Untitled

Annual

Report

2021

PHILLY SHIPYARD - ANNUAL REPORT 20212

Contents

Content 2

Company Overview 3

Our History 4

Key Events 6

Investment Highlights 7

Our Values 8

Our Safety 9

Letter from the President 10

Board of Directors’ Report 12

Directors’ Responsibility Statement 23

Consolidated Accounts 25

Parent Company Accounts 56

Auditor’s Report 64

Shares and Shareholder Matters 70

Corporate Governance 73

The Board of Directors 78

The Management Team 79

Company Information 83

CONTENT

New York

Norfolk

Jacksonville

Boston

Florida

California

Washington

Alaska

Hawaii

Purto Rico

FINANCIAL CALENDAR 2022

2021 annual report 30 March

Annual general meeting 20 April

Interim report Q1 2022 3 May

Interim report Q2 2022 14 July

Interim report Q3 2022 2 November

Dates are subject to change.

PHILLY SHIPYARD - ANNUAL REPORT 2021 3

Philly Shipyard is a leading U.S. shipbuilder

that is presently pursuing a mix of commer-

cial and government work. It possesses a

state-of-the-art shipbuilding facility and has

earned a reputation as a preferred provider

of ocean-going merchant vessels with a track

record of delivering quality ships, having

delivered around 50% of all large ocean-going

Jones Act commercial ships since 2000.

Philly Shipyard ASA is a holding company with

headquarters in Oslo, Norway, and an operat-

ing subsidiary in Philadelphia, PA, USA.

Philly Shipyard ASA is listed on the Euronext

Expand Oslo (formerly known as Oslo Axess)

with the ticker symbol “PHLY”. Aker Capital AS,

a wholly-owned subsidiary of Aker ASA, is the

majority shareholder, holding 57.56% of the

shares as of 31 December 2021.

ELEMENTS CONTRIBUTING TO SUCCESS:

State-of-the-art shipyard with modern

equipment and two of the largest dry

docks on the East Coast

Access to global shipbuilding and design

expertise through agreements with part-

ners in North America, Asia, and Europe

Solid track record demonstrated by the

delivery of 30 quality newbuild vessels (6

containerships, 22 product tankers, and 2

Aframax tankers)

Skilled workforce consisting of direct and

contracted employees with a strong HSE

mindset and culture of improvement

Opportunistic investment approach with

respect to the post-delivery economics of

the vessels that it builds

This is Philly Shipyard

THE U.S. JONES ACT MARKET

U.S. coastwise law, commonly referred to as

the Jones Act, requires all commercial vessels

transporting merchandise between ports in

the United States to be built in the United

States, owned, operated and manned by

U.S. citizens and registered under the U.S.

ag. The Jones Act market encompasses all

water-borne transportation between U.S.

ports, including between the mainland U.S.

and non-contiguous areas of Alaska, Hawaii

and Puerto Rico, as well as vessels involved in

oshore wind development.

THE U.S. GOVERNMENT MARKET

The U.S. Government market for ship con-

struction and ship maintenance, repair, over-

haul, and conversion (MROC) work is expan-

sive and cuts across multiple government

agencies. Government customers include

the U.S. Navy, the Military Sealift Command

(MSC), the U.S. DOT Maritime Administration

(MARAD), the U.S. Coast Guard, the U.S. Army

Corps of Engineers and others. Philly Ship-

yard is well-positioned to build commercial

“like” and auxiliary ships in the government

market.

Commercial

Commercial “Like”

Auxiliary

Non-Combatants

Combatants

New York

Norfolk

Jacksonville

Boston

Florida

California

Washington

Alaska

Hawaii

Purto Rico

Going Gray: The term – coined because most U.S. Navy hulls

are painted gray – means Philly Shipyard is diversifying its

oerings by also pursuing work in the government market.

COMPANY OVERVIEW

PHILLY SHIPYARD - ANNUAL REPORT 20214

Founded by public-

private partnership

between U.S. Govern-

ment agencies and the

Kvaerner Shipbuilding

Division

Construction began

on rst two container

vessels

Delivered four

container vessels to

Matson (Hulls 001-004)

2005: Aker American

Shipping formed and

publicly listed on Oslo

Børs

2005: Initiated con-

struction program of

10 product tankers

Delivered 12 product

tankers to AMSC and

OSG (Hulls 005-016)

2007: Two additional

product tankers ordered

for conversion to shuttle

tankers

2007: Aker American

Shipping split into ship

owning and shipbuilding

companies and Aker

Philadelphia Shipyard

listed on Oslo Axess

2011: Signed contracts

with SeaRiver Maritime

for two Aframax tankers

1997-

2000

2012 -

2013

2003 -

2006

2007 -

2011

Delivered two product

tankers to Crowley

(Hulls 017-018)

2013: Signed contracts

with Matson for two

CV3600 container

vessels

2013: Signed joint

venture agreement with

Crowley for four product

tankers

Philly Shipyard:

Our History 1997 - 2021

VESSELS BUILT AND REPAIRED BY PHILLY SHIPYARD FROM INCEPTION THROUGH TODAY

Container

Vessels

Repair

Vessels

OUR HISTORY

Product

Tankers

Aframax

Tankers

PHILLY SHIPYARD - ANNUAL REPORT 2021 5

Received an order for

two additional NSMVs

(3 and 4) for MARAD with

a total contract value of

approximately USD 600

million

Awarded and completed

a repair & maintenance

contract for USNS Charl-

ton from Patriot Contract

Services on behalf of the

U.S. Navy Military Sealift

Command

Awarded an industry

study contract for the

development and design

of U.S. Navy Cable Ship

T-ARC(X) program

Won a contract from

Great Lakes Dredge &

Dock Company, LLC to

construct one Jones

Act-compliant Subsea

Rock Installation Vessel

Celebrated the NSMV 1

keel laying and cut steel

to mark the start of pro-

duction for NSMV 2

Awarded a contract by

TOTE Services for the

construction of up to

ve National Security

Multi-Mission Vessels

(NSMVs) for the U.S.

Department of Transpor-

tation’s Maritime Admin-

istration (MARAD)

Received an order for

the rst two NSMVs (1

and 2) with a total con-

tract value of approxi-

mately USD 630 million

Completed ship repair &

maintenance work on a

U.S. Government vessel,

the FSS Pollux

Awarded contracts to

participate in industry

studies for the U.S. Coast

Guard’s Oshore Patrol

Cutter (OPC) program

and the U.S. Navy’s

Auxiliary General Ocean

Surveillance (T-AGOS(X))

program

Delivered three prod-

uct tankers to Kinder

Morgan (Hulls 026-

028) and two CV3600

container vessels to

Matson (Hulls 029-030)

2019: Awarded rst two

repair & maintenance

contracts for the FSS

Antares and the FSS

Pollux, large MARAD

sister-ships managed by

TOTE Services

2019: Awarded prime

contract for design stud-

ies for the U.S. Navy’s

Common Hull Auxiliary

Multi-Mission Platform

(CHAMP) program

2019: Completed ship

repair & maintenance

work on a U.S. Govern-

ment vessel, the FSS

Antares

2014 -

2016

2017 -

2019 20212020

2022

Delivered two Afra-

max tankers to Sea-

River Maritime (Hulls

019-020), four product

tankers to Crowley

(Hulls 021-024), and

one product tanker

to Kinder Morgan

(Hull 025)

2014: Established Philly

Tankers as pure-play

Jones Act shipping

company

2014-2015: Signed con-

tracts with Philly Tankers

for product tankers

2015: Philly Tankers

agreed to sell product

tanker contracts to

Kinder Morgan

2015: Signed agreement

with Marathon Petro-

leum to sell Crowley joint

venture interests

2015: Re-branded as

Philly Shipyard

OUR HISTORY

PHILLY SHIPYARD - ANNUAL REPORT 20216

2021 Key Events

and Highlights

KEY EVENTS

Received an order to construct two

more National Security Multi-Mission

Vessels (NSMVs 3 and 4), bringing

the total order intake for the NSMV

program to USD 1.2 billion

Exceeded 1,900,000 consecutive

hours worked without a single lost

time injury

Finished repair and maintenance

work on the USNS Charlton, con-

cluding the shipyard’s third dry

docking contract for a government

vessel

Celebrated the NSMV 1 keel laying,

marking a signicant milestone in

one of America’s most high prole

shipbuilding programs

Awarded a contract to build one Jones

Act-compliant Subsea Rock Installa-

tion Vessel (SRIV) valued at approxi-

mately USD 197 million, extending the

shipyard’s backlog into late 2024

Revived the PSI apprenticeship pro-

gram with the rst of three cohorts

beginning in May for welders and

shipbuilders

PHILLY SHIPYARD - ANNUAL REPORT 2021 7

A leading

U.S. shipyard

State-of-the-art facility with

more than USD 675 million

invested since founding,

including new logistics center

and cabin factory

Major builder of large

ocean-going Jones Act com-

mercial ships since 2000

Highly skilled workforce

with integrated, fully exible

subcontracting under single

union contract

Reinvigorated apprenticeship

program and modern train-

ing facility

Strong backlog and high

pipeline visibility

Over USD 1.2 billion in back-

log with last delivery in 2024

Awarded contract for high

visibility NSMV program,

supporting a new and inno-

vative approach to federal

shipbuilding by leveraging

commercial best practices

Series production with famil-

iar ships oers operational

benets

Awarded contract for one

Subsea Rock Installation Ves-

sel from Great Lakes Dredge

& Dock Company

Combination of commercial

and government work

Opportunities within specialty

and high-end segments of

the Jones Act market includ-

ing emerging wind market

Very promising outlook for

high activity in the govern-

ment sector in the next

5-10 years

Completed two industry stud-

ies for government shipbuild-

ing programs and currently

participating in two more

Completed three repair proj-

ects to utilize excess dock

capacity and prove out the

business rationale

Well positioned for

future growth

Retained key personnel

during idle period, added

government resources and

ramped up from 202 to 973

personnel in 2021

Strong balance sheet with

USD 255 million in cash and

debt capacity

Solid positioning for future

contract awards with

promising prospects in both

commercial and government

markets

NSMV variant opportunities

include hospital ships and

auxiliary vessels

Investment

Highlights

PHILLY SHIPYARD RECENT SHIP DELIVERIES

Customer Vessel Delivery 2018 2019 2020

Matson

029 CV3600 31 Oct. 2018

030 CV3600 28 Mar. 2019

PHILLY SHIPYARD RECENT SHIP REPAIRS

Customer Vessel Redelivery 2019 2020 2021

MARAD/TOTE Services

FSS Antares Q4 2019

FSS Pollux Q3 2020

Military Sealift Command/Patriot Contract Services USNS Charlton Q3 2021

PHILLY SHIPYARD ORDER BACKLOG

Customer Vessel Delivery 2023 2024 2025

033 NSMV 1 1st half 2023

MARAD/TOTE Services

034 NSMV 2 2nd half 2023

035 NSMV 3 1st half 2024

036 NSMV 4 2nd half 2024

Great Lakes Dredge & Dock Company 038 SRIV 1 2nd half 2024

INVESTMENT HIGHLIGHTS

PHILLY SHIPYARD - ANNUAL REPORT 20218

Philly Shipyard’s CORE values were designed

as a reection of who we are, and who we

aspire to be, as a shipyard, as an organization

and as individuals.

They capture the pride, passion, and commit-

ment behind each action we take and deci-

sion we make. They are not words on a page,

but our stand – a united commitment to con-

quer all challenges and build long lasting rela-

tionships. For years to come we will be united

by these values, that give us the platform to

deliver on our commitments, every time.

CARING

We make safety

personal and

take ownership

for protecting

each other

We are united

to ensure our

coworkers, our

company and

our communities

succeed

ONE SHIPYARD

We are proud

to be part of an

inclusive work

environment

where all feel

welcome

We build lasting

cooperation

based on respect

and candid com-

munication

RESPONSIBLE

We are environ-

mental stewards

and take care

to protect future

generations

We do what´s

right simply

because it´s the

right thing to do

EVOLVING

We challenge

ourselves and

each other to

be better than

yesterday

We support

change that

moves the

organization into

diverse markets

At Philly Shipyard, the way in which we achieve

growth and protability is as important as the

achievements themselves. Our overriding

corporate responsibility is concern for the

communities that we are a part of. We strive

to provide products and services in a safe,

environmentally sound, ethical and socially

responsible manner.

More information regarding the Company’s

corporate social responsibility eorts can be

found on pages 19-21 of the Board of Direc-

tors’ report.

Our CORE Values

Caring in Action

OUR VALUES

PHILLY SHIPYARD - ANNUAL REPORT 2021 9

9000

8000

7000

6000

5000

4000

3000

2000

1000

3533

3005

4178

5793

7920

4371

4464

1592

2096

1301

1000

2000

3000

4000

5000

6000

7000

8000

9000

2012 13 14 15 16 17 18 19 20 2021

HSE 2021:

Training and Integrating

Our Growing Team

ALL INCIDENT FREQUENCY (2001 - 2021)

OBSERVATIONS (2012 - 2021)

2001 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 2021

LTIR only Other RIR (LTI excluded) All RIR (LTI & Other Rec)

OUR SAFETY

At Philly Shipyard, Inc. (PSI), safety is personal

and our credo is clear: We fundamentally

believe that all incidents are preventable and

safety is everyone’s responsibility; and we

promise to be relentless in our pursuit of an

injury-free workforce by creating and maintain-

ing safe working conditions and never compro-

mising safety for anyone, anywhere, at any time.

In 2021, we – like everyone else – saw the health,

safety, and environmental (HSE) challenges of

the coronavirus pandemic which carried over

into a second year. Throughout the year, we

were constantly reevaluating our strategies to

combat the virus. Like many other companies,

we lifted our mask mandate for a portion of the

summer before reinstating it with the onset of

the Delta variant – leaving it in place through

the end of the year. We strictly followed the

recommendation and guidance of the Centers

for Disease Control and Prevention (CDC) as

well as our state and local policies.

We strongly encouraged all employees and

subcontractors to get vaccinated and boosted

– even going as far as holding multiple on-site

vaccine clinics. We also sponsored educational

seminars to assist people in understanding

the facts.

When employees or subcontractors did test

positive, they would be instructed to quarantine

in accordance with the CDC guidelines and to

follow their doctor’s advice. All individuals who

were identied as potentially being in close con-

tact with the positive employee(s) were notied

with instructions to quarantine, get tested, and

contact HR with results. Through contact trac-

ing, we are able to proudly say that no cases of

the virus originated here at PSI.

With the ramp up in production, one of the

biggest hurdles for HSE was integrating such a

large amount of new employees and subcon-

tractors. We designed and employed aggres-

sive training programs to reach this goal.

Despite the challenges, PSI marked three years

without a lost time injury (LTI) and crossed

two million work hours without an LTI in early

January 2022. We are denitely proud of our

incident rate, which is well below the industry

average. We have also not experienced a yard

outbreak or work stoppage due to COVID-19

since its onset in 2020.

After learning our lessons with two previous

repair jobs, PSI was able to complete a six-month

long repair & maintenance project on the USNS

Charlton without a single recorded injury.

PSI has a long history dedicated to protecting

the surrounding waterways from any negative

impacts associated with manufacturing oper-

ations. We have a close working relationship

with the City of Philadelphia to ensure we are

good stewards of the environment by strictly

following all federal, state, and city regula-

tions. For example, PSI went to great lengths

to reduce our emissions by installing low-NOx

burners in three new boilers for the paint halls.

In 2021, PSI purchased several electrical vehi-

cles to further reduce emissions.

It was also a special year for the HSE depart-

ment as we grew the team from four to 10

employees. This growth was a direct result of

the increased demand for HSE support from

Production. One of the biggest challenges

historically has been the language barrier for

reaching many Spanish-speaking employees

and subcontractors. We were able to help close

that gap by hiring two HSE employees who are

uent in Spanish. We were able to build out a

dedicated and bilingual training department

to focus training eorts on equipment such as

overhead shop cranes, rigging, high-reaches,

scissor lifts, and forklifts.

In December, we marked one of the great

milestones in shipbuilding – a keel laying for

NSMV I. As we move into 2022, we all look for-

ward to continuing the success and growth of

the past year.

Carl W. Danley

HSE Director

PHILLY SHIPYARD - ANNUAL REPORT 202110

2021 was a year of tremendous and pos-

itive change at Philly Shipyard. Once again,

the shipyard is lled with the energy of ships

being built. The sounds of a busy shipyard

are truly music to my ears!

Last year when I wrote you, our workforce

was down to 120. Since that time, we have

grown to nearly 1,000, and the National Secu-

rity Multi-Mission Vessel (NSMV) program is

fully underway. The rst two NSMVs are in

various stages of production, the shops are

lled with steel sections being constructed

and everywhere you look in the shipyard, you

see large grand blocks.

The rst steelworkers returned to the ship-

yard in January after three years. In Decem-

ber, we celebrated the ocial keel laying

of NSMV 1. The next grand blocks are now

being erected in the building dock, and soon

NSMV 2 will be in the dock following directly

after NSMV 1. My shipbuilder heart is smiling

again!

In addition to restarting our newbuilding

work, we successfully completed our rst

repair project for the U.S. Navy Military Sealift

Command (MSC), demonstrating again that

we can diversify our markets to include not

only new construction, but repair work which

is part of our “Going Gray” strategy. I have

never been more condent in the future of

the shipyard and our transition to also build-

ing ships for the U.S. Navy and other govern-

ment agencies.

Due largely to the impact of COVID-19 and

the vaccination mandates, the rebuilding of

our workforce has been challenging, as it is

for most heavy industry and manufactur-

ing employers in the United States. We are

building back our workforce with returning

former employees, newly recruited hires, and

working closely with subcontractors to ll our

critical shipbuilding positions. At the same

time, we have restarted our comprehensive

apprentice program with support from a

grant from the U.S. DOT Maritime Administra-

tion (MARAD), and now have over 70 appren-

tices, with more added each quarter. We

believe the most eective way to build and

keep a workforce is through this program and

past graduates have advanced to leadership

positions throughout the shipyard, with some

joining our management.

Another way in which we dierentiate our-

selves from other manufacturing employ-

ers is through our unwavering commitment

to HSE. We continue to excel in our HSE

performance and even recently surpassed

2,000,000 hours without a lost time injury.

We invest in every employee to ensure they

work in a safe and responsible manner.

Thus, when we are talking to new candidates

about why Philly Shipyard is a great place

to work, we emphasize our commitment to

safety, and we think that is a signicant fac-

tor in them accepting a position with Philly

Shipyard. But our eorts to build a safety

culture throughout the shipyard cannot

diminish and we must strive for constant

improvement each and every day. Indeed,

continuously striving to improve safety is not

only the right thing to do, but also good for

our business, since our customers expect

nothing less. We are also committed to be

in compliance with all environmental stan-

dards and to reduce our carbon imprint in

the years to come.

As everywhere, COVID-19 remains a challenge

to our operations. We strongly encourage

vaccinations for all our workforce. Although

we continue to experience positive cases, we

have been fortunate to avoid an outbreak in

our shipyard. We share the hopes of every-

one that the pandemic will subside, and we

can return to our normal operations. But

until that time, we will remain vigilant and

continue to follow all applicable COVID-19

guidelines.

The NSMV program has given us our rst expo-

sure to government new build work, although

the contract structure and management are

quite dierent from the way U.S. Government

ships are built. Instead of a direct contract

with MARAD, we have contracted with and

are being managed by a Vessel Construc-

tion Manager (VCM), TOTE Services, which

oversees all aspects of the construction and

reports to MARAD. Because of this unique

structure, the vessels are being built to com-

mercial standards with fewer government

requirements, which results in a lower cost

to the government than would be possible in

a traditional government contract structure.

We believe this contract structure could be

utilized in the construction of several classes

of U.S. Navy and other governmental auxiliary

vessels. There is growing interest in Congress

and various government shipowners in the

NSMV model, and its potential applicability to

government shipbuilding programs to reduce

costs and build more vessels. It is my belief

that the success we will achieve in the NSMV

program will lead to additional opportunities

with other government vessels. The funding

for NSMV 5 was recently secured, and we are

hopeful that TOTE Services will exercise its

option for that ship shortly.

We are aggressively pursuing our “Going

Gray” strategy, but recognize U.S. govern-

ment shipbuilding projects require specic

knowledge in responding to bids, preparing

the proposals and managing contract pro-

visions throughout the construction of their

vessels. For example, U.S. Navy contracts

require that many of the components in the

ships must be sourced in the United States,

whereas with our commercial vessels, there

are fewer limitations on where components

2021:

Building Ships and

our Future

Dear Shareholders,

LETTER FROM THE PRESIDENT

PHILLY SHIPYARD - ANNUAL REPORT 2021 11

can be purchased. In response, we have

hired talented individuals with deep expe-

rience working on government programs,

and are identifying potential U.S. suppliers

of key components. We are now in a posi-

tion to eectively compete for opportunities

for new auxiliary vessels, which are expected

to be built in the years to come. We have

gained additional experience through our

participation in various design studies, such

as OPC for the U.S. Coast Guard and CHAMP,

T-AGOS, and T-ARC for the U.S. Navy. I have

great condence that we will be successful in

this market.

On the commercial side, we secured a con-

tract with Great Lakes Dredge and Dock Com-

pany (Great Lakes) for the construction of one

Subsea Rock Installation Vessel, the rst of its

kind to be constructed in the United States.

The vessel will support the growing oshore

wind energy industry, and Great Lakes retains

a right of rst refusal to build a second vessel.

We monitor the commercial Jones Act mar-

kets very closely to identify potential oppor-

tunities for tankers and container vessels,

and because of our successful history, and

the quality of our vessels, I believe that Philly

Shipyard will be high on any vessel owner’s

list when it is time to build new ships.

Last year, I said that our business would be

balanced upon the “three-legged stool” of 1)

commercial new builds, 2) government new

builds, and 3) repairs. This year, I can tell you

Philly Shipyard is rmly on that stool and in a

much stronger position as a result.

The biggest change in 2021 was the feeling

of optimism and condence all of us feel

about our shipyard, and speaking for all the

men and women who are Philly Shipyard, I

can honestly say it feels terric to be build-

ing ships again. We are back in business,

our focus remains sharp and the energy

that is evident throughout the shipyard will

ensure our success on the NSMV program

and beyond.

We are so fortunate to have steadfast sup-

port from our stakeholders, among them our

union leaders, our suppliers, federal, state,

and local representatives and above all our

fantastic employees, who never fail to meet

any challenge and who build the nest ships

in the United States. As I look ahead, I have

great faith that 2022 will be a terric year.

Yours truly,

Steinar Nerbøvik

President and CEO

Philadelphia, PA

18 March 2022

LETTER FROM THE PRESIDENT LETTER FROM THE PRESIDENT

PHILLY SHIPYARD - ANNUAL REPORT 202112

ACTIVITIES

The main entities in Philly Shipyard are the

Norwegian holding company, Philly Shipyard

ASA (referred to herein as “PHLY”), and its

U.S. operating subsidiary, Philly Shipyard, Inc.

(referred to herein as “PSI” or the “Shipyard”),

a leading U.S. commercial shipyard that is

presently pursuing a mix of commercial and

government work. PHLY is located in Oslo,

Norway, while PSI is located in Philadelphia,

Pennsylvania, USA.

As of 31 December 2021, PSI’s workforce

consisted of 973 people, with a breakdown of

343 direct employees and 630 subcontracted

personnel.

Philly Shipyard’s business strategy for PSI is to

build vessels for operation in the U.S. Jones

Act and U.S. Government markets while

opportunistically performing ship mainte-

nance, repair, overhaul, and conversion

(MROC) work to fully utilize the shipyard’s

capacity. As of year-end 2021, Philly Shipyard

has ve vessels in its order book with a total

contract value in excess of USD 1.4 billion and

a nal delivery in 2024.

Safe, cost ecient and quality construction of

new vessels is critical for the success of Philly

Shipyard’s business model. There are several

factors that position Philly Shipyard to capi-

talize on this market: a state-of-the-art ship-

yard with modern equipment and two of the

largest dry docks on the East Coast; access to

global shipbuilding and design expertise with

partners in North America, Asia and Europe; a

solid track record demonstrated by the deliv-

ery of 30 quality vessels (6 containerships, 22

product tankers and 2 Aframax tankers); and

Board of Directors’

Report 2021

Philly Shipyard ASA and its subsidiaries (referred to herein as a group as the “Group”, the

“Company” or “Philly Shipyard”) is a leading commercial shipbuilder in the U.S. Jones Act

market that is presently pursuing newbuild opportunities in the commercial and govern

ment markets. Aker Capital AS, a wholly-owned subsidiary of Aker ASA, is the majority

shareholder in Philly Shipyard ASA.

KEY EVENTS AND HIGHLIGHTS

Operations and projects continued to safely move forward during the COVID-

19 pandemic

Exceeded 1,900,000 consecutive hours worked without a single lost time injury

Received order for the second two National Security Multi-Mission Vessels (3

and 4) with total contract value of approximately USD 600 million, bringing the

total order intake for the NSMV program to greater than USD 1.2 billion

Awarded a contract from Great Lakes Dredge & Dock Company, LLC to con-

struct one Jones Act-compliant Subsea Rock Installation Vessel for the U.S. o-

shore wind market valued at approximately USD 197 million

Awarded industry design study contract for the U.S. Navy’s Cable Ship T-ARC(X)

replacement program

Continued progress on the NSMV new build program, including keel laying of

NSMV 1 and full production start of NSMV 2

Completed ship repair and maintenance work on the USNS Charlton, a large

roll-on/roll-o ship for the U.S. Navy’s Military Sealift Command (MSC), on time

and on budget

Reinstated the shipyard’s apprenticeship program and reopened its training

academy facility

Order backlog of USD 1,203.2 million on 31 December 2021 with last delivery

in 2024

2021 operating revenues of USD 214.1 million compared to USD 54.1 million

in 2020

2021 net loss of USD 7.3 million compared to 2020 net income of USD 1.6 million

Total cash and cash equivalents of USD 255.0 million at 31 December 2021,

excluding USD 44.5 million of restricted cash

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 2021 13

a skilled workforce consisting of direct and

contracted employees with a strong Health,

Safety and Environment (HSE) mindset and

culture of improvement.

THE JONES ACT MARKET

The U.S. Jones Act generally restricts the

marine transportation of cargo and passen-

gers between points in the United States to

vessels built in the United States, registered

under the U.S. ag, manned by predominately

U.S. crews, and 75% owned and controlled by

U.S. citizens. The ability of the Company to win

contracts is in part dependent on its unique

ability to construct vessels that are eligible

for U.S. Jones Act trades, and the Jones Act

requirement for construction of the vessels in

the United States limits competition for future

contracts by excluding foreign shipyards.

THE U.S. GOVERNMENT MARKET

The U.S. Government market for ship con-

struction and ship maintenance, repair, over-

haul, and conversion (MROC) work is expan-

sive and cuts across multiple government

agencies. Government customers include

the U.S. Navy, the Military Sealift Command

(MSC), the U.S. DOT Maritime Administra-

tion (MARAD), the U.S. Coast Guard, the U.S.

Army Corps of Engineers and others. In June

2021, the U.S. Navy released an abbreviated

30-year shipbuilding plan. The total projected

outlay is approximately USD 25-33 billion

per year in shipbuilding for the foreseeable

future. The spending available for auxiliary

ship programs is dominated by the huge

quantitative impact of the submarine pro-

gram and the qualitative debates about what

the service needs to do ‘to reconstitute the

sealift capability.’ Planned new auxiliary ship

programs include the T-ARC(X) (future under-

sea cable layer) and the T-AS(X) (future sub-

marine support ship).

THE MASTER AGREEMENT, SHIPYARD

LEASE AND AUTHORIZATION AGREEMENT

WITH PSDC

PSI currently operates its shipyard under

a 99-year lease with Philadelphia Shipyard

Development Corporation (PSDC), a govern-

ment-sponsored non-prot corporation. A

Master Agreement, a Shipyard Lease and an

Authorization Agreement govern PSI’s rela-

tionship with PSDC and the various govern-

mental parties that have contributed to the

establishment of the Shipyard.

Under the Master Agreement, the govern-

mental parties have provided approximately

USD 438 million for the renovation and mod-

ernization of the facility and training of the

workforce. PSI was required to make certain

qualied infrastructure investments totaling

USD 135 million, which have been fully satis-

ed. PSI was also required to match govern-

ment funding for certain training costs total-

ing USD 50 million, which has been fullled.

Pursuant to the Shipyard lease between PSI

and Philadelphia Shipyard Development

Corporation (PSDC), if PSI fails to maintain

an average of at least 200 full-time employ-

ees at the shipyard for 90 consecutive days,

then the lease term (i.e., a 99-year lease with

approximately 76 years remaining includ-

ing options) is automatically converted to

month-to-month and PSDC has the right to

terminate the lease, subject to the right of PSI

to complete work-in-process projects and a

one-time, limited cure right which allows PSI

to restore the lease to a ve-year term under

certain circumstances. PSI was in compliance

with this lease condition as of 31 December

2021.

Pursuant to the Authorization Agreement,

PSDC purchased certain shipyard assets from

PSI in 2011 for a purchase price of USD 42.0

million, with funds provided by the Common-

wealth of Pennsylvania. PSI is leasing back

those same assets from PSDC subject to the

terms of the Shipyard Lease and the Authori-

zation Agreement.

STRATEGY

Philly Shipyard will, through its unique part-

nerships and experience obtained during

construction of tankers and containerships,

strive to be the most ecient shipyard in the

U.S. Jones Act and U.S. Government markets

for production of ocean-going vessels. Over

the past several years, Philly Shipyard has

taken steps to diversify its business beyond

the traditional vessels it has built for the

commercial market. The National Security

Multi-Mission Vessel (NSMV) program for the

U.S. Department of Transportation’s Mari-

time Administration (MARAD) is a critical step

forward in the shipyard’s transformation to

serve both commercial and government cus-

tomers. Going forward, PSI’s main focus is to

pursue major shipbuilding programs in both

markets. PSI will also opportunistically pursue

maintenance, repair, overhaul, and conver-

sion (MROC) work for government ships.

Philly Shipyard’s research and development

activities are primarily related to two areas.

The rst area is the development of PSI’s

building methodology and working methods

to ensure that PSI takes maximum benet of

the learning curve and produces each grand

block and each vessel more eciently than the

previous one. The second area is work related

to the development of new vessels. Ordinarily,

PSI will attempt to identify and license existing

best-in-class designs and cooperate with the

owners of such designs to make such mod-

ications as are necessary. However, when

existing designs are unavailable or unsuit-

able, PSI will develop new designs to meet the

needs of the markets it serves.

KEY EVENTS 2021

In January 2021, Philly Shipyard received an

order for two additional National Security

Multi-Mission Vessels (NSMVs 3 and 4) from

TOTE Services LLC (TOTE Services). Construc-

tion of the two new vessels is expected to

commence in 2022 with planned deliveries

in 2024. This award is valued at approxi-

mately USD 600 million, which brought the

total order intake for the NSMV program to

greater than USD 1.2 billion.

Additionally, in January 2021, Philly Shipyard

was awarded a contract to participate in an

industry study for design of the U.S. Navy’s

Cable Ship T-ARC(X) program – a replace-

ment for the U.S. Navy’s only undersea cable

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 202114

installation and repair ship, the USNS Zeus

(T-ARC-7). The ship’s primary mission will

be to transport, install, retrieve and repair

undersea cables and equipment, with many

additional capabilities including ocean sur-

veys and deployment of unmanned under-

water vehicles. Philly Shipyard partnered with

Vard Marine, Inc. as the ship design team on

this program. It represents the fourth govern-

ment design studies contract that Philly Ship-

yard has been awarded since the beginning

of 2019.

In February 2021, Philly Shipyard was

awarded a ship repair and maintenance con-

tract by Patriot Contract Services (Patriot) –

the ship manager on behalf of the U.S. Navy’s

Military Sealift Command (MSC) – for the

USNS Charlton (T-AKR-314), which marked the

third government repair contract that PSI had

been awarded since the middle of 2019 and

its rst contract with Patriot as ship manager.

The vessel, a large roll-on/roll-o MSC ship,

was redelivered to the customer on time and

on budget in September 2021.

In May 2021, PSI reinstated the shipyard’s

apprenticeship program and reopened its

training academy facility. Philly Shipyard wel-

comed its rst class of apprentices since the

last class graduated in early 2018. Earlier in

2021, Philly Shipyard received a USD 720

thousand grant from MARAD to support its

apprenticeship program.

In November 2021, the Company won a con-

tract from Great Lakes Dredge & Dock Com-

pany, LLC (Great Lakes), the nation’s leading

dredging company, to construct one Jones

Act-compliant Subsea Rock Installation Vessel

(SRIV) - the rst such ship to enter the U.S. o-

shore wind market - valued at approximately

USD 197 million. Great Lakes retains a right of

rst refusal on a second ship. If both ships are

ordered, then the total contract value of the

two-ship program would be approximately

USD 382 million.

During the course of 2021, Philly Shipyard

continued to advance the engineering, pro-

curement and planning work on the NSMV

program. Full production start of NSMV 2

occurred in November 2021 and keel laying

of NSMV 1 occurred in December 2021 in

accordance with plan. Pre-production activ-

ities on NSMVs 3 and 4 are ongoing. Philly

Shipyard has commenced pre-production

activities on SRIV 1.

For the third straight year, PSI did not record

a single lost time injury (LTI). As of year-end

2021, PSI has performed more than 1.9 mil-

lion consecutive work hours since the last LTI.

REVIEW OF THE ANNUAL ACCOUNTS

Philly Shipyard prepares and presents its

consolidated accounts according to Interna-

tional Financial Reporting Standards (IFRS) as

adopted by the European Union.

PHLY was formed on 16 October 2007 to be

the holding company of PSI which operates

the shipyard located in Philadelphia, Pennsyl-

vania, USA.

As of 31 December 2021, Philly Shipyard has

two separate awards under one shipbuild-

ing contract in place for the NSMV program.

Hulls 033-034 were awarded at contract

signing in April 2020. Hulls 035-036 were

awarded upon the exercise of an option in

January 2021. Therefore, the two awards are

treated as two separate performance obliga-

tions that are being accounted for using the

percentage-of-completion method per IFRS

15 Revenue from Contracts with Customers.

PSI is building four NSMVs (Hulls 033-036)

for TOTE Services, with the rst two vessels

scheduled for delivery in 2023 and the last

two vessels scheduled for delivery in 2024. As

of 31 December 2021, the NSMV projects for

Hulls 033-034 and Hulls 035-036 are 33.5%

and 1.0% complete, respectively.

Also in accordance with IFRS, Philly Shipyard

recognized a prot on its third ship repair

and maintenance project, the USNS Charlton.

Philly Shipyard also recognized prots on the

OPC, T-ARC, T-AGOS and CHAMP government

design studies during the year.

Order backlog

As of 31 December 2021, PSI’s order back-

log was USD 1,203.2 million and represents a

contractual obligation to produce vessels that

have not yet been delivered to PSI’s custom-

ers: TOTE Services and Great Lakes. Order

backlog consists of future shipbuilding con-

tract revenues and is subject to adjustment

based on change orders as dened in the

construction contracts. At the end of 2021,

the order backlog was comprised of the rst

four NSMVs (Hulls 033-036) under contract

with TOTE Services and the one SRIV (Hull

038) under contract with Great Lakes. The net

backlog increase of USD 790.6 million from

2020 represents the shipbuilding contracts

awarded for NSMVs 3 and 4 plus the one SRIV

vessel plus change orders oset by progress

made on the two NSMV projects.

Prot and loss accounts

Operating revenues in 2021 ended at USD

214.1 million compared to operating rev-

enues of USD 54.1 million in 2020. Operat-

ing revenues in 2021 were primarily driven

by progress on the rst four NSMV vessels

(Hulls 033-036), ship repair and maintenance

work on the USNS Charlton and government

design studies. Operating revenues in 2020

were primarily driven by progress on the rst

two NSMV vessels (Hulls 033-034), ship repair

and maintenance work on the FSS Pollux and

government design studies.

Philly Shipyard’s earnings before interest,

taxes, depreciation and amortization (EBITDA)

was negative USD 7.0 million in 2021, com-

pared to EBITDA of negative USD 21.6 million

in 2020. These gures correspond to EBITDA

margins of –3.3% and -39.9%, respectively.

Depreciation expense in 2021 and 2020 was

USD 5.4 million and USD 6.2 million, respec-

tively.

Philly Shipyard’s earnings before interest and

taxes (EBIT) was negative USD 12.4 million in

2021, compared to EBIT of negative USD 27.8

million in 2020. Key contributing factors to

negative EBIT in 2021 were under-recovered

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 2021 15

overhead costs (i.e., overhead costs incurred

and not allocated to projects) of USD 19.4

million (compared to USD 21.6 million in

2020) and SG&A costs of USD 7.5 million

(compared to USD 6.4 million in 2020), par-

tially oset by a combined prot of USD 9.0

million recognized on the two NSMV projects

(Hulls 033-034 and Hulls 035-036), a prot of

USD 4.5 million on the USNS Charlton ship

repair and maintenance project and a prot

of USD 1.0 million on government design

studies.

In addition to the IFRS nancial measures

reported above, EBITDA and EBIT are con-

sidered relevant earnings indicators for the

Company as they measure the operational

performance of the shipyard. These non-IFRS

measures are included as items in the consol-

idated income statement.

Net nancial items in 2021 and 2020 was

income of USD 0.2 million and USD 0.1 mil-

lion, respectively. Net nancial items in 2021

and 2020 were both primarily driven by inter-

est income from bank balances partially o-

set by interest expense and bank fees.

Income tax for 2021 and 2020 was a bene-

t of USD 4.9 million and USD 29.2 million,

respectively. The 2021 income tax benet is

due to Federal and State research and devel-

opment (R&D) credits and Federal tax net

operating losses (NOL). The 2020 income tax

benet was due to a NOL carryback tax pro-

vision created by the Coronavirus Aid, Relief,

and Economic Security (CARES) Act, which

resulted in a USD 19.0 million net income

tax receivable, and (b) a USD 10.2 million

deferred tax asset due to future prots to be

recognized.

In 2021, Philly Shipyard’s net loss was USD

7.3 million and its basic and diluted loss per

share was negative USD 0.61. The corre-

sponding gures for 2020 was net income

of USD 1.6 million and a basic and diluted

income per share of USD 0.13. Net income

in 2020 was driven by the USD 29.2 million

income tax benet described above.

Cash ows

The Company’s cash ow from operations

depends on payment terms for construction

and delivery settlement for vessels sold to

external customers.

Net cash ow from operating activities in

2021 and 2020 were USD 172.7 million and

USD 50.0 million, respectively. There are sig-

nicant changes year-to-year caused by the

level of completion of vessels and customer

and vendor contract payment schedules.

Net cash ow used in investing activities in

2021 and 2020 were USD 14.8 million and

USD 4.0 million, respectively. In both 2021

and 2020, investment activities were due to

capital improvements and enhancements to

support the NSMV program and future pro-

grams.

Net cash ow used in nancing activities was

USD 0.3 million in 2021 and net cash ow

from nancing activities was USD 0.7 million

in 2020. Net outow in 2021 was for repay-

ment of a lease liability whereas net inow in

2020 was primarily from the interest income

earned on the USD 60.0 million escrow

amount held for the Welcome Fund loan.

Statement of nancial position

and liquidity

As of 31 December 2021, Philly Shipyard

has cash and cash equivalents (excluding

restricted cash) of USD 255.0 million. The

corresponding gure for 2020 is USD 97.4

million. The increase of USD 157.6 million

was primarily due to customer advances,

net of project costs on the rst four NSMV

vessels and the one SRIV vessel and an

increase in trade payables and accrued lia-

bilities oset by prepayments to suppliers

for the NSMV program, cash deposited in

escrow accounts related to the NSMV pro-

gram and investment in property, plant and

equipment. Philly Shipyard’s net working

capital (current assets less current liabilities)

is negative USD 17.3 million at 31 December

2021 compared to USD 17.4 million at 31

December 2020.

As of 31 December 2021, Philly Shipyard has

restricted cash of USD 44.5 million, of which

USD 43.1 million (long-term) represents the

cash deposited in escrow accounts related

to the NSMV program and USD 1.4 million

(short-term) pertains to a holdback in escrow

for claims related to the second Matson ves-

sel (Hull 030). The corresponding gure for

2020 was USD 26.4 million. The increase of

USD 18.1 million in restricted cash is primar-

ily due to the additional cash deposited in

escrow accounts described above.

Total assets were USD 437.0 million at 31

December 2021 compared to USD 237.7 mil-

lion at 31 December 2020.

Current assets as of 31 December 2021

of USD 331.5 million consists of restricted

cash short-term, prepayments and other

receivables, income tax receivable short-

term, contract assets and cash and cash

equivalents. The corresponding gure for

31 December 2020 is USD 159.2 million

and consists of restricted cash short-term,

prepayments and other receivables, income

tax receivable short-term and cash and cash

equivalents. The increase of USD 172.3 mil-

lion in current assets is primarily due to the

increase in cash and cash equivalents and

the increase in prepayments and other

receivables mostly for suppliers for the

NSMV program.

Non-current assets as of 31 December 2021

of USD 105.5 million consists of property,

plant and equipment, right-of-use assets,

restricted cash long-term, income tax receiv-

able long-term, deferred tax asset and other

non-current assets. The corresponding gure

for 31 December 2020 is USD 78.5 million

and consists of property, plant and equip-

ment, right-of-use assets, restricted cash

long-term, income tax receivable long-term,

deferred tax asset and other non-current

assets. The increase of USD 27.0 million in

non-current assets is primarily driven by the

net investment in property, plant and equip-

ment and the additional cash deposited in

escrow accounts described above.

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 202116

Current liabilities as of 31 December 2021 of

USD 348.8 million consists of trade payables

and accrued liabilities, warranties, customer

advances, net, income tax payable short-

term and lease liability short-term. The cor-

responding gure for 31 December 2020 is

USD 141.8 million and consists of trade pay-

ables and accrued liabilities, warranties, cus-

tomer advances, net, other contract liabilities,

income tax payable short-term and lease lia-

bility short-term. The increase of USD 207.0

million in current liabilities is primarily due

to customer advances received net of ship

costs for NSMVs 1-4 and the one SRIV and

an increase in trade payables and accrued

liabilities.

Non-current liabilities as of 31 December

2021 of USD 2.8 million consists of income

tax payable long-term and lease liability

long-term. The corresponding gure for 31

December 2020 is USD 3.1 million and con-

sists of income tax payable long-term and

lease liability long-term. The decrease of USD

0.3 million in non-current liabilities is primar-

ily due to a reduction in lease liability long-

term.

Total equity at 31 December 2021 amounts

to USD 85.5 million and the equity ratio (total

equity divided by total assets) was 20%. Cor-

responding gures for 31 December 2020

are USD 92.8 million and 39%, respectively.

The USD 7.3 million decrease in equity is the

result of the current year’s net loss.

The Board deems that the Company as of 31

December 2021 is nancially sound and has

an appropriate nancing structure subject

to the risks discussed in the Risks section

below.

RISKS

Market risks

The overall market risk for construction of

commercial vessels is related to the Jones Act.

Repeal of or signicant changes to the Jones

Act could, among other things, increase com-

petition from foreign (non-U.S.) shipbuilders

with lower costs or require increased use

of higher priced domestic content, and as a

result reduce the demand for U.S.-built ves-

sels. In order to address this risk, the Com-

pany has continuous engagement with local,

state and federal government ocials.

Philly Shipyard is also exposed to market risk

related to imbalance between supply and

demand for vessels in the Jones Act and U.S.

Government markets, which may result in a

reduction of vessel prices and/or a delay in

new projects. PSI faces risks related to the

contracts for its vessels, including the risk

that those contracts are cancelled and the

underlying vessels are ultimately sold to third

parties for less favorable terms.

Philly Shipyard’s revenue is derived primarily

from contracts awarded on a project-by-proj-

ect basis. It is dicult to predict whether

or when Philly Shipyard will be awarded a

new contract due to, among other things,

changes in existing or forecast market or

political conditions, uncertainty regarding

the timing and amount of budget appropri-

ations, the complex bidding and selection

processes, potential for contract award pro-

tests and challenges, and governmental reg-

ulations. Because Philly Shipyard’s revenue

is derived from contract awards, the Compa-

ny’s revenues, results of operations and cash

ows can uctuate materially from period to

period.

While Philly Shipyard now has an order back-

log for ship new builds, it faces future risks if it

is unable to secure new orders and/or nanc-

ing for major commercial or government

shipbuilding programs to follow the NSMV

program. There can be no assurance that

Philly Shipyard will obtain such new orders or

nancing for vessels.

Operational risks

Philly Shipyard faces risks related to construc-

tion of vessels. Philly Shipyard’s ability to meet

budgets and schedules may be adversely

aected by many factors, including changes

in productivity, shortages of materials, equip-

ment and labor, and changes in the cost of

goods and services, both Philly Shipyard’s

own and those charged by its suppliers.

Philly Shipyard’s operations also depend on

stable supplier networks and the availability

of key vendors for design and procurement

services. Philly Shipyard has xed-price sub-

contracts for the detailed design and major

equipment for the NSMV program and

intends to secure xed-price subcontracts

for the detailed design and major equipment

for the SRIV program.

As is common in the shipbuilding industry,

Philly Shipyard’s projects are typically per-

formed on a xed-price basis. Under xed-

price contracts, Philly Shipyard receives

the price xed in the contract, subject to

adjustment only for change-orders. In many

cases, these vessels involve complex design

and engineering, signicant procurement of

equipment and supplies and extensive con-

struction management. Management uses

its best eorts to accurately estimate the

costs to complete Philly Shipyard’s project

awards; however, Philly Shipyard’s actual

costs incurred to complete these projects

could exceed its estimates. The NSMV and

SRIV contracts are xed-price contracts. The

SRIV contract includes a steel weight adjust-

ment clause.

The federal COVID-19 vaccine mandates

could materially adversely impact the Com-

pany’s ability to attract and retain skilled

workers at forecasted rates. Philly Shipyard’s

productivity and protability depends sub-

stantially on its ability to attract and retain

skilled workers at forecasted rates. Until

operations ramp-up to full capacity for the

NSMV program, Philly Shipyard will not fully

cover its overhead costs.

The Company furthermore faces challenges

related to the construction of new classes of

vessels, as well as managing multiple projects

at the same time. These challenges some-

times tend to impact quality, timely delivery

and cost eciencies. In order to reduce these

risks, the Shipyard enters into contracts with

design and procurement partners.

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 2021 17

Given the NSMV and SRIV are prototype ves-

sels, there is a higher technical design risk

and a higher project execution risk compared

to the construction of vessels based on a

proven design, such as the series of product

tankers built by Philly Shipyard. This proto-

type risk increases the current construction

cost estimation uncertainty and the likelihood

of occurrence of contract contingencies. In

particular, failure to meet Philly Shipyard’s

performance obligations to deliver vessels

on time and within the contract specica-

tions can potentially lead to penalties and

ultimately contract termination. The NSMV

and SRIV contracts impose liquidated dam-

ages for late delivery.

The Shipyard depends on unionized labor

for construction of vessels. Work stoppages

or other labor disturbances could have a

material adverse eect on the Company’s

business, results of operations and nan-

cial condition. In order to mitigate this risk,

the Shipyard has signed a four-year collec-

tive bargaining agreement with the Unions

which is eective through January 2023. The

collective bargaining agreement includes a

no-strike clause.

PSI’s success also depends to a great degree

on the abilities of its key management per-

sonnel, particularly its executives and other

key employees who have signicant expe-

rience within PSI’s industry. The loss of the

services of one or more of these individuals

could adversely aect PSI.

PSI’s ability to perform under its contracts

depends to some degree on the perfor-

mance of third parties under subcontracts.

PSI depends upon subcontractors for a vari-

ety of reasons, including: to perform work as

a result of scheduling demands or capacity

constraints that PSI would otherwise per-

form with its employees; to supervise and/

or perform certain aspects of the contract

more eciently considering the conditions of

the contract; and to perform certain types of

skilled work. PSI works closely with these sub-

contractors to monitor progress and address

its customer requirements. PSI generally has

the ability to pursue back charges for costs it

incurs or liabilities it assumes as a result of

a subcontractor’s lack of performance. How-

ever, the inability of PSI’s subcontractors to

perform under the terms of their contracts

could cause PSI to incur additional costs that

reduce protability or create losses on proj-

ects.

The Shipyard further depends upon a 99-year

lease agreement for the shipyard facility

and the future operations of the yard will

accordingly be dependent upon PSI fullling

its obligations under this lease agreement.

Failure to maintain certain employment lev-

els may result in early termination of this

lease. For more details regarding this lease,

see “The Master Agreement, Shipyard Lease

and Authorization Agreement with PSDC” on

page 13.

The Shipyard’s operations are subject to

the usual hazards inherent in shipbuilding,

such as the risk of equipment failure and

work accidents. Despite the Shipyard’s best

eorts to eliminate these hazards, they can

sometimes cause personal injury, business

interruption, construction delays, property

and equipment damage, pollution and envi-

ronmental damage. PSI continues to imple-

ment its Health, Safety and Environment

(HSE) management system and provide

training to its workforce to mitigate these

risks. The Shipyard’s policy of covering these

risks through contractual limitations of liabil-

ity and indemnities and through insurance

may not always be eective, and customers

and subcontractors may not have adequate

nancial resources to meet their indemnity

obligations to PSI.

PSI relies heavily on computer information

and communications technology and related

systems in order to properly operate its busi-

ness. From time to time, PSI experiences

occasional system interruptions and delays.

In the event PSI is unable to regularly deploy

software and hardware, eectively upgrade

its systems and network infrastructure, and

take other steps to maintain or improve the

eciency and ecacy of its systems, the oper-

ation of such systems could be interrupted

or result in the loss, corruption or release of

data, and the cost associated with respond-

ing to such events and restoring compliance

could be signicant.

The Company faces risk of signicant nan-

cial, business and intelligence loss if there

are cyber security breaches. Philly Shipyard

has invested signicant resources to provide

a more secure computing environment over

the last several years, resulting in improved

security and business resiliency. Philly Ship-

yard maintains a continued high awareness

of its risk prole regarding cyber security

because new threats can emerge quickly.

The Shipyard’s operations are subject to

numerous international, national, state and

local environmental, health and safety laws,

regulations, treaties and conventions, includ-

ing, inter alia, those controlling the permit-

ted and unpermitted discharge of materials

into the environment, requiring removal and

clean-up of environmental contamination,

establishing certication, licensing, health

and safety, labor and training standards or

otherwise relating to the protection of human

health and the environment. Sanctions for

failure to comply with these requirements,

which may be applied retroactively, may

include: administrative, civil and criminal lia-

bilities, revocation of permits to conduct busi-

ness and corrective action orders, including

orders to investigate and clean up contam-

ination.

Philly Shipyard’s operations historically

focused primarily on construction of new ves-

sels for the U.S. Jones Act market. Philly Ship-

yard is continuing to develop and implement

the policies and procedures required to be a

fully compliant U.S. Government contractor.

Entry into, or further development of, lines of

business in which the Company has not his-

torically operated may expose Philly Shipyard

to business and operational risks that are dif-

ferent from those it has experienced histori-

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 202118

cally. For example, U.S. Government projects

generally are subject to suspension, termi-

nation or a reduction in scope at the option

of the customer, although the customer is

typically required to pay for work performed

and materials purchased through the date of

termination. The NSMV contract has a termi-

nation for convenience clause at the option

of the U.S. Government.

Financial risks

Philly Shipyard’s activities expose it to a vari-

ety of nancial risks: market risk (including

commodity pricing risk, currency risk and

price risk), credit risk and cash ow interest

rate risk. Philly Shipyard’s overall risk manage-

ment program focuses on the unpredictabil-

ity of nancial markets and seeks to minimize

potential adverse eects on Philly Shipyard’s

nancial performance. Philly Shipyard uses

derivative nancial instruments to hedge cer-

tain risk exposures.

Risk management is carried out under poli-

cies and protocols approved by the Board of

Directors. The Board of Directors provides

principles for overall nancial risk manage-

ment as well as policies covering specic

areas such as foreign exchange risk, inter-

est rate risk, credit risk and use of derivative

financial instruments and non-derivative

nancial instruments.

The Company is exposed to changes in prices

of steel and other materials and duties, tar-

is and other taxes imposed on goods

imported from foreign (non-U.S.) countries.

PSI attempts to mitigate its exposure with

respect to steel and other material cost

escalation and increased taxes on imported

goods by attempting to pass these risks on to

its end customers. The NSMV and SRIV con-

tracts include price adjustment clauses for

steel plates and all structural steel, respec-

tively.

The Company is subject to exchange rate risk

for purchases made in currencies other than

the U.S. dollar. In order to mitigate exposure

to this risk, Philly Shipyard will look to pass

this risk on to its end customers or suppliers

or secure foreign exchange forward contracts

for its known requirements for foreign cur-

rency. Philly Shipyard has xed-price subcon-

tracts in U.S. dollars for the detailed design

and major equipment for the NSMV program.

The SRIV contract includes an exchange rate

adjustment clause for purchases made in

certain foreign currencies.

Philly Shipyard is dependent upon having

access to construction nancing facilities

and other loans and debt facilities to the

extent its own cash ow from operations

and milestone payments from customers are

insucient to fund its operations and capital

expenditures. In turn, Philly Shipyard must

secure and maintain sucient equity capital

to support debt facilities. Additionally, Philly

Shipyard may be required to obtain bonding

capacity in case there is need for payment

or performance bonds, or to furnish letters

of credit, refund guarantees or other forms

of security, to support major commercial or

government shipbuilding programs. Philly

Shipyard may not be able to obtain sucient

debt facilities or bonding capacity or fur-

nish sucient security if and when needed

with favorable terms, if at all. No third-party

nancing is needed for the NSMV program

or the SRIV program and Philly Shipyard has

furnished the security required to support

NSMVs 1-4 and SRIV 1.

Philly Shipyard regularly monitors the nan-

cial health of its construction nancing lend-

ers (if any) as well as the nancial health of the

nancial institutions, which it uses for cash

management services and in which it makes

deposits and other investments.

Through construction nancing (if any), the

Company is exposed to uctuations in inter-

est rates.

The credit risk of ship owners is evaluated

upon contract signing. Typically, ship own-

ers have nancing approvals in place before

they enter into contracts with PSI. During the

construction period, Philly Shipyard continu-

ally evaluates the credit risk associated with

ship owners and, except in cases where PSI

arranges construction nancing, manages

this risk by requiring payment for substantially

the entire contractual amount prior to deliv-

ering a vessel, including milestone payments

upon completion of specied milestones. At

the completion of a vessel, transfer of own-

ership takes place upon settlement. Should

a ship owner fail to pay, PSI may attempt to

dispose of the vessel in the open market to

recover its construction costs. The ultimate

customer of the NSMV program is the U.S.

Government.

PSI accrues an estimate for future warranty

claims on its delivered vessels. This estimate

is examined during the warranty period and

adjusted as necessary. In order to mitigate

the risk of warranty claims exceeding war-

ranty provisions, PSI has secured back-to-

back warranties for most major components

on the vessels.

COVID-19 and other risks

The ongoing COVID-19 pandemic inherently

increases many of the aforementioned risk

factors. Markets become more uncertain,

operations become more vulnerable to inter-

ruptions and policy makers around the world

may gravitate towards stricter regulations

impacting international trade.

The world continues to face new and emerg-

ing COVID-19 related risks and the ultimate

severity of the pandemic, and its eect on the

Company’s business in the future, is uncer-

tain. These risks include risks to human capi-

tal resources arising from vaccine mandates;

supply chain constraints; labor and raw mate-

rials shortages; and ination. These risks have

caused, and could continue to cause, delays

and increased costs with respect to the Com-

pany’s shipbuilding projects.

Notwithstanding the COVID-19 pandemic,

operations are continuing and ongoing proj-

ects are moving forward. As the COVID-19

pandemic evolves around the world, includ-

ing the emergence of variants such as Delta

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 2021 19

and Omicron, Philly Shipyard continues to

take measures to mitigate the risk for oper-

ational disruptions and reduce risk of out-

breaks and its consequences, both in its pro-

duction facility as well as in its oces. Even

though the development is followed closely,

a worst-case scenario with outbreak in the

Philadelphia facility may have a signicant

operational and nancial impact.

Philly Shipyard strictly follows all applicable

guidelines by federal, state and local author-

ities, including the Centers for Disease Con-

trol and Prevention (CDC), to minimize the

risk of transmission of the coronavirus. Philly

Shipyard also strongly encourages all of its

workers to get vaccinated for COVID-19.

During 2021, Philly Shipyard oered multiple

on-site COVID-19 vaccination clinics for its

workforce.

The COVID-19 pandemic and vaccine man-

date for federal contractors has impeded

PSI’s eorts to ramp-up its workforce in

accordance with plan. The mandate was

announced in early September 2021 and

ocially owed down to Philly Shipyard

under its contract for the NSMV program in

early November 2021. Enforcement of the

contractual ow down was suspended in

mid-December 2021, but the cost and sched-

ule impacts due to the mandate’s eects on

the available workforce are ongoing. While it

remains too soon to quantify the full extent of

these impacts, Philly Shipyard has taken mit-

igating actions and will seek relief, as appro-

priate, under its contracts.

Many of Philly Shipyard’s suppliers are fac-

ing signicant cost increases and delays

due to raw material shortages and other

supply chain issues caused by the COVID-

19 pandemic. Philly Shipyard is exploring

mitigating actions to minimize the poten-

tial impact on its shipbuilding projects in

terms of both cost and schedule. The steel

cost escalation risk is passed on to the end

customer for steel plates under the NSMV

contract and all structural steel under the

SRIV contract.

No additional credit risk is expected to arise

from any impact of the COVID-19 crisis on the

ultimate customers for the NSMV and SRIV

programs.

The COVID-19 crisis should not increase Philly

Shipyard’s liquidity risk. The NSMV and SRIV

programs are fully funded by customer mile-

stone payments and Philly Shipyard has no

external debt.

The Russia-Ukraine military conict, as well

as the economic sanctions targeting Russia,

could exacerbate the inationary environ-

ment and supply-chain disruptions resulting

from the COVID-19 pandemic. These condi-

tions may further increase the risk of rising

commodity prices, material shortages and

transportation delays that could adversely

impact Philly Shipyard’s business.

SUBSEQUENT EVENTS AFTER

31 DECEMBER 2021

There are no events after 31 December 2021

that require disclosure.

THE GOING CONCERN ASSUMPTION

The consolidated nancial statements have

been prepared on a going concern basis

which contemplates continuity of normal

business activities and realization of assets

and settlement of liabilities in the normal

course of business.

The world is continuing to be impacted by

the COVID-19 pandemic, and how it will con-

tinue to unfold is uncertain. Philly Shipyard

is continuing to take measures to mitigate

substantial negative impact for the Com-

pany. However, in a worst-case scenario, the

COVID-19 pandemic may have devastating

eects for the world economy, including

Philly Shipyard.

PARENT COMPANY ACCOUNTS AND

ALLOCATION OF LOSS FOR THE YEAR

The income/(loss) account of Philly Shipyard

ASA for the year 2021 shows a loss of USD 1.4

million. The Board of Directors proposes that

the loss for the year be allocated as shown

below:

Dividend payment USD 0

Other equity USD (1.4) million

Total allocated USD (1.4) million

Philly Shipyard’s goal is that its shareholders

will, over time, receive competitive returns on

their investments through a combination of

dividends and share price growth. In line with

this objective, PHLY has paid out signicant

dividends in the past. However, current prior-

ities are to retain a strong balance sheet and,

consequently, the PHLY Board does not fore-

see payment of shareholder distributions,

including dividends and share buybacks,

sooner than the delivery of the third NSMV.

The parent company’s only assets are cash

and the investment in subsidiary, PSI.

CORPORATE SOCIAL RESPONSIBILITY

Maintaining a healthy and safe workplace

and being friendly to the environment is an

essential part of the Company’s strategy.

Philly Shipyard develops policies to comply

with or exceed all federal, state, and local

requirements.

Philly Shipyard is located in the former

Philadelphia Naval Shipyard. PSI believes

that being a good corporate citizen is good

business. As a platform for these beliefs,

PSI developed the WeCare program which

provides support for its employees and for

its community through teambuilding, volun-

teering, and educational initiatives. Through

the WeCare program, PSI works with its

employees and community-based organiza-

tions to understand and address issues that

the Company can assist with. PSI employees

are encouraged to become involved in the

WeCare program.

As 2021 presented continued challenges for

the entire world, PSI remained steadfast in its

approach to weathering the storm. The Com-

pany’s safety initiatives to curb the spread of

COVID-19 included installing additional hand

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 202120

BOARD OF DIRECTORS’ REPORT

sanitizers throughout the shipyard, adding

portable hand washing stations near the

dock, strongly encouraging all workers to get

vaccinated, and arranging multiple on-site

COVID-19 vaccine clinics for employees, sub-

contractors and family members.

During this time, PSI was not able to fully

engage in volunteer opportunities due to

COVID-19 restrictions. Instead, PSI made

multiple charitable donations in the form

of money or food to several local groups,

including Children’s Hospital of Philadelphia,

Nemours Children’s Hospital of Delaware,

the Philadelphia Animal Welfare Society, and

Camp Out for Hunger. The PSI community

also banded together to help raise funds and

donate baby supplies and household items

for an employee whose family tragically lost

a young mother.

PSI is committed to its community and environ-

ment because it’s right for the company, right

for its people, and right for the world. And the

Company’s commitment to this belief is stron-

ger than ever. PSI uses best management prac-

tices to ensure as much material as possible

is diverted from landlls and used for better

purposes. PSI recycled 100% of its wood and

metal products and up to 80% of its industrial

debris. PSI continues to “Go Green” with the

purchase of electric golf carts for maintenance

and production management sta.

Additionally, PSI continues to collect and

donate magazines and books for the Sea-

man’s Church Institute in Philadelphia, which

then get distributed to the various seamen

that enter Philadelphia’s port. In addition, PSI

continued to donate funds to local charities

in lieu of mailing holiday greeting cards.

PSI seeks to be an attractive employer and

maintains a human relations policy that is

open and fair. PSI is committed to providing

equal employment opportunity to all employ-

ees and applicants for employment, regard-

less of race, color, ethnic background, gender,

religion, age, marital status, sexual orientation,

national origin, citizenship status, disability,

veteran status, or any other legally protected

status. Diversity strengthens the Shipyard’s

overall capacity and skills. In support of this

diversity, at 31 December 2021 approximately

37% of PSI’s employees were minorities.

The maritime industry has traditionally been

male-dominated. The entire industry faces

the challenge of increasing the proportion

of female employees. PSI has taken some

armative steps to address this challenge.

For example, the Shipyard encourages

female applicants and has seen increased

interest among potential female employees

to pursue a career with PSI. To further this

goal, PSI participates in available government

programs that encourage women in manu-

facturing and has recruited at schools and

training programs with more women. PSI has

also continued to train supervisors, manag-

ers, and employees in its Equal Employment

Opportunity policy.

At year-end 2021, approximately 10% of

PSI’s employees were women. While there

were no women on PSI’s senior management

team, women held key positions such as HR/

Communications Director, Manager of Proj-

ect Estimating and Cost Control, Controller,

Payroll/Benets Supervisor and Purchasing

Manager. In addition, two of the three mem-

bers of PHLY’s Board of Directors are women.

The Shipyard is committed to maintaining a

work environment that is free of discrimina-

tion, harassment and hostilities. In keeping

with this commitment, PSI maintains a strict

Harassment Free Environment Policy and

does not tolerate unlawful harassment of

employees by anyone.

Philly Shipyard believes all people share the

same fundamental human rights. The Com-

pany follows legal and responsible sourcing

practices and expects its suppliers to uphold

the same standards. In 2021, the Com-

pany did not have a formal policy regarding

human rights as its sole operating company is

located in the United States, which has exten-

sive human rights laws in place.

At the operating subsidiary in Philadelphia,

workers’ rights are protected by federal, state

and local laws. In addition, approximately

41% of PSI’s employees are members of the

Philadelphia Metal Trades Council (PMTC)

union and are covered under the collective

bargaining agreement between the PMTC

and the Shipyard. This agreement is eective

until 31 January 2023.

Under this collective bargaining agreement,

union employees are granted vacation and

personal time, and most union employees

receive shutdown pay during the week of

the Fourth of July holiday and in between

the Christmas and New Year’s holidays. In

addition, union employees may take up to 6

unpaid days within a 12-month period. Tradi-

tional sick days are not part of the collective

bargaining agreement. Non-union employ-

ees accrue sick time on a monthly basis and

may maintain a balance of up to 200 hours.

During 2021, 218 non-union employees used

4,762 hours of total sick time (3,678 hours of

sick time and 1,084 hours of COVID-19 time),

representing 1.3% of total non-union work

hours. Comparably, in 2020, 75 non-union

employees used 3,035 hours of total sick

time (2,180 hours of sick time and 855 hours

of COVID-19 time), representing 1.3% of total

non-union work hours.

At the Shipyard, HSE is not just a priority, but

is a mindset embedded in all decisions and

actions. The Union-Management Safety and

Environmental Board reviews the various HSE

programs, and makes recommendations on

policies and procedures. The HSE system

includes safety training of employees and

subcontractors, safety inspections, industrial

health and wellness programs, drug testing,

emergency response and environmental pro-

grams. PSI expects to implement new initia-

tives to continuously improve its HSE mindset

during 2022.

PSI had zero lost time injuries (LTI) in 2021;

however, there were 13 recordable injuries

reported for the year. The incidents came

from a total of 952,613 hours worked by

PHILLY SHIPYARD - ANNUAL REPORT 2021 21

BOARD OF DIRECTORS’ REPORT

PSI employees and subcontractors in 2021,

compared to 470,175 hours worked by PSI

employees and subcontractors in 2020. The

Other Recordable Incident Frequency Rate

(ORIFR) was 2.73 in 2021, compared to 2.13

in 2020. ORIFR is based on recordable inci-

dents other than LTIs per 200,000 hours

as dened by the Occupational Safety and

Health Administration (OSHA).

Philly Shipyard takes its environmental

responsibilities seriously beginning with the

vessel design. The Shipyard uses the latest

International Maritime Organization require-

ments as guidance for environmental pro-

tection and eciency during the design and

production process. The industrial nature of

the Shipyard’s activities requires the use of

signicant amounts of energy, both electrical

and gas, as well as the release of particulate

and volatile organic compound (VOC) emis-

sions. During 2021, PSI used approximately

16.7 GWh of electricity and approximately

416,000 ccf of natural gas. Its VOC emis-

sions were approximately 10 tons for the

reporting period ending in 2021. PSI had no

reported discharges into the surrounding

waterways.

Environmental status reporting is an integral

part of the Shipyard’s reporting system, on par

with reporting on nancial matters and oper-

ations. This commitment extends to evaluat-

ing and adopting environmentally benecial

improvements in production processes, alter-

native materials and services. PSI promotes

open communication on environmental issues

with employees, neighbors, public authorities

and other interested parties and has imple-

mented a system through which employees

can make observations and suggestions about

the Shipyard’s environmental performance.

In 2021, PSI generated approximately 14 tons

of hazardous waste and recycled approxi-

mately 413 tons of wood and 1,508 tons of

steel. Philly Shipyard has continued its pro-

gram to gather and sort waste to promote

environmentally responsible handling, dis-

posal and recovery of any residual value.

A basic principle of ethical business conduct

requires that each employee of the Ship-

yard support positively, both on and o the

job, the Shipyard’s business activities. One

important way PSI satises this responsibil-

ity is to ensure that its business dealings are

never inuenced by – or even appear to be

inuenced by – its own personal interests.

The Company has zero tolerance for cor-

ruption and has adopted an Anti-Corruption

Policy that is in line with the anti-corruption

policies at other Aker ASA-related companies.

The Company also maintains a strict Conict

of Interests policy, which is reected in PSI’s

employee handbook, as well as its Terms and

Conditions to outside suppliers.

In support of the above initiatives and poli-

cies, the Shipyard maintains a formal pol-

icy for the disclosure of wrongful conduct

and protection from retaliation (the “Whis-

tleblower Policy”). This policy is available to all

employees and is administered by the Vice

President of Human Resources. The Com-

pany has implemented a process that allows

anonymous reports of violations through a

third party administrator. In 2021, there was

one case reported using this process and it

was not considered material.

ORGANIZATION

On 31 December 2021, Philly Shipyard’s

workforce consisted of 343 direct employees

and 630 subcontracted personnel. The Ship-

yard experiences higher turnover amongst its

union and production subcontractor employ-

ees compared to other employees. As pro-

duction on the NSMV program continues

to ramp up, Philly Shipyard will continue to

increase its workforce, including through its

reinvigorated apprenticeship program.

CORPORATE GOVERNANCE

Philly Shipyard’s corporate governance policy

exists to ensure an appropriate division of

roles among the Company’s owners, Board

of Directors and Management Team. Such

a separation of roles ensures that goals and

strategies are prepared, that adopted cor-

porate strategies are implemented, and that

the results achieved are subject to verica-

tion and follow-up. Applying these principles

also contributes to satisfactory group-wide

monitoring and verication of activities. An

appropriate division of responsibilities and

satisfactory controls will contribute to the

greatest possible value creation over time, to

the benet of shareholders and other inter-

est groups. Philly Shipyard’s corporate gov-

ernance guidelines are presented in greater

detail on pages 73-77 of this annual report.

The directors and ocers of Philly Shipyard

ASA are covered under an Aker group Direc-

tors and Ocers liability insurance policy

(D&O). The insurance covers personal legal

liabilities including defense and legal costs.

The ocers and directors of the parent com-

pany and all subsidiaries globally (owned

more than 50%) are covered by the insur-

ance. The cover also includes employees

in managerial positions or employees who

become named in a claim or investigation.

OUTLOOK

Philly Shipyard has ve vessels, consisting of

four NSMVs and one SRIV, in its order book

with a total contract value in excess of USD

1.4 billion and a nal delivery in 2024. TOTE

Services retains an option for the fth NSMV.

Great Lakes retains a right of rst refusal for

a second SRIV. If both NSMV 5 and SRIV 2 are

ordered, then the total contract value would

approach USD 1.9 billion and the nal deliv-

ery would extend into 2025.

On 15 March 2022, President Biden signed

the USD 1.5 billion omnibus appropriations

bill for scal year 2022. This federal spend-

ing package includes full funding for the fth

NSMV. Now that this funding is secured,

Philly Shipyard anticipates that NSMV 5 will

be ordered in Spring 2022.

Over the past several years, Philly Shipyard

has pivoted toward a more diversied order

backlog in an attempt to maintain continu-

ous shipbuilding activity and grow the Com-

pany’s protability. Philly Shipyard continues

to pursue prospects in the government and

PHILLY SHIPYARD - ANNUAL REPORT 202122

BOARD OF DIRECTORS’ REPORT

commercial new build markets and is pres-

ently targeting shipbuilding programs with

building slots following the last vessel in its

existing order backlog.

In the government sector, Philly Shipyard

remains focused on opportunities for com-

mercial-like and auxiliary ships. In the commer-

cial sector, Philly Shipyard is exploring a variety

of opportunities for Jones Act ships. The recent

award of the Great Lakes contract for the SRIV

project marks Philly Shipyard’s entry into the

expanding oshore wind market.

Philly Shipyard continues to seek opportu-

nities to replicate the NSMV contract model

for other government shipbuilding programs.

This approach enables Philly Shipyard to

apply commercial best practices for design

and construction to government vessels.

Additionally, Philly Shipyard continues to pro-

mote variants based on existing ship designs

as potential cost-eective solutions for both

government and commercial customers.

Philly Shipyard recently concluded industry

design studies for two government ship-

building programs. Philly Shipyard intends to

pursue opportunities to participate in more

studies in the future. Participating in the

design phase is key if the Shipyard chooses

to compete for the detail design and con-

struction (DD&C) contract when requests for

proposals (RFPs) are issued.

Philly Shipyard’s objective remains to secure

a mix of commercial and government new

build contracts, while also opportunistically

pursuing ship repair and maintenance con-

tracts and steel fabrication jobs that enable it

to take advantage of periodic excess capacity

in its drydocks and fabrication shops. Philly

Shipyard remains committed to working with

its clients to build the most cost-ecient and

environmentally friendly vessels in the mar-

kets it serves. A substantial capital investment

would be required in order for the Company

to dedicate a drydock for future ship main-

tenance, repair, overhaul, and conversion

(MROC) projects or signicantly increase

throughput.

Philly Shipyard expects to continue to

improve protability in 2022 as it continues to

ramp up production for the NSMV program. It

is expected that operations at Philly Shipyard

will reach full capacity in mid-2022.

Kristian Røkke

Board Chairman

Amy Humphreys

Deputy Board Chairperson

Elin Karfjell

Board Member

Steinar Nerbøvik

President and CEO

Oslo, Norway - 18 March 2022

Board of Directors Philly Shipyard ASA

PHILLY SHIPYARD - ANNUAL REPORT 2021 23

DIRECTORS’ RESPONSIBILITY STATEMENT

Today, the Board of Directors and the Chief

Executive Ocer reviewed and approved the

Board of Directors’ report and the consoli-

dated and separate annual nancial state-

ments for Philly Shipyard ASA, as of and for

the year ending 31 December 2021 (annual

report 2021).

The Philly Shipyard ASA consolidated nancial

statements have been prepared in accordance

with IFRS, as adopted by the European Union,

and additional disclosure requirements in the

Norwegian Accounting Act, and that should

be used as of 31 December 2021. The sep-

arate nancial statements for Philly Shipyard

ASA have been prepared in accordance with

the Norwegian Accounting Act and Norwegian

Accounting Standards as of 31 December

2021. The Board of Directors’ report for Philly

Shipyard and the parent company is in accor-

dance with the requirements in the Norwegian

Accounting Act and Norwegian accounting

standard no. 16, as of 31 December 2021.

To the best of our knowledge:

The consolidated and separate annual

nancial statements for 2021 have been

prepared in accordance with applicable

accounting standards

The consolidated and separate annual

nancial statements give a true and fair

view of the assets, liabilities, nancial posi-

tion and income/(loss) as a whole as of 31

December 2021 for Philly Shipyard and

the parent company

The Board of Directors’ report for Philly

Shipyard and the parent company

includes a true and fair review of:

- The development and performance of

the business and the position of Philly

Shipyard and the parent company

- The principal risks and uncertainties

Philly Shipyard and the parent com-

pany face

Kristian Røkke

Board Chairman

Amy Humphreys

Deputy Board Chairperson

Elin Karfjell

Board Member

Steinar Nerbøvik

President and CEO

Oslo, Norway - 18 March 2022

Board of Directors Philly Shipyard ASA

Directors’ Responsibility

Statement

PHILLY SHIPYARD - ANNUAL REPORT 202124

PHILLY SHIPYARD - ANNUAL REPORT 2021 25

Consolidated

Income Statement

Consolidated Statement of

Comprehensive Income

Amounts in USD thousands (except share amounts and earnings per share) Note 2021 2020

Operating revenues 2 214 060 54 144

Operating revenues 214 060 54 144

Cost of vessel construction (194 149) (47 712)

Wages and other personnel expenses (SG&A) 3 (2 851) (2 700)

Other operating expenses (SG&A) 4 (4 659) (3 722)

Under-recovered overhead costs 4 (19 437) (21 578)

Operating loss before depreciation (EBITDA) (7 036) (21 568)

Depreciation 7 (5 417) (6 190)

Operating loss before interest and taxes (EBIT) (12 453) (27 758)

Financial income 5 363 661

Financial expense 5 (178) (546)

Loss before tax (12 268) (27 643)

Income tax benet 6 4 886 29 222

(Loss)/income after tax (7 382) 1 579

Weighted average number of ordinary shares 11 12 107 901 12 107 901

Basic (loss)/income per share (USD) 11 (0.61) 0.13

Diluted (loss)/income per share (USD) 11 (0.61) 0.13

Amounts in USD thousands 2021 2020

(Loss)/income after tax for the year (7 382) 1 579

Other comprehensive income, net of income tax - -

Total comprehensive (loss)/income for the year * (7 382) 1 579

* All attributable to equity holders of the parent company.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202126

Consolidated Statement

of Financial Position

as of 31 December

Amounts in USD thousands Note 2021 2020

ASSETS

Property, plant and equipment 7 36 002 25 432

Right-of-use assets 7 12 769 13 986

Restricted cash long-term 10 43 096 25 028

Deferred tax asset 6 13 081 8 448

Income tax receivable long-term 6 82 5 150

Other non-current assets 495 495

Total non-current assets 105 525 78 539

Prepayments and other receivables 8 61 123 45 441

Restricted cash short-term 10 1 396 1 394

Income tax receivable short-term 6 13 624 14 990

Contract assets 2 345 -

Cash and cash equivalents 9 255 003 97 361

Total current assets 331 491 159 186

TOTAL ASSETS 437 016 237 725

EQUITY AND LIABILITIES

Paid in capital 12 35 206 35 206

Other equity 50 257 57 639

Total equity attributable to equity holders of the parent company 85 463 92 845

Total equity 85 463 92 845

Income tax payable long-term 6 1 200 1 200

Lease liability long-term 7, 13 1 582 1 904

Total non-current liabilities 2 782 3 104

Trade payables and accrued liabilities 16 49 879 7 974

Other provisions - warranties 15 1 973 1 787

Customer advances, net 2 296 398 130 894

Other contract liabilities 2 - 151

Income tax payable short-term 6 199 661

Lease liability short-term 7, 13 322 309

Total current liabilities 348 771 141 776

Total liabilities 351 553 144 880

TOTAL EQUITY AND LIABILITIES 437 016 237 725

Kristian Røkke

Board Chairman

Amy Humphreys

Deputy Board Chairperson

Elin Karfjell

Board Member

Steinar Nerbøvik

President and CEO

Oslo, Norway - 18 March 2022

Board of Directors Philly Shipyard ASA

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 27

Consolidated Statement

of Changes in Equity

Share Share Treasury Other Total

Amounts in USD thousands capital premium shares equity equity

Balance at 31 December 2019 22 664 22 511 (9 969) 56 060 91 266

Total comprehensive income for the year 2020 - - - 1 579 1 579

Balance at 31 December 2020 22 664 22 511 (9 969) 57 639 92 845

Total comprehensive loss for the year 2021 - - - (7 382) (7 382)

Balance at 31 December 2021 22 664 22 511 (9 969) 50 257 85 463

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202128

Consolidated

Cash Flow Statement

Amounts in USD thousands Note 2021 2020

Loss before tax (12 268) (27 643)

Unrealized foreign exchange loss 5 - 29

Depreciation 7 5 417 6 190

Amortization of fees of Welcome Fund loan - 72

Net nancial expense 5 (182) (144)

(Increase)/decrease in:

Contract assets 2 (345) 1 608

Restricted cash 10 (18 070) (20 866)

Prepayments materials deposits 8 (17 210) (39 620)

Prepayments other and other receivables 8 1 528 (2 319)

Other non-current assets - (261)

Increase/(decrease) in:

Trade payables and accrued liabilities 15,16 42 091 1 341

Customer advances, net 2 165 504 130 894

Other contract liabilities 2 (151) 151

Income taxes refunded 6 6 225 449

Interest paid, net of capitalized interest 5 (178) (517)

Interest received 5 360 661

Net cash ow from operating activities 172 721 50 025

Investments in property, plant and equipment 7 (14 770) (4 036)

Net cash ow used in investing activities (14 770) (4 036)

Receipt of loan escrow amount - 60 919

Repayment of Welcome Fund loan - (60 000)

Payment of lease liability 7,13 (309) (220)

Net cash ow (used in)/from nancing activities (309) 699

Net change in cash and cash equivalents 157 642 46 688

Cash and cash equivalents as of 1 January 97 361 50 673

Cash and cash equivalents as of 31 December 9 255 003 97 361

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 29

STATEMENT OF COMPLIANCE

The consolidated nancial statements of

Philly Shipyard ASA and its subsidiaries

(referred to herein as a group as Philly Ship-

yard, the Group or the Company) have been

prepared in accordance with International

Financial Reporting Standards (IFRS) as

adopted by the European Union in eect at

each nancial reporting period.

These accounts have been approved for

issue by the Board of Directors on 18 March

2022. The annual accounts will be submitted

to Philly Shipyard’s annual general meeting

on 20 April 2022 for nal approval.

BACKGROUND AND BASIS FOR

PREPARATION

Philly Shipyard ASA (referred to herein as

PHLY) was formed on 16 October 2007 to

be the holding company of Philly Shipyard,

Inc. (referred to herein as PSI or the Ship-

yard) which operates a shipyard located in

Philadelphia, Pennsylvania, USA. PSI owns

certain dormant subsidiaries in connection

with its former investments in shipping

assets.

PHLY is domiciled in Oslo, Norway. PSI is

domiciled in the Commonwealth of Pennsyl-

vania, USA. The subsidiaries of PSI are domi-

ciled in the State of Delaware, USA. These

consolidated nancial statements have been

prepared on a historical cost basis, except

for derivative nancial instruments that have

been measured at fair value. The consoli-

dated nancial statements are presented

in USD (thousands), except when indicated

otherwise.

ESTIMATES, ASSUMPTIONS AND

SIGNIFICANT JUDGMENTS

The preparation of the consolidated nancial

statements in conformity with IFRS requires

the use of estimates and assumptions that

aect the reported amounts in the consoli-

dated nancial statements. Although these

estimates are based on management’s best

knowledge of current events and actions,

actual results may ultimately dier from those

estimates.

In addition, the preparation of consolidated

nancial statements in conformity with IFRS

requires management to make judgments

that aect the application of accounting poli-

cies and the reported amounts of assets and

liabilities, income and expense.

Estimates, underlying assumptions and sig-

nicant judgments are reviewed on an ongo-

ing basis. Revisions to accounting estimates

are recognized in the period in which the

estimates are revised if the revision aects

that period or in the period of revision and

future periods if the revision aects both

current and future periods.

Critical accounting estimates, assumptions

and signicant judgments are as follows:

Revenue Recognition

Philly Shipyard recognizes revenue over

time in accordance with IFRS 15 Revenue

from Contracts with Customers (IFRS 15).

This approach requires Philly Shipyard to

measure the progress of contract activity

at each statement of nancial position date

and estimate the ultimate outcome of costs

and prot on contracts. Progress towards

satisfying performance obligations is mea-

sured based on project costs incurred com-

pared to the total forecasted project costs.

In case of a loss-making project, a loss pro-

vision will be made when it is estimated

that total contract costs will exceed total

contract revenues. Revenue and cost esti-

mates from shipbuilding activities depend,

amongst others, on variables such as steel

prices, supplier and subcontractor costs,

labor costs and availability, and other pro-

duction inputs. Philly Shipyard must also

evaluate and estimate the outcome of vari-

ation orders, liquidated damages, contract

claims and requests from customers to

modify contractual terms which can involve

complex negotiations with customers. Gen-

erally, estimates are subject to a greater

level of uncertainty when a vessel design is

new to the Shipyard than if a vessel is being

constructed later in a series (see note 2 for

further discussion).

Philly Shipyard has two separate awards

under one shipbuilding contract in place

for the NSMV program. Hulls 033-034 were

awarded at contract signing in April 2020

and Hulls 035-036 were awarded upon

the exercise of an option in January 2021.

Therefore, the two awards are treated as

two separate performance obligations that

are being accounted for using the percent-

age-of-completion method per IFRS 15.

The principle of a series of distinct goods

has been applied where Hulls 033-034 are

treated as one series separately from Hulls

035-036.

Cost Forecast of the NSMV Project

The cost forecast of the total NSMV project

can be judgmental and sensitive to changes.

The cost estimates can signicantly impact

revenue recognition for contracts using cost

progress, particularly in lump sum construc-

tion contracts. Forecasting the total NSMV

project cost depends on the ability to prop-

erly execute the engineering and design

phase, availability of skilled resources, man-

ufacturing capacity, productivity and quality

factors, steel prices and performance of

subcontractors. Experience, systematic use

of the project execution model and focus

on core competencies reduce, but do not

eliminate, the risk that cost estimates may

change signicantly.

Fair Value of its Cash Generating Unit

Philly Shipyard has concluded that it has

only one primary cash generating unit and

must determine the recoverable amount of

its cash generating unit in order to perform

impairment tests of its long-lived assets

when impairment indicators are present.

The Company reviewed certain indicators

Notes to the

Consolidated Accounts

NOTE 1: ACCOUNTING PRINCIPLES

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202130

and determined that there were no indica-

tors of impairment. As such the Company

has not performed an impairment test (see

note 7 for further discussion).

Tax Uncertainty

Tax positions subject to uncertainty are

identied and assessed either individu-

ally or in groups based on an estimate of

the probability that the tax authorities will

accept or reject a certain treatment. Where

it is assessed that it is not probable the

tax authorities will accept an uncertain tax

treatment, the eect of the uncertainty is

reected in the calculation of the taxable

prot, tax bases, unused tax losses or cred-

its, or tax rates. The eect of the uncer-

tainty is calculated by applying the most

appropriate method (most likely amount or

expected value). Changes in circumstances

are assessed and reected at each reporting

date.

Deferred Income Taxes

Deferred income tax assets are recognized

when it is probable that they will be real-

ized. Determining probability requires Philly

Shipyard to estimate the sources of future

taxable income from operations, including

reversing taxable temporary dierences.

Determining these amounts is subject to

uncertainty and is based primarily upon his-

torical earnings, reversals of taxable tempo-

rary dierences and expected earnings due

to contracts in progress and contract order

backlog. The recognition of deferred tax

assets is primarily applicable to U.S. taxes

where Philly Shipyard has a net deferred tax

asset position (see note 6 for further discus-

sion).

R&D Tax Credit

Since 2015, PSI has qualified for the

research and development (R&D) tax credit

for both federal and Pennsylvania state tax

purposes. The Shipyard qualied for the

credit because of the research it undertook

to discover information that is technological

in nature and intended to be useful in the

development of a new or improved busi-

ness component. The Company recognizes

the R&D tax credit estimate as part of the

income tax benet based on a calculation

of qualifying research expenses using avail-

able guidance and the applicable rules and

regulations.

The Going Concern Assumption

The 2020 and 2021 consolidated nancial

statements have been prepared on a going

concern basis which contemplates continu-

ity of normal business activities and realiza-

tion of assets and settlement of liabilities in

the normal course of business due to the

rm order backlog which takes operations

into 2024.

COVID-19

The world remains in the COVID-19 pan-

demic, and how it will continue to unfold is

uncertain. Philly Shipyard is taking measures

to mitigate substantial negative impact for

the Company. Please refer to pages 18-19 of

the Board of Directors’ report for a discus-

sion of COVID-19 risks. These risks include

risks to human capital resources arising

from vaccine mandates; supply chain con-

straints; labor and raw materials shortages;

and ination. These risks have caused,

and could continue to cause, delays and

increased costs with respect to the Com-

pany’s shipbuilding projects. Based on the

Company’s assessment of these risks and

mitigating factors, it is not anticipated that

the COVID-19 pandemic will have a material

adverse impact on estimates and judgments

about the future of Philly Shipyard. How-

ever, in a worst-case scenario, the COVID-

19 pandemic could continue to signicantly

impede PSI’s eorts to ramp-up its work-

force in accordance with plan and signi-

cantly impact the Company’s global supply

chain for material and equipment used in

the production of vessels.

PHILLY SHIPYARD ACCOUNTING AND

CONSOLIDATION PRINCIPLES

Subsidiaries

The consolidated financial statements

include the nancial statements of the par-

ent company, Philly Shipyard ASA, and its

subsidiaries. Subsidiaries are entities con-

trolled by the Group. The Group controls an

entity when it is exposed to, or has rights to,

variable returns from its involvement with

the entity and has the ability aect those

returns through its power over the entity.

Transactions Eliminated on Consolidation

Intra-group balances and transactions, and

any unrealized income and expenses aris-

ing from intra-group transactions, are elim-

inated.

FOREIGN CURRENCY TRANSLATION

AND TRANSACTIONS

Functional Currency

Items included in the nancial statements

of each entity in Philly Shipyard are initially

recorded in the entity’s functional currency,

i.e. the currency that best reects the eco-

nomic substance of the underlying events

and circumstances relevant to that entity.

The consolidated nancial statements are

presented in United States dollars (USD),

rounded to the nearest thousand, which is

the reporting currency for the consolidated

accounts and the functional currencies for

all the entities within Philly Shipyard.

Transactions and Balances

Foreign currency transactions are trans-

lated into the functional currency using the

exchange rates prevailing at the dates of the

transactions. Monetary assets and liabilities

in foreign currencies are translated into the

functional currency at the exchange rates in

eect on the statement of nancial position

date. Foreign exchange gains and losses

resulting from the settlement of such trans-

actions and from the translation of monetary

assets and liabilities denominated in foreign

currencies are recognized in the consolidated

income statement. Foreign exchange dier-

ences arising in respect of operating items

are included in operating income or loss in

the consolidated income statement, and

those arising in respect of nancial assets and

liabilities are recorded net as a nancial item.

INCOME STATEMENT PRESENTATION

Operating related expenses in the consoli-

dated income statement are presented as

a combination of function and nature in

conformity with industry practice. Depreci-

ation is presented on a separate line based

on its nature, while cost of vessel construc-

tion, wages and other personnel expenses

(SG&A), other operating expenses (SG&A),

and under-recovered overhead costs are

presented on a functional basis. Signicant

expenses such as salaries, pensions, etc. are

presented by their nature in the notes to the

consolidated nancial statements.

PROPERTY, PLANT AND EQUIPMENT

General

Property, plant and equipment and right-

of-use assets acquired by the Shipyard is

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 31

stated at cost at the date of acquisition.

Depreciation is calculated on a straight-line

basis and adjusted for impairment charges,

if any. The carrying value of the property,

plant and equipment and right-of-use

assets on the consolidated statement of

nancial position represents the cost net of

government grants and subsidies received

(if applicable) less accumulated depreciation

and any impairment charges. Cost includes

expenditures that are directly attributable

to the asset. The cost of self-constructed

assets includes the costs of material and

direct labor, and any other costs directly

attributable to bringing the asset to working

condition for its intended use. Interest costs

on borrowings to nance the construction

of property, plant and equipment are cap-

italized during the period of time that is

required to complete and prepare the asset

for its intended use.

Land is not depreciated, but other property,

plant, and equipment in use and right-of-

use assets are depreciated on a straight-

line basis. Expected useful lives of long-lived

assets are reviewed annually and, where

they dier signicantly from previous esti-

mates, depreciation periods are changed

accordingly.

Ordinary repairs and maintenance costs are

charged to the consolidated income state-

ment during the nancial period in which

they are incurred. The cost of improvements

is included in the asset’s carrying amount

when it is probable that the Shipyard will

derive future economic benets in excess of

the originally assessed standard of perfor-

mance of the existing asset. Improvements

are depreciated over the useful lives of the

related assets.

Gains and losses on disposals are deter-

mined by comparing the disposal proceeds

with the carrying amount and are included

in operating income or loss. Assets to be

disposed of are reported at the lower of the

carrying amount and the fair value less sell-

ing costs.

Component Cost Accounting

The Company allocates the amount initially

recognized in respect of an item of property,

plant and equipment and right-of-use assets

to its signicant components and depreci-

ates separately each such component part

over its useful life.

IMPAIRMENT OF LONG-LIVED ASSETS

Property, plant and equipment, right-of-use

assets and other non-current assets are

reviewed for potential impairment whenever

events or changes in circumstances indicate

that the carrying amount of an asset may not

be recoverable.

For the purposes of assessing impairment,

assets are grouped at the lowest levels for

which there are separately identiable,

mainly independent, cash inows. An impair-

ment loss is the amount by which the carry-

ing amount of the assets exceeds the recov-

erable amount. The recoverable amount is

the higher of the asset’s net selling price and

its value in use. The value-in-use is deter-

mined by discounted cash ows and fair

market value is based on recent third party

appraisals.

A previously recognized impairment loss is

reversed only if there has been a change in

the estimates used to determine the recov-

erable amount, however not to an extent

higher than the carrying amount that would

have been determined had no impairment

loss been recognized in prior years.

FAIR VALUE OF ITS CASH

GENERATING UNIT

Philly Shipyard has concluded that it has

only one primary cash generating unit and

must determine the recoverable amount of

its cash generating unit in order to perform

impairment tests of its long-lived assets

when impairment indicators are present.

The Company reviewed certain indicators

and determined that there were no indica-

tors of impairment. As such the Company

has not performed an impairment test (see

note 7 for further discussion).

REVENUE FROM CONTRACTS WITH

CUSTOMERS

Philly Shipyard principally generates reve-

nues from activities relating to long-term

shipbuilding construction contracts, and

also generated revenue from the perfor-

mance of industry studies for the U.S. Navy

and U.S. Coast Guard and for the ship

repair and maintenance of U.S. Govern-

ment-owned vessels. A detailed review of

customer contracts occurred for contracts

which were open from 1 January 2021 to 31

December 2021.

Construction Contracts

The vessel construction contracts and ship

repair and maintenance projects were

assessed according to IFRS 15 to evaluate

whether the revenue from such contracts

shall be recognized over time or at a point

in time. As a result of the assessment, the

Company concluded that the principle of

revenue recognition over time method was

appropriate for these contracts based on the

fact that the vessels under construction and

ship repair and maintenance contracts do

not create an asset with an alternative use to

the entity, and the entity has an enforceable

right to payment from the customer for the

work completed to date.

Performance Obligations

Philly Shipyard has two separate awards

under one shipbuilding contract in place for

the NSMV program (Hulls 033-034 and Hulls

035-036). Per IFRS 15 Revenue from Contracts

with Customers, these projects are being

treated as two separate performance obliga-

tions that are being accounted for using the

percentage-of-completion over time method

based on project costs incurred compared

to the total project costs. Progress towards

completing ship repair and maintenance is

measured over time based on project costs

incurred compared to the total forecasted

project costs. This is considered to be a

faithful depiction of the transfer of goods as

it accurately reects the underlying transac-

tions and progress.

Constraint of Variable Consideration

Variable considerations are included in

estimated contract revenue to the extent

that it is highly probable that a signicant

reversal of revenue in a subsequent period

will not occur when the uncertainties are

resolved.

Onerous Contracts

Onerous revenue contracts are accounted

for under IAS 37 Provisions, Contingent Lia-

bilities and Contingent Assets. A provision is

recognized when the unavoidable costs

of meeting the obligations under a con-

tract exceed the economic benets to be

received.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202132

Project revenue is classied as operating

revenues in the consolidated income state-

ment. Vessels-under-construction are pre-

sented net of advances from customers as

vessels-under-construction receivable or

customer advances, net on a contract by

contract basis.

Other revenues such as design studies and

ship repair and maintenance work are classi-

ed as contract assets and/or other contract

liabilities and are classied as current or

non-current based on the expected timing

of recognition of revenue.

GOVERNMENT GRANTS AND SUPPORT

Government grants and support are rec-

ognized at their fair value where there is

reasonable assurance that amounts will be

received and conditions have been met.

In some cases, recognition occurs over a

period of time as restrictions lapse or as

conditions are met. Grants and support

related to capital expenditures or construc-

tion of assets for the Shipyard’s account are

recognized as a reduction of the related

asset cost. For assets held for use, this

results in a lower depreciation charge over

the useful life of the asset. Grants related to

specic programs or projects are recognized

as reductions in expense over the period in

which work that relates to the grant or sup-

port is performed.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash

on hand, demand deposits with banks and

other short-term highly liquid investments

with original maturities of three months or

less.

INTEREST-BEARING LIABILITIES

All loans and borrowings are initially rec-

ognized at cost, being the fair value of the

consideration received net of issue costs

associated with the borrowing.

After initial recognition, interest-bearing

borrowings are subsequently measured at

amortized cost using the eective interest

method; any dierence between proceeds

(net of transaction costs) and the redemp-

tion value is recognized in the consolidated

income statement over the period the

interest bearing liabilities are outstanding.

Amortized cost is calculated by taking into

account any issuance costs, and any dis-

count or premium.

Gains and losses are recognized in net income

or loss when the liabilities are derecognized

as well as through the amortization process.

INCOME TAXES

Current Income Taxes

Income taxes receivable and payable for the

current period are measured at the amount

expected to be recovered or paid to the tax-

ation authorities. The tax rates and tax laws

as used to compute the amount are those

that are enacted or substantively enacted by

the statement of nancial position date.

Deferred Income Taxes

Deferred income tax is recognized using the

asset/liability method on all temporary dif-

ferences at the statement of nancial posi-

tion date between the tax bases of assets

and liabilities and their carrying amounts for

nancial reporting purposes, except upon

initial recognition of an asset or a liability

that does not impact income.

Deferred income tax assets are recognized

for all deductible temporary dierences, and

carry-forward of unused tax losses and cred-

its, to the extent that it is probable that tax-

able income will be available against which

the deductible temporary dierences, and

the carry-forward of unused tax losses and

credits can be utilized. The carrying amount

of deferred income tax assets is reviewed

at each statement of nancial position date

and reduced to the extent that it is not prob-

able that sucient taxable income will be

available to allow all or part of the deferred

income tax asset to be utilized. The expected

utilization of tax losses is not discounted

when calculating the deferred tax asset.

Deferred income tax assets and liabilities are

measured at the tax rates that are expected

to apply to the year when the asset is real-

ized or the liability is settled, based on tax

rates (and tax laws) that have been enacted

or substantively enacted at the statement of

nancial position date.

PENSION OBLIGATIONS

The Shipyard has a pension plan that covers

its non-union employees whereby contribu-

tions are paid to a qualifying pension plan.

The Shipyard’s union employees are partic-

ipants in a multi-employer union selected

pension plan (Union Plan). Although the

Union Plan is a dened benet pension plan,

because the union does not provide informa-

tion on the Shipyard’s employees and their

share of the pension assets and obligations,

the Union Plan is accounted for in accor-

dance with the requirements of a dened

contribution plan under IAS 19 Employee

Benets revised. Under dened contribution

pension plans, contributions are charged to

the consolidated income statement in the

period to which the contributions relate.

PROVISIONS

A provision is recognized when Philly Ship-

yard has a present obligation (legal or con-

structive) as a result of a past event and it is

probable (i.e. more likely than not) that an

outow of resources embodying economic

benets will be required to settle the obli-

gation, and a reliable estimate can be made

of the amount of the obligation. Provisions

are reviewed at each statement of nancial

position date and adjusted to reect the cur-

rent estimate.

The amount of the provision is the pres-

ent value of the risk adjusted expenditures

expected to be required to settle the obli-

gation, determined using the estimated risk

free interest rate as the discount rate. Where

discounting is used, the carrying amount of

provision increases in each period and is

recognized as interest expense.

LEASES AND RIGHT-OF-USE ASSETS

At the lease commencement date, the

Group recognizes a lease liability and cor-

responding right-of-use asset for all lease

agreements in which it is the lessee, except

for short-term leases (dened as twelve

months or less) and low-value assets, for

which the Group recognizes the lease pay-

ments as other operating expenses in the

consolidated income statement when they

are incurred.

The Group measures the lease liability at

the present value of the lease payments for

the right to use the underlying asset during

the lease term that are not paid at the

commencement date, by using the Group’s

incremental borrowing rate. The lease term

represents the non-cancellable period of

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 33

the lease, together with periods covered by

an option either to extend or to terminate

the lease when the Group is reasonably

certain to exercise this option. The lease

payments included in the measurement

comprise:

Fixed lease payments (including in-sub-

stance xed payments), less any lease

incentives receivable;

Variable lease payments that depend

on an index or a rate, initially measured

using the index or rate as at the com-

mencement date;

The exercise price of a purchase option,

if the Group is reasonably certain to exer-

cise that option;

Payments of penalties for terminating the

lease, if the lease term reects the Group

exercising an option to terminate the

lease.

The Group does not include variable lease

payments in the lease liability. Instead,

the Group recognizes these variable lease

expenses in the consolidated income state-

ment when they are incurred.

The lease liability is subsequently measured

by increasing the carrying amount to reect

interest on the lease liability, reducing the

carrying amount to reect the lease pay-

ments made and remeasuring the carrying

amount to reect any reassessment or lease

modications, or to reect adjustments in

lease payments due to an adjustment in an

index or rate. The Group presents its lease

liabilities as separate line items in the con-

solidated statement of nancial position.

The Group measures the right-of-use asset

at cost, less any accumulated depreciation

and impairment losses, adjusted for any

remeasurement of lease liabilities. The

cost of the right-of-use asset comprises

the amount of the initial measurement of

the lease liability recognized, any lease pay-

ments made at or before the commence-

ment date, less any incentives received,

and any initial direct costs incurred by the

Group.

The Group applies the depreciation require-

ments in IAS 16 Property, Plant and Equip-

ment in depreciating the right-of-use asset,

except that the right-of-use asset is depre-

ciated from the commencement date to the

earlier of the lease term and the remain-

ing useful life of the right-of-use asset. The

Group assesses at the lease commence-

ment date whether it is reasonably certain to

exercise the extension options. The Group

reassesses whether it is reasonably certain

to exercise the options if there is a signi-

cant event or signicant change in circum-

stances within its control.

As part of the 2011 Authorization Agree-

ment, PSI’s landlord, Philadelphia Shipyard

Development Corporation (PSDC), pur-

chased certain shipyard assets from PSI for

a purchase price of USD 42.0 million with

funds provided by the Commonwealth of

Pennsylvania. PSI leases back those same

assets from PSDC subject to the terms of

its Shipyard lease and the Authorization

Agreement. For accounting purposes, the

transaction was accounted for as a sale/

leaseback, and no adjustments were made

to the accounting value of the assets at

closing.

The net book value of assets under leas-

ing agreements recorded in the consoli-

dated statement of nancial position at 31

December 2021 amounts to USD 12.8 mil-

lion. Included in this are the assets PSDC

purchased from PSI in 2011, which at 31

December 2021 the net book value amounts

to USD 10.9 million.

RELATED PARTY TRANSACTIONS

The Company’s policy is that all transactions,

agreements and business activities with

related parties are conducted on an arm’s

length basis according to ordinary business

terms and conditions.

SEGMENT INFORMATION

Philly Shipyard currently has one business

segment which is building and repairing ves-

sels for both the U.S. Jones Act market and

the U.S. Government.

BASIC AND DILUTED INCOME/(LOSS)

PER SHARE

The calculation of basic income/(loss) per

share is based on the income or loss attrib-

utable to ordinary shareholders using the

weighted average number of shares out-

standing during the year (not including the

treasury shares). The calculation of diluted

income/(loss) per share is consistent with the

calculation of basic income/(loss) per share

while giving eect to all potential dilutive

ordinary shares that were outstanding during

the period. Philly Shipyard currently has no

potentially dilutive shares outstanding.

SUBSEQUENT EVENTS AFTER

31 DECEMBER 2021

A distinction is made between events both

favorable and unfavorable that provide

evidence of conditions that existed at the

statement of nancial position date (adjust-

ing events) and those that are indicative of

conditions that arose after the statement of

nancial position date (non-adjusting events).

Financial statements will only be adjusted to

reect adjusting events and not non-adjust-

ing events (although there are disclosure

requirements for such events).

NEW STANDARDS AND

INTERPRETATIONS ADOPTED

The Group has adopted the amendments

to IAS 1 Presentation of Financial Statements

(IAS 1) and IAS 8 Accounting Policies, Changes

in Accounting Estimates and Errors (IAS 8)

for the rst time in the current year. The

amendments make the denition of mate-

rial in IAS 1 easier to understand and are

not intended to alter the underlying con-

cept of materiality in IFRS Standards. The

concept of ‘obscuring’ material informa-

tion with immaterial information has been

included as part of the new denition. The

threshold for materiality inuencing users

has been changed from ‘could inuence’ to

‘could reasonably be expected to inuence’.

The denition of material in IAS 8 has been

replaced by a reference to the denition of

material in IAS 1. In addition, the Interna-

tional Accounting Standards Board (IASB)

amended other Standards and the Concep-

tual Framework that contain a denition of

‘material’ or refer to the term ‘material’ to

ensure consistency.

STANDARDS ISSUED BUT NOT YET

EFFECTIVE

A number of new standards are eective

for annual periods beginning after 1 Janu-

ary 2021 and earlier application is permit-

ted; however, the Company has not early

adopted new or amended standards in pre-

paring these consolidated nancial state-

ments as of 31 December 2021.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202134

The following amended standards and inter-

pretations are not expected to have a signif-

icant impact on the Company’s consolidated

nancial statements:

Amendments to IAS 37: Onerous contracts –

Cost of Fullling a Contract.

Amendments to IAS 12: Deferred Tax related

to Assets and Liabilities arising from a Single

Transaction.

Amendments to IFRS 16: COVID-19-Related

Rent Concessions beyond 30 June 2021.

Annual Improvements to IFRS Standards 2018-

2020.

Amendments to IAS 16: Property, Plant and

Equipment: Proceeds Before Intended Use.

Amendments to IFRS 3: Reference to Concep-

tual Framework.

Amendments to IAS 1: Classication of Liabil-

ities as Current or Non-current.

IFRS 17: Insurance Contracts and amendments

to IFRS 17 Insurance Contracts.

Amendments to IAS 1 and IFRS Practice

Statement 2: Disclosure of Accounting Policies.

Amendments to IAS 8: Denition of Account-

ing Estimates.

NOTE 2: CONSTRUCTION CONTRACTS

The order backlog of USD 1,203.2 million at 31 December 2021 represents a contractual shipbuilding obligation to deliver newly built vessels

(Hulls 033-036 and Hull 038) that have not yet been been produced for the Company’s customers: TOTE Services and Great Lakes. Order backlog

consists of future construction contract revenues and is subject to adjustment based on change orders as dened in the construction contracts.

The order intake of USD 790.6 million at 31 December 2021 represents the shipbuilding contracts awarded for NSMVs 3 and 4 plus the one

SRIV vessel plus change orders.

The order backlog and order intake on long-term construction contracts are as follows:

Order backlog Order intake Order backlog Order intake

Amounts in USD thousands 31 Dec 2021 2021 31 Dec 2020 2020

Total 1 203 243 790 637 601 881 631 006

Accumulated Remaining

recognized performance Revenue Estimated

revenue obligation recognition year of

Amounts in USD thousands 31 Dec. 2021 31 Dec. 2021 principle completion

Hulls 033-034 (NSMVs 1-2) 212 679 423 012 Over time 2023

Hulls 035-036 (NSMVs 3-4) 5 721 583 159 Over time 2024

Hull 038 (SRIV 1) - 197 072 Over time 2024

Total 218 400 1 203 243

As of 31 December 2021, Philly Shipyard has two separate awards under one shipbuilding contract in place for the NSMV program. Hulls 033-034

were awarded at contract signing in April 2020. Hulls 035-036 were awarded upon the exercise of an option in January 2021. Therefore, the two

awards are treated as two separate performance obligations that are being accounted for using the percentage-of-completion method per IFRS

15. PSI is building four NSMVs (Hulls 033-036) for TOTE Services, with the rst two vessels scheduled for delivery in 2023 and the last two vessels

scheduled for delivery in 2024. As of 31 December 2021, the NSMV projects for Hulls 033-034 and Hulls 035-036 are 33.5% and 1.0% complete,

respectively, and the SRIV project (Hull 038) has not yet started.

Progress towards completing the NSMV contract performance obligations are measured based on project costs incurred compared to the total

forecasted project costs. Construction contract revenue and income recognized in 2021 includes revenue and income for Hulls 033-034 and

Hulls 035-036 since the contract for these vessels was accounted for using the principle-over-time revenue recognition method according to

IFRS 15.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 35

Operating revenues are detailed below:

Amounts in USD thousands 2021 2020

Shipbuilding 189 275 29 125

Ship repair and maintenance 19 788 19 815

Government design studies 4 997 5 204

Total operating revenue 214 060 54 144

The recognized prot on long-term construction contracts in process (Hulls 033-036) as of 31 December 2021 is as follows:

Amounts in USD thousands 31 Dec 2021

Construction contract revenue recognized 218 400

Construction contract expenses recognized (207 650)

Recognized construction contract prot-to-date 10 750

Progress towards completing the NSMV contract performance obligations are measured based on project costs incurred compared to the total

forecasted project costs. Construction contract revenue and income recognized in 2020 includes revenue and income for Hulls 033-034 since

the contract for these vessels was accounted for using the principle-over-time revenue recognition method according to IFRS 15.

The recognized prot on long-term construction contracts in process (Hulls 029-030) as of 31 December 2020 is as follows:

Amounts in USD thousands 31 Dec 2020

Construction contract revenue recognized 29 125

Construction contract expenses recognized (27 431)

Recognized construction contract prot 1 694

Typical variable consideration elements identied in the Company’s construction contracts with customers include liquidated damages, perfor-

mance guarantees and warranties.

Customer milestone payments as of 31 December 2021 and 31 December 2020 totaled USD 514.9 million and USD 160.0 million, respectively.

Customer milestone payments received from TOTE Services for Hulls 033-036 and from Great Lakes for Hull 038 were made at intervals that

were intended to be cash neutral and to not require any external nancing.

The Company’s construction contract with TOTE Services prohibits the payment of dividends by PSI until the delivery of NSMV 3. Thereafter, the

payment of dividends is limited based on the Company’s earnings.

Contract assets

Contract assets as of 31 December 2021 and 31 December 2020 totaled USD 345 thousand and USD 0, respectively. Contract assets represents the

dierence between (i) revenue recognized on government design studies and (ii) cash advances received from the customers.

Contract liabilities

Customer advances, net as of 31 December 2021 and 31 December 2020 totaled USD 296.4 million and USD 130.9 million, respectively. Cus-

tomer advances, net represents the dierence between (i) cash advances received from customers and (ii) revenue recognized for the two NSMV

shipbuilding projects (Hulls 033-034 and Hulls 035-036).

Other contract liabilities as of 31 December 2021 and 31 December 2020 totaled USD 0 and USD 151 thousand, respectively. Other contract

liabilities represents the dierence between (i) cash advances received plus accounts receivable from customers and (ii) revenue recognized for

ship repair and maintenance work plus government design studies.

As of 31 December 2021, Philly Shipyard has USD 320.7 million in unpaid non-cancellable purchase commitments for materials, equipment and

design fees for the construction of Hulls 033-036.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202136

NOTE 3: WAGES AND OTHER PERSONNEL EXPENSES (SG&A)

Wages and other personnel expenses (SG&A) consist of:

Amounts in USD thousands (except number of employees) 2021 2020

Wages 24 905 16 738

Social security contributions 2 040 1 336

Pension costs (note 14) 934 247

Other expenses (1) 4 318 3 031

Total gross expense 32 197 21 352

Expenses charged to vessel construction (17 618) (8 560)

Expenses charged to under-recovered overhead costs (11 728) (10 092)

Wages and other personnel expenses (SG&A) 2 851 2 700

Average number of employees 268 161

Number of employees at year-end 343 182

(1) Other expenses relate primarily to workers’ compensation and employee benets.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 37

NOTE 4: OTHER OPERATING EXPENSES

Other operating expenses consist of:

Amounts in USD thousands 2021 2020

Under-recovered overhead costs 19 437 21 578

Other operating expenses (SG&A) 4 659 3 722

Total 24 096 25 300

In 2021 and 2020, PSI operated at below normal operating levels and under-recovered overhead costs (i.e., overhead costs incurred and not

allocated to projects) were expensed in 2021 and 2020. Other operating expenses (SG&A) primarily relate to non-payroll selling, general and

administrative expenses.

Fees to auditors for Philly Shipyard are as follows:

Amounts in USD thousands 2021 2020

Audit fees 152 142

Other audit and attestation fees 55 63

Total 207 205

NOTE 5: FINANCIAL INCOME AND FINANCIAL EXPENSE

Amounts in USD thousands 2021 2020

Interest income 360 661

Foreign exchange gain 3 -

Financial income 363 661

Interest expense (178) (517)

Foreign exchange loss - (29)

Financial expense (178) (546)

Net nancial items 185 115

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202138

NOTE 6: TAXES

Income tax expense/(benet)

Recognized in the consolidated income statement

Amounts in USD thousands 2021 2020

Current income tax (benet)/expense:

Current year - U.S. (134) (18 988)

Current year - Norway (119) -

Total current income tax (benet)/expense (253) (18 988)

Deferred tax (benet)/expense:

Origination and reversal of temporary dierences - U.S. (4 633) (10 436)

Origination and reversal of temporary dierences - Norway - 202

Total deferred tax (benet)/expense (4 633) (10 234)

Total income tax (benet)/expense in the consolidated income statement (4 886) (29 222)

Reconciliation of eective tax rate:

Amounts in USD thousands 2021 2020

Loss before tax (12 268) (27 643)

Nominal Norwegian tax rate 22.0% 22.0%

Expected tax (benet)/expense using nominal Norwegian tax rate (2 699) (6 081)

Eect of dierences between nominal Norwegian tax rate and U.S. federal, state and city tax rate (1 287) (3 130)

Expenses not deductible for tax purposes 113 199

R&D tax credits (4 825) 21

Net operating loss carryback claim rate dierential - (7 429)

Other dierences 292 295

Valuation allowance 3 520 (13 097)

Total income tax (benet)/expense in the consolidated income statement (4 886) (29 222)

The eective tax rate diers from the expected tax rate primarily due to the dierence between the nominal Norwegian tax rate and U.S. federal,

state and city tax rates, and income that was not taxable in Norway, in addition to the reversal of the valuation allowance and net operating loss

(NOL) carryback rate dierential.

Income tax receivable/(income tax payable)

Amounts in USD thousands 2021 2020

Beginning of the period 18 279 148

Taxes payable 253 18 988

Taxes refunded (6 225) (857)

End of the period 12 307 18 279

Income tax receivable and income tax payable are oset when there is a legally enforceable right to oset the taxes; however, when the taxes

relate to dierent tax authorities, they cannot be oset. The Company’s income tax receivable at 31 December 2021 relates to U.S. tax authorities.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 39

Deferred tax asset/deferred tax liability

Deferred tax asset and deferred tax liability are oset when there is a legally enforceable right to oset current tax assets against current tax

liabilities, and when the deferred income taxes relate to the same scal authority, which through 31 December 2021 for the Company was pri-

marily Norway, the United States, the State of Delaware, the Commonwealth of Pennsylvania and the City of Philadelphia.

The oset amounts for U.S. items are as follows:

Amounts in USD thousands 31 Dec 2021 31 Dec 2020

Deferred tax assets - U.S. tax jurisdictions 13 081 8 448

Deferred tax liabilities - U.S. tax jurisdictions - -

Net deferred tax asset/(liability) 13 081 8 448

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

Amounts in USD thousands 31 Dec 2021 31 Dec 2020

Beginning of the period 8 448 (1 988)

Deferred tax benet 4 633 10 436

Net deferred tax asset/(liability) 13 081 8 448

Based on award of the NSMV and SRIV contracts, and estimated future taxable prots, the Company has included a deferred tax asset.

The movement in deferred tax asset and deferred tax liability during the year for the U.S. tax jurisdictions is as follows:

Deferred tax asset

Other Work-in-

Amounts in USD thousands assets process Total

31 December 2020 12 474 - 12 474

(Charged)/credited to the consolidated income statement 6 124 - 6 124

31 December 2021 18 598 - 18 598

Deferred tax liability

Amounts in USD thousands P,P&E Other Total

31 December 2020 (3 943) (83) (4 026)

(Charged)/credited to the consolidated income statement (539) (952) (1 491)

31 December 2021 (4 482) (1 035) (5 517)

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202140

The movement in deferred tax asset and deferred tax liability during the year for the Norwegian tax jurisdiction is as follows:

Deferred tax liability

Other

Amounts in USD thousands liabilities Total

31 December 2020 - -

Change in deferred tax liability - -

31 December 2021 - -

PSI has USD 5.0 million of federal tax losses in carryforward as of 31 December 2021. The 2018, 2019 and 2020 losses were carried back.

PSI has state and city tax losses in carryforwards as of 31 December 2021 of USD 79.9 million and USD 76.2 million, respectively, in the U.S. The

state tax losses expire in 20 years and the city tax losses expire in 3 years. At this time, the Company has not recognized USD 50.5 million of state

NOLs and USD 38.2 million of city NOLs due to uncertainty of the Company’s ability to utilize the losses.

Income tax benet/(expense) is recognized on the best estimate of the expected annual income tax rates. The Coronavirus Aid, Relief, and Eco-

nomic Security (CARES) Act, enacted by the U.S. Congress on 27 March 2020, allows for the carryback of NOLs arising in taxable years beginning

after 31 December 2017, and before 1 January 2021, to the ve taxable years preceding the loss year. This rule allows corporate taxpayers the

opportunity to carry back NOLs to tax years as far back as 2013. As the Company had qualifying taxable losses in 2018, 2019 and 2020, these

losses were carried back to previous tax years and resulted in an income tax refund of USD 22.1 million at 31 December 2020.

The 2018 and 2019 refund claims are currently under examination by the Internal Revenue Service (IRS). The 2018 refund of USD 6.5 million has

been received and, due to the backlog at the IRS, the 2019 and 2020 refunds are both expected in the fourth quarter of 2022.

The Company incurred prototype costs surrounding a research and development (R&D) project that generated a federal and state R&D tax credit.

Although the Company believes its methodology for determining the R&D tax credit is fully compliant with the tax law, the issue is whether the

nature of some portion of the prototype costs and activities engaged in giving rise to qualied research expenditures is acceptable to the IRS. At

31 December 2020, the Company created a reserve related to this issue. The beginning balance of this reserve at 1 January 2021 was USD 3.5

million. The Company reserved an additional USD 1.4 million in 2021. The reserve at 31 December 2021 is USD 4.9 million.

The Norwegian deferred tax assets of USD 3.5 million have not been recorded because the Company does not believe that they will be able to

use them.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 41

NOTE 7: PROPERTY, PLANT AND EQUIPMENT AND RIGHT-OF-USE ASSETS

Movements in property, plant and equipment and right-of-use assets for 2021 are shown below:

Machinery Land Assets

and improve- under con-

Amounts in USD thousands vehicles Buildings ments struction Total

Cost at 1 January 2021 59 572 63 958 20 583 3 229 147 342

Additions - PP&E - - - 14 770 14 770

Transfers 4 801 - - (4 801) -

Cost at 31 December 2021 64 373 63 958 20 583 13 198 162 112

Depreciation and impairment losses at 1 January 2021 58 841 37 213 11 870 - 107 924

Depreciation - PP&E 3 503 545 152 - 4 200

Depreciation - Right-of-use assets 72 723 422 - 1 217

Depreciation and impairment losses at 31 December 2021 62 416 38 481 12 444 - 113 341

Net book value at 31 December 2021 (1) 1 957 25 477 8 139 13 198 48 771

(1) Net book value of right-of-use assets under

lease agreements recorded in the statement of

nancial position (see note 13): 144 7 085 5 540 - 12 769

Depreciation period 3-12 years 7-30 years 20 years

Depreciation method Straight-line Straight-line Straight-line

Movements in property, plant and equipment and right-of-use assets for 2020 are shown below:

Machinery Land Assets

and improve- under con-

Amounts in USD thousands vehicles Buildings ments struction Total

Cost at 1 January 2020 58 726 61 525 20 570 52 140 873

Additions - PP&E - - - 4 036 4 036

Additions - Right-of-use assets - 2 433 - - 2 433

Transfers 846 - 13 (859) -

Cost at 31 December 2020 59 572 63 958 20 583 3 229 147 342

Depreciation and impairment losses at 1 January 2020 55 597 35 553 10 584 - 101 734

Depreciation - PP&E 3 133 794 781 - 4 708

Depreciation - Right-of-use assets 111 866 505 - 1 482

Depreciation and impairment losses at 31 December 2020 58 841 37 213 11 870 - 107 924

Net book value at 31 December 2020 (2) 731 26 745 8 713 3 229 39 418

(2) Net book value of right-of-use assets under

lease agreements recorded in the statement of

nancial position (see note 13): 216 7 808 5 962 - 13 986

Depreciation period 3-12 years 7-30 years 20 years

Depreciation method Straight-line Straight-line Straight-line

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202142

Leased plant and machinery

The Shipyard leases production equipment and land improvements under a number of lease agreements. At the end of each of the leases, the

Shipyard has the option to purchase the equipment at a benecial price. The leased equipment secures lease obligations (see note 13).

Property, plant and equipment under construction

Assets-under-construction primarily relate to upgrades in facilities and equipment. Total committed capital expenditure costs at 31 December

2021 amount to USD 5.4 million.

Depreciation

Philly Shipyard’s practice is to present its annual depreciation expense on a separate line item in its consolidated income statement when it is

building vessels under contract.

Sale leaseback

As part of the 2011 Authorization Agreement, PSDC purchased certain shipyard assets from PSI for a purchase price of USD 42.0 million with

funds provided by the Commonwealth of Pennsylvania. PSI leases back those same assets from PSDC subject to the terms of its Shipyard Lease

and the Authorization Agreement. For accounting purposes, the transaction was accounted for as a sale/leaseback, and no adjustments were

made to the accounting value of the assets at closing.

Right-of-use assets (assets under lease agreements)

The net book value of the assets PSDC purchased from Philly Shipyard in 2011, and subsequently leased to PSI, amounts to USD 10.9 million at

31 December 2021 (USD 11.8 million at 31 December 2020).

The right-of-use asset lease is treated as a government grant under IAS 20 Accounting for Government Grants and Disclosure (IAS 20). Upon tran-

sition to IFRS 16, the Shipyard will continue to use this policy to record the government grant under IAS 20 against the investment. This gives a

USD 947 thousand balance for the right-of-use asset and a USD 996 thousand balance for the lease liability at 31 December 2021, as the grant

is deducted to arrive at the carrying amount of the right-of-use asset. For more details regarding the shipyard lease, see note 20.

Upon the award of the NSMV contract in April 2020, the Company did a reassessment of the lease term of both its shipyard and plate priming

facility leases, both of which were treated as short-term in nature in 2019. Based upon this reassessment of the lease term, the Company is

treating each of these leases as long-term due to the option to lease the premises over a longer lease period. Given the backlog, the Company

recorded a right-of-use asset and a lease liability representing its obligation to make lease payments. The combined net book value of these

right-of-use assets at 31 December 2021 is USD 1.9 million (USD 2.2 million at 31 December 2020).

Determination of recoverable amounts/fair values

Due to the market and company specic developments, including operating results, cash ows and backlog, no impairment indicators were

identied in 2021 for property, plant and equipment.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 43

NOTE 8: PREPAYMENTS AND OTHER RECEIVABLES

Prepayments and other receivables consist of the following items:

Amounts in USD thousands 31 Dec 2021 31 Dec 2020

Prepayments materials deposits 56 830 39 620

Trade receivables 2 511 2 501

Inventory 924 1 799

Prepayments other 858 1 492

Claims receivable - 29

Total 61 123 45 441

As of 31 December 2021, the Company has USD 56.8 million as prepayments to suppliers for materials and equipment for the construction of

Hulls 033-036.

NOTE 9: CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following items:

Amounts in USD thousands 31 Dec 2021 31 Dec 2020

Cash and bank deposits 255 003 97 361

Cash and cash equivalents in the statement of cash ows 255 003 97 361

Cash and bank deposits are invested in overnight deposits.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202144

NOTE 10: RESTRICTED CASH

Restricted cash consists of the following items:

Amounts in USD thousands 31 Dec 2021 31 Dec 2020

Restricted cash (long-term) 43 096 25 028

Restricted cash (short-term) 1 396 1 394

Total 44 492 26 422

Restricted cash (long-term) represents cash collateral as required for the NSMV program for the payment and performance (P&P) bonds related

to Hulls 033-036 and cash deposited into a reserve fund per the contract. Restricted cash (short-term) represents cash escrow accounts estab-

lished for Matson pertaining to a holdback in escrow for claims related to the second Matson vessel (Hull 030).

In 2020, in conjunction with the award of Hulls 033 and 034, the Company secured P&P bonds in the aggregate amount of USD 120.0 million and

in 2021, in conjunction with the award of Hulls 035 and 036, the Company secured P&P bonds in the aggregate amount of USD 60.0 million. As

a condition of issuing the P&P bonds, the Company was required to post cash collateral in the aggregate amount of USD 25.0 million and USD

8.0 million in 2020 and 2021, respectively. It is anticipated that a portion of the total security will be released following the delivery of each vessel.

Pursuant to the P&P bonds, PSI is not permitted to pay any dividends without the surety’s consent.

In 2021, the Company deposited USD 10.0 million into a reserve fund as contractually required for NSMVs 1 and 2. It is anticipated that the full

reserve amounts will be released following the delivery of each vessel.

In 2019, PSI deposited USD 4.3 million into a cash escrow account upon delivery of Hull 030 as a holdback for Matson. USD 0.1 million was

released in 2019 and an additional USD 2.8 million was released in 2020. The timing of the release of the remaining holdback of USD 1.4 million

is uncertain due to the impacts of the COVID-19 pandemic, including quarantine and travel restrictions, on closing out the underlying claims.

NOTE 11: INCOME/(LOSS) PER SHARE

Basic and diluted

Basic and diluted income/(loss) per share is calculated by dividing the total comprehensive income/(loss) attributable to equity holders of PHLY

by the weighted average number of ordinary shares.

Amounts in USD thousands (except share amounts and earnings per share) 2021 2020

Total comprehensive (loss)/income attributable to equity holders of PHLY (7 382) 1 579

Weighted average number of ordinary shares 12 107 901 12 107 901

Basic and diluted income/(loss) per share (USD) (0.61) 0.13

At 31 December 2021 and 31 December 2020, PHLY had 12,107,901 ordinary shares (excluding 466,865 treasury shares) at a par value of NOK

10 per share. There were no share issuances or repurchases in 2021 or 2020.

There were no potentially dilutive securities outstanding as of 31 December 2021 and 31 December 2020.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 45

NOTE 12: PAID IN CAPITAL

The current share capital (excluding 466,865 treasury shares) is 12,107,901 shares issued and outstanding as of 31 December 2021, each with

a par value of NOK 10, fully paid. As of 31 December 2021, there are no additional authorized shares.

Share Share Paid in

Amounts in USD thousands capital premium capital

31 December 2019 22 664 22 511 45 175

Dividend paid - - -

31 December 2020 22 664 22 511 45 175

Dividend paid - - -

31 December 2021 22 664 22 511 45 175

Summary of purchases of treasury shares:

Number

Amounts in USD thousands (except number of shares) of shares Consideration

Treasury shares at 31 December 2019 466 865 (9 969)

Purchases - -

Treasury shares at 31 December 2020 466 865 (9 969)

Purchases - -

Treasury shares at 31 December 2021 466 865 (9 969)

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202146

NOTE 13: LEASES

Lease liabilities are payable as follows as of 31 December:

Payments Interest Principal Payments Interest Principal

Amounts in USD thousands 2021 2021 2021 2020 2020 2020

Less than one year 392 70 322 392 83 309

More than one year 1 726 144 1 582 2 118 214 1 904

Total 2 118 214 1 904 2 510 297 2 213

PSI operates on land leased from PSDC through April 2038. Annual payments under the shipyard lease include rent, taxes and operating

expenses (operating expenses are subject to an annual revision based on PSDC’s operating expenses). PSI has options to renew the shipyard

lease for three consecutive periods of 20 years each and one nal period of 19 years. At expiration of the rst lease period in 2018, the shipyard

lease was renewed for the rst of the three 20 years’ option periods. PSI can acquire the land for USD 1 after the expiration of all renewal periods.

Lease payments for rent due under the shipyard lease were USD 1 per year. Upon the award of the NSMV program in 2020, the annual rent

under the shipyard lease agreement increased to USD 200 thousand per annum.

The shipyard lease is treated as a government grant under IAS 20. This gives a USD 947 thousand balance for the right-of-use asset and a USD

996 thousand balance for the lease liability at 31 December 2021, as the grant is deducted to arrive at the carrying amount of the right-of-use

asset. For more details regarding the shipyard lease, see note 20.

NOTE 14: PENSION COSTS

Pension costs recognized in the consolidated income statement:

Amounts in USD thousands 31 Dec 2021 31 Dec 2020

Contribution plans (employer’s contribution) 934 247

Total 934 247

PSI has a dened contribution plan for its non-union employees which provides for a PSI contribution based on a xed percentage of certain

employee contributions plus a discretionary percentage of salaries. In addition, PSI’s union employees are participants in a multi-employer union

selected pension plan (Union Plan). PSI contributes a xed amount per hour worked to the Union Plan. If PSI were to terminate its relationship

with the Union Plan, PSI could be statutorily liable for a termination liability calculated at the termination date. The termination liability at 31

December 2021 was USD 5.3 million. Currently, PSI has no plans to terminate this relationship. Thus, no termination liability has been recognized

in the consolidated nancial statements. However, the termination liability will be incurred in the event the company permanently ceases its

operation. PSI estimates that it will contribute approximately USD 1.1 million to the Union Plan in 2022.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 47

NOTE 15: OTHER PROVISIONS - WARRANTIES

Amounts in USD thousands 31 Dec 2021 31 Dec 2020

Current balance as of 1 January 1 787 2 137

Provisions made during the period 282 1 205

Provisions released during the period - (1 353)

Provisions used during the period (96) (202)

Current balance as of 31 December 1 973 1 787

The normal warranty period for a new vessel is typically twelve months after delivery, but can be extended in cases where there are specic issues

that have not been fully resolved within the normal warranty period.

The warranty provisions made in 2020 relates to the warranty work for Hull 030 to account for the pending Matson claims.

NOTE 16: TRADE PAYABLES AND ACCRUED LIABILITIES

Trade payables and accrued liabilities comprise the following items:

Amounts in USD thousands 31 Dec 2021 31 Dec 2020

Ship material and subcontracting accruals 25 492 2 701

Employee-related cost accruals 2 920 1 915

Trade payables 15 277 2 168

Overhead and capital projects accruals 6 190 1 190

Total 49 879 7 974

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202148

NOTE 17: FINANCIAL INSTRUMENTS

Philly Shipyard’s activities are exposed to a variety of nancial risks: credit and investment risk, liquidity risk, foreign exchange risk, and capital

management risk. PSI’s overall risk management program focuses on the unpredictability of nancial markets and seeks to minimize potential

adverse eects on Philly Shipyard’s nancial performance. The Company may use derivative nancial instruments to hedge certain risk expo-

sures. As of 31 December 2021, there were no foreign exchange contracts in place.

Risk management is carried out under policies approved by the Board of Directors. The Board of Directors provides principles for overall nancial

risk management as as well as policies covering specic areas such as foreign exchange risk, credit risk and use of derivative nancial instruments

and non-derivative nancial instruments.

Credit and investment risk

Due to the nature of the Shipyard’s operations, revenues and related receivables are typically concentrated amongst a few customers. The

Company continually evaluates the credit risk associated with customers and their assignees and manages this risk by requiring payment for

substantially the entire contractual amount prior to delivering a vessel, including milestone payments upon completion of specied milestones.

Additionally, PSI monitors the nancial condition of the nancial institutions which it uses for cash management services and in which it makes

deposits and other investments. Philly Shipyard responds to changes in conditions aecting its deposit relationships as situations warrant.

The carrying amount of nancial assets represents the maximum credit exposure. At 31 December 2021 and 31 December 2020, the maximum

exposure to credit risk is as follows:

Amounts in USD thousands 31 Dec 2021 31 Dec 2020

Cash and cash equivalents 255 003 97 361

Restricted cash 44 492 26 422

Trade receivables 2 511 2 501

Total 302 006 126 284

Liquidity risk

Liquidity risk is the risk that Philly Shipyard will encounter diculty in meeting the obligations associated with its nancial liabilities that are set-

tled by delivering cash or other nancial assets. PSI’s approach to managing liquidity is to ensure, to the extent possible, that it will always have

sucient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking

damage to the Company’s reputation. Philly Shipyard attempts to mitigate this risk through project nancing and working capital facilities, prog-

ress payments from its customers, and material supplied and paid directly by its customers.

The following are the contractual maturities of nancial liabilities including interest payments:

31 December 2021

Book Contractual Less than 6-12 1-2 2-5 More than

Amounts in USD thousands value cash ow 6 months months years years 5 years

Non-derivative nancial liabilities:

Lease liability 1 904 (2 118) (196) (196) (392) (1 229) (105)

Trade payables 15 277 (15 277) (15 277) - - - -

Total 17 181 (17 395) (15 473) (196) (392) (1 229) (105)

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 49

31 December 2020

Book Contractual Less than 6-12 1-2 2-5 More than

Amounts in USD thousands value cash ow 6 months months years years 5 years

Non-derivative nancial liabilities:

Lease liability 2 213 (2 510) (196) (196) (392) (1 199) (527)

Trade payables 2 168 (2 168) (2 168) - - - -

Total 4 381 (4 678) (2 364) (196) (392) (1 199) (527)

Book values included in the above tables are gross loan amounts.

Foreign exchange risk

Philly Shipyard is exposed to foreign exchange risk for purchases made in currencies other than the U.S. dollar which primarily relates to mate-

rials, suppliesand costs related to the services of expatriate workers purchased from Norway and other countries in Europe. Philly Shipyard

attempts to mitigate this risk through its foreign exchange hedging program or passing this risk onto its end customers by having them purchase

certain materials directly in foreign currency or agree to exchange rate adjustment clauses for purchases made in foreign currency.

The Company incurs foreign currency risk on purchases that are denominated in a currency other than USD. The currencies giving rise to this

risk are primarily EUR (Euro) and NOK (Norwegian Kroner).

The Company had no forward contracts as of 31 December 2021 and 31 December 2020.

Exposure to foreign exchange risk

The Company’s exposure to foreign exchange risk at 31 December 2021 and 31 December 2020 was as follows based on the following notion-

al amounts:

2021 2020

Amounts in USD thousands EUR NOK EUR NOK

Trade payables (-) (141) (39) (240) -

Cash - 56 - 46

Gross balance sheet exposure (141) 17 (240) 46

Estimated forecast expenses (-) (3 769) - (3 327) -

Net balance sheet exposure (3 910) 17 (3 567) 46

Sensitivity analysis

In managing currency risks, the Company aims to reduce the impact of short-term uctuations on its earnings. Over the longer term, however,

permanent changes in foreign exchange rates would have an impact on consolidated earnings.

It is estimated that a 10% strengthening of the USD against other foreign currencies would not have signicantly impacted the Company’s loss

before tax for 2021 and for 2020.

Fair values

Carrying amount of the Group’s nancial assets and nancial liabilities is a reasonable approximation of their fair value. There were no nancial

instruments measured at fair value as of 31 December 2021 or 31 December 2020.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202150

NOTE 18: SHARES OWNED OR CONTROLLED BY AND REMUNERATION TO THE PRESIDENT AND CHIEF EXECUTIVE OFFICER,

BOARD OF DIRECTORS AND SENIOR MANAGEMENT OF PHILLY SHIPYARD

Shares owned in Philly Shipyard ASA as of 31 December 2021 and 31 December 2020

2021 2020

number of number of

Name Position shares held shares held

Elin Karfjell Board Member 1 200 1 200

Steinar Nerbøvik President and CEO 1 000 1 000

There is no share option agreement between Philly Shipyard ASA and Senior Management or Directors.

Remuneration to the Board of Directors for the years ended 31 December 2021 and 31 December 2020

2021 remuneration 2020 remuneration

Name Position (NOK) (USD) (NOK) (USD)

James H. Miller Board Chairman (1) - - - -

Kristian Røkke Board Chairman (2) 475 000 53 859 475 000 55 669

Amy Humphreys Deputy Board Chairperson 375 000 42 520 375 000 43 949

Elin Karfjell Board Member 375 000 42 520 375 000 43 949

Total Directors’ fees 1 225 000 138 898 1 225 000 143 567

(1) James H. Miller was the Board Chairman from 1 January 2019 - 21 April 2020.

(2) Kristian Røkke has been the Board Chairman from 22 April 2020 - 31 December 2021.

No Board members received any remuneration other than Directors’ fees, except James H. Miller, who received USD 31,250 for 2020, related

to consulting services through the company SeaJay Consulting LLC. The Board remuneration for Kristian Røkke is paid to his employer Aker

Horizons AS.

Remuneration to the audit committee

The audit committee of PHLY is comprised of Elin Karfjell (Chairperson) and Amy Humphreys. Remuneration for the Chairperson is NOK 55,000

(USD 6,236) and for each member is NOK 45,000 (USD 5,102). This is in addition to the amounts shown in the Board of Directors’ table above.

Remuneration to the nomination committee

The nomination committee of Philly Shipyard ASA has the following members: Leif-Arne Langøy (Chairperson) and Ove A. Taklo. Remuneration

earned by each member of the committee in 2021 was NOK 34,000 (USD 3,855). The nomination committee remuneration for Ove A. Taklo is

paid to his employer Aker ASA.

Guidelines for remuneration to the President and CEO and other members of the Management Team

The President and CEO and other members of PSI’s Management Team that report directly to the President and CEO receive a base salary. In

addition, a variable pay as further described below may be awarded.

The President and CEO receives monthly pension contributions. The other members of the Management Team participate in the standard Com-

pany 401K plan (employer-sponsored retirement account), applicable to all employees.

The President and CEO and other members of the Management Team participate in the standard Company insurance schemes, applicable to

all employees.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 51

The Company practices standard employment contracts and standard terms and conditions regarding notice period and severance pay for the

President and CEO and other members of the Management Team.

The Company does not oer share option programs to the President and CEO or other members of the Management Team.

HSE incentive/retention program for 2020

In 2020, the variable pay program was made in accordance with a new HSE incentive/retention program. This system of reward was designed to

improve Health, Safety and Environment (HSE) performance while retaining key employees during a crucial business cycle.

The 2020 HSE incentive/retention program was based on the achievement of HSE performance targets and continued employment with Philly

Shipyard.

The 2020 HSE incentive/retention program for the President and CEO represented a potential for an additional variable pay up to 27% of base

salary. The 2020 HSE incentive/retention program for other members of the Management Team represented a potential for an additional variable

pay in the range of 23% to 27% of base salary.

The 2020 HSE incentive/retention program had minimal eects on the Company and the shareholders on the basis that remuneration was not

granted in the form of shares (i.e., no risk of dilution eect) and had reduced cash payments compared to the previous program.

Incentive/retention program for 2021

In 2021, the variable pay program was developed to be in line with, and build o of, the 2020 HSE incentive/retention program. This system of

reward is designed to improve HSE performance and attain key project objectives while retaining key employees.

The 2021 incentive/retention program is based on the achievement of HSE targets and key project targets, as well as retention.

The 2021 incentive/retention program for the President and CEO and other members of the Management Team represents a potential for an

additional variable pay up to 28% of base salary.

The 2021 incentive/retention program has minimal eects on the Company and the shareholders on the basis that remuneration is not granted

in the form of shares (i.e., no risk of dilution eect) and has reduced cash payments compared to the program in place prior to 2020.

Annual variable pay program for 2022

In 2022, the Board has resumed the “traditional” annual variable pay (AVP) program, which was in place prior to the introduction of the incentive/

retention program in 2020 and developed in order to create a performance-based system. The system of reward is designed to contribute to

the achievement of good nancial results and increase shareholder value.

The 2022 AVP program is based on the achievement of dened annual results such as nancial targets (prot and working capital), order intake,

project targets, development of commercial solutions, alignment with Company’s values and improvement of HSE results.

The 2022 AVP program for the President and CEO represents a potential for an additional variable pay up to 70% of base salary. The 2022 AVP

program for other members of the Management Team represents a potential for an additional variable pay up to 60% of base salary.

The 2022 AVP program includes two payments, i.e., a base award (calculated as provided above) and a deferred payment. The deferred pay-

ments, which are designed to incentivize and retain key personnel, are equal to 50% of the base awards and are payable 12-21 months after

the base awards.

The 2022 AVP program has minimal eects on the Company and the shareholders on the basis that remuneration is not granted in the form of

shares (i.e., no risk of dilution eect).

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202152

CONSOLIDATED ACCOUNTS

Remuneration paid to Senior Management for 2021 (1)

Pension Total

Base Variable contri- Other remun- Severance

Amounts in USD salary pay (2) bution benets eration pay

President 1 Jan -

Steinar Nerbøvik and CEO 31 Dec 435 999 137 340 32 000 73 097 678 436 12 months

1 Jan -

Jerey Theisen CFO 31 Dec 275 000 20 472 9 263 15 723 320 458 12 months

(1) PHLY has no employees. The Senior Management is employed in the operating company.

(2) Mr. Nerbøvik’s variable pay in 2021 consisted of a payment under the 2020 variable pay program, as well as a deferred payment under the

2019 variable pay program (USD 106,820 and USD 30,520, respectively). Mr. Theisen’s variable pay in 2021 consisted of a prorated payment

under the 2020 variable pay program.

Remuneration paid to Senior Management for 2020 (3)

Pension Total

Base Variable contri- Other remun- Severance

Amounts in USD salary pay (4) bution benets eration pay

President 1 Jan -

Steinar Nerbøvik and CEO 31 Dec 452 768 101 560 33 231 75 565 663 124 12 months

6 Sept -

Jerey Theisen CFO 31 Dec 83 558 - 1 837 5 023 90 418 12 months

1 Jan -

Brian Leathers CFO 10 Aug 190 731 149 100 4 482 3 425 347 738 12 months

(3) PHLY has no employees. The Senior Management is employed in the operating company.

(4) Mr. Nerbøvik’s variable pay in 2020 consisted of a payment under the 2019 variable pay program, as well as a deferred payment under the

2018 variable pay program (USD 71,040 and USD 30,520, respectively). Mr. Leathers’ variable pay in 2020 consisted of a payment under

the 2019 variable pay program, as well as an accelerated payment under the 2020 HSE incentive/retention program (USD 66,120 and USD

82,980, respectively).

PHILLY SHIPYARD - ANNUAL REPORT 2021 53

NOTE 20: GOVERNMENT GRANTS, OTHER COMMITMENTS AND CONTINGENCIES AND LEGAL MATTERS

Government grants

For the year ended 31 December 2021, the Shipyard received USD 29 thousand for reimbursement of employee training costs from various

governmental agencies (USD 14 thousand in 2020).

For the year ended 31 December 2021, the Shipyard received USD 640 thousand in grant funds for capital and infrastructure improvements

under the Small Shipyard Grant Program (USD 0 in 2020).

Other commitments and contingencies

PSI is required to pay a common area maintenance charge each month of approximately USD 55 thousand, subject to escalation, through the

term of its shipyard lease.

On 29 November 2017, PSI nalized a new long-term agreement with the City of Philadelphia (and others), whereby the parties agreed to the

Real Estate and Use and Occupancy Tax for the years 2018 through 2025. PSI is committed to a xed payment-in-lieu-of-taxes (PILOT) of approx-

imately USD 863 thousand per year.

Pursuant to the shipyard lease between PSI and Philadelphia Shipyard Development Corporation (PSDC), if PSI fails to maintain an average of

at least 200 full-time employees at the shipyard for 90 consecutive days, then the lease term (i.e., a 99-year lease with approximately 76 years

remaining including options) is automatically converted to month-to-month and PSDC has the right to terminate the lease, subject to the right of

PSI to complete work-in-process projects and a one-time, limited cure right which allows PSI to restore the lease to a ve-year term under certain

circumstances. PSI was in compliance with this lease condition as of 31 December 2021.

Legal matters

The Company is involved in various legal disputes in the ordinary course of business related primarily to personal injury matters, employment

matters and commercial matters. Provisions have been made to cover the expected outcomes when it is probable that a liability has been

incurred and the amount is reasonably estimable. Although the nal outcome of these matters is subject to uncertainty, in the Company’s opinion

the ultimate resolution of such legal matters will not have a material adverse eect on the Company’s nancial position or results of operations.

NOTE 19: PHLY COMPANIES

Incorporation Ownership

Company name State Country %

Philly Shipyard, Inc. Pennsylvania USA 100.0%

APSI Tanker Holdings II, LLC Delaware USA 100.0%

PSI Containership Holdings, Inc. Delaware USA 100.0%

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202154

NOTE 22: SUBSEQUENT EVENTS AFTER 31 DECEMBER 2021

There are no events after 31 December 2021 that require disclosure.

NOTE 21: TRANSACTIONS AND AGREEMENTS WITH RELATED PARTIES

Aker Capital AS, a wholly-owned subsidiary of Aker ASA, is the majority shareholder in PHLY, owning 57.6% of its total outstanding shares as of

31 December 2021. Kristian Røkke, the Chairman of the Board of Directors of PHLY, is a board member of TRG Holding AS, which owns 66.7%

of the total outstanding shares of Aker ASA as of 31 December 2021. TRG Holding AS is controlled by Kjell Inge Røkke through The Resource

Group TRG AS.

Transactions

Philly Shipyard has service agreements with Aker ASA and certain of its aliates which provide specied consulting, tax, nancial, insurance and

administrative services. All payables under these agreements are paid within the normal course of business. Philly Shipyard believes that related

party transactions are made on terms equivalent to those that prevail in arm’s length transactions. Related administrative costs and nancial

statement amounts are as follows:

Expenses Expenses

Amounts in USD thousands 2021 2020

Aker U.S. Services LLC 125 103

Aker Insurances AS 228 280

Aker ASA 6 5

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 55

PHILLY SHIPYARD - ANNUAL REPORT 202156

Income Statement

Amounts in USD thousands Note 2021 2020

Operating revenues - -

Operating expenses 2 (473) (581)

Operating loss (473) (581)

Interest income earned from subsidiaries - 367

Interest expense payable to subsidiaries (1 017) (1 289)

Other interest income and nancial income 11 4

Other interest expense and nancial expense (42) (43)

Loss before tax (1 521) (1 542)

Income tax benet/(expense) 4 119 (201)

Net loss after tax (1 402) (1 743)

Allocation of net loss:

Net loss after tax (1 402) (1 743)

Other equity 5 1 402 1 743

PARENT COMPANY ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 57

Statement of

Financial Position

as of 31 December

Amounts in USD thousands Note 2021 2020

ASSETS

Shares in subsidiary 6 67 000 67 000

Total non-current assets 67 000 67 000

Prepayments and other receivables 14 75

Cash and cash equivalents 6 159 376

Total current assets 173 451

TOTAL ASSETS 67 173 67 451

EQUITY AND LIABILITIES

Share capital 22 664 22 664

Share premium reserve 12 542 12 542

Total paid in capital 35 206 35 206

Other equity 5 616 7 018

Total equity 5 40 822 42 224

Loan from subsidiary 8 26 160 24 493

Total non-current liabilities 26 160 24 493

Trade payables and accrued liabilities 191 321

Income tax payable 4 - 413

Total current liabilities 191 734

Total liabilities 26 351 25 227

TOTAL EQUITY AND LIABILITIES 67 173 67 451

Kristian Røkke

Board Chairman

Amy Humphreys

Deputy Board Chairperson

Elin Karfjell

Board Member

Steinar Nerbøvik

President and CEO

Oslo, Norway - 18 March 2022

Board of Directors Philly Shipyard ASA

PARENT COMPANY ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202158

Cash Flow

Statement

Amounts in USD thousands 2021 2020

Loss before tax (1 521) (1 542)

Unrealized foreign exchange loss - 29

Payment-in-kind interest expense payable to subsidiary 1 017 493

Income taxes (paid)/received (294) 7

Change in prepayments and other receivables 61 (60)

Change in trade payables and accrued liabilities (130) (56)

Net cash ow used in operating activities (867) (1 129)

Net cash ow used in investing activities - -

Loan proceeds from subsidiary 650 -

Net cash ow from nancing activities 650 -

Net change in cash and cash equivalents (217) (1 129)

Cash and cash equivalents as of 1 January 376 1 505

Cash and cash equivalents as of 31 December 159 376

PARENT COMPANY ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 59

The accounts of Philly Shipyard ASA (referred to herein as PHLY) are presented in conformity with Norwegian legislation and generally accepted

accounting principles in Norway. PHLY’s functional and reporting currency is the U.S. dollar (USD), except when indicated otherwise.

Subsidiaries

Subsidiaries are presented on a historical cost basis in the parent company accounts. The investment is valued at historical cost for the shares

unless impairment write-downs have been deemed necessary. The shares are written down to fair value if the impairment is not of a temporary

nature and is necessitated by generally accepted accounting principles. Write-downs are reversed when the basis for the write-down no longer

exists.

Dividends and other payments are taken to income in the year they are accrued in the subsidiary. If dividends exceed retained earnings after

the purchase, the excess represents repayment of invested capital and the payments are deducted from the invested value in PHLY’s statement

of nancial position.

Classication and valuation of statement of nancial position items

Current assets and current liabilities include items that have less than one year to maturity, and other items that are deemed operational working

capital. Other items are classied as non-current assets/non-current liabilities.

Current assets are valued at the lower of historical cost and fair value. Current liabilities are valued at their nominal historical value at the time

the liability arises.

Non-current assets are valued at historical cost, but are written down to fair value if impairment is deemed to be of a permanent nature. Non-cur-

rent liabilities are valued at nominal historical values.

Tax

Tax benet/(expense) in the income statement comprises both current payable taxes and the change in deferred tax. Payable tax is calculated

on the basis of the prot for the period in Norwegian Kroner (NOK). Deferred tax at 31 December 2021 is calculated using a 22% income tax rate

utilizing the dierence that exists between book values and tax values and the net operating losses that can be carried forward at the statement

of nancial position date. Tax-increasing and tax-reducing temporary dierences that are reversing or can reverse in the same period are oset

against each other. Net tax assets are shown in the statement of nancial position to the extent it is probable that these assets can be utilized.

Cash ow statement

The cash ow statement is shown using the indirect method. Cash and cash equivalents comprises cash, bank deposits and other short-term

liquid placements.

Use of estimates

Preparation of nancial statements in conformity with generally accepted accounting principles in Norway requires management to make esti-

mates and assumptions that aect the income statement, the reported amounts of assets and liabilities and also the disclosure of contingent

assets and liabilities on the statement of nancial position date.

Contingent losses that are probable and quantiable are expensed when they are identied.

Going concern

As noted in note 1 of the consolidated nancial statements, the 2021 nancial statements have been prepared on a going concern basis which

contemplates continuity of normal business activities and realization of assets and settlement of liabilities in the normal course of business.

Notes to the

Parent Company Accounts

NOTE 1: BASIS FOR PREPARATION

PARENT COMPANY ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202160

NOTE 2: OTHER OPERATING EXPENSES

Fees to the auditors for ordinary audit and other audit and attestation fees have been expensed.

Amounts in USD thousands 2021 2020

Audit fees 35 32

Other audit and attestation fees - -

Total 35 32

PHLY has no employees. The Senior Management is employed in the operating company. Fees to the Board of Directors of USD 171 thousand

and USD 233 thousand were expensed in 2021 and 2020, respectively.

NOTE 3: SHARES IN SUBSIDIARY

This item comprises the following as of 31 December 2021:

Ownership

and voting Business Historical Book

Amounts in USD thousands rights (%) address cost value

Philly Shipyard, Inc. (PSI) 100% Philadelphia, PA 67 000 67 000

Total shares in subsidiary 67 000 67 000

PSI’s results after-tax in 2021 and equity at the end of 2021 are (in USD thousands):

Results after-tax 2021 (5 980)

Equity at 31 December 2021 111 642

Based on the net asset position of PSI (the investment in subsidiary) as well as the cash on hand at PSI, PHLY has concluded that no impairment

indicators have been identied at 31 December 2021.

PARENT COMPANY ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2021 61

NOTE 4: TAXES

The table below shows the dierence between book and tax values by the end of 2021 and 2020 and the amounts of deferred taxes at these

dates and the change in deferred taxes.

Amounts in USD thousands 2021 2020

Losses carried forward 1 424 -

Other temporary dierences 2 091 1 740

Total dierences 3 515 1 740

Net deferred tax asset/(liability), 22%/22% - -

Foreign currency impact - -

Deferred tax asset/(liability) in the statement of nancial position - -

Estimated result for tax purposes:

Amounts in USD thousands 2021 2020

Loss before tax measured in NOK for taxation purposes (1 521) (1 542)

Change in temporary dierences (53) 2 244

Interest limitation 1 025 371

Utilization of carried forward tax losses - (98)

Foreign currency impact 549 901

Estimated income for tax purposes - 1 876

Income tax payable, 22%/22% - 413

Income tax benet in the income statement:

Amounts in USD thousands 2021 2020

Income tax payable - (413)

Change in deferred tax liability - 205

Foreign currency impact - 7

Excessive accrued income tax payable from prior year 119 -

Income tax benet/(expense) 119 (201)

The Norwegian deferred tax assets of USD 3.5 million have not been recorded because the Company does not believe that they will be able to

use them.

PARENT COMPANY ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202162

PARENT COMPANY ACCOUNTS

NOTE 5: TOTAL EQUITY

Changes in equity are:

Share Share Treasury Total paid Other Total

Amounts in USD thousands capital premium shares in capital equity equity

Equity as of 1 January 2021 22 664 22 511 (9 969) 35 206 7 018 42 224

Net loss for the year 2021 - - - - (1 402) (1 402)

Equity as of 31 December 2021 22 664 22 511 (9 969) 35 206 5 616 40 822

The share capital of NOK 125,747,660 consists of 12,574,766 shares (including 466,865 treasury shares) with a par value of NOK 10 as of 31

December 2021.

PHLY is a part of the consolidated accounts of Aker ASA, Oksenøyveien 10, NO-1366 Lysaker, Norway.

Twenty largest shareholders

(as of 31 December 2021)

Number of Ownership

Shareholders shares held (in %)

Aker Capital AS 7 237 631 57.6%

J.P. Morgan Securities LLC 1 131 223 9.0%

Goldman Sachs & Co. LLC 1 041 689 8.3%

Philly Shipyard ASA 466 865 3.7%

Nordnet Livsforsikring AS 198 973 1.6%

Interactive Brokers LLC 120 806 1.0%

Citibank 76 045 0.6%

Nordnet Bank AB 52 594 0.4%

Lars Ro 50 000 0.4%

Karsten Ellingsen AS 40 000 0.3%

Peter Myhre 38 000 0.3%

Sivert Berg 37 575 0.3%

Ramadan Kovaci 35 005 0.3%

Kristian Falnes AS 35 000 0.3%

Ronny Kandal 31 150 0.2%

Tor-Fredrik Naevdal 30 460 0.2%

Inge Holter 28 500 0.2%

Heggum Holding AS 27 820 0.2%

J.P. Morgan Chase Bank 27 000 0.2%

Trading Partner AS 25 000 0.2%

Total, 20 largest shareholders 10 731 336 85.3%

Other shareholders 1 843 430 14.7%

Total 12 574 766 100.0%

PHILLY SHIPYARD - ANNUAL REPORT 2021 63

PARENT COMPANY ACCOUNTS

NOTE 6: CASH AND CASH EQUIVALENTS

There is no restricted cash.

NOTE 7: 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, please see note 18 to the

consolidated accounts.

NOTE 8: RELATED PARTY TRANSACTIONS AND GUARANTEES

PHLY supplied a parent company guarantee for the obligations of PSI under the construction contract with Great Lakes Dredge & Dock Company,

LLC for the SRIV project.

PHLY supplied a parent company guarantee for the obligations of PSI under the construction contract with TOTE Services, LLC for the NSMV

program. This guarantee prohibits the payment of dividends by PHLY until the delivery of NSMV 3. Thereafter, the payment of dividends is limited

based on the Company’s earnings.

PHLY supplied a parent company guarantee for the obligations of PSI under the payment and performance bonds (P&P bonds) related to Hulls

033-036. The maximum liability of PHLY under this guarantee is USD 195.0 million.

PHLY has service agreements with Aker ASA and certain of its aliates which provide certain administrative services. All payables under these

agreements are paid within the normal course of business. Total expenses incurred under these agreements in 2021 and 2020 were USD 112

thousand and USD 51 thousand, respectively.

As of 1 January 2020, PSI had a USD 31.0 million loan due to PHLY, and PHLY had a USD 55.0 million loan due to PSI. In March 2020, the USD 31.0

million loan due to PHLY was canceled and the USD 55.0 million loan due to PSI was reduced by an equal amount. Additionally, on 30 September

2020, the remaining USD 24.0 million loan due to PSI was amended to allow for payment-in-kind quarterly interest payments at the option of

PHLY. As of 31 December 2021, USD 26.2 million is outstanding under the facility.

PHILLY SHIPYARD - ANNUAL REPORT 202164

AUDITOR’S REPORT

Auditor’s Report

KPMG AS

Sørkedalsveien 6

Postboks 7000 Majorstuen

0306 Oslo

Telephone +47 45 40 40 63

Internet

www.kpmg.no

Enterprise

935 174 627 MVA

To the General Meeting of Philly Shipyard ASA

Independent Auditor’s Report

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Philly Shipyard ASA, which comprise:

• The financial statements of the parent company Philly Shipyard ASA (the Company), which

comprise the statement of financial position as at 31 December 2021, the income statement,

statement and cash flow statement for the year then ended, and notes to the financial

statements, including a summary of significant accounting policies, and

• The consolidated financial statements of Philly Shipyard ASA and its subsidiaries (the Group),

which comprise the statement of financial position as at 31 December 2021, the income

statement, statement of comprehensive income, statement of changes in equity and statement

of cash flows for the year then ended, and notes to the financial statements, including a

summary of significant accounting policies.

In our opinion:

• the financial statements comply with applicable statutory requirements,

• the financial statements give a true and fair view of the financial position of the Company as at

31 December 2021, and its financial performance and its cash flows for the year then ended in

accordance with the Norwegian Accounting Act and accounting standards and practices

generally accepted in Norway, and

• the financial statements give a true and fair view of the financial position of the Group as at 31

December 2021, and its financial performance and its cash flows for the year then ended in

accordance with International Financial Reporting Standards as adopted by the EU.

Our opinion is consistent with our additional report to the Audit Committee.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our

responsibilities under those standards are further described in the Auditor’s Responsibilities for the

Audit of the Financial Statements section of our report. We are independent of the Company and the

Group as required by laws and regulations and the International Ethics Standards Board for

Accountants’ International Code of Ethics for Professional Accountants (including International

Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in

accordance with these requirements. We believe that the audit evidence we have obtained is sufficient

and appropriate to provide a basis for our opinion.

To the best of our knowledge and belief, no prohibited non-audit services referred to in the Audit

Regulation (537/2014) Article 5.1 have been provided.

We have been the auditor of the Company for 15 years from the election by the general meeting of the

shareholders on 16 October 2007 for the accounting year 2007.

PHILLY SHIPYARD - ANNUAL REPORT 2021 65

Independent Auditor's Report - Philly Shipyard ASA

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in

our audit of the financial statements of the current period. These matters were addressed in the

context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we

do not provide a separate opinion on these matters.

Revenue recognition on construction contracts

Refer to Board of Directors report, Note 1 (Accounting Principles), and Note 2 (Construction Contracts)

The key audit matter

How the matter was addressed in our audit

Accounting for construction contracts is considered a key

audit matter due to the significant estimates and judgments

applied by management, and the degree of complexity

relating to project execution risk of meeting forecasted

costs and timelines underlying the cost-to-cost percentage

of completion method.

As of 31 December 2021 the Group is building four

National Security Multi-Mission Vessels (NSMV) the first

two to be delivered in 2023 and the last two to be delivered

in 2024. The contract is accounted for as two separate

performance obligations. Revenue is recognized over time

based on total costs incurred relative to total forecast costs

in accordance with IFRS 15 Revenue from contracts with

customers.

The key judgments and estimates applied by management

to assess the contract revenue and costs include:

• forecasting the total cost on the project based on an

estimate of contract costs to complete, including

contingencies for uncertain costs;

• assessing if the two vessels awarded in 2021 should

be treated as a separate contract and series of distinct

goods and recognized as one performance obligation,

separately from the first two vessels; and

• assessing the measure of progress of the project,

which determines the revenue to be recognized based

on the project forecast.

These management estimates and judgments are often

complex and involve assumptions regarding future events

for which there may be limited internal or external

corroborative data.

For the vessel construction project in process as at 31

December 2021, our response included:

• with the use of assistance from our internal Major

Project Advisory construction specialists,

challenging the Company’s measure of progress

estimate, and evaluating the appropriateness of

the Company’s assumptions used to develop

total cost estimates, with a focus on risk

contingencies, delivery dates and estimates to

complete;

• corroborating the Company’s contractual revenue

amounts included in project forecasts by

agreeing to the related signed contracts;

• evaluating costs to complete with reference to

contract terms, actual and forecasted costs, and

the construction schedule, based on internal

documentation, and external documentation if

available;

• considering the overall consistency of information

presented in the project forecasts, including the

interrelationships between performance

according to schedule, cost, revenues, any

penalty forecasts and incorporating any other

events or information received after the reporting

date;

• evaluating factors during the year that could

result in significant changes in contract revenues

and estimated total costs, such as change orders

or unexpected construction delays or costs, and

considering our assessment of the risk of

management bias in forecasted costs;

• obtaining the Company’s IFRS 15 assessment

and evaluating if the criteria for series of distinct

goods are met and that the exercise of the option

in the contract should be treated as a separate

performance obligation;

• performing procedures to agree actual costs

incurred to supporting documentation, such as

third party invoices, and assessing if the

appropriate inputs of actual costs and forecasted

costs are used to assess percentage of

completion; and

• recalculating revenue to be recognized for

construction contract revenue, based on these

aforementioned inputs.

AUDITOR’S REPORT

PHILLY SHIPYARD - ANNUAL REPORT 202166

AUDITOR’S REPORT

Independent Auditor's Report - Philly Shipyard ASA

Other Information

The Board of Directors and the Managing Director (management) are responsible for the information

in the Board of Directors’ report and the other information accompanying the financial statements. The

other information comprises information in the annual report, but does not include the financial

statements and our auditor’s report thereon. Our opinion on the financial statements does not cover

the information in the Board of Directors’ report nor the other information accompanying the financial

statements.

In connection with our audit of the financial statements, our responsibility is to read the Board of

Directors’ report and the other information accompanying the financial statements. The purpose is to

consider if there is material inconsistency between the Board of Directors’ report and the other

information accompanying the financial statements and the financial statements or our knowledge

obtained in the audit, or whether the Board of Directors’ report and the other accompanying

information otherwise appears to be materially misstated. We are required to report if there is a

material misstatement in the Board of Directors’ report or the other information accompanying the

financial statements. We have nothing to report in this regard.

Based on our knowledge obtained in the audit, it is our opinion that the Board of Directors’ report

• is consistent with the financial statements and

• contains the information required by applicable legal requirements.

Our opinion on the Board of Director’s report applies correspondingly to the statements on Corporate

Governance and Corporate Social Responsibility.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation of financial statements that give a true and fair view in

accordance with International Financial Reporting Standards as adopted by the EU, and for such

internal control as management determines is necessary to enable the preparation of financial

statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s and

the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going

concern and using the going concern basis of accounting unless management either intends to

liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole

are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that

an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in aggregate,

they could reasonably be expected to influence the economic decisions of users taken on the basis of

these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain

professional scepticism throughout the audit. We also:

• identify and assess the risks of material misstatement of the financial statements, whether due

to fraud or error. We design and perform audit procedures responsive to those risks, and

obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The

risk of not detecting a material misstatement resulting from fraud is higher than for one

PHILLY SHIPYARD - ANNUAL REPORT 2021 67

AUDITOR’S REPORT

Independent Auditor's Report - Philly Shipyard ASA

resulting from error, as fraud may involve collusion, forgery, intentional omissions,

misrepresentations, or the override of internal control.

• obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Company's or the Group's internal control.

• evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

• conclude on the appropriateness of management’s use of the going concern basis of

accounting, and, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the Company and the

Group's ability to continue as a going concern. If we conclude that a material uncertainty

exists, we are required to draw attention in our auditor’s report to the related disclosures in the

financial statements or, if such disclosures are inadequate, to modify our opinion. Our

conclusions are based on the audit evidence obtained up to the date of our auditor’s report.

However, future events or conditions may cause the Company and the Group to cease to

continue as a going concern.

• evaluate the overall presentation, structure and content of the financial statements, including

the disclosures, and whether the financial statements represent the underlying transactions

and events in a manner that achieves a true and fair view.

• obtain sufficient appropriate audit evidence regarding the financial information of the entities or

business activities within the Group to express an opinion on the consolidated financial

statements. We are responsible for the direction, supervision and performance of the group

audit. We remain solely responsible for our audit opinion.

We communicate with the Board of Directors regarding, among other matters, the planned scope and

timing of the audit and significant audit findings, including any significant deficiencies in internal control

that we identify during our audit.

We also provide the Audit Committee with a statement that we have complied with relevant ethical

requirements regarding independence, and to communicate with them all relationships and other

matters that may reasonably be thought to bear on our independence, and where applicable, related

safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of

most significance in the audit of the financial statements of the current period and are therefore the

key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes

public disclosure about the matter or when, in extremely rare circumstances, we determine that a

matter should not be communicated in our report because the adverse consequences of doing so

would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

Report on compliance with Regulation on European Single Electronic Format (ESEF)

Opinion

We have performed an assurance engagement to obtain reasonable assurance that the financial

statements with file name 549300HMTSHZZD4YR890-2021-12-31-en have been prepared in

accordance with Section 5-5 of the Norwegian Securities Trading Act (Verdipapirhandelloven) and the

accompanying Regulation on European Single Electronic Format (ESEF).

In our opinion, the financial statements have been prepared, in all material respects, in accordance

with the requirements of ESEF.

Management’s Responsibilities

Management is responsible for preparing, tagging and publishing the financial statements in the single

electronic reporting format required in ESEF. This responsibility comprises an adequate process and

PHILLY SHIPYARD - ANNUAL REPORT 202168

AUDITOR’S REPORT

Independent Auditor's Report - Philly Shipyard ASA

the internal control procedures which management determines is necessary for the preparation,

tagging and publication of the financial statements.

Auditor’s Responsibilities

Our responsibility is to express an opinion on whether the financial statements have been prepared in

accordance with ESEF. We conducted our work in accordance with the International Standard for

Assurance Engagements (ISAE) 3000 – “Assurance engagements other than audits or reviews of

historical financial information”. The standard requires us to plan and perform procedures to obtain

reasonable assurance that the financial statements have been prepared in accordance with the

European Single Electronic Format.

As part of our work, we performed procedures to obtain an understanding of the company’s processes

for preparing its financial statements in the European Single Electronic Format. We evaluated the

completeness and accuracy of the iXBRL tagging and assessed management’s use of judgement. Our

work comprised reconciliation of the financial statements tagged under the European Single Electronic

Format with the audited financial statements in human-readable format. We believe that the evidence

we have obtained is sufficient and appropriate to provide a basis for our opinion.

Oslo, 22 March 2022

KPMG AS

Gunnar Sotnakk

State Authorised Public Accountant

PHILLY SHIPYARD - ANNUAL REPORT 2021 69

PHILLY SHIPYARD - ANNUAL REPORT 202170

The timely release of information to the mar-

ket that could aect PHLY’s share price helps

ensure that Philly Shipyard ASA’s share price

reects its underlying value.

Philly Shipyard’s goal is that its shareholders

will, over time, receive competitive returns on

their investments through a combination of

dividends and share price growth. In line with

this objective, PHLY has paid out signicant

dividends in the past.

Given the award of the contract for the

National Security Multi-Mission Vessel (NSMV)

program and related capital requirements,

on 14 July 2020, the PHLY Board revised the

Company’s dividend policy as follows:

“The Company’s objective is to provide its

shareholders with a competitive return on

its shares over time based on the Company’s

earnings. The Company’s focus is on long-

term protability, and its current priorities

are to retain a strong balance sheet and cash

position. Accordingly, no dividends are con-

templated until further notice.”

In 2021, PHLY did not pay any dividends.

The PHLY Board does not foresee payment

of shareholder distributions, including divi-

dends and share buybacks, sooner than the

delivery of the third NSMV.

The Norwegian Public Limited Liability Com-

panies Act allows for the Board of Directors

to pay dividends on the basis of an authori-

zation from the annual general meeting. The

Board of Directors will therefore propose to

the annual general meeting in 2022 that the

Board of Directors is granted an authoriza-

tion to pay dividends based on PHLY’s annual

accounts for 2021, valid up to PHLY’s annual

general meeting in 2023. Such authorization

will facilitate potential payments of dividends

by the Board of Directors in accordance with

PHLY’s dividend policy.

SHARES AND SHARE CAPITAL

As of 31 December 2021, Philly Shipyard ASA

has 12,574,766 ordinary shares; each share

has a par value of NOK 10 (see note 5 to the

Parent company’s 2021 accounts). As of 31

December 2021, PHLY had 1,543 sharehold-

ers, of whom 62 shareholders, or 4.0%, were

non-Norwegian shareholders.

PHLY has a single share class. Each share

is entitled to one vote. PHLY holds 466,865

of its own (treasury) shares, constituting

approximately 3.71% of the shares outstand-

ing, as of 31 December 2021.

STOCK EXCHANGE LISTING

Philly Shipyard ASA was listed on the Euronext

Expand Oslo (formerly known as Oslo Axess) on

17 December 2007 (ticker: PHLY). PHLY’s shares

are registered in the Norwegian Central Securi-

ties Depository; the shares have the securities

registration number ISIN NO 0010395577.

DNB Bank ASA is PHLY’s registrar.

MAJORITY SHAREHOLDER

Philly Shipyard ASA’s majority shareholder is

Aker Capital AS, a wholly-owned subsidiary of

Aker ASA. Companies that are part of Aker

are legally and nancially independent units.

Aker Capital AS exercises active ownership as

part of systematic eorts to create value for

all PHLY shareholders.

From time to time, agreements are entered

into between the Company and one or more

Aker companies. The Boards of Directors and

other parties involved in the decision-making

processes related to such agreements are all

critically aware of the need to handle such

matters in the best interests of the involved

Good

Dialogue

Philly Shipyard ASA (referenced to herein as “PHLY”) is committed to maintaining an open

and direct dialogue with its shareholders, potential investors, analysts, brokers and the

nancial community in general.

SHARES AND SHAREHOLDER MATTERS

SHARE CAPITAL DEVELOPMENT OVER THE PAST THREE YEARS

Change in share Share capital Number of Par value

capital (in NOK) (in NOK) shares (in NOK)

Change in 2019 - - - -

31 December 2019 - 125 747 660 12 574 766 10.00

Change in 2020 - - - -

31 December 2020 - 125 747 660 12 574 766 10.00

Change in 2021 - - - -

31 December 2021 - 125 747 660 12 574 766 10.00

PHILLY SHIPYARD - ANNUAL REPORT 2021 71

companies, in accordance with good corpo-

rate governance practice. If needed, external,

independent opinions are sought.

CURRENT BOARD AUTHORIZATIONS

As of 31 December 2021, the Board of Direc-

tors of Philly Shipyard ASA has an authori-

zation to pay dividends, an authorization to

increase the share capital and two separate

authorizations to acquire own shares. All of

these current Board authorizations are valid

up until the next annual general meeting in

2022. For more details, please see “Board

authorizations” on pages 73-74.

STOCK OPTION PLANS

As of 31 December 2021, Philly Shipyard ASA

has no stock option program.

INVESTOR RELATIONS

Philly Shipyard ASA seeks to maintain an

open and direct dialogue with shareholders,

nancial analysts and the nancial market in

general.

All Philly Shipyard press releases and inves-

tor relations publications, including archived

material, are available at the Company’s web

site: www.phillyshipyard.com. This online

resource includes PHLY’s quarterly and

annual reports, prospectuses, articles of

association, nancial calendar and its Inves-

tor Relations and Corporate Governance pol-

icies, along with other information.

Shareholders can contact the Company at

contactus@phillyshipyard.com.

ELECTRONIC INTERIM AND

ANNUAL REPORTS

Philly Shipyard ASA encourages its sharehold-

ers to subscribe to the electronic version of

PHLY’s annual reports. Annual reports are

published on the Company’s website at the

same time as they are made available via

website release by the Oslo Stock Exchange/

Euronext Expand: https://live.euronext.com/

en/markets/oslo (ticker: PHLY). Subscribers

to this service receive annual reports in PDF

format by email.

SHARES AND SHAREHOLDER MATTERS

TWENTY LARGEST SHAREHOLDERS

(as of 31 December 2021)

Number of Ownership

Shareholders shares held (in %)

Aker Capital AS 7 237 631 57.6%

J.P. Morgan Securities LLC 1 131 223 9.0%

Goldman Sachs & Co. LLC 1 041 689 8.3%

Philly Shipyard ASA 466 865 3.7%

Nordnet Livsforsikring AS 198 973 1.6%

Interactive Brokers LLC 120 806 1.0%

Citibank 76 045 0.6%

Nordnet Bank AB 52 594 0.4%

Lars Ro 50 000 0.4%

Karsten Ellingsen AS 40 000 0.3%

Peter Myhre 38 000 0.3%

Sivert Berg 37 575 0.3%

Ramadan Kovaci 35 005 0.3%

Kristian Falnes AS 35 000 0.3%

Ronny Kandal 31 150 0.2%

Tor-Fredrik Naevdal 30 460 0.2%

Inge Holter 28 500 0.2%

Heggum Holding AS 27 820 0.2%

J.P. Morgan Chase Bank 27 000 0.2%

Trading Partner AS 25 000 0.2%

Total, 20 largest shareholders 10 731 336 85.3%

Other shareholders 1 843 430 14.7%

Total 12 574 766 100.0%

OWNERSHIP STRUCTURE BY NUMBER OF SHARES HELD

(as of 31 December 2021)

Number of % of share

Shares owned shareholders capital

1 - 100 475 0.1%

101 - 1 000 675 2.4%

1 001 - 10 000 344 8.5%

10 001 - 100 000 43 7.9%

100 001 - 500 000 3 6.3%

Over 500 000 3 74.8%

Total 1 543 100.0%

PHILLY SHIPYARD - ANNUAL REPORT 202172

SHARES AND SHAREHOLDER MATTERS

Quarterly reports, which are generally only

distributed electronically, are available from

the Company’s website and other sources.

Shareholders who are unable to receive the

electronic version of quarterly and annual

reports may subscribe to the printed version

by contacting Philly Shipyard’s investor rela-

tions sta.

NOMINATION COMMITTEE

PHLY’s nomination committee has the fol-

lowing members: Leif-Arne Langøy and Ove

A. Taklo. Shareholders who wish to contact

Philly Shipyard’s nomination committee may

do so using the following address:

Nomination Committee of

Philly Shipyard ASA

Vika Atrium

Munkedamsveien 45

NO-0250 Oslo, Norway

ANNUAL SHAREHOLDERS’ MEETING

Philly Shipyard ASA’s annual shareholders’

meeting is normally held in March or April.

Written notication is sent to all sharehold-

ers individually or to shareholders’ nominees.

To vote at shareholders’ meetings, sharehold-

ers (or their duly authorized representatives)

must either be physically present or vote by

proxy.

2021 SHARE DATA

PHLY’s total market capitalization as of 31

December 2021 was NOK 692 million. During

2021, a total of 5,907,671 Philly Shipyard

ASA shares traded, corresponding to 0.470

times PHLY’s freely tradable stock.The shares

traded on 252 trading days in 2021.

GEOGRAPHIC DISTRIBUTION OF SHAREHOLDERS

(as of 31 December 2021)

Number of Ownership

Shareholders shares held (in %)

Norwegian shareholders 9 936 974 79.0%

Non-Norwegian shareholders 2 637 792 21.0%

Total 12 574 766 100.0%

SHARE PRICE DEVELOPMENT IN 2021

(2021 share data)

Highest traded (in NOK) 79.0

Lowest traded (in NOK) 51.2

Share price as of 31 December (in NOK) 55.0

Shares issued as of 31 December 12 574 766

Own (treasury) shares as of 31 December 466 865

Shares issued and outstanding as of 31 December 12 574 766

Market capitalization as of 31 December (in NOK millions) 692

Proposed share dividend (NOK per share) -

SHARE PRICE DEVELOPMENT

(2019 - 2021)

NOK / share

100

1 Jan 2019 31 Dec 2021

PHILLY SHIPYARD - ANNUAL REPORT 2021 73

The Board of Directors (the “Board”) of PHLY

has reviewed and updated PHLY’s princi-

ples for corporate governance. The princi-

ples are based on the Norwegian Code of

Practice for Corporate Governance, dated

17 October 2018 (the “Code of Practice”),

the principles set out in the continuing

obligations of companies listed on the Oslo

Stock Exchange, and the relevant Norwe-

gian background law such as the Norwe-

gian Accounting Act and the Norwegian

Public Limited Liability Companies Act. The

Code of Practice is available at www.nues.

no and the continuing obligations of stock

exchange listed companies may be found

at www.oslobors.no.* The principles also

apply to PHLY’s subsidiaries when relevant.

The following presents the current practice

of PHLY regarding each of the recommen-

dations contained in the Code of Practice.

Any deviations from the recommendations

are explained under the item in question. In

addition to the Code of Practice, the Norwe-

gian Accounting Act section 3-3b stipulates

that companies must provide a report on

their policies and practices for corporate

governance either in the annual report or

in a document referred to in the annual

report. This report is integrated in this cor-

porate governance statement.

Purpose

PHLY’s Corporate Governance principles

ensure an appropriate division of roles and

responsibilities among PHLY’s owners, its

Board, and its executive management, and

that business activities are subject to satis-

factory control. The appropriate division of

roles and satisfactory control contribute to

the greatest possible value creation over

time, to the benet of owners and other

stakeholders.

Values and ethical guidelines

The Board has adopted corporate values and

ethical guidelines. The Company’s corporate

values are presented on page 8 of this annual

report. Philly Shipyard has zero tolerance for

corruption and, in 2015, the Board approved

an Anti-Corruption Policy that is in-line with

the anti-corruption policies in place at other

Aker ASA-related companies. Philly Shipyard

works to promote a sustainable and respon-

sible company that is driven by good results

and the demands for social responsibility.

PHLY has not adopted specic guidelines on

equality and diversity due to its limited num-

ber of employees. The Company is focused

however on carrying on its business in line

with the principles of equality and diversity

with respect to the composition of its manage-

ment and Board, and its Board currently com-

prise of three members where two are female.

Business

PHLY’s business purpose clause in the arti-

cles of association is as follows:

“The Company’s business is to own and man-

age industry and other related business related

to building of ships, capital management and

other operations for the group, including partic-

ipating in or acquiring other business.”

The function of the business purpose clause

is to ensure that shareholders have control

of the business and its risk prole, without

limiting the Board or management’s ability to

carry out strategic and nancially viable deci-

sions within the dened purpose. PHLY’s goals

and main strategies and risks for its business

activities are presented in the Board’s report.

PHLY’s vision is for Philly Shipyard “To be – and

be recognized as – a leading shipyard in Amer-

ica that delivers on its commitments, every

time” and its supporting strategies for 2022

are securing new orders for major shipbuild-

ing programs and pursuing a mix of commer-

cial and government work. When carrying out

this work, the Board of Directors and manage-

ment will take into account nancial, social and

environmental considerations.

EQUITY AND DIVIDENDS

Equity

PHLY’s equity as of 31 December 2021

amounted to USD 85.5 million, which corre-

sponds to an equity ratio (total equity divided

by total assets) of approximately 20%. PHLY

regards its current equity structure as appro-

priate and adapted to its objectives, strategy

and risk prole.

Dividends

PHLY’s dividend policy is included in the sec-

tion “Shares and shareholder matters” (see

page 70). As stated in that policy:

“The Company’s objective is to provide its share-

holders with a competitive return on its shares

over time based on the Company’s earnings. The

Company’s focus is on long-term protability,

and its current priorities are to retain a strong

balance sheet and cash position. Accordingly, no

dividends are contemplated until further notice.”

At this time, the Board does not foresee pay-

ment of shareholder distributions, including

dividends and share buybacks, sooner than

the delivery of the third National Security

Multi-Mission Vessel (NSMV).

Board authorizations

It is the intention that the Board’s proposals for

future Board authorizations to issue shares and

to undertake share buy backs are to be limited

Corporate

Governance

Philly Shipyard ASA (referenced to herein as “PHLY”) aims to create maximum value for

its shareholders over time. Good corporate governance will help to reduce risk and en

sure sustainable value creation.

CORPORATE GOVERNANCE

* The Issuer Rules / Regulations / Oslo Børs / Home - Oslo Børs (oslobors.no)

PHILLY SHIPYARD - ANNUAL REPORT 202174

to dened purposes and to be valid only until

the next annual shareholders’ meeting.

To facilitate the potential payment of divi-

dends in accordance with PHLY’s dividend

policy, the Board has an authorization to pay

dividends based on PHLY’s annual accounts

for 2020.

The Board has an authorization to increase

the share capital by up to NOK 12,574,766,

which can only be used to raise equity capital

for new shipbuilding projects or other future

investments within the Company’s scope of

operations.

The Board has an authorization to acquire

own shares with a total nominal value of NOK

12,574,766, which can only be used for the

purpose of utilizing PHLY’s shares as trans-

action currency in acquisitions, mergers,

de-mergers or other transactions.

The Board has an authorization to acquire

own shares with a total nominal value of NOK

12,574,766, which can only be used for the

purpose of investment or subsequent sale or

deletion of such shares.

All of these Board authorizations are valid up

to the annual shareholders’ meeting in 2022.

The Board currently has no other authoriza-

tions to issue shares or undertake share buy-

backs. The Board will propose to the annual

shareholders’ meeting in 2022 that the Board

is granted an authorization for payment

of dividends, an authorization to increase

the share capital and two authorizations to

acquire own shares similar to the authoriza-

tions described above.

Equal treatment of shareholders

PHLY has a single class of shares, and all

shares carry the same rights in PHLY. Equal

treatment of all shareholders is crucial. If exist-

ing shareholders’ pre-emptive rights are pro-

posed waived upon an increase in share capi-

tal, the Board will justify the waiver. The Board

will also publicly disclose such justication in

a stock exchange announcement issued in

connection with such increase in share cap-

ital. Transactions in own (treasury) shares are

executed on the Oslo Stock Exchange or by

other means at the listed price.

Shares and negotiability

There are no limitations on any party’s abil-

ity to own, trade or vote for shares in PHLY.

No restrictions on transferability are found in

PHLY’s articles of association.

General meetings

The Board encourages shareholders to par-

ticipate in shareholders’ meetings. It is PHLY’s

priority to hold the annual shareholders’

meeting as early as possible after the year-

end. Notices of shareholders’ meetings are

sent physically by post and comprehensive

supporting information, including the recom-

mendations of the nomination committee,

are made available for the shareholders on

PHLY’s home page www.phillyshipyard.com,

in each case not later than 21 days prior to

the annual shareholders’ meeting. The Board

seeks to ensure that the resolutions and sup-

porting information are suciently detailed

and comprehensive to enable the share-

holders to form a view on all matters to be

considered at the meeting. The deadline for

shareholders to register to the shareholders’

meetings is set as close to the date of the

meeting as possible and the deadline for

registration may not expire earlier than ve

days prior to the date of the shareholders’

meeting. The notice materials include a thor-

ough explanation of all procedures for reg-

istration, voting and attendance. In addition,

information on how to propose a resolution

to the items on the agenda at the annual

shareholders’ meeting will be included in

the notice. If a general meeting is held as a

physical meeting, the shareholders will also

be given the opportunity to participate virtu-

ally unless the Board of Directors nds there

is sucient cause for it to refuse to allow

this. The proxy form includes instructions

for representation at the meeting through a

proxy or by virtual participation and allows

shareholders to nominate a person who will

be available to vote on behalf of the share-

holders. In addition, to the extent possible,

the proxy form includes separate voting

instructions to be given for each matter to be

considered by the meeting. The sharehold-

ers may also vote electronically in advance of

the general meeting.

Pursuant to PHLY’s articles of association, the

Chairman of the Board, or any other person

appointed by the Chairman, chairs the share-

holders’ meetings. Although the Code of

Practice recommends an independent chair

for annual general meetings, it is the view of

PHLY that the procedure followed by PHLY

provides ecient and well prepared annual

general meetings and is in the interests of the

shareholders. The shareholders are invited to

make a joint voting on the composition of the

Board as proposed by the nomination com-

mittee and not on each Board member sep-

arately. Hence, PHLY deviates from the Code

of Practice in this regard as the nomination

committee emphasizes that the Board’s com-

position shall reect a variety of experience,

knowledge and qualications.

To the extent possible, the CEO/general man-

ager, nomination committee leader and audi-

tor attend annual shareholders’ meetings.

Minutes of shareholders’ meetings are pub-

lished as soon as practically possible on the

Oslo Stock Exchange, https.newsweb.oslo-

bors.no (ticker: PHLY) and on PHLY’s home

page www.phillyshipyard.com, under the

heading “News Room”.

NOMINATION COMMITTEE

PHLY has a nomination committee, as set

forth in section 7 of PHLY’s articles of associ-

ation. Pursuant to the articles of association,

the nomination committee is to comprise no

fewer than two members. Each member is

normally elected for a two-year period. The

composition of the nomination committee

reects the interests of the shareholders,

and its members are independent from

the Board and executive management. The

members and Chairman of the nomination

CORPORATE GOVERNANCE

PHILLY SHIPYARD - ANNUAL REPORT 2021 75

committee are elected by PHLY’s annual

shareholders’ meeting, which also approves

the remuneration payable to committee

members.

Pursuant to PHLY’s articles of association, the

nomination committee recommends candi-

dates for members of the Board. The nomi-

nation committee also makes recommenda-

tions as to remuneration of the members of

the Board and the nomination committee.

The nomination committee will justify its

recommendation and such justication will

address the criteria specied in section 8 of

the Code of Practice on the composition of

the Board.

The nomination committee comprises the

following members:

– Leif-Arne Langøy, Chairman (2021-2023)

– Ove A. Taklo (2020-2022)

Neither of the members of the nomination

committee is a member of the Board. Nei-

ther the CEO/general manager nor any other

senior executive is a member of the nomina-

tion committee.

The shareholders’ meeting has stipulated

guidelines for the duties of the nomination

committee.

PHLY provides the shareholders with infor-

mation on how to submit proposals to the

nomination committee for candidates for

election to the Board on PHLY’s home page

www.phillyshipyard.com.

BOARD OF DIRECTORS:

COMPOSITION AND INDEPENDENCE

Pursuant to section 4 of PHLY’s articles of

association, the Board comprises between

three and seven members. The Board is cur-

rently comprised of a total of three members.

PHLY’s shareholders elect the Chairman of

the Board at the annual shareholders’ meet-

ing. The Board may elect its own Deputy

Board Chairman. Board members are elected

for a period of two years.

The composition of the Board is designed to

ensure that it can operate independently of

any special interests and function eectively

as a collegiate body. A majority of the share-

holder-elected Board members are indepen-

dent of PHLY’s executive management and

its signicant business associates. The Board

does not include any executive personnel.

Further, two of the three shareholder-elected

Board members are independent of PHLY’s

main shareholder, Aker ASA. Kristian Røkke,

the Chairman of the Board of PHLY, is Chief

Executive Ocer of Aker Horizons ASA.

The current composition of the Board, as well

as the Board members’ expertise, capabilities,

and experience, are presented on page 78 of

this annual report. The shareholder-elected

Board members represent a combination of

expertise, capabilities, and experience from

various businesses and industries.

The Board members’ shareholdings are

presented in note 18 to the consolidated

accounts. PHLY encourages the Board mem-

bers to invest in PHLY’s shares.

Two of the three shareholder-elected Board

members are up for election in 2022. PHLY

will provide the relevant information regard-

ing such Board members in accordance with

the Code of Practice guidelines in advance of

the annual general meeting.

THE WORK OF THE BOARD OF DIRECTORS

The Board of PHLY annually adopts a plan for

its work, emphasizing the goals, strategies,

and risk prole of the Company’s business

activities. The plan also recognizes the Com-

pany’s corporate social responsibility, and

how the Board shall handle agreements with

related parties. If there are material trans-

actions between the Company and a share-

holder, Board member, member of executive

management, or a party closely related to any

of the aforementioned, the Board shall ensure

that independent valuations are available.

See additional information on transactions and

agreements with related parties in note 21 to

the consolidated accounts. As of 31 December

2021, 57.6% of the shares in PHLY are owned

by Aker Capital AS, a wholly-owned subsidiary

of Aker ASA. For further details on the relation-

ship between Philly Shipyard and Aker ASA, see

note 21 to the consolidated accounts.

Also, the Board has adopted instructions that

regulate areas of responsibility, tasks, and

division of roles of the Board, Board Chair-

man, and the CEO/general manager. These

instructions feature rules governing Board

schedules, rules for notice and chairing of

Board meetings, decision-making rules, the

CEO’s/general manager’s duty and right to

disclose information to the Board, profes-

sional secrecy, impartiality, and other issues.

In order to ensure a more independent con-

sideration of matters of a material character

in which the Board Chairman is, or has been,

personally involved, the Board’s consider-

ation of such matters are chaired by the

Deputy Board Chairman, if there is one serv-

ing at the time, or some other member of

the Board in the absence of a Deputy Board

Chairman.

The Board of PHLY established an audit com-

mittee in 2010. The audit committee consists

of two members elected by and among the

Board’s members, Elin Karfjell (Chairperson)

and Amy Humphreys. Both members are

independent from operations of the Com-

pany and neither member is linked to PHLY’s

main shareholder, Aker ASA.

PHLY does not have any other active Board

committees at this time. In particular, PHLY

does not have a remuneration committee

because all members of the Board are inde-

pendent of PHLY’s executive personnel.

PHLY has prepared guidelines designed

to ensure that members of the Board and

executive management notify the Board of

any direct or indirect stake they may have in

agreements entered into by the Company.

The Board evaluates its own performance

and expertise once a year.

CORPORATE GOVERNANCE

PHILLY SHIPYARD - ANNUAL REPORT 202176

CORPORATE GOVERNANCE

Risk management and internal control

The Board is to ensure that the Company

maintains solid in-house control practices

and protocols and appropriate risk manage-

ment systems tailored to the Company’s busi-

ness activities. These practices and systems

encompass the Company’s guidelines for

how it integrates considerations related to

stakeholders into its creation of value. PHLY’s

policy regarding corporate social responsibil-

ity is set forth on pages 19-21 of this annual

report. The Board annually reviews the Com-

pany’s most important risk areas and inter-

nal control systems and procedures, and

these risk areas are mentioned in the Board’s

report. Through the use of a risk matrix and

log, the Board also monitors the key risks

related to the Company’s business goals and

assesses those risks, taking into account miti-

gating actions, on a quarterly basis. The issue

is further described in notes 1 and 17 to the

consolidated accounts.

Audit committee

The audit committee has reviewed the Com-

pany’s nancial reporting systems, systems

for internal control and risk management and

had dialogue with PHLY’s auditor. The audit

committee has also considered the auditor’s

independence.

PHLY’s nancial policies ensure follow-up of

nancial risk. Key targets are identied by

the Board and management to ensure timely

follow-up of currency exposure, interest rate

exposure and compliance with covenants.

PHLY has prepared an authorization matrix

and approval procedures for costs included

in PHLY’s governing documents.

From 1 January 2021, a new Audit Act was

implemented in Norway. The mandate for

the Audit Committee was updated in line

with the principles and requirements of the

new act.

FINANCIAL STATEMENT CLOSE PROCESS

PHLY has implemented Aker ASA’s account-

ing and reporting guidelines which contains

requirements and procedures for the prepa-

ration of both quarterly and annual report-

ing. The reporting is done quarterly through

PHLY’s reporting and consolidation system.

Consolidation and control over the nancial

statement close process is the CFO’s respon-

sibility. Financial results and cash develop-

ment are analyzed and compared to the

budget by the CEO/general manager and CFO

and reported to the Board monthly.

REMUNERATION OF

THE BOARD OF DIRECTORS

Board remuneration reects the Board’s

responsibility, expertise, time spent, and the

complexity of the business. Remuneration

does not depend on PHLY’s nancial per-

formance and PHLY does not grant share

options to members of its Board. Board

members and companies with whom they

are associated are not to take on special

tasks for the Company beyond their Board

appointments unless such assignments are

disclosed to the full Board and the remuner-

ation for such additional duties is approved

by the Board.

Additional information on remuneration paid

to Board members for 2021 is presented in

note 18 to the consolidated accounts.

REMUNERATION OF

EXECUTIVE MANAGEMENT

The Board has adopted guidelines for remu-

neration of executive management in accor-

dance with section 6-16a of the Norwegian

Public Limited Company Act which was

presented to the annual general meeting

in 2021 and approved by the shareholders

for a period of four years. The guidelines for

remuneration of executive management will

be presented to the annual general meeting

and be subject to the shareholders’ approval

every fourth year, as a minimum. The guide-

lines currently approved by the sharehold-

ers are available on the Company’s website.

Salary and other remuneration of the CEO/

general manager of PHLY are determined in a

Board meeting. The basis of remuneration of

executive management has been developed

in order to create a system based on perfor-

mance and retention.

The system of reward is designed to con-

tribute to the achievement of good nancial

results and increase shareholder value.

PHLY does not have stock option plans or

other such share award programs for employ-

ees. Further information on remuneration for

2021 for members of the Company’s execu-

tive management is presented in note 18 to

the consolidated accounts. PHLY’s guidelines

for remuneration to executive management

are discussed on pages 50-52 of this annual

report and will be presented to the share-

holders at the annual shareholders’ meeting.

The maximum size of any payment under the

existing performance-related remuneration

program to any executive is linked to the size

of the executive’s base salary.

The Board of Directors will prepare and pres-

ent a report on remuneration of executive

management every year as part of the annual

general meeting, in accordance with the Nor-

wegian Public Limited Company Act section

6-16b. This report is subject to the sharehold-

ers’ advisory vote only.

INFORMATION AND COMMUNICATIONS

PHLY’s reporting of nancial and other infor-

mation is based on openness and on equal

treatment of shareholders, the nancial com-

munity, and other interested parties.

The long-term purpose of PHLY’s investor

relations activities is to ensure PHLY’s access

to capital at competitive terms and to ensure

shareholders’ correct pricing of shares. These

goals are to be accomplished through correct

and timely distribution of information that can

aect PHLY’s share price. PHLY is also to com-

ply with current rules and market practices,

including the requirement of equal treatment.

All stock exchange notications and press

releases are made available on PHLY’s

home page www.phillyshipyard.com; stock

exchange notices are also available from

PHILLY SHIPYARD - ANNUAL REPORT 2021 77

www.newsweb.oslobors.no. All information

that is distributed to shareholders is simul-

taneously published on PHLY’s home page.

PHLY’s nancial calendar is found on the

inside front cover of this annual report and

its home page www.phillyshipyard.com.

PHLY’s investor relations sta is responsible

for maintaining regular contact with PHLY’s

shareholders, potential investors, analysts

and other nancial market stakeholders. The

Board is regularly informed about PHLY’s

investor relations activities. For more infor-

mation regarding PHLY’s guidelines for

reporting of nancial and other information,

see pages 70-72.

TAKEOVERS

PHLY has not produced special principles

for how it will act in the event of a takeover

bid. However, if a takeover bid occurred the

Board would follow the overriding princi-

ple of equal treatment for all shareholders.

Unless the Board has particular reasons for

so doing, the Board will not take steps to

prevent or obstruct a takeover bid for PHLY’s

business or shares, nor use share issue

authorizations or other measures to hinder

the progress of the bid, without such actions

being approved by a shareholders’ meeting

after the takeover oer has become public

knowledge.

PHLY will not enter into any agreement with

a bidder that acts to limit PHLY’s ability to

arrange other bids for PHLY’s business or

shares unless it is self-evident that such

an agreement is in the common interest

of PHLY and its shareholders. This provi-

sion shall also apply to any agreement on

the payment of nancial compensation to

the bidder if the bid does not proceed. Any

nancial compensation will be limited to the

costs the bidder has incurred in making the

bid.

Agreements entered into between PHLY and

a bidder that are material to the market’s

evaluation of the bid will be announced to

the public no later than at the same time as

the disclosure that the bid has been made is

published.

Upon the issuance of an oer for PHLY’s

shares, the Board will make a statement to

the shareholders that provides an assess-

ment of the bid, the Board’s recommenda-

tions and reasons for these recommenda-

tions. If the Board cannot recommend to the

shareholders whether they should or should

not accept the bid, the Board will explain

the reasons for this. The Board’s statement

on the oer will make it clear whether the

views expressed are unanimous, and if this

is not the case, it will explain the basis on

which specic members of the Board have

excluded themselves from the Board’s state-

ment.

For each instance, an assessment will be

made as to the necessity of bringing in inde-

pendent expertise and obtaining a third party

valuation. If a third party valuation is obtained,

such valuation will include an explanation,

and the Board will aim at recording such val-

uation in its statement. It may be necessary

to obtain a valuation from an independent

expert where a competing bid is made and

the bidder either is the main shareholder or

has a connection to the Board members or

executive personnel.

Transactions that have the eect of sale of

PHLY or a major component of it are to be

decided on by shareholders at a sharehold-

ers’ meeting.

AUDITOR

The auditor makes an annual presentation to

the Board of a plan for the auditing work for

the year. Further, the auditor has provided

the Board with a written conrmation that the

requirement of independence is met.

The auditor participates in the Board meet-

ing that deals with the annual accounts, and

the auditor has reviewed PHLY’s internal

control with the Board. At these meetings,

the auditor reviews any material changes to

PHLY’s accounting principles, comments on

any material estimated accounting gures

and reports all matters on which there have

been disagreement between the auditor and

PHLY’s executive personnel. Once a year a

meeting is held between the auditor and the

Board, at which no representatives of execu-

tive management are present. In addition to

the presentations to the full Board, the audi-

tor is present at all quarterly audit committee

meetings which occur throughout the year

and presents both its preliminary and nal

audit ndings to the committee during such

meetings.

CORPORATE GOVERNANCE

PHILLY SHIPYARD - ANNUAL REPORT 202178

KRISTIAN RØKKE

Board Chairman

Kristian Røkke (b. 1983) is Chief Executive

Ocer of Aker Horizons AS, an investment

company dedicated to creating value and

reducing emissions from renewable energy

and decarbonization technologies. Mr. Røkke

has previously been Chief Investment Ocer

of Aker ASA and has extensive experience

from operations and M&A. Mr. Røkke is Chair

of the board of Akastor ASA, a Director of TRG

Holding AS, American Shipping ASA, Aker Car-

bon Capture AS, Aker Oshore Wind AS, and

Abelee AS. Mr. Røkke has an MBA from The

Wharton School, University of Pennsylvania.

Mr. Røkke holds both Norwegian and Amer-

ican citizenships. Mr. Røkke owns no shares

in the company and has no stock options. Mr.

Røkke has been elected for the period 2020-

2022.

AMY HUMPHREYS

Deputy Board Chairperson

Amy Humphreys (b. 1966) currently serves as

board director for several companies spanning

a multitude of industries. Ms. Humphreys pre-

viously held the position of President and CEO

at Bristol Bay Seafood Investments, a subsidi-

ary of Bristol Bay Native Corporation. Prior to

her current roles, Ms. Humphreys was Chief

Financial Ocer of Darigold, one of the largest

dairy cooperatives in the United States. Prior

to Darigold, Ms. Humphreys was President

and CEO of Icicle Seafoods, Inc., a multi-spe-

cies seafood processor and marketer. Prior to

joining Icicle Seafoods, Ms. Humphreys served

as CFO of North Star Petroleum Group and

President of Delta Western, both organizations

were within the Petroleum Division of Saltchuk

Resources. From 1995 to 2006, Ms. Hum-

phreys held various leading positions in her 11

year tenure with American Seafoods Group,

including VP Corporate Development and

Treasurer. For many years, Ms. Humphreys

has worked within companies operating under

the Jones Act. Ms. Humphreys holds a Master

of Business Administration (MBA), with honors,

from University of Washington, is a Certied

Public Accountant (CPA) and holds a Bach-

elor of Arts (BA) in Accounting and Finance,

magna cum laude, from University of Puget

Sound. Ms. Humphreys is a U.S. citizen. Ms.

Humphreys holds zero shares in the company

and has no stock options. Ms. Humphreys has

been elected for the period 2020-2022.

ELIN KARFJELL

Board Member

Elin Karfjell (b. 1965) is the EVP Property Man-

agement and Development of Statsbygg, a

Norwegian government agency that manages

central parts of the real estate portfolio of the

government of Norway, where she previously

held the position of CFO. Prior to that, Ms.

Karfjell was CEO of Atelika AS and Fabi Group

and Director of Finance and Administration

of Atea AS. Ms. Karfjell is a former partner at

Ernst & Young AS. Ms. Karfjell joined Ernst &

Young AS in 2002. Prior to this, Ms. Karfjell

held various positions including partner at

Arthur Andersen. At Ernst & Young/Arthur

Andersen, Ms. Karfjell held various leading

positions, both within advisory and audit,

and Ms. Karfjell has experience from a broad

specter of industries. Ms. Karfjell is also a

Board member of North Energy ASA, DNO

ASA and Contesto AS. Previously, Ms. Karfjell

was a Board member of Hent AS, Sevan Drill-

ing Ltd., Norse Energy Corporation ASA, Aktiv

Kapital ASA and Aker Floating Production

ASA. Ms. Karfjell is a state authorized public

accountant. Ms. Karfjell has a Bachelor of

Science in Accounting from Okonomisk Col-

lege (Hoyskolen i Oslo) and a CPA from the

Norwegian School of Economics and Busi-

ness Administration. Ms. Karfjell is a Norwe-

gian citizen. Ms. Karfjell holds 1,200 shares in

the company and has no stock options. Ms.

Karfjell has been elected for the period 2021-

2023.

Presentation of

the Board of Directors

THE BOARD OF DIRECTORS

PHILLY SHIPYARD - ANNUAL REPORT 2021 79

STEINAR NERBØVIK

President and CEO

Steinar Nerbøvik (b. 1961) was appointed

President and Chief Executive Ocer of

Philly Shipyard ASA and Philly Shipyard, Inc.

in November 2014 after serving as Manag-

ing Director since April 2014. Previously, Mr.

Nerbøvik served as SVP Operations from

October 2013. Prior to that, Mr. Nerbøvik

served as SVP Yard Director for Norwegian

Shipyard Vard Langsten (former Aker Yards

and STX OSV Langsten), a leading provider of

sophisticated oshore support vessels. Mr.

Nerbøvik rst joined Philly Shipyard in 2003

as Vice President Projects. Mr. Nerbøvik has

held other management positions as com-

bined Design Manager and Project Manager

at Aker Langsten from 1991-2003. Mr. Ner-

bøvik holds a Master of Science in Ship Naval

Engineering from the Norwegian Institute of

Technology (NTNU) in Trondheim, Norway.

Mr. Nerbøvik lives in Wilmington, DE, USA. Mr.

Nerbøvik is a Norwegian citizen. As of 1 Feb-

ruary 2022, Mr. Nerbøvik holds 1,000 shares

in the company and has no stock options.

JEFFREY THEISEN

Chief Financial Ocer

Jerey Theisen (b. 1968) rejoined Philly Ship-

yard, Inc. as Chief Financial Ocer in Septem-

ber 2020. Mr. Theisen previously served as

CFO from 2007-2015. Mr. Theisen has over

30 years of experience in nancial and stra-

tegic planning, organizational leadership,

growth and expansion strategies, debt and

equity nancing, investor and banking rela-

tions, and budgeting and cost accounting. Mr.

Theisen has held nance roles with Arthur

Andersen, The Regulus Group, Philly Shipyard

and most recently, People 2.0. Mr. Theisen

holds a Bachelor of Science in Accounting

from Villanova University and is a certied

public accountant in the state of Pennsylva-

nia. Mr. Theisen lives in Blue Bell, PA, USA.

Mr. Theisen is a U.S. citizen. As of 1 February

2022, Mr. Theisen holds zero shares in the

company and has no stock options.

DEAN GRABELLE

Senior Vice President and General Counsel

Dean Grabelle (b. 1970) was appointed Senior

Vice President and General Counsel of Philly

Shipyard, Inc. (PSI) in November 2016, after

serving as PSI’s General Counsel since May

2008. Prior to joining the shipyard, Mr. Gra-

belle was employed with the law rm Faegre

Drinker Biddle & Reath LLP in Philadelphia,

PA, USA where he established a legal career

in the Business and Finance Department

spanning 12 years. Past experience includes

mergers and acquisitions, business coun-

seling, lending, private equity and corporate

nance. Mr. Grabelle graduated from Duke

University with a Bachelor of Arts in Econom-

ics and Public Policy Studies. Mr. Grabelle

also holds a Juris Doctor from the University

of Pennsylvania Carey Law School. Mr. Gra-

belle lives in Voorhees, NJ, USA. Mr. Grabelle

is a U.S. citizen. As of 1 February 2022, Mr.

Grabelle holds zero shares in the company

and has no stock options.

Presentation of

the Management Team

THE MANAGEMENT TEAM

PHILLY SHIPYARD - ANNUAL REPORT 202180

ROBERT FITZPATRICK

Vice President Production

Robert Fitzpatrick (b. 1964) joined Philly Ship-

yard, Inc. in 2001 and had held numerous key

positions including Prefabrication Manager

and Senior Production Manager before being

promoted to Vice President Production in

January 2007. Prior to coming to the shipyard,

Mr. Fitzpatrick amassed 20 years of experi-

ence in industrial manufacturing including 12

years as a production manager responsible

for the fabrication of naval circuit breakers

and switchgear at L-3 Communications. Mr.

Fitzpatrick holds a Bachelor of Science in

Mechanical Engineering from Spring Garden

College in Philadelphia, PA, USA. Mr. Fitzpat-

rick lives in Burlington, NJ, USA. Mr. Fitzpatrick

is a U.S. citizen. As of 1 February 2022, Mr.

Fitzpatrick holds zero shares in the company

and has no stock options.

MICHAEL GIANTOMASO

Vice President Human Resources

Michael Giantomaso (b. 1966) joined Philly

Shipyard, Inc. as Human Resources Man-

ager in May 1998. Mr. Giantomaso was pro-

moted to Vice President Human Resources in

August 2001. Mr. Giantomaso has more than

30 years of human resources experience in

the manufacturing and health care elds. Mr.

Giantomaso holds a Bachelor of Arts in Busi-

ness Administration and Human Resources

from Temple University. Mr. Giantomaso lives

in Huntingdon Valley, PA, USA. Mr. Gianto-

maso is a U.S. citizen. As of 1 February 2022,

Mr. Giantomaso holds zero shares in the

company and has no stock options.

JAMES H. MILLER

Senior Advisor

James H. Miller (b. 1955) was appointed

Senior Advisor to Philly Shipyard, Inc. in April

2020 following previous tenures as CEO from

2008-2011 and Chairman of the Board from

2011-2014 and 2016-2020. Mr. Miller has sig-

nicant executive experience in shipbuilding

and large industrial engineering/construction

projects and services. Mr. Miller currently sits

on the Board of Directors for three U.S. pub-

lic companies. Mr. Miller holds a Bachelor of

Arts from the University of Edinboro (PA). Mr.

Miller lives in Washington, PA, USA. Mr. Miller

is a U.S. citizen. As of 1 February 2022, Mr.

Miller holds zero shares in the company and

has no stock options.

THE MANAGEMENT TEAM

PHILLY SHIPYARD - ANNUAL REPORT 2021 81

THE MANAGEMENT TEAM

THOMAS GRUNWALD

Vice President

Thomas Grunwald (b. 1978) joined Philly

Shipyard, Inc. in the role of Senior Consultant

in May 2019 before being promoted in July

2020 to Commercial Director. In September

2021, Mr. Grunwald was elevated to his cur-

rent position of Vice President in which he

is responsible for sales and business devel-

opment for commercial ship newbuilding

and ship repairs, as well as shipyard capital

investments. Mr. Grunwald previously held

the position of President and Board Member

at R&M Ship Technologies USA, Inc. which

included oversight of the company’s U.S. ship

newbuilding and repair activities. Mr. Grun-

wald holds a Diploma in Business Adminis-

tration with a specialization in International

Business Administration from the Catholic

University of Eichstaett-Ingolstadt, Germany.

Mr. Grunwald lives in Media, PA, USA. Mr.

Grunwald is a German citizen. As of 1 Febru-

ary 2022, Mr. Grunwald holds zero shares in

the company and has no stock options.

NICOLAI HAUGLAND

Vice President

Nicolai Haugland (b. 1993) is Vice President

of Philly Shipyard ASA. In addition to this

responsibility Mr. Haugland serves as Invest-

ment Associate for Aker ASA. Prior to joining

Aker ASA in 2019, Mr. Haugland worked for

two years as an Associate in Investment Bank-

ing at Pareto Securities. Mr. Haugland holds

an MSc in Finance from The London School

of Economics (LSE) and a BSc in Economics

(Honors) from The University of Warwick. Mr.

Haugland lives in Oslo, Norway. Mr. Haugland

is a Norwegian citizen. As of 1 February 2022,

Mr. Haugland owns 700 shares in the com-

pany through his private company Elysium AS

and has no stock options.

PHILLY SHIPYARD - ANNUAL REPORT 202182

PHILLY SHIPYARD - ANNUAL REPORT 2021 83

DISCLAIMER

This annual report 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 dier. Such forward-looking information

and statements are based on current expec-

tations, estimates and projections about

global economic conditions, the economic

conditions of the regions and industries that

are major markets for Philly Shipyard ASA

and its subsidiaries and aliates (the “Philly

Shipyard Group”) lines of business. These

expectations, estimates, and projections

are generally identiable by statements con-

taining words such as “expects”, “believes”,

“estimates,” “anticipates,” “intends” or similar

expressions. Important factors that could

cause actual results to dier materially from

those expectations include, among others,

economic, market and political conditions in

the geographic areas and industries that are

or will be major markets for the Philly Shipyard

Group’s businesses, oil prices, market accep-

tance of new products and services, changes

in governmental regulations, interest rates,

uctuations in currency exchange rates, the

COVID-19 pandemic and subsequent eco-

nomic eects, and such other factors as may

be discussed from time to time. Although

Philly Shipyard ASA believes that its expec-

tations and the information in this annual

report were based upon reasonable assump-

tions at the time when they were made, it can

READ REPORTS ONLINE

The annual reports of Philly Shipyard ASA are

available via the Internet:

www.phillyshipyard.com.

Alternatively, Philly Shipyard ASA encourages

its shareholders to subscribe to the compa-

ny’s annual reports via the electronic delivery

system of the Norwegian Central Securities

Depository (VPS). Please note that VPS ser-

vices (VPS lnvestortjenester) are designed

primarily for Norwegian shareholders. Sub-

scribers to this service receive annual reports

in PDF format by email. VPS distribution takes

place at the same time as distribution of the

printed version of Philly Shipyard’s annual

report to shareholders who have requested it.

Electronic distribution is the fastest channel

for accessing company information; it is also

cost-eective and environmentally friendly.

give no assurance that those expectations

will be achieved or that the actual results will

be as set out in this annual report. Neither

Philly Shipyard ASA nor any other company

within the Philly Shipyard Group is making

any representation or warranty, expressed or

implied, as to the accuracy, reliability or com-

pleteness of the information in the annual

report, and neither Philly Shipyard ASA, any

other company within the Philly Shipyard

Group nor any of their directors, ocers or

employees will have any liability to you or any

other persons resulting from your use of the

information in the annual report.

Philly Shipyard ASA undertakes no obligation

to publicly update or revise any forward-look-

ing information or statements in the annual

report, other than what is required by law.

The Philly Shipyard Group consists of various

legally independent entities, constituting their

own separate identities. Philly Shipyard is

used as the common brand or trademark for

most of these entities. In this annual report

we may sometimes use the “Company,” “Philly

Shipyard”, “Group”, “we” or “us” when we refer

to Philly Shipyard companies in general or

where no useful purpose is served by identi-

fying any particular Philly Shipyard company.

This report does not constitute an oer of

any securities for sale.

Philly Shipyard ASA

Vika Atrium, Munkedamsveien 45,

NO-0250 Oslo, Norway

Tel: + 47 23 11 91 00; Fax: + 47 23 11 91 01

Philly Shipyard, Inc.

2100 Kitty Hawk Avenue

Philadelphia, PA 19112 USA

Tel: +1 (215) 875 2600; Fax: +1 (215) 875 2700

website: www.phillyshipyard.com

email: info@phillyshipyard.com

Photos/illustrations:

All photos courtesy of:

Philly Shipyard, Inc. (Matt Cassidy),

HYTHA.CG (Chris Hytha),

Jaywalk Media (Margo Reed)

and Pap Studio.

Design/production:

www.report.no