as American Tanker Holding Company, Inc. well as in the financial markets. It is the Key events 2009 (ATHC), American Tanker, Inc. (ATI), Amer- Group’s plan to be in a position to take The sixth and seventh product tankers ican Shipping Corporation (ASC) and the advantage of these opportunities in order were delivered to AMSC in February and ten separate leasing companies (ASC to create value for our shareholders. June, respectively. The sixth and seventh Leasing I through X, Inc.) that own (or will vessels, the Overseas Boston and the own) each of the ten product tankers. The Jones Act market Overseas Nikiski, are both on long-term American Shipping Company ASA is The U.S. cabotage law, commonly time charter from OSG to Tesoro. The domiciled in Oslo, Norway, with the U.S. referred to as the Jones Act, requires all long-term bareboat charter agreements subsidiaries and operations located in commercial vessels transporting cargoes that the Group has with subsidiaries of Philadelphia, Pennsylvania, and Wilming- between ports in the United States to be OSG have different fixed charter periods ton, Delaware, USA. built, owned, operated and manned by of between five and ten years from deliv- AMSC’s current business model is to U.S. citizens and to be registered under ery and, as such, these vessels have own and bareboat charter vessels for the U.S. flag. secure, stable cash flows with charters operation in the U.S. Jones Act market. Since AMSC is not a U.S. citizen quali- expiring between 2014 and 2021, with The vessels are being built at AKPS, a fied to operate vessels in the Jones Act, it options for OSG to extend the bareboat leading U.S.