Philly Shipyard — Interim / Quarterly Report 2010

Oct 27, 2010

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Aker Philadelphia Shipyard

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Aker Philadelphia Shipyard Q3 Report

Third quarter 2010 – Aker Philadelphia Shipyard ASA (AKPS) continued to make progress on its tanker series for American Shipping Company ASA and Overseas Shipholding Group, Inc. At 30 September 2010, new-builds (NB) 015-016 were in various stages of completion with NB 014, the Overseas Anacortes, delivered on 31 August 2010. For the quarter ended 30 September 2010, AKPS recorded operating revenues of USD 59.1 million and EBITDA (earnings before interest, taxes, depreciation and amortization) of USD 3.3 million. AKPS has so far been unable to secure any new orders or vessel financing beyond NB 016. However, AKPS continues to actively seek new orders and capital to finance the construction of NB 017 and NB 018, and progress is being made sufficient for AKPS to increase its commitment for early stage production activities on NB 017. If AKPS is unable to expand its current backlog, it would be challenging to continue as a going concern after delivery of NB 016. AKPS has reduced and will continue to adjust its workforce in line with its backlog.

OSLO / PHILADELPHIA (26 October 2010) –

At the end of the third quarter of 2010, Aker Philadelphia Shipyard ASA (together with its subsidiaries, referred to herein as AKPS or the company) had delivered ten 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 tenth vessel in the tanker series, the Overseas Anacortes, was delivered to AMSC on 31 August 2010.

In accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), AKPS 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 30 September 2010, AKPS is approximately 92% complete with the project.

Third Quarter Results

Revenues for Q3 2010 were USD 59.1 million compared to Q3 2009 revenues of USD 62.8 million. The decrease in quarterly revenues year-over-year is due to less progress on the project in Q3 2010 compared to Q3 2009 due to fewer ships in production. EBITDA for the quarter ended 30 September 2010 was USD 3.3 million compared to USD 4.9 million for the quarter ended 30 September 2009. The decrease in quarterly EBITDA 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 Q3 2010 than in Q3 2009. For Q3 2010, net income was USD 0.7 million compared to net income of USD 2.7 million for Q3 2009. The reduced income is primarily attributable to the revised pricing, less production in the quarter ended 30 September 2010 than the quarter ended 30 September 2009 and higher foreign exchange gains in Q3 2009 than in Q3 2010.

Net financial items for Q3 2010 were USD 0.4 million compared to USD 1.7 million for Q3 2009. The Q3 2010 outcome is primarily due to the weakening of the U.S. dollar in Q3 2010, which positively impacted cash deposits held in NOK. The Q3 2009 outcome was primarily driven by the reduction in forward currency contracts as they were used to purchase equipment overseas.

Year-to-Date Results

For the nine months ended 30 September 2010, revenues were USD 173.4 which represented a USD 7.0 million reduction compared to the nine-month period ended 30 September 2009. EBITDA for the nine months ended 30 September 2010 decreased to USD 11.7 million compared to EBITDA of USD 14.6 million for the nine months ended 30 September 2009. Net financial items for the nine-month period ended 30 September 2010 amounted to negative USD 0.6 million compared to USD 6.2 million for the same period in 2009. Net profit for the nine-month period ended 30 September 2010 decreased to USD 2.9 million compared to net profit of 8.4 million for the nine-month period ended 30 September 2009. Year-to-date fluctuations are caused by similar reasons as noted in the Q3 2010 discussion.

| Amounts in USD millions
(except shares and per share information) | Unaudited | | Unaudited | | Audited |
| --- | --- | --- | --- | --- | --- |
| | Q3 | Q3 | Nine Months Ended 30 Sept. | | Full Year |
| | 2010 | 2009 | 2010 | 2009 | 2009 |
| Operating revenues | 59.1 | 62.8 | 173.4 | 180.4 | 226.7 |
| EBITDA | 3.3 | 4.9 | 11.7 | 14.6 | 13.4 |
| Operating income/(loss) - EBIT | 1.4 | 3.1 | 6.2 | 9.1 | (5.0) |
| Income before tax | 1.8 | 4.8 | 5.6 | 15.3 | 1.2 |
| Income/(loss) for the period | 0.7 | 2.7 | 2.9 | 8.4 | (4.4) |
| Average number of shares | 10,165,305 | 10,165,305 | 10,165,305 | 10,165,305 | 10,165,305 |
| Basic and diluted earnings/(loss) per share (USD) | 0.07 | 0.27 | 0.29 | 0.82 | (0.43) |

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Amounts in USD millions	Unaudited 30-Sept 2010	Audited 31-Dec 2009
Property, plant & equipment	61.4	66.8
Other non-current assets	3.2	3.4
Vessels-under-construction receivables	98.8	94.6
Prepayments and other receivables	11.1	12.1
Interest-bearing short-term receivables	-	3.0
Cash and cash equivalents	28.9	36.2
Total assets	203.4	216.1
Total equity	90.2	87.3
Deferred tax liabilities	3.9	4.6
Interest-bearing long-term debt	29.7	31.2
Interest-bearing construction loan	43.0	48.0
Interest-bearing short-term debt	2.1	2.1
Tax payable and trade and other payables	34.5	42.9
Total equity and liabilities	203.4	216.1

Vessels-under-construction receivables represent the total work-in-progress less payments made by AMSC. Vessels-under-construction receivables at 30 September 2010 increased USD 4.2 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 30 September 2010 decreased USD 7.3 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 decreased to USD 43.0 million at 30 September 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

NB 014, the Overseas Anacortes, was delivered to AMSC on 31 August 2010. At the end of the third quarter of 2010, Aker Philadelphia Shipyard had two vessels under construction. The vessels have reached the following milestones: NB 015 was skidded to its final position in the Building Dock on 17 July 2010; the first blocks of NB 016 were placed in the Building Dock on 30 July 2010.

AKPS has reduced and will continue to adjust its workforce in line with its backlog.

Outlook

The challenging United States economy continues to delay the decision making process for new-builds and creates difficulties regarding the financing of new-build projects.

AKPS has so far been unable to secure any new orders or vessel financing beyond NB 016. However, AKPS continues to actively seek new orders and capital to finance the construction of NB 017 and NB 018, and progress is being made sufficient for AKPS to increase its commitment for early stage production activities on NB 017. If AKPS is unable to expand its current backlog, it would be challenging to continue as a going concern after delivery of NB 016, which is scheduled to be delivered in Q2 2011.

AKPS has made prior commitments such as long lead items for NB 017-020 as tankers, enabling rapid start-up as conditions permit.

AKPS continues to pursue prospects for new construction projects for the future such as tankers and containerships.

Aker Philadelphia Shipyard ASA – third quarter results 2010

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Aker Philadelphia Shipyard

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Risks

AKPS faces risks if it is unable to secure new orders and/or financing for vessels after the current twelve-ship series. If NB 017-018 are not built, whether pursuant to a firm order or on speculation, it is estimated that the company would incur expenses in excess of USD 25 million. If the shipyard is unable to build additional vessels beyond the current twelve-ship series, then the company would incur significant additional expenses. In addition, because multiple vessels are in production at any one time, lack of a continued firm backlog has and will continue to cause operational inefficiencies for completion of the remaining vessels in the current twelve-ship series. If AKPS is unable to expand its current backlog, it would be challenging to continue as a going concern after delivery of NB 016.

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 failing to maintain 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 NB 016 and OSG's obligation to purchase NB 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.

26 October 2010

Board of Directors

Aker Philadelphia Shipyard ASA

Aker Philadelphia Shipyard ASA – third quarter results 2010

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Aker
Philadelphia
Shipyard
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INCOME STATEMENT

| Amounts in USD millions
(except shares and per share information) | Unaudited | | Unaudited | |
| --- | --- | --- | --- | --- |
| | Q3 | Q3 | Nine Months Ended 30 Sept. | |
| | 2010 | 2009 | 2010 | 2009 |
| Operating revenues | 59.1 | 62.8 | 173.4 | 180.4 |
| Operating expenses | (55.8) | (57.9) | (161.7) | (165.8) |
| Operating income before depreciation | 3.3 | 4.9 | 11.7 | 14.6 |
| Depreciation | (1.9) | (1.8) | (5.5) | (5.5) |
| Operating income | 1.4 | 3.1 | 6.2 | 9.1 |
| Net financial items | 0.4 | 1.7 | (0.6) | 6.2 |
| Income before tax | 1.8 | 4.8 | 5.6 | 15.3 |
| Tax expense | (1.1) | (2.1) | (2.7) | (6.9) |
| Income for the period * | 0.7 | 2.7 | 2.9 | 8.4 |
| Average number of shares | 10,165,305 | 10,165,305 | 10,165,305 | 10,165,305 |
| Basic and diluted earnings per share (USD) | 0.07 | 0.27 | 0.29 | 0.82 |

• All attributed to the equity holders of AKPS.

STATEMENT OF COMPREHENSIVE INCOME

Amounts in USD millions	Unaudited		Unaudited
	Q3	Q3	Nine Months Ended 30 Sept.
	2010	2009	2010	2009
Income for the period	0.7	2.7	2.9	8.4
Other comprehensive income, net of income tax	-	-	-	-
Total comprehensive income for the period *	0.7	2.7	2.9	8.4

• All attributed to the equity holders of AKPS.

STATEMENT OF FINANCIAL POSITION

Amounts in USD millions	Unaudited 30-Sept 2010	Audited 31-Dec 2009
Assets
Non-current assets
Property, plant & equipment	61.4	66.8
Other non-current assets	3.2	3.4
Total non-current assets	64.6	70.2
Current assets
Vessels-under-construction receivables	98.8	94.6
Prepayments and other receivables	11.1	12.1
Interest-bearing short-term receivables	-	3.0
Cash and cash equivalents	28.9	36.2
Total current assets	138.8	145.9
Total assets	203.4	216.1
Equity and liabilities
Total equity	90.2	87.3
Non-current liabilities
Interest-bearing long-term debt	29.7	31.2
Deferred tax liabilities	3.9	4.6
Total non-current liabilities	33.6	35.8
Current liabilities
Interest-bearing construction loan	43.0	48.0
Interest-bearing short-term debt	2.1	2.1
Tax payable and trade and other payables	34.5	42.9
Total current liabilities	79.6	93.0
Total liabilities	113.2	128.8
Total equity and liabilities	203.4	216.1

Aker Philadelphia Shipyard ASA – third quarter results 2010

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Aker Philadelphia Shipyard

part of Aker

STATEMENT OF CHANGES IN EQUITY

Amounts in USD millions	Unaudited
	Nine Months Ended 30 Sept.
	2010	2009
As of beginning of period	87.3	91.7
Total comprehensive income for the period	2.9	8.4
As of end of period	90.2	100.1

CASH FLOW STATEMENT

Amounts in USD millions	Unaudited
	Nine Months Ended 30 Sept.
	2010	2009
Net cash from/(used in) operating activities	(0.7)	41.8
Net cash used in investing activities	(0.1)	(3.0)
Net cash used in financing activities	(6.5)	(52.0)
Net change in cash and cash equivalents	(7.3)	(13.2)
Cash and cash equivalents at beginning of period	36.2	23.6
Cash and cash equivalents at end of period	28.9	10.4

Aker Philadelphia Shipyard ASA – third quarter results 2010

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Building the Future

Aker Philadelphia Shipyard

part of Aker

Notes to the consolidated interim financial statements for the 3rd 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 and nine-month periods ended 30 September 2010 and 30 September 2009 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 and nine-month periods 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 Q3 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 – third quarter results 2010

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Building the Future

Aker Philadelphia Shipyard

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6. Tax estimates

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

7. Share capital and equity

At 30 September 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 30 September 2010.

8. 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	(1.5)	-	(145.0)	(146.5)
Issuance of debt	-	-	140.0	140.0
Balance 30.09.10	29.7	2.1	43.0	74.8

9. 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 67.1% of its total outstanding shares as of 30 September 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 30 September 2010 were USD 41.0 thousand (USD 22.7 thousand for the same period in 2009) and for the nine-month period ending 30 September 2010 were USD 121.2 thousand (USD 78.2 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 30 September 2010 were USD 0.0 million (USD 0.7 million for the same period in 2009) and for the nine-month period ending 30 September 2010 were USD 1.5 million (USD 5.0 million for the same period in 2009).

10. Capitalized interest

Amounts in USD millions	Q3 2010	Q3 2009	Nine Months Ended 30 Sept 2010	Nine Months Ended 30 Sept 2009
Interest expense	(0.7)	(0.8)	(2.1)	(3.2)
Interest capitalized on construction contracts	0.4	0.5	1.3	2.3
Net interest expense	(0.3)	(0.3)	(0.8)	(0.9)

Aker Philadelphia Shipyard ASA – third quarter results 2010

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Aker Philadelphia Shipyard

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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 74.0 million at 30 September 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 30.09.10	Order intake 9 months to 30.09.10	Order Backlog 31.12.09
Product tankers	74.0	-	246.7
Total	74.0	-	246.7

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

Amounts in USD millions	30.09.10	31.12.09
Contract revenue recognized as revenue to date	863.6	690.8
Less contract expenses	(809.3)	(646.7)
Recognized profit to date	54.3	44.1
Contract costs incurred to date	(817.4)	(665.6)

As of 30 September 2010 and 31 December 2009, the incurred costs billable to customers upon delivery of the ships were USD 98.8 million and USD 94.6 million, respectively, using the percentage of completion method.

Advances from customers as of 30 September 2010 and 31 December 2009 totaled USD 44.7 million and USD 94.7 million, respectively.

Aker Philadelphia Shipyard ASA – third quarter results 2010

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Building the Future

Aker Philadelphia Shipyard

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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

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 – third quarter results 2010