Philly Shipyard — Interim / Quarterly Report 2010

Apr 29, 2010

Building the Future

Aker Philadelphia Shipyard

part of Aker

Positive Operations in Challenging Market

First quarter 2010 – Aker Philadelphia Shipyard ASA continued to make progress on its tanker series for American Shipping Company ASA and Overseas Shipholding Group, Inc. At 31 March 2010, new-builds 013-016 were in various stages of completion with new-build 013 scheduled for delivery in May 2010. For the quarter ended 31 March 2010, Aker Philadelphia Shipyard ASA recorded operating revenues of USD 55.2 million and EBITDA (earnings before interest, taxes, depreciation and amortization) of USD 4.5 million.

OSLO / PHILADELPHIA (28 April 2010) –

At the end of the first quarter of 2010, Aker Philadelphia Shipyard ASA (together with its subsidiaries, referred to herein as AKPS or the company) had delivered eight of the twelve tankers in the series to American Shipping Company ASA (together with its subsidiaries, referred to herein as AMSC) and Overseas Shipholding Group, Inc. (together with its subsidiaries, referred to herein as OSG). The ninth vessel in the tanker series is scheduled to be delivered to AMSC in May 2010.

In accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), Aker Philadelphia Shipyard is recognizing the last nine tankers of the twelve-tanker order as one single project. As such, revenue and expense are being recognized on a total project basis. As of 31 March 2010, Aker Philadelphia Shipyard is approximately 80% complete with the project.

EBITDA for the quarter ended 31 March 2010 was USD 4.5 million compared to USD 5.2 million for

the quarter ended 31 March 2009. Revenues for Q1 2010 were USD 55.2 million compared to Q1 2009 revenues of USD 62.6 million. The decrease in quarterly EBITDA and revenues year over year is primarily driven by the amended pricing to AMSC for the remaining tankers negotiated in Q4 2009, as well as less production on the project in Q1 2010 than in Q1 2009. For Q1 2010, net income was USD 1.3 million compared to net income of USD 2.7 million for Q1 2009. The reduced income is primarily attributable to the revised pricing, less production in the quarter ended 31 March 2010 than the quarter ended 31 March 2009 and foreign exchange gains in Q1 2009 which did not occur in Q1 2010.

Net financial items for Q1 2010 was negative USD 0.2 million compared to USD 0.9 million for Q1 2009. This outcome is primarily due to the strengthening of the U.S. dollar in Q1 2010, which negatively impacted cash deposits held in NOK, and the reduction in forward currency contracts as they were used to purchase equipment overseas.

| Amounts in USD millions
(except shares and per share information) | Unaudited | | Audited |
| --- | --- | --- | --- |
| | Q1 2010 | Q1 2009 | Full Year 2009 |
| Operating revenues | 55.2 | 62.6 | 226.7 |
| EBITDA | 4.5 | 5.2 | 13.4 |
| Operating income/(loss) - EBIT | 2.6 | 3.3 | (5.0) |
| Income before tax | 2.4 | 4.2 | 1.2 |
| Income/(loss) for the period | 1.3 | 2.7 | (4.4) |
| Average number of shares | 10,165,305 | 10,165,305 | 10,165,305 |
| Basic and diluted earnings/(loss) per share (USD) | 0.13 | 0.26 | (0.43) |

Aker Philadelphia Shipyard ASA – first quarter results 2010

---

Building the Future

Aker Philadelphia Shipyard

part of Aker

Amounts in USD millions	Unaudited 31-Mar 2010	Audited 12-Dec 2009
Property, plant & equipment	65.0	66.8
Other non-current assets	3.3	3.4
Vessels-under-construction receivables	147.4	94.6
Prepayments and other receivables	10.5	12.1
Interest-bearing short-term receivables	-	3.0
Cash and cash equivalents	25.2	36.2
Total assets	251.4	216.1
Total equity	88.6	87.3
Deferred tax liabilities	4.6	4.6
Interest-bearing long-term debt	30.7	31.2
Interest-bearing construction loan	88.0	48.0
Interest-bearing short-term debt	2.1	2.1
Tax payable and trade and other payables	37.4	42.9
Total equity and liabilities	251.4	216.1

Vessels-under-construction receivables represent the total work-in-progress less payments made by AMSC. Vessels-under-construction receivables at 31 March 2010 increased USD 52.8 million from USD 94.6 million at 31 December 2009. This increase is due to additional progress on the project and the timing of vessel deliveries.

Cash and cash equivalents at 31 March 2010 decreased USD 11.0 million from USD 36.2 million at 31 December 2009 due to the timing of financing draw-downs under Aker Philadelphia Shipyard's construction financing facility.

AKPS's construction loan increased to USD 88.0 million at 31 March 2010 from USD 48.0 million at 31 December 2009 due to the timing of construction financing draw-downs and vessel deliveries.

Quarterly fluctuations in the above key statement of financial position accounts will continue to occur as the company continues to make progress on its current build project and delivers vessels.

Operations

At the end of the first quarter of 2010, Aker Philadelphia Shipyard had four vessels under construction. The vessels have reached the following milestones: new-build 013 was afloat in the Outfitting Dock and was undergoing final painting and outfitting after a successful sea trial; new-build 014 was skidded to its final position in the Building Dock on 14 March 2010; the first blocks of new-build 015 were placed in the Building Dock on 15

March 2010; and new-build 016 continued construction in the prefabrication shops.

The abnormally severe weather conditions and record-setting snow accumulation during the first quarter of 2010 adversely affected production activities and required the yard to temporarily close due to weather for the first time in its history.

Health, Safety, and Environmental mindset initiatives and training have contributed to a reduction in the lost time injury frequency of approximately 30% for the first quarter of 2010 compared to full year results for 2009.

Outlook

Going forward in 2010, revenues will be generated from additional work completed on the remaining four tankers being built for AMSC and OSG. The company continues to make progress on the tanker program and, if full capacity is maintained, still targets an EBITDA margin of 6% or better over the project which is scheduled to be completed in the first half of 2011.

A key focus for 2010 continues to be securing new orders to expand the backlog. Start of production for the first unsecured/option vessel (Hull 017) is still planned for the first half of 2010, but this schedule is dependent upon securing a firm order and/or construction financing for this vessel. Although no firm orders or construction financing are in place, AKPS has made prior purchase commitments on long lead items and other materials for Hulls 017-020 as tankers. AKPS faces risks if it is unable to secure

Aker Philadelphia Shipyard ASA – first quarter results 2010

---

Building the Future

Aker Philadelphia Shipyard

part of Aker

new orders and/or financing for vessels after the current twelve-ship series. For analysis of these risks, please refer to the Risks discussion below.

Aker Philadelphia Shipyard continues to pursue prospects for new construction projects for the future. Product and shuttle tankers and containerships remain important prospects. AKPS considers each opportunity for the value it would create for AKPS and its shareholders.

The lingering effects of the global economic crisis continue to delay the decision making process for new-builds and create difficulties regarding the financing of new-build projects. AKPS continues to monitor and assess its vendors, financing partners and customers closely. However, AKPS remains committed to providing the Jones Act market with the most cost efficient and environmentally friendly merchant vessels possible and believes that it will be the supplier of choice when these vessels are ordered.

Risks

AKPS faces risks if it is unable to secure new orders and/or financing for vessels after the current twelve-ship series. If Hull 017 is not built, whether pursuant to a firm order or on speculation, it is estimated that the company would incur expenses in excess of USD 15 million. If the shipyard is unable to build additional vessels beyond the current twelve-ship series, and avoid a significant interruption in shipbuilding activities, then the company would incur significant additional expenses and it would be very challenging for the company to continue operations after delivery of the last vessel in the current backlog. In addition, because multiple vessels are in production at any one time, lack of a continued firm backlog may cause operational

inefficiencies for completion of the remaining vessels in the current twelve-ship series.

The overall market risk is related to the Jones Act, but market experts believe that significant changes to the legislation are unlikely. AKPS is also exposed to normal market risk related to imbalance between supply and demand for vessels and the associated reduction in new-build projects.

AKPS faces risks related to construction of vessels. The risks related to vessel construction are primarily the shipyard's ability to meet anticipated learning curves and through-put, as well as the availability of skilled workers and the risk of maintaining stable supplier networks and subcontractors.

AKPS's activities also expose it to a variety of financial risks including price risk due to material escalation, currency risk, interest rate risk, credit risk and liquidity risk.

AKPS's activities also expose it to counterparty risk. AKPS's construction financing has certain cross-defaults to AMSC's take-out financing for AKPS Hulls 012-014 (new-builds 013, 014 and 016) and OSG's obligation to purchase AKPS Hull 015 (new-build 015). In addition, AKPS's construction financing and capital expenditure financing contain defaults triggered by an AMSC insolvency event. AKPS closely monitors these links to AMSC and OSG and their potential impact on operations, including through frequent updates with AMSC's management.

For further analysis of risks, please refer to the 2009 AKPS annual report.

28 April 2010

Board of Directors

Aker Philadelphia Shipyard ASA

Aker Philadelphia Shipyard ASA – first quarter results 2010

---

Building the Future

Aker
Philadelphia
Shipyard
part of Aker

INCOME STATEMENT

| Amounts in USD millions
(except shares and per share information) | Unaudited | |
| --- | --- | --- |
| | Q1 2010 | Q1 2009 |
| Operating revenues | 55.2 | 62.6 |
| Operating expenses | (50.7) | (57.4) |
| Operating income before depreciation | 4.5 | 5.2 |
| Depreciation | (1.9) | (1.9) |
| Operating income | 2.6 | 3.3 |
| Net financial items | (0.2) | 0.9 |
| Income before tax | 2.4 | 4.2 |
| Tax expense | (1.1) | (1.5) |
| Income for the period * | 1.3 | 2.7 |
| Average number of shares | 10,165,305 | 10,165,305 |
| Basic and diluted earnings per share (USD) | 0.13 | 0.26 |

• All attributed to the equity holders of AKPS.

STATEMENT OF COMPREHENSIVE INCOME

Amounts in USD millions	Unaudited
	Q1 2010	Q1 2009
Income for the period	1.3	2.7
Other comprehensive income, net of income tax	-	-
Total comprehensive income for the period *	1.3	2.7

• All attributed to the equity holders of AKPS.

STATEMENT OF FINANCIAL POSITION

Amounts in USD millions	Unaudited 31-Mar 2010	Audited 31-Dec 2009
Assets
Non-current assets
Property, plant & equipment	65.0	66.8
Other non-current assets	3.3	3.4
Total non-current assets	68.3	70.2
Current assets
Vessels under construction-receivables	147.4	94.6
Prepayments and other receivables	10.5	12.1
Interest-bearing short-term receivables	-	3.0
Cash and cash equivalents	25.2	36.2
Total current assets	183.1	145.9
Total assets	251.4	216.1
Equity and liabilities
Total equity	88.6	87.3
Non-current liabilities
Interest-bearing long-term debt	30.6	31.2
Deferred tax liabilities	4.6	4.6
Total non-current liabilities	35.2	35.8
Current liabilities
Interest-bearing construction loan	88.0	48.0
Interest-bearing short-term debt	2.2	2.1
Tax payable and trade and other payables	37.4	42.9
Total current liabilities	127.6	93.0
Total liabilities	162.8	128.8
Total equity and liabilities	251.4	216.1

Aker Philadelphia Shipyard ASA – first quarter results 2010

Page 4 of 9

---

Building the Future

Aker Philadelphia Shipyard

part of Aker

STATEMENT OF CHANGES IN EQUITY

Amounts in USD millions	Unaudited
	Three Months Ended 31 March
	2010	2009
As of beginning of period	87.3	91.7
Total comprehensive income for the period	1.3	2.7
As of end of period	88.6	94.4

CASH FLOW STATEMENT

Amounts in USD millions	Unaudited
	Three Months Ended 31 March
	2010	2009
Net cash flow from/(used in) operating activities	(50.4)	37.6
Net cash flow used in investing activities	(0.1)	(0.9)
Net cash flow from/(used in) financing activities	39.5	(34.0)
Net change in cash and cash equivalents	(11.0)	2.7
Cash and cash equivalents at beginning of period	36.2	23.6
Cash and cash equivalents at end of period	25.2	26.3

Aker Philadelphia Shipyard ASA – first quarter results 2010

---

Building the Future

Aker Philadelphia Shipyard

part of Aker

Notes to the consolidated interim financial statements for the 1st quarter 2010

1. Introduction - Aker Philadelphia Shipyard ASA

Aker Philadelphia Shipyard ASA (“AKPS”) is a company domiciled in Norway. The condensed interim consolidated financial statements for the three-month period ended 31 March 2010 are comprised of AKPS and its wholly owned subsidiary Aker Philadelphia Shipyard, Inc. (“APSI”) and Aker Philadelphia Priming, Inc., (“APPI”), a wholly owned subsidiary of APSI.

This interim report has not been subject to audit or review by independent auditors.

The consolidated quarterly and 2009 annual financial statements of AKPS, which include a detailed description of accounting policies and significant estimates, are available at www.akerphiladelphia.com.

2. Basis of preparation

These consolidated interim financial statements reflect all adjustments, in the opinion of AKPS’s management, that are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the three-month period are not necessarily indicative of the results that may be expected for any subsequent quarter or year. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended 31 December 2009.

AKPS was formed on 16 October 2007 to be the holding company of APSI which owns a shipyard located in Philadelphia, PA.

On 3 December 2008, APSI formed APPI, a wholly-owned subsidiary to own and operate APSI’s prime-plating operations.

3. Statement of compliance

These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as of and for the year ended 31 December 2009.

There have not been any new IFRS standards or interpretations which were effective 1 January 2010 that have had a significant impact on Q1 2010. In addition, no standards effective in 2010 are expected to significantly impact AKPS.

4. Significant accounting principles

The accounting policies applied by AKPS in these condensed consolidated interim financial statements are substantially the same as those applied by AKPS in its consolidated financial statements as of and for the year ended 31 December 2009.

5. Use of estimates

The preparation of interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

The most significant judgments made by management in preparing these condensed consolidated interim financial statements in applying AKPS’s accounting policies, and the key sources of estimation uncertainty, are the same as those that applied to the consolidated financial statements as of and for the year ended 31 December 2009.

Aker Philadelphia Shipyard ASA – first quarter results 2010

Page 6 of 9

---

Building the Future

Aker Philadelphia Shipyard

part of Aker

1. Tax estimates

Income tax expense is recognized in each interim period based on the best estimate of the expected annual income tax rates.

1. Share capital and equity

At 31 March 2010, AKPS had 10,165,305 ordinary shares at a par value of NOK 10 per share which is the same as the average number of shares used in the calculation of earnings per share in all periods in 2009 and through 31 March 2010.

1. Interest-bearing debt

The following shows material changes in interest-bearing debt during 2010:

Amounts in USD millions	Long-term loans	Short-term loans excluding construction loan	Construction loan	Total interest-bearing debt
Balance 01.01.10	31.2	2.1	48.0	81.3
Repayment of debt	(0.5)	-	-	(0.5)
Issuance of debt	-	-	40.0	40.0
Balance 31.03.10	30.7	2.1	88.0	120.8

1. Related party transactions

Converto Capital Fund AS (formerly named Aker Capital Fund AS), an investment fund controlled by Aker ASA, is the majority shareholder of Aker Philadelphia Shipyard ASA, owning 50.3% of its total outstanding shares as of 31 March 2010. AKPS has business relationships with several companies which are ultimately controlled by Aker ASA. AKPS believes that related party transactions are made on terms equivalent to those that prevail in arm's length transactions.

The group has service agreements with Aker ASA and its affiliates which provide certain specified consulting, accounting, tax, financial and administrative services. All payables are paid within the normal course of business.

Related administrative costs and financial statement amounts for the three-month period ending 31 March 2010 were USD 37.3 thousand (USD 27.0 thousand for the same period in 2009).

In its shipbuilding activities, AKPS subcontracts and hires services from several Aker controlled companies. Related costs for the three-month period ending 31 March 2010 were USD 0.8 million (USD 2.0 million for the same period in 2009).

1. Capitalized interest

Amounts in USD millions	Q1 2010	Q1 2009
Interest expense	(0.7)	(1.3)
Interest capitalized on construction contracts	0.4	1.0
Net interest expense	(0.3)	(0.3)

Aker Philadelphia Shipyard ASA – first quarter results 2010

---

Building the Future

Aker Philadelphia Shipyard

part of Aker

11. Construction contracts

The order backlog represents an obligation to deliver vessels that have not yet been produced for AMSC and OSG. The order backlog is USD 191.8 million at 31 March 2010 and represents future sales. Order backlog represents base contract price plus a fixed price for material escalation and is subject to adjustments based on change orders as defined in the construction contracts.

Amounts in USD millions	Order Backlog 31.03.10	Order intake 12 months to 31.03.10	Order Backlog 31.12.09
Product tankers	191.8	-	246.7
Total	191.8	-	246.7

The recognized profit on contracts in process for the periods that ended:

Amounts in USD millions	31.03.10	31.12.09
Contract revenue recognized as revenue to date	745.7	690.8
Less contract expenses	(695.5)	(644.8)
Recognized profit to date	50.2	46.0
Contract costs incurred to date	(710.0)	(663.7)

As of 31 March 2010 and 31 December 2009, the incurred costs billable to customers upon delivery of the ships were USD 147.4 million and USD 94.6 million, respectively, using the percentage of completion method.

Advances from customers as of 31 March 2010 and 31 December 2009 totaled USD 94.7 million.

Aker Philadelphia Shipyard ASA – first quarter results 2010

---

Building the Future

Aker Philadelphia Shipyard

part of Aker

Contact information:

Aker Philadelphia Shipyard ASA

Fjordalleen 16

Postboks 1423 Vika

0115 Oslo

Norway

Jim Miller
President & CEO
Tel: +1 215 875 2601
jim.miller@phillyshipyard.com

Jeffrey Theisen
CFO
Tel: +1 215 875 2678
jeffrey.theisen@phillyshipyard.com

Kristian Rokke
Vice President
Tel: +4724130064
kristian.rokke@convertocapital.com

Disclaimer

This press release includes and is based, inter alia, on forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. Such forward-looking information and statements are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for Aker Philadelphia Shipyard ASA and its subsidiaries and affiliates (the "Aker Philadelphia Shipyard Group") lines of business. These expectations, estimates, and projections are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expressions. Important factors that could cause actual results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are or will be major markets for the Aker Philadelphia Shipyard Group's businesses, oil prices, market acceptance of new products and services, changes in governmental regulations, interest rates, fluctuations in currency exchange rates and such other factors as may be discussed from time to time. Although Aker Philadelphia Shipyard ASA believes that its expectations and the information in this press release were based upon reasonable assumptions at the time when they were made, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in this press release. Neither Aker Philadelphia Shipyard ASA nor any other company within the Aker Philadelphia Shipyard Group is making any representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the information in the press release, and neither Aker Philadelphia Shipyard ASA, any other company within the Aker Philadelphia Shipyard Group nor any of their directors, officers or employees will have any liability to you or any other persons resulting from your use of the information in the press release.

Aker Philadelphia Shipyard ASA undertakes no obligation to publicly update or revise any forward-looking information or statements in the press release, other than what is required by law.

The Aker Philadelphia Shipyard Group consists of various legally independent entities, constituting their own separate identities. Aker Philadelphia Shipyard is used as the common brand or trade mark for most of these entities. In this press release we may sometimes use "Aker Philadelphia Shipyard", "Group", "we" or "us" when we refer to Aker Philadelphia Shipyard companies in general or where no useful purpose is served by identifying any particular Aker Philadelphia Shipyard company.

Aker Philadelphia Shipyard ASA – first quarter results 2010