Untitled

Annual

Report

2022

PHILLY SHIPYARD - ANNUAL REPORT 20222

Contents

Content 2

Company Overview 3

Our History 4

Key Events 6

Investment Highlights 7

Our Values 8

ESG Program 9

Our Safety 13

Letter from the President 14

Board of Directors’ Report 17

Directors’ Responsibility Statement 27

Consolidated Accounts 29

Parent Company Accounts 60

Auditor’s Report 68

Shares and Shareholder Matters 74

Corporate Governance 77

The Board of Directors 82

The Management Team 83

Company Information 87

CONTENT

New York

Norfolk

Jacksonville

Boston

Florida

California

Washington

Alaska

Hawaii

Purto Rico

FINANCIAL CALENDAR 2023

2022 annual report 27 March

Annual general meeting 19 April

Interim report Q1 2023 5 May

Interim report Q2 2023 14 July

Interim report Q3 2023 1 November

Dates are subject to change.

PHILLY SHIPYARD - ANNUAL REPORT 2022 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 57.6% of the

shares as of 31 December 2022.

ELEMENTS CONTRIBUTING TO SUCCESS:

State-of-the-art shipyard with modern

equipment and 2 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

Government resumé including 1 new

build program, 5 design studies and 3 ship

repair projects

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.

flag. 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 certain vessels

involved in offshore 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

offerings by also pursuing work in the government market.

COMPANY OVERVIEW

PHILLY SHIPYARD - ANNUAL REPORT 20224

Founded by public-

private partnership

between U.S. Govern-

ment agencies and the

Kvaerner Shipbuilding

Division

Construction began

on first 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 - 2022

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 2022 5

Received an order for

two additional NSMVs

(3 and 4) with a total con-

tract value of approxi-

mately 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

five National Security

Multi-Mission Vessels

(NSMVs) for the U.S.

Department of Transpor-

tation’s Maritime Admin-

istration (MARAD)

Received an order for

the first 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 Offshore Patrol

Cutter (OPC) program

and the U.S. Navy’s

Auxiliary General Ocean

Surveillance (T-AGOS(X))

program

Received an order for

fifth and final NSMV,

bringing the total project

value to approximately

USD 1.5 billion

Won a contract from

return customer Matson

Navigation Company to

build three LNG-powered

containerships valued at

approximately USD 1.0

billion

Honored with the 2022

Shipbuilders Council of

America (SCA) “Excel-

lence in Safety” award

and surpassed 2 million

consecutive work hours

without a lost time inci-

dent (LTI)

Celebrated building

milestones with NSMV

1 launch, NSMV 2 keel

laying, and NSMV 3 start

of production

Delivered three prod-

uct tankers to Kinder

Morgan (Hulls 026-

028) and two CV3600

container vessels to

Matson (Hulls 029-030)

2019: Awarded first 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 20226

2022 Key Events

and Highlights

KEY EVENTS

Reached full yard-wide building

capacity with three ships under

construction and record backlog in

excess of USD 2.0 billion for nine

ships – five NSMVs, one SRIV, and

three containerships

Successfully launched NSMV 1 in

September into the Delaware River

to transfer it from the building dock

to the outfitting dock

Increased order book by approx-

imately USD 1.3 billion, including

contract awards for NSMV 5 from

TOTE Services and three 3,600 TEU

LNG-fueled containerships from

Matson Navigation Company

Celebrated the NSMV 2 keel laying

in September with officials from

MARAD, TOTE Services, and Massa-

chusetts Maritime Academy

Honored with the 2022 Shipbuilders

Council of America (SCA) “Excellence

in Safety” award and surpassed 2

million consecutive work hours with-

out a lost time incident (LTI)

Marked the start of production for

NSMV 3 in July with a steel cutting

ceremony, including a MARAD medal

ceremony for a local World War 2

merchant marine

PHILLY SHIPYARD - ANNUAL REPORT 2022 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 flexible

subcontracting under single

union contract

Reinvigorated apprenticeship

program and modern train-

ing facility

Strong backlog and high

pipeline visibility

Over USD 2.1 billion in order

backlog with last contractual

delivery in 2027

NSMV program supports a

new and innovative approach

to federal shipbuilding by

leveraging commercial best

practices

Awarded contract for three

3,600 TEU Aloha Class

LNG-fueled containership

vessels from Matson

Series production with famil-

iar ships offers operational

benefits

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 four government

design studies and currently

working on one more

Completed three govern-

ment repair projects to

utilize excess dock capacity

and prove out the business

rationale

Well positioned for

future growth

Ramped up workforce from

973 to 1,406 personnel in

2022

Strong balance sheet with

debt capacity and nearly USD

138 million in cash

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 ORDER BACKLOG

Customer Vessel Delivery 2023 2024 2025 2026 2027

NSMV 1 1st half 2023

NSMV 2 2nd half 2023

MARAD/TOTE Services NSMV 3 1st half 2024

NSMV 4 1st half 2025

NSMV 5 2nd half 2025

Great Lakes Dredge &

SRIV 1 1st half 2025

Dock Company

CV 1 2nd half 2026

Matson Navigation

CV 2 1st half 2027

Company

CV 3 2nd half 2027

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

INVESTMENT HIGHLIGHTS

PHILLY SHIPYARD - ANNUAL REPORT 20228

Philly Shipyard’s CORE values were designed

as a reflection 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

The purpose of the Norwegian Transparency

Act is to promote enterprises’ respect for

fundamental human rights and decent work-

ing conditions in their operations and their

supply chains. These human rights include

but are not limited to freedom of association,

freedom from all forms of forced, coerced, or

enslaved labor, child labor, and human traf-

ficking, elimination of discrimination, and pro-

viding a safe and healthy work environment.

Philly Shipyard will not tolerate any form of

modern slavery or human rights violations in

our operations and supply chains, including

service providers and suppliers. Our existing

Philly Shipyard policies and employment prac-

tices include a respect for human and labor

rights. We forbid forced labor, child labor

and all forms of discrimination including, but

not limited to forced, bonded or indentured

labor, involuntary labor, child labor, or any

other form of human trafficking. We are com-

mitted to providing a safe and healthy work

environment void of discrimination.

Philly Shipyard anticipates filing the first

required statement on its website (www.

phillyshipyard.com) by 30 June 2023, in com-

pliance with the requirements of the Act. This

statement will address the decent working

conditions within the Shipyard’s operations,

our policies and practices, our supplier risk

assessment process, and our engagement

with our supply chain regarding human rights

and modern slavery.

As part of our compliance activities related to

the Norwegian Transparency Act, Philly Ship-

yard is planning a number of actions to ensure

no form of modern slavery is occurring in or

in relation to the Shipyard or its supply chain.

These include: development of a risk-based

approach for assessing and addressing the

Shipyard’s supply chain risks, including map-

ping the supplier base and conducting a risk

assessment process that will review our sup-

plier base with regard to country risk and sec-

tor risk related to Human Rights and Modern

Slavery; clauses related to Human Rights and

Modern Slavery in our standard Terms and

Conditions with suppliers; development of a

formal Supplier Code of Conduct; and com-

munication with our suppliers via letter, email,

and/or a new supplier portal on our website.

The Norwegian Transparency Act requires

that covered companies respond to requests

from the general public on how the com-

pany is managing actual or potential human

rights impacts across its organization and

supply chain. Philly Shipyard has established

a process for receiving and managing such

requests, which should be submitted through

communications@phillyshipyard.com.

Our CORE Values

Norwegian Transparency Act

OUR VALUES

PHILLY SHIPYARD - ANNUAL REPORT 2022 9

DEVELOPING OUR SUSTAINABILITY/

ESG PROGRAM

The Shipyard is committed to operating in a

manner consistent with sustainability prin-

ciples. Our CORE values describe our com-

mitment to working safely, acting as environ-

mental stewards, creating an inclusive work

environment, and ensuring our communities

succeed.

During 2022, we further deepened our

efforts around sustainability by developing

a formal sustainability and environmental,

social, and governance (ESG) program. The

CEO and Management Team participated

in one-on-one discovery interviews with an

external consultant, which identified a broad

range of strengths, priorities, challenges, and

opportunities for the Shipyard related to sus-

tainability and ESG. The CEO and Manage-

ment Team also participated in a Sustainabil-

ity Workshop to refine the Sustainability/ESG

strategic roadmap, and to confirm material

topics and themes.

Peer benchmarking was conducted with the

Shipyard’s customers and peer companies

(shipyards) to review their sustainability pro-

Sustainability and

ESG Program

ESG PROGRAM

SUSTAINABILITY/ESG STRATEGY

Launch

Sustainability/

ESG program

development

Peer Bench-

marking

Stakeholder

Analysis

UN SDG

Mapping

Materiality

Analysis

Define Sus-

tainability/ESG

Strategy and

Roadmap

Build Sustain-

ability/ESG

program

governance

Expand Sus-

tainability/ESG

reporting and

disclosure

Establish KPI

baselines for

target setting

2022 2023

grams and disclosures. This discovery pro-

cess identified key themes and focus areas to

incorporate into the Shipyard’s sustainability/

ESG strategy and plans.

STAKEHOLDERS

The Shipyard recognizes that stakehold-

ers have increasingly high expectations for

companies, including those in the marine

transportation sector. To better understand

stakeholder perspectives, we undertook a

Stakeholder Analysis during 2022.

We identified 10 stakeholder groups, includ-

ing our shareholders, workforce, suppliers

and vendors, customers, and the communi-

ties in which we operate. We also identified

the channels through which we engage them,

and their primary topics of interest related to

the Shipyard.

Stakeholders’ interests regarding Philly Ship-

yard vary by stakeholder, with key topics of

interest such as jobs, workplace environment,

safety, quality, compliance, and communica-

tion with the public. All stakeholders are inter-

ested in greater transparency and disclosure

from the Shipyard.

Based on our insights from the stakeholder

analysis, we designed our Sustainability/ESG

program with stakeholder perspectives in

mind.

PHILLY SHIPYARD - ANNUAL REPORT 202210

UN SDG MAPPING

The United Nations Sustainable Development

Goals (UN SDGs) are the blueprint to achieve

a better and more sustainable future for all.

Philly Shipyard has mapped the UN SDGs

to our operations. This approach helps us

understand which UN SDGs the Shipyard can

most contribute to, as well as where further

action may be needed. This mapping process,

conducted by an external sustainability con-

sultant, was based on a review of Shipyard

business activities and value chain, as well

as non-governmental organization (NGO)

and industry association perspectives. The

mapping process also was informed by guid-

ance from the American Bureau of Shipping’s

“Guide for Sustainability Notations.”

The Shipyard identified six (6) of the 17 UN

SDGs as most directly relevant to the Ship-

yard’s mission, value chain and stakeholders.

As a significant energy pur-

chaser, Philly Shipyard has the

opportunity to support the

energy transition to Affordable

and Clean Energy through electrification of

various operations and shipbuilding activities,

and to contribute to the demand for renew-

able energy. In addition, the Shipyard has

expanded its capabilities to build vessels with

lower air emissions and lower carbon fuels,

which are increasingly being specified by ship

owners and designers.

Philly Shipyard supports Decent

Work and Economic Growth by

creating high-quality jobs that

offer a living wage for our work-

ers, with a strong focus on diversifying our

workforce, providing equal pay for equal work,

respecting labor rights, and providing exten-

sive training including our apprenticeships.

As a leading U.S. shipyard, we

align closely with Industry, Inno-

vation and Infrastructure,

through our participation in the

redevelopment of the Philadelphia Navy Yard

and continuously upgrading the capabilities

and digital technologies of the Shipyard to

meet modern standards.

We are active in recycling mate-

rials and packaging to reduce

waste and encourage reuse

and are working to expand our

recycling programs. Our strong commitment

to Responsible Consumption and Production

is part of our CORE values and is evident in

our strong track record of environmental

compliance.

Shipbuilding is an energy-inten-

sive industrial manufacturing

activity, so our energy use and

greenhouse gas production is

material. We are committed to Climate Action

by quantifying our climate footprint and iden-

tifying ways to reduce it, including through

more energy efficient technology and pro-

cesses.

With operations on the Dela-

ware and Schuylkill Rivers and

building vessels that operate in

U.S. and international water-

ways, it is critical that the Shipyard focus on

protecting Life Below Water and our marine

ecosystems every day.

ESG PROGRAM

GOVERNANCE OF SUSTAINABILITY/ESG

The Board of Directors and CEO of Philly

Shipyard have oversight of the sustainability/

ESG program and review it regularly at Board

meetings. The Board and CEO have assigned

executive-level program sponsorship, leader-

ship and strategy setting to James H. Miller,

Senior Advisor and former CEO/Chairman of

Philly Shipyard.

Senior leaders across the organization are

actively engaged in leading sustainability/ESG

activities related to their areas of responsi-

bility. The Shipyard’s sustainability/ESG pro-

gram is organized in 12 tracks, each of which

has a senior leader assigned as accountable

for that track. Track leaders meet regularly

with the program leadership team to share

updates and mark progress.

Key priorities for the sustainability/ESG pro-

gram in 2023 will include establishing base-

lines for key performance metrics including

GHG, as well as preparing to set targets and

publish a sustainability report in 2024. We

also continue to monitor and prepare for

upcoming requirements for ESG disclosure

to investors and other stakeholders in the

future.

PHILLY SHIPYARD - ANNUAL REPORT 2022 11

MATERIALITY ANALYSIS

Philly Shipyard conducted a materiality anal-

ysis to identify the sustainability/ESG topics

that are most relevant and material to the

Shipyard and its stakeholders.

The materiality analysis was conducted using

internal and external inputs that included:

assessment of macro trends and industry/

sector trends; analysis of sustainability mate-

rial topics of peer companies (shipyards),

customers (ship owners), and partners in

the value chain; stakeholder interviews and

research; resource materials from industry

organizations including the International

Maritime Organization (IMO) and the Amer-

ican Bureau of Shipping (ABS), among oth-

ers. An initial list of material topics was then

reviewed with the CEO and Management

Team for review and approval.

The materiality analysis identified 22 material

topics, which were organized under the ESG

headings of Environmental, Social and Gov-

ernance.

Taken together, the stakeholder analysis, UN

SDG mapping, and materiality matrix form

the foundation for Philly Shipyard’s sustain-

ability/ESG strategy and program.

ESG PROGRAM

MATERIAL TOPICS

Environmental

Energy use and energy efficiency

Climate and greenhouse gases

(GHG)

Water impacts related to runoff,

emissions, and use of river water

Air emissions including VOCs and

HAPs

Waste reduction and recycling

Product impact: building sustain-

able ships as specified by owners

Social

Employee safety and health

Workforce recruitment, retention,

and development

Diversity, equity and inclusion

Labor relations

Human rights

External communications

Community relations and

charitable donations

Governance

Ethics, compliance and

governance

Quality

Sustainable procurement/

Supplier responsibility

Transparency and disclosure

Emergency preparedness and

resilience

Risk management

Financial performance

Physical asset and infrastructure

security

Data privacy and data security

PHILLY SHIPYARD - ANNUAL REPORT 202212

PHILLY SHIPYARD - ANNUAL REPORT 2022 13

9000

8000

7000

6000

5000

4000

3000

2000

1000

3533

3005

4178

5793

7920

4371

4464

1592

2493

2096

1301

1000

2000

3000

4000

5000

6000

7000

8000

9000

2012 13 2114 15 16 17 18 19 20 2022

HSE 2022:

Expanding Our Reach

in a Busy Shipyard

ALL INCIDENT FREQUENCY (2001 - 2022)

OBSERVATIONS (2012 - 2022)

2001 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 2120 2022

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 main-

taining safe working conditions and never

compromising safety for anyone, anywhere,

at any time.

In the last year, the Health, Safety, and Envi-

ronment (HSE) team has dealt with the many

challenges of a growing shipyard workforce

while also celebrating milestones and recog-

nition. In January, the shipyard crossed the

threshold for two million consecutive work

hours without a lost time incident (LTI). While

this streak was eventually broken, I would like

to recognize the commitment to safety that

our team showed in reaching a significant

milestone. In May, PSI received the Shipbuild-

er’s Council of America (SCA) “Excellence in

Safety” award. The SCA is the national asso-

ciation representing the U.S. shipyard indus-

try and honored companies displaying an

enhancement of operations and promotion

of safety and accident prevention.

The HSE department continued to expand

its staff to support the growing needs of

the Production department as well as the

programs and services offered to the yard.

We were able to train 356 employees and

subcontractors in scissor-lift and high-reach

safety protocol. Other trainings include Fork-

lift (158 trained), Overhead Shop Crane (89),

Fire Watch (111) and CPR/AED (40).

The Emergency Response Team (ERT) was

reconstituted with two classes trained over

the year and multiple planned drills through-

out 2023. The number of ERT members

increased to 26. The local Naval Sea Systems

Command (NAVSEA) Fire Department made

several visits to the shipyard to see the prog-

ress on the National Security Multi-Mission

Vessel (NSMV) program in the event they

would need to assist in an emergency situ-

ation.

In 2022, the Ship Services Group was estab-

lished to install temporary lighting and ven-

tilation, as well as to monitor cable manage-

ment onboard the new build vessels. We

also implemented the design and installation

of a fire monitoring system for the NSMV

program. The aforementioned efforts have

proven to substantially reduce property dam-

age and personal injury risks by providing a

safer work environment while contributing to

the overall success of the NSMV program.

In accordance with guidance from the Cen-

ters for Disease Control and Prevention

(CDC) and local governments, we lifted our

mask mandate and other COVID-19 restric-

tions in March. We have continued to strongly

encourage all employees and subcontractors

to get vaccinated and boosted – even going

as far as holding multiple on-site vaccine clin-

ics since the onset of the virus. We also spon-

sored educational seminars to assist people

in understanding the facts.

PSI has continued a long history dedicated to

protecting the surrounding waterways from

any negative impacts associated with manu-

facturing operations. We have a close working

relationship with the City of Philadelphia and

remain good stewards of the environment

by strictly following all federal, state, and city

regulations. For example, we traversed the air

permit process during the installation of our

new Paint Shop boiler system. This was an

important step for us as we begin our journey

into launching a comprehensive Environmen-

tal, Social, and Governance (ESG) program for

the company. This will allow us to better tell

the story of our current and future HSE work

with quantifiable data.

As we move forward in 2023, I expect our HSE

record to remain strong and our department

to lead these efforts in new and exciting ways.

Carl W. Danley

HSE Director

PHILLY SHIPYARD - ANNUAL REPORT 202214

In 2022, we completed our first full year of

new build work since delivering Hull 30 in

2019. The sun was surely shining in Philly

Shipyard as we were awarded the fifth option

on the National Security Multi-Mission Vessel

(NSMV) program and won a USD 1.0 billion

three-containership contract from return-

ing client Matson Navigation Company. I am

proud to say this contract increased our

order book to nine vessels and a record-high

backlog exceeding USD 2.0 billion!

Our success in securing work is a testament

to our track record as a company and I thank

all of our employees for their efforts in getting

us to this position. But with a busy backlog,

comes a need for materials, equipment, and

more skilled workers. The continuous effects

of the COVID-19 pandemic on global supply

chains and the national labor shortage has

certainly put a strain on all companies, espe-

cially those in industrial manufacturing. Philly

Shipyard is no exception.

When I last wrote you, we expected that we

would continue to improve profitability in

2022 as we ramped-up production for the

NSMV program. While we reached full capac-

ity in mid-2022 and are no longer burdened

by stranded overhead, we wound up recog-

nizing a significant loss in 2022 on the first

NSMV. The main reason for this disappoint-

ing result is that we continue to be negatively

affected by significant delays, productivity

loss and increased costs due to the COVID-

19 pandemic’s impact on our workforce and

supply chain. I assure you that we are taking

mitigating actions and exploring our options

to recover these increased costs. I also

remain optimistic that we will earn a profit on

the five-ship series taken as a whole.

We have expanded our recruiting efforts

like never before in 2022. Our company has

partnered with local skills initiatives such as

the West Philadelphia Skills Initiative and

the Pennsylvania Talent Pipeline Project to

find and train local talent. There have been

many success stories including another year

of welcoming new faces to our revived three-

year Apprenticeship Program. Our Human

Resources team employed the use of new

advertising strategies to reach prospective

employees from all walks of life. And I remain

confident that we will find more shipbuilders

to join us, but as the labor pool dwindled

during COVID-19, we understand and are

committed to our goal of training and upskill-

ing the available workforce.

As we grow our team, I am continuing to chal-

lenge the company as a whole to elevate our

work processes and productivity. Last year,

we instituted the V5 Improvement Program

led by our Quality department. With the

launch of NSMV 1 in September, we wanted

to better track and implement improvements

to workflow from ship to ship for the entire

five-vessel new build project. We are aiming

to improve the quality of our product and

productivity of our workforce, measurable

vessel to vessel, through cost reduction,

overall work hours, reduced rework, and a

comprehensive world-class Quality culture,

similar to our strong record in Health, Safety,

and Environment (HSE). My aim as President

and CEO is to promote pride in workmanship

and focus on the end customer.

In April, we received an order from TOTE

Services, LLC for the fifth and final option on

the NSMV contract. The award was valued at

approximately USD 300 million, bringing the

total order intake under the contract for the

five-ship program to approximately USD 1.5

billion. Later in the year, we were honored and

filled with immense pride to have Matson once

again choose Philly Shipyard, this time to build

three (3) 3,600 TEU LNG-fueled Aloha class

containerships. It says a lot about our building

quality and track record to have a customer

return. The award was valued at approxi-

mately USD 1.0 billion and secures work at

our yard through 2027. We also have an order

from Great Lakes Dredge & Dock Company for

one Jones Act-compliant Subsea Rock Installa-

tion Vessel (SRIV), the first such ship to enter

the U.S. market for offshore wind.

Our company has made a conscious effort to

pivot toward a more diversified order back-

previous letter, you may remember I said our

business would be balanced upon a “three-

legged stool” of 1) commercial new builds, 2)

government new builds, and 3) ship repairs.

At the present moment, we do not have dock

capacity for maintenance, repair, overhaul,

and conversion (MROC) projects. Instead, our

focus has shifted to our current order backlog

of new build projects which takes us through

the next five years. Our Management Team

remains active in seeking future government

and commercial shipbuilding projects and

our “Going Gray” strategy resides within those

efforts. In the past few years, we have gained

invaluable experience through our participa-

tion in various design studies, such as the U.S.

Coast Guard’s Offshore Patrol Cutter (OPC)

and the U.S. Navy’s CHAMP, T-AGOS, T-ARC,

and T-AS. And of course, the NSMV program

has given us the opportunity to cut our teeth

on government-related new builds.

I was proud to celebrate the many milestones

of the NSMV program in 2022. We marked

the Start of Fabrication of NSMV 3 (Maine

Maritime Academy) with a steel cutting cer-

emony in July, launched NSMV 1 (SUNY Mar-

itime College) from Dry Dock 4 to Dry Dock

5 in September, and laid the keel for NSMV

2 (Massachusetts Maritime Academy) shortly

thereafter. It has been a tremendous honor

to welcome cadets and officials from the

state maritime academies to tour our yard

2022:

Strengthening Our Workforce

and Record Backlog

Dear Shareholders,

LETTER FROM THE PRESIDENT

PHILLY SHIPYARD - ANNUAL REPORT 2022 15

and witness these momentous occasions

which honor the traditions of shipbuilding.

Throughout the year, we also hosted visits

from high ranking federal, state, and city del-

egates, federal and state maritime academy

leaders and students, and many more who

were all impressed by our world-class facili-

ties and workforce.

In October, the Shipbuilders Council of Amer-

ica (SCA), the national trade association rep-

resenting the U.S. shipyard industry, held its

Fall Meeting in Philadelphia, which included a

tour of our yard for around 120 industry pro-

fessionals and a panel discussion for Philly

Shipyard and TOTE Services to discuss the

vessel construction manager (VCM) model for

shipbuilding – which is being pioneered with

the NSMV program. There is increasing inter-

est in the industry and Congress in the NSMV

contract model, which uses commercial best

practices, and its potential applicability to

other government shipbuilding programs to

decrease costs and build more ships.

Earlier in the year, we received the SCA’s 2022

“Excellence in Safety” award, which honored

15 shipyards for their continued advance-

ment of employee safety and the promotion

of accident prevention. This honor came on

the heels of our company surpassing 2 mil-

lion consecutive work hours without a lost

time incident (LTI) in January. We emphasize

our commitment to safety from day one of

every employee’s career. This is what makes

Philly Shipyard a great place to work for our

employees and a great place to do business

for our customers.

A growing part of our HSE culture is our compli-

ance with all environmental standards, includ-

ing the reduction of our carbon footprint. I am

very pleased to share that we have officially

begun our Environmental, Social, and Gover-

nance (ESG) journey with the help of an expe-

rienced consultant who led our Management

Team through multiple exploratory meetings

resulting in a roadmap for the future. During

2022, we developed a formal program for sus-

tainability and ESG which set key priorities for

2023, including the establishment of baselines

for key performance metrics including green-

house gases (GHG) as well as preparing to set

targets and publish a sustainability report for

fiscal year 2024. This program will allow us to

prepare for upcoming requirements for ESG

disclosure to stakeholders in the future.

Our focus in 2023 will be to improve internal

processes and productivity while mitigating,

to the best of our ability, the external factors,

such as COVID-19, mentioned earlier that

hinder our operations. We have a large, diver-

sified order book that demands our atten-

tion. With this in mind, the company signed a

term sheet in September with Avalotis Indus-

trial Services (AIS) to transfer the operations

of our Prime Plate facility – a steel blasting

and priming facility located outside the ship-

yard fence-line in the Navy Yard business

park. We have worked with AIS on many past

projects and this transaction will allow us to

focus our attention on our core shipbuilding

operations. AIS will assume full operational

control while servicing all of our plate priming

requirements. This deal was finalized in Feb-

ruary 2023 and I anticipate operational and

overhead cost savings as a result.

As always, I feel fortunate for the steadfast

support of our stakeholders, among them

our union leaders, our suppliers, federal,

state, and local representatives, and above

all else our fantastic employees, who make

possible our impressive track record, strong

safety performance, and quality culture which

allows for building the best ships in America.

Looking ahead, I see more sun than clouds

on the horizon for 2023.

Yours truly,

Steinar Nerbøvik

President and CEO

Philadelphia, PA

17 March 2023

LETTER FROM THE PRESIDENT LETTER FROM THE PRESIDENT

PHILLY SHIPYARD - ANNUAL REPORT 202216

PHILLY SHIPYARD - ANNUAL REPORT 2022 17

tunistically performing ship maintenance,

repair, overhaul, and conversion (MROC) work

to fully utilize the shipyard’s capacity. As of

31 December 2022, Philly Shipyard has nine

vessels in its order book with a total contract

value in excess of USD 3.1 billion and a final

contractual delivery in 2027.

Safe, cost efficient 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

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 2022, PSI’s workforce con-

sisted of 1,406 people, with a breakdown of

411 direct employees and 995 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 oppor-

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. flag, 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. Department of Transportation Mari-

time Administration (MARAD), the U.S. Coast

Guard, the U.S. Army Corps of Engineers and

others. The U.S. Navy’s fiscal year 2023 ship-

building plan would require annual spending

of approximately USD 30-33 billion for the

next 30 years. The spending available for

auxiliary ship programs, which is Philly Ship-

yard’s main area of focus, continues to be

dominated by the huge quantitative impact

of the submarine program and the qualitative

debates about what the service needs to do

‘to reconstitute the sealift capability.’

Board of Directors’

Report 2022

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.

BOARD OF DIRECTORS’ REPORT

KEY EVENTS AND HIGHLIGHTS

In April 2022, Philly Shipyard received an order from TOTE Services for the con-

struction of the fifth and final NSMV in the training ship series, valued at approx-

imately USD 300.0 million and bringing the total order intake under the contract

for the five-ship program to approximately USD 1.5 billion.

In November 2022, Philly Shipyard was awarded a contract by Matson Navigation

Company to build three 3,600 TEU Aloha Class LNG-fueled containerships with a

total contract value of approximately USD 1.0 billion; the series will follow NSMV

5 with contractual delivery dates in 2026 and 2027.

Record high order backlog of USD 2,143.8 million on 31 December 2022 with last

contractual delivery in 2027.

2022 operating revenues of USD 393.8 million compared to USD 214.1 million in 2021.

2022 net loss of USD 11.7 million compared to 2021 net loss of USD 7.3 million.

Total cash and cash equivalents of USD 137.6 million at 31 December 2022,

excluding USD 55.4 million of restricted cash.

PHILLY SHIPYARD - ANNUAL REPORT 202218

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-profit corporation. A

Master Agreement, a Shipyard Lease and an

Authorization Agreement govern PSI’s relation-

ship with PSDC and the various governmental

parties that have contributed to the establish-

ment of the Shipyard.

Under the Master Agreement, the govern-

mental parties have provided approximately

USD 438 million for the renovation and

modernization of the facility and training

of the workforce. PSI was required to make

certain qualified infrastructure investments

totaling USD 135 million, which have been

fully satisfied. PSI was also required to

match government funding for certain train-

ing costs totaling USD 50 million, which has

been fulfilled.

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 75 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 five-year term under

certain circumstances. PSI was in compliance

with this lease condition as of 31 December

2022.

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 partner-

ships and experience obtained during construc-

tion of tankers and containerships, strive to be

the most efficient 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 diver-

sify 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 Transpor-

tation’s Maritime Administration (MARAD) is

a critical step forward in the shipyard’s trans-

formation to serve both commercial and gov-

ernment customers. Going forward, PSI’s main

focus is to pursue major shipbuilding programs

in both markets. PSI will also opportunistically

pursue maintenance, repair, overhaul, and con-

version (MROC) work for government ships.

Philly Shipyard’s research and development

activities are primarily related to two areas.

The first area is the development of PSI’s

building methodology and working methods

to ensure that PSI takes maximum benefit of

the learning curve and produces each grand

block and each vessel more efficiently 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 modi-

fications 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 2022

In April 2022, Philly Shipyard received an order

for the construction of the fifth and final NSMV

in the training ship series with a contractual

delivery date set in 2026. The award is valued

at approximately USD 300 million, bringing the

total order intake under the contract for the

five-ship NSMV program to approximately USD

1.5 billion.

In November 2022, Philly Shipyard was awarded

a contract by Matson Navigation Company

(Matson) to build three 3,600 TEU Aloha Class

LNG-fueled containerships with a total contract

value of approximately USD 1.0 billion. The

series will follow NSMV 5 with contractual deliv-

ery dates in 2026 and 2027.

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, Pennsylvania,

USA.

As of 31 December 2022, Philly Shipyard

has three separate awards under one ship-

building contract with TOTE Services in place

for the NSMV program. NSMVs 1-2 were

awarded at contract signing in April 2020;

NSMVs 3-4 were awarded upon the exercise

of an option in January 2021, and NSMV 5 was

awarded upon the exercise of an option in

April 2022. Therefore, the three awards are

treated as three separate performance obli-

gations that are being accounted for using

the percentage-of-completion method per

IFRS 15 Revenue from Contracts with Custom-

ers. PSI is building five NSMVs (NSMVs 1-5)

for TOTE Services, with the first two vessels

(NSMVs 1-2) scheduled for delivery in 2023,

the next two vessels (NSMVs 3-4) scheduled

for delivery in 2024 and 2025, respectively,

and the final vessel (NSMV 5) scheduled for

delivery in 2025. As of 31 December 2022,

the NSMV projects for NSMVs 1-2, NSMVs

3-4 and NSMV 5 are 75.5%, 18.1% and 2.3%

complete, respectively.

Philly Shipyard also has a shipbuilding contract

with Great Lakes Dredge & Dock Company

(Great Lakes) in place for the Subsea Rock

Installation Vessel (SRIV) project, which was

awarded in November 2021. PSI is building

one SRIV (SRIV 1) for Great Lakes, scheduled

for delivery in 2025. As of 31 December 2022,

the SRIV 1 project is 4.0% complete.

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 2022 19

Philly Shipyard also has one other shipbuilding

contract with Matson in place for the 3,600 TEU

Aloha Class LNG-fueled containership vessel

(CV) project, which was awarded in November

2022. PSI is building three CVs (CVs 1-3) for

Matson, scheduled for deliveries in 2026 and

2027. As of 31 December 2022, the CVs 1-3

project is 0.1% complete.

Philly Shipyard’s accounting policy for projects

following NSMVs 3-4 is to not recognize profit

on projects until they are 5.0% complete.

Also in accordance with IFRS, Philly Shipyard

recognized profits on the T-ARC and OPC gov-

ernment design studies during the year.

Order backlog

As of 31 December 2022, Philly Shipyard’s

order backlog was USD 2,143.8 million and

represents a contractual shipbuilding obli-

gation to deliver newly built vessels (NSMVs

1-5, SRIV 1 and CVs 1-3) that have not yet

been produced for the Company’s custom-

ers (TOTE Services, Great Lakes and Matson,

respectively). Order backlog consists of future

construction contract revenues and is subject

to adjustment based on change orders as

defined in the construction contracts. Order

intake for 2022 of USD 1,332.1 million at 31

December 2022 represents new orders for

NSMV 5 and CVs 1-3 plus change orders on

NSMVs 1-4 and SRIV 1.

Profit and loss accounts

Operating revenues and other income in 2022

ended at USD 393.8 million compared to oper-

ating revenues and other income of USD 214.1

million in 2021. Operating revenues and other

income in 2022 were primarily driven by reve-

nues from progress on NSMVs 1-5, SRIV 1, CVs

1-3, two government design studies and the

profit in equity-accounted investment for Philly

Shipyard’s proportionate share of the final

distribution from the Philly Tankers escrow

account. Operating revenues and other

income in 2021 were primarily driven by prog-

ress on the first four NSMV vessels (NSMVs

1-4), ship repair and maintenance work and

four government design studies.

Philly Shipyard’s earnings before interest,

taxes, depreciation and amortization (EBITDA)

was negative USD 18.1 million in 2022, com-

pared to EBITDA of negative USD 7.0 million

in 2021. These figures correspond to EBITDA

margins of -4.6% and -3.3%, respectively.

Depreciation expense in 2022 and 2021 was

USD 6.2 million and USD 5.4 million, respec-

tively.

Philly Shipyard’s earnings before interest

and taxes (EBIT) was negative USD 24.3 mil-

lion in 2022 compared to EBIT of negative

USD 12.4 million in 2021. EBIT in 2022 was

primarily driven by increased costs on the

NSMV program and consisted of a gross loss

of USD 17.2 million recognized on shipbuild-

ing projects (compared to a gross profit of

USD 8.7 million recognized on shipbuilding

projects in 2021), SG&A costs of USD 7.1 mil-

lion (compared to USD 7.5 million in 2021)

and under-recovered overhead costs (i.e.,

overhead costs incurred and not allocated

to projects) of USD 1.7 million (compared

to USD 19.4 million in 2021), partially offset

by the profit in equity-accounted investment

described above of USD 1.1 million, profit of

USD 0.2 million in government design studies

and miscellaneous items of USD 0.4 million.

In addition to the IFRS financial 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 consoli-

dated income statement.

Net financial items in 2022 and 2021 were

income of USD 2.0 million and USD 0.2 mil-

lion, respectively. Net financial items in both

years were primarily driven by interest income

from bank balances partially offset by interest

expense and bank fees.

Income tax in 2022 and 2021 was a benefit of

USD 10.6 million and USD 4.9 million, respec-

tively. The 2022 deferred income tax benefit

of USD 10.6 million was primarily driven by

temporary differences regarding stranded

overhead and the newly enacted research and

development (R&D) expense capitalization

rules.

In 2022, Philly Shipyard’s net loss was USD 11.7

million and its basic and diluted loss per share

was negative USD 0.97. The corresponding fig-

ures for 2021 was net loss of USD 7.3 million

and a basic and diluted loss per share of neg-

ative USD 0.61.

Cash flows

The Company’s cash flow from operations

depends on payment terms for construction

and delivery settlement for vessels sold to

external customers.

Net cash flow used in operating activities in

2022 was USD 105.0 million and net cash flow

from operating activities in 2021 was USD

172.7 million, respectively. There are signifi-

cant changes year-to-year caused by the level

of completion of vessels and customer and

vendor contract payment schedules.

Net cash flow used in investing activities in

2022 and 2021 were USD 12.1 million and USD

14.8 million, respectively. In both 2022 and

2021, investment activities were due to capital

improvements and enhancements to support

the NSMV and SRIV programs.

Net cash flow used in financing activities in

2022 and 2021 was USD 0.3 million for both

years. In both 2022 and 2021, financing activi-

ties were for repayment of lease liabilities.

Statement of financial position

and liquidity

As of 31 December 2022, Philly Shipyard has

cash and cash equivalents (excluding restricted

cash) of USD 137.6 million. The correspond-

ing figure for 2021 is USD 255.0 million. The

decrease of USD 117.4 million was primarily

due to spending on materials and services

related to the vessel projects underway, timing

of customer milestone payments, and invest-

ment in property, plant and equipment (PP&E).

Philly Shipyard’s net working capital (current

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 202220

assets less current liabilities) is negative USD

64.2 million at 31 December 2022 compared

to negative USD 17.3 million at 31 December

2021.

As of 31 December 2022, Philly Shipyard has

restricted cash of USD 55.4 million, of which

USD 45.4 million (long-term) represents the

total cash deposited in an escrow account

for the bonds required for NSMVs 1-5 and a

reserve account required for NSMV 3, and USD

10.0 million (short-term) pertains to reserve

accounts required for NSMVs 1-2. The corre-

sponding figure for 2021 was USD 44.5 million.

The increase of USD 10.9 million in restricted

cash is primarily due to the additional cash

deposited in the escrow and reserve accounts

described above. It is anticipated that the

cash collateral for the bonds and the reserve

account funds will be released in tranches fol-

lowing the delivery of each NSMV vessel.

Total assets were USD 350.5 million at 31

December 2022 compared to USD 437.0 mil-

lion at 31 December 2021.

Current assets as of 31 December 2022 of USD

209.0 million consists of prepayments and

other receivables, restricted cash (short-term),

income tax receivable (short-term), vessels-un-

der-construction receivable and cash and cash

equivalents. The corresponding figure for 31

December 2021 is USD 331.5 million and con-

sists of prepayments and other receivables,

restricted cash (short-term), income tax receiv-

able (short-term), contract assets and cash and

cash equivalents. The decrease of USD 122.5

million in current assets is primarily due to the

decrease in cash and cash equivalents.

Non-current assets as of 31 December 2022 of

USD 141.5 million consists of PP&E, right-of-use

assets, restricted cash (long-term), deferred tax

asset, income tax receivable (long-term), and

other non-current assets. The corresponding

figure for 31 December 2021 is USD 105.5 mil-

lion and consists of PP&E, right-of-use assets,

restricted cash (long-term), deferred tax asset,

income tax receivable (long-term), and other

non-current assets. The increase of USD 36.0

million in non-current assets is primarily driven

by the increase in deferred tax asset and

increase in income tax receivable (long-term)

and the net investment in PP&E.

Current liabilities as of 31 December 2022 of

USD 273.2 million consists of trade payables

and accrued liabilities, warranties, customer

advances (net), other contract liabilities and

lease liability (short-term). The correspond-

ing figure for 31 December 2021 is USD

348.8 million and consists of trade payables

and accrued liabilities, warranties, customer

advances (net), income tax payable (short-

term) and lease liability (short-term). The

decrease of USD 75.6 million in current liabili-

ties is primarily due to a reduction in customer

advances (net) for NSMVs 3-5, SRIV 1, and CVs

1-3 and a decrease in trade payables and

accrued liabilities.

Non-current liabilities as of 31 December 2022

of USD 3.5 million consists of income tax pay-

able (long-term) and lease liability (long-term).

The corresponding figure for 31 December

2021 is USD 2.8 million and consists of income

tax payable (long-term) and lease liability

(long-term). The increase of USD 0.7 million

in non-current liabilities is primarily due to an

increase in lease liability (long-term).

Total equity at 31 December 2022 amounts

to USD 73.8 million and the equity ratio (total

equity divided by total assets) was 21%. Cor-

responding figures for 31 December 2021

are USD 85.5 million and 20%, respectively.

The USD 11.7 million decrease in equity is the

result of the current year’s net loss.

The Board deems that the Company as of 31

December 2022 is financially sound and has an

appropriate financing 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 significant 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 vessels. In

order to address this risk, the Company has

continuous engagement with local, state and

federal government officials.

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 underly-

ing 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 difficult 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 con-

ditions, uncertainty regarding the timing and

amount of budget appropriations, the complex

bidding and selection processes, potential for

contract award protests and challenges, and

governmental regulations. Because Philly Ship-

yard’s revenue is derived from contract awards,

the Company’s revenues, results of operations

and cash flows can fluctuate materially from

period to period.

While Philly Shipyard now has an order back-

log for ship newbuilds with contractual deliv-

ery dates into 2027, it faces future risks if it is

unable to secure new orders and/or financing

for major commercial or government ship-

building programs to follow its existing backlog.

There can be no assurance that Philly Shipyard

will obtain such new orders or financing 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

affected by many factors, including changes in

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 2022 21

productivity, shortages of materials, equipment

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 Ship-

yard has entered into fixed-price subcontracts

for a significant portion of its scope of work on

its active shipbuilding programs, including the

design and major equipment for the NSMV

and SRIV programs and the design for the CV

program. Philly Shipyard intends to enter into

fixed-price subcontracts for the major equip-

ment for the CV program.

As is common in the shipbuilding industry,

Philly Shipyard’s projects are typically per-

formed on a fixed-price basis. Under fixed-

price contracts, Philly Shipyard receives the

price fixed in the contract, subject to adjust-

ment only for change-orders. In many cases,

these vessels involve complex design and engi-

neering, significant procurement of equipment

and supplies and extensive construction man-

agement. Management uses its best efforts

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, SRIV and CV vessel contracts are fixed-

price contracts.

Philly Shipyard’s productivity and profitability

depends substantially on its ability to attract

and retain skilled workers at forecasted rates.

The COVID-19 pandemic and the federal

contractor vaccine mandate have adversely

impacted, and could continue to adversely

impact, the Company’s ability to attract and

retain skilled workers at forecasted rates.

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 sometimes

tend to impact quality, timely delivery and cost

efficiencies. In order to reduce these risks, the

Shipyard enters into contracts with design and

procurement partners.

There is a higher technical design risk and a

higher project execution risk for the NSMV

and SRIV compared to the construction of

vessels based on a proven design, such

as the series of product tankers or Aloha

Class containership vessels previously built

by Philly Shipyard. These risks increase the

current construction cost estimation uncer-

tainty and the likelihood of occurrence of

contract contingencies. In particular, fail-

ure to meet Philly Shipyard’s performance

obligations to deliver vessels on time and

within the contract specifications can poten-

tially lead to penalties and ultimately con-

tract termination. The NSMV, SRIV and CV

vessel contracts include liquidated damage

clauses for late delivery exclusive of excus-

able delays. The CV vessel contract includes

performance guarantee clauses similar to

those included in the vessel contracts for

the prior series of Aloha Class containership

vessels.

The Shipyard depends on unionized labor for

construction of vessels. Work stoppages or

other labor disturbances could have a mate-

rial adverse effect on the Company’s business,

results of operations and financial condition.

In order to mitigate this risk, the Shipyard has

negotiated a four-year collective bargaining

agreement with the Unions which has been

ratified and is effective through January 2027.

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 person-

nel, particularly its executives and other key

employees who have significant experience

within PSI’s industry. The loss of the services

of one or more of these individuals could

adversely affect 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 efficiently considering the conditions

of the contract; and to perform certain types

of skilled work. PSI works closely with these

subcontractors to monitor progress and

address its customer requirements. PSI gen-

erally has the ability to pursue back charges

for costs it incurs or liabilities it assumes as

a result of a subcontractor’s lack of perfor-

mance. However, the inability of PSI’s sub-

contractors to perform under the terms of

their contracts could cause PSI to incur addi-

tional costs that reduce profitability or create

losses on projects.

The Shipyard further depends upon a 99-year

lease agreement for the shipyard facility and

the future operations of the yard will accord-

ingly be dependent upon PSI fulfilling its obli-

gations under this lease agreement. Failure to

maintain certain employment levels 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 18.

The Shipyard’s operations are subject to the

usual hazards inherent in shipbuilding, such

as the risk of equipment failure and work acci-

dents. Despite the Shipyard’s best efforts to

eliminate these hazards, they can sometimes

cause personal injury, business interruption,

construction delays, property and equipment

damage, pollution and environmental dam-

age. PSI continues to implement 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 limita-

tions of liability and indemnities and through

insurance may not always be effective, and

customers and subcontractors may not have

adequate financial resources to meet their

indemnity obligations to PSI.

PSI relies heavily on computer information and

communications technology and related sys-

tems in order to properly operate its business.

From time to time, PSI experiences occasional

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 202222

system interruptions and delays. In the event

PSI is unable to regularly deploy software and

hardware, effectively upgrade its systems and

network infrastructure, and take other steps

to maintain or improve the efficiency and

efficacy of its systems, the operation of such

systems could be interrupted or result in the

loss, corruption or release of data, and the cost

associated with responding to such events and

restoring compliance could be significant.

The Company faces risk of significant financial,

business and intelligence loss if there are cyber

security breaches. Philly Shipyard has invested

significant resources to provide a more secure

computing environment over the last sev-

eral years, resulting in improved security and

business resiliency. Philly Shipyard maintains

a continued high awareness of its risk profile

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 certification, licensing, health and

safety, labor and training standards or other-

wise 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: admin-

istrative, civil and criminal liabilities, revocation

of permits to conduct business and corrective

action orders, including orders to investigate

and clean up contamination.

In addition, the Shipyard could be affected

by future laws or regulations, including those

imposed in response to concerns over climate

change, other aspects of the environment, or

natural resources. For example, because of

concerns that carbon dioxide, methane and

certain other greenhouse gases may produce

climate changes that have significant impacts

on public health and the environment, various

governmental authorities have considered

and are continuing to consider the adoption

of regulatory strategies and controls designed

to reduce the emission of greenhouse gases

resulting from regulated activities, which if

adopted in areas where the Shipyard con-

ducts business, could require PSI or its cus-

tomers to incur additional compliance costs,

result in delays, or adversely affect demand

for PSI’s services.

The Shipyard is exposed to risks related to

extreme weather (storms, air quality, floods,

temperature highs and lows, etc.) on site and

during transportation of supplies. Contingency

plans are developed for each project to miti-

gate risks of disruptions, project delays and

financial and reputational impact. The Shipyard

is located on a tidal riverfront. The property is

not considered at a high risk of rising sea levels,

flooding or erosion during extreme weather,

due to its distance from the ocean and the

elevated level of the Shipyard’s infrastructure

compared to nearby riverfront areas.

Entry into, or further development of, lines of

business in which the Company has not histor-

ically operated may expose Philly Shipyard to

business and operational risks that are differ-

ent from those it has experienced historically.

For example, U.S. Government projects gen-

erally are subject to suspension, termination

or a reduction in scope at the option of the

customer, although the customer is typically

required to pay for work performed and mate-

rials purchased through the date of termina-

tion. The NSMV contract has a termination for

convenience clause at the option of the U.S.

Government.

Financial risks

Philly Shipyard’s activities expose it to a vari-

ety of financial risks: market risk (including

commodity pricing risk, currency risk and

price risk), credit risk and cash flow interest

rate risk. Philly Shipyard’s overall risk manage-

ment program focuses on the unpredictabil-

ity of financial markets and seeks to minimize

potential adverse effects on Philly Shipyard’s

financial performance. Philly Shipyard uses

derivative financial instruments to hedge cer-

tain risk exposures.

Risk management is carried out under policies

and protocols approved by the Board of Direc-

tors. The Board of Directors provides principles

for overall financial risk management as well as

policies covering specific areas such as foreign

exchange risk, interest rate risk, credit risk and

use of derivative financial instruments and

non-derivative financial instruments.

The Company is exposed to changes in prices

of materials and duties, tariffs and other taxes

imposed on goods imported from foreign

(non-U.S.) countries. PSI attempts to mitigate

its exposure with respect to steel cost escala-

tion and increased taxes on imported goods

by passing these risks on to its end custom-

ers. The NSMV, SRIV and CV vessel contracts

include price adjustment clauses for steel as

defined in the respective contracts.

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 suppli-

ers or secure foreign exchange forward con-

tracts for its known requirements for foreign

currency. The subcontracts for the detailed

design and major equipment for the NSMV

and SRIV programs are payable in U.S. dol-

lars. The subcontract for the detailed design

for the CV program is payable in U.S. dollars.

The SRIV contract includes an exchange rate

adjustment clause for goods and services pur-

chased in certain foreign currencies.

Philly Shipyard is dependent upon having

access to construction financing facilities and

other loans and debt facilities to the extent its

own cash flow from operations and milestone

payments from customers are insufficient to

fund its operations and capital expenditures.

In turn, Philly Shipyard must secure and main-

tain sufficient 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

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 2022 23

bonds, or to furnish letters of credit, refund

guarantees or other forms of security, to sup-

port major commercial or government ship-

building programs. Philly Shipyard may not

be able to obtain sufficient debt facilities or

bonding capacity or furnish sufficient security

if and when needed with favorable terms, if

at all. No third-party financing is needed, and

Philly Shipyard has furnished all bonds and

security that are required, to support its active

shipbuilding programs.

Philly Shipyard regularly monitors the financial

health of its construction financing lenders (if

any) as well as the financial health of the finan-

cial institutions, which it uses for cash manage-

ment services and in which it makes deposits

and other investments.

Through construction financing (if any), the

Company is exposed to fluctuations in interest

rates. Philly Shipyard currently has no con-

struction financing facility.

The credit risk of ship owners is evaluated

upon contract signing. Typically, ship own-

ers have financing 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 financing, manages this

risk by requiring payment for substantially the

entire contractual amount prior to delivering

a vessel, including milestone payments upon

completion of specified milestones. At the

completion of a vessel, transfer of ownership

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.

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 warranty

provisions, PSI has secured back-to-back war-

ranties for most major components on the

vessels.

Other risks

The COVID-19 pandemic inherently increases

many of the aforementioned risk factors.

Markets become more uncertain, operations

become more vulnerable to interruptions and

policy makers around the world may gravitate

towards stricter regulations impacting interna-

tional trade.

COVID-19 related risks include risks to human

capital resources arising from vaccine man-

dates, supply chain constraints, labor and raw

materials shortages, and inflation. These risks

have caused, and could continue to cause,

delays, productivity loss and increased costs

with respect to the Company’s shipbuilding

projects. While the COVID-19 pandemic may

be viewed as in retreat in some areas of the

world, the legacy of these risks is expected to

continue into the future.

Philly Shipyard continues to take mitigating

actions and seek relief for operational disrup-

tions arising from the COVID-19 pandemic

and the federal contractor vaccine man-

date. Despite aggressive recruiting efforts,

the pandemic and mandate prevented Philly

Shipyard from ramping-up its workforce in

accordance with plan. These conditions con-

tinue to impede Philly Shipyard’s efforts to

efficiently maintain its workforce. The pan-

demic also continues to disrupt Philly Ship-

yard’s global supply chain. Notwithstanding

ongoing mitigation efforts, these factors are

contributing to significant delays, productivity

loss and increased costs.

The Russia-Ukraine military conflict, as well as

the economic sanctions targeting Russia, con-

tinues to exacerbate the inflationary environ-

ment and supply-chain disruptions resulting

from the COVID-19 pandemic. These condi-

tions further increase the risk of rising com-

modity prices, material shortages and trans-

portation delays that could adversely impact

Philly Shipyard’s business.

Philly Shipyard is seeing substantial uncertainty

in the macroeconomic environment through-

out the world due to the above contributing

factors as well as rising interest rates, market

volatility and recession concerns.

SUBSEQUENT EVENTS AFTER

31 DECEMBER 2022

On 8 February 2023, a new four-year collective

bargaining agreement was ratified by the Phila-

delphia Metal Trades Council (PMTC).

THE GOING CONCERN ASSUMPTION

The consolidated financial statements have

been prepared on a going concern basis which

contemplates continuity of normal business

activities and realization of assets and settle-

ment of liabilities in the normal course of busi-

ness.

PARENT COMPANY ACCOUNTS AND ALLO-

CATION OF LOSS FOR THE YEAR

The income/(loss) account of Philly Shipyard ASA

for the year 2022 shows a loss of USD 1.7 mil-

lion. The Board of Directors proposes that the

loss for the year be allocated as shown below:

Dividend payment USD 0

Other equity USD (1.7) million

Total allocated USD (1.7) 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 significant

dividends in the past. However, current pri-

orities are to retain a strong balance sheet

and, consequently, the PHLY Board does

not foresee payment of shareholder distri-

butions, including dividends and share buy-

backs, sooner than the delivery of the third

NSMV.

The parent company’s only assets are cash and

the investment in subsidiary, PSI.

ENVIRONMENTAL, SOCIAL,

& GOVERNANCE (ESG)

During 2022, we further deepened our efforts

around sustainability by developing a formal

program for sustainability and environmental,

social, and governance (ESG). We conducted

BOARD OF DIRECTORS’ REPORT

PHILLY SHIPYARD - ANNUAL REPORT 202224

BOARD OF DIRECTORS’ REPORT

peer benchmarking, performed a stakeholder

analysis, mapped out the United Nations Sus-

tainable Development Goals (UN SDGs) to

our operations, and built our sustainability

and ESG program governance structure. We

also conducted a materiality analysis to iden-

tify the sustainability/ESG topics that are most

relevant and material to the Shipyard and its

stakeholders.

Key priorities for the sustainability/ESG pro-

gram in 2023 will include establishing baselines

for key performance metrics including GHG, as

well as preparing to set targets and publish a

sustainability report in 2024. We also continue

to monitor and prepare for upcoming require-

ments for ESG disclosure to investors and

other stakeholders in the future. The Board of

Directors and CEO of the Philly Shipyard have

oversight of the sustainability/ESG program

and review it regularly at Board meetings.

PSI is located in the former Philadelphia Naval

Shipyard. Maintaining a healthy and safe work-

place 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.

We are committed to our community and

environment because it’s right for the Com-

pany, right for our people, and right for the

world. PSI uses best management practices

to ensure as much material as possible is

diverted from landfills and used for better

purposes. The Shipyard recycled 100% of its

wood and metal products and up to 80% of

its industrial debris.

Additionally, PSI continues to collect and

donate magazines and books for the Seaman’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 mail-

ing holiday greeting cards.

The Shipyard made multiple charitable dona-

tions in the form of money or food to several

local groups, including Children’s Hospital of

Philadelphia, Nemours Children’s Hospital of

Delaware, Empowered Community Devel-

opment Corporation, and the Camp Out for

Hunger. The Company also made donations

to maritime industry organizations such

as the National Liberty Ship Memorial and

United Seaman’s Service, as well as maritime

education institutions including the U.S. Mer-

chant Marine Academy and SUNY Maritime

College. The PSI community also banded

together to help raise funds for an employ-

ee’s grandson who is battling multiple cardi-

ac-related health issues.

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 employees and

applicants for employment, regardless of race,

color, ethnic background, gender, religion, age,

marital status, sexual orientation, national ori-

gin, 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 Decem-

ber 2022 approximately 39% of PSI’s employ-

ees 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 affir-

mative 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 par-

ticipates in available government programs

that encourage women in manufacturing and

has recruited at schools and training pro-

grams with more women. PSI has also con-

tinued to train supervisors, managers, and

employees in its Equal Employment Oppor-

tunity policy.

At year-end 2022, approximately 11% of PSI’s

employees were women. While there were no

women on PSI’s senior management team,

women held key positions such as HR/Commu-

nications Director, Manager of Project Estimat-

ing and Cost Control, Controller, Accounts Pay-

able Supervisor, Payroll Benefits Supervisor,

Purchasing Manager, Production Supervisor

and HSE Forewoman. In addition, one of the

three members of PHLY’s Board of Directors

is a woman.

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 2022, the Company

did not have a formal policy regarding human

rights as its sole operating company is located

in the United States, which has extensive

human rights laws in place.

At the operating subsidiary in Philadelphia,

workers’ rights are protected by federal, state

and local laws. In addition, approximately 45%

of PSI’s employees are members of the Phil-

adelphia Metal Trades Council (PMTC) union

and are covered under the collective bargain-

ing agreement between the PMTC and the

Shipyard. This agreement is effective until 31

January 2027.

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 employees

accrue sick time on a monthly basis and may

maintain a balance of up to 200 hours. During

2022, 263 non-union employees used 9,011

hours of total sick time (5,896 hours of sick

PHILLY SHIPYARD - ANNUAL REPORT 2022 25

BOARD OF DIRECTORS’ REPORT

time and 3,115 hours of COVID-19 time), rep-

resenting 1.1% of total non-union work hours.

Comparably, in 2021, 218 non-union employ-

ees 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.

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 2023.

PSI had 5 lost time injuries (LTI) and 23 record-

able injuries reported in 2022. The incidents

came from a total of 2,592,917 hours worked

by PSI employees and subcontractors in 2022,

compared to 952,613 hours worked by PSI

employees and subcontractors in 2021. The

Other Recordable Incident Frequency Rate

(ORIFR) was 2.55 in 2022, compared to 2.73 in

2021. ORIFR is based on recordable incidents

other than LTIs per 200,000 hours as defined

by the Occupational Safety and Health Admin-

istration (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 efficiency during the design and

production process. In its role as a supplier

to ship designers and owners, Philly Ship-

yard is increasingly involved in building ships

that meet evolving needs for sustainable and

green designs. The Company has expanded

its capabilities and know-how in technologies

that reduce ships’ greenhouse gas (GHG)

emissions through alternative fuels, battery

storage, cleaner-running engines and more.

Philly Shipyard also is a key supplier to the

wind power sector through its contract to

build a Subsea Rock Installation Vessel that

will support the installation of offshore wind

farms.

The industrial nature of the Shipyard’s activ-

ities requires the use of significant amounts

of energy, both electrical and gas, as well as

the release of particulate and volatile organic

compound (VOC) emissions. During 2022, PSI

used approximately 20 GWh of electricity and

approximately 336,931 ccf of natural gas. Its

VOC emissions were approximately 36 tons for

the reporting period ending in 2022. PSI had

no reported discharges into the surrounding

waterways.

Philly Shipyard recognizes that climate change

has and will continue to have significant

impacts on the environment and society,

which has prompted regulations limiting GHG

emissions and driving the transition towards a

low-carbon economy. Action is expected from

all companies, and Philly Shipyard is commit-

ted to doing its part. The maritime industry, like

other sectors in the global economy, is work-

ing to reduce GHG emissions and transform

away from fossil fuels and transition toward a

low-carbon economy.

Philly Shipyard is in the process of determin-

ing its GHG footprint, and has a program

underway to improve its energy efficiency

and reduce emissions. Philly Shipyard also

has been exploring opportunities to electrify

its operations, including using battery-pow-

ered fork trucks. A substantial portion of the

lighting at the Shipyard has been switched

to LED, and upgrades were made for more

efficient boilers in the paint area, to further

improve energy efficiency. Over the next

year, the Company intends to develop more

comprehensive plans to reduce its GHG

footprint, set a GHG reduction target, and

disclose GHG emissions annually (Scope 1

and 2).

Environmental status reporting is an integral

part of the Shipyard’s reporting system, on

par with reporting on financial matters and

operations. This commitment extends to eval-

uating and adopting environmentally benefi-

cial improvements in production processes,

alternative materials and services. PSI pro-

motes open communication on environmen-

tal issues with employees, neighbors, public

authorities and other interested parties and

has implemented a system through which

employees can make observations and sug-

gestions about the Shipyard’s environmental

performance.

In 2022, PSI generated approximately 28 tons

of hazardous waste and recycled approxi-

mately 1,950 tons of wood and 1,275 tons of

steel. Philly Shipyard has continued its pro-

gram to gather and sort waste to promote

environmentally responsible handling, disposal

and recovery of any residual value.

A basic principle of ethical business conduct

requires that each employee of the Shipyard

support positively, both on and off the job, the

Shipyard’s business activities. One important

way PSI satisfies this responsibility is to ensure

that its business dealings are never influ-

enced by - or even appear to be influenced

by - its own personal interests. The Company

has zero tolerance for corruption 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 Conflict of Interests pol-

icy, which is reflected in PSI’s employee hand-

book, 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 2022, there were

3 cases reported using this process and none

were considered material.

PHILLY SHIPYARD - ANNUAL REPORT 202226

BOARD OF DIRECTORS’ REPORT

ORGANIZATION

On 31 December 2022, Philly Shipyard’s work-

force consisted of 411 direct employees and

995 subcontracted personnel. The Shipyard

experiences higher turnover amongst its union

and production subcontractor employees

compared to other employees.

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 corpo-

rate strategies are implemented, and that the

results achieved are subject to verification and

follow-up. Applying these principles also con-

tributes to satisfactory group-wide monitoring

and verification of activities. An appropriate

division of responsibilities and satisfactory

controls will contribute to the greatest possi-

ble value creation over time, to the benefit of

shareholders and other interest groups. Philly

Shipyard’s corporate governance guidelines

are presented in greater detail on pages 77-81

of this annual report.

The directors and officers of Philly Shipyard

ASA are covered under an Aker group Direc-

tors and Officers liability insurance policy

(D&O). The insurance covers personal legal

liabilities including defense and legal costs. The

officers and directors of the parent company

and all subsidiaries globally (owned more than

50%) are covered by the insurance. The cover

also includes employees in managerial posi-

tions or employees who become named in a

claim or investigation.

OUTLOOK

On 31 December 2022, Philly Shipyard had a

record high order backlog of USD 2,143.8 mil-

lion. With the award of the Matson contract,

Philly Shipyard has nine vessels, consisting of

five NSMVs, one SRIV and three CVs, in its order

book. Philly Shipyard’s current order book is

the largest in its 25-year history, providing pipe-

line visibility and stability into 2027.

Philly Shipyard continues to pursue prospects

in the government and commercial newbuild

markets and is presently targeting shipbuild-

ing programs with building slots following

the third CV. In the government sector, Philly

Shipyard remains focused on opportunities

for commercial-like and auxiliary ships. In the

commercial sector, Philly Shipyard is exploring

a variety of potential new construction proj-

ects for U.S.-built vessels. Philly Shipyard con-

tinues to promote variants based on existing

ship designs as potential cost-effective solu-

tions for both government and commercial

customers.

Additionally, Philly Shipyard continues to

seek opportunities to replicate the NSMV

contract model for other government ship-

building programs. This innovative approach

enables Philly Shipyard to apply commercial

best practices for design and construction to

government vessels. There is growing inter-

est in Congress in the NSMV contract model

and its potential applicability to government

shipbuilding programs to reduce costs and

build more vessels.

Philly Shipyard does not foresee excess capac-

ity in its drydocks or fabrication shops for ship

maintenance, repair, overhaul and conversion

(MROC) projects in the foreseeable future.

A substantial capital investment would be

required in order for the Company to opportu-

nistically pursue future MROC projects before

the Matson contract is completed.

The forecast continues to be negatively

impacted by significant delays, productivity loss

and increased costs, including costs of labor,

materials and logistics issues. These impacts

are mainly attributable to the tight labor pool

and supply chain disruptions resulting from

the COVID-19 pandemic and federal contrac-

tor vaccine mandate. However, Philly Shipyard

still forecasts to be profitable on the five-ship

NSMV series taken as a whole.

While it remains too soon to quantify the extent

of these impacts, Philly Shipyard is pursuing all

options available to recoup unforeseen costs

related to the pandemic and mandate.

Kristian Røkke

Board Chairman

Jan Petter Hagen

Board Member

Elin Karfjell

Board Member

Steinar Nerbøvik

President and CEO

Oslo, Norway - 17 March 2023

Board of Directors Philly Shipyard ASA

PHILLY SHIPYARD - ANNUAL REPORT 2022 27

DIRECTORS’ RESPONSIBILITY STATEMENT

Today, the Board of Directors and the Chief

Executive Officer reviewed and approved the

Board of Directors’ report and the consoli-

dated and separate annual financial state-

ments for Philly Shipyard ASA, as of and for

the year ending 31 December 2022 (annual

report 2022).

The Philly Shipyard ASA consolidated financial

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 2022. The sep-

arate financial statements for Philly Shipyard

ASA have been prepared in accordance with

the Norwegian Accounting Act and Norwegian

Accounting Standards as of 31 December

2022. 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 2022.

To the best of our knowledge:

The consolidated and separate annual

financial statements for 2022 have been

prepared in accordance with applicable

accounting standards

The consolidated and separate annual

financial statements give a true and fair

view of the assets, liabilities, financial posi-

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

December 2022 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

Directors’ Responsibility

Statement

Kristian Røkke

Board Chairman

Jan Petter Hagen

Board Member

Elin Karfjell

Board Member

Steinar Nerbøvik

President and CEO

Oslo, Norway - 17 March 2023

Board of Directors Philly Shipyard ASA

PHILLY SHIPYARD - ANNUAL REPORT 202228

PHILLY SHIPYARD - ANNUAL REPORT 2022 29

Consolidated

Income Statement

Consolidated Statement of

Comprehensive Income

Amounts in USD thousands (except share amounts and earnings per share) Note 2022 2021

Operating revenues 2 392 706 214 060

Other income 2 1 112 -

Operating revenues and other income 393 818 214 060

Cost of vessel construction (403 113) (194 149)

Wages and other personnel expenses (SG&A) 3 (3 162) (2 851)

Other operating expenses 4 (5 659) (24 096)

Operating loss before depreciation (EBITDA) (18 116) (7 036)

Depreciation 7 (6 190) (5 417)

Operating loss before interest and taxes (EBIT) (24 306) (12 453)

Financial income 5 2 557 363

Financial expense 5 (570) (178)

Loss before tax (22 319) (12 268)

Income tax benefit 6 10 628 4 886

Loss after tax (11 691) (7 382)

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

Basic loss per share (USD) 11 (0.97) (0.61)

Diluted loss per share (USD) 11 (0.97) (0.61)

Amounts in USD thousands 2022 2021

Loss after tax for the year (11 691) (7 382)

Other comprehensive income, net of income tax - -

Total comprehensive loss for the year * (11 691) (7 382)

* All attributable to equity holders of the parent company.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202230

Consolidated Statement

of Financial Position

as of 31 December

Amounts in USD thousands Note 2022 2021

ASSETS

Property, plant and equipment 7 42 136 36 002

Right-of-use assets 7 13 500 12 769

Restricted cash long-term 10 45 420 43 096

Deferred tax asset 6 26 208 13 081

Income tax receivable long-term 6 13 700 82

Other non-current assets 548 495

Total non-current assets 141 512 105 525

Prepayments and other receivables 8 52 357 61 123

Restricted cash short-term 10 10 011 1 396

Income tax receivable short-term 6 4 107 13 624

Vessels-under-construction receivable 2 4 925 -

Contract assets 2 - 345

Cash and cash equivalents 9 137 586 255 003

Total current assets 208 986 331 491

TOTAL ASSETS 350 498 437 016

EQUITY AND LIABILITIES

Paid in capital 12 35 206 35 206

Other equity 38 566 50 257

Total equity attributable to equity holders of the parent company 73 772 85 463

Total equity 73 772 85 463

Income tax payable long-term 6 1 200 1 200

Lease liability long-term 13 2 354 1 582

Total non-current liabilities 3 554 2 782

Trade payables and accrued liabilities 16 41 730 49 879

Other provisions - warranties 15 250 1 973

Customer advances (net) 2 230 558 296 398

Other contract liabilities 2 348 -

Income tax payable short-term 6 - 199

Lease liability short-term 13 286 322

Total current liabilities 273 172 348 771

Total liabilities 276 726 351 553

TOTAL EQUITY AND LIABILITIES 350 498 437 016

CONSOLIDATED ACCOUNTS

Kristian Røkke

Board Chairman

Jan Petter Hagen

Board Member

Elin Karfjell

Board Member

Steinar Nerbøvik

President and CEO

Oslo, Norway - 17 March 2023

Board of Directors Philly Shipyard ASA

PHILLY SHIPYARD - ANNUAL REPORT 2022 31

Consolidated Statement

of Changes in Equity

Share Share Treasury Other Total

Amounts in USD thousands capital premium shares equity equity

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

Total comprehensive loss for the year 2022 - - - (11 691) (11 691)

Balance at 31 December 2022 22 664 22 511 (9 969) 38 566 73 772

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202232

Consolidated

Cash Flow Statement

Amounts in USD thousands Note 2022 2021

Loss before tax (22 319) (12 268)

Depreciation 7 6 190 5 417

Right-of-use assets reassessment 144 -

Net financial income 5 (1 951) (182)

(Increase)/decrease in:

Vessels-under-construction receivable 2 (4 925) -

Contract assets 2 345 (345)

Restricted cash 10 (10 939) (18 070)

Prepayments materials deposits 8 6 404 (17 210)

Prepayments other and other receivables 8 2 362 1 528

Other non-current assets (53) -

Increase/(decrease) in:

Trade payables and accrued liabilities 15,16 (9 872) 42 091

Customer advances (net) 2 (65 840) 165 504

Other contract liabilities 2 348 (151)

Income taxes (paid)/refunded 6 (6 799) 6 225

Interest paid, net of capitalized interest 5 (570) (178)

Interest received 5 2 521 360

Net cash flow (used in)/from operating activities (104 954) 172 721

Investment in property, plant & equipment 7 (12 094) (14 770)

Net cash flow used in investing activities (12 094) (14 770)

Repayment of lease liability 13 (369) (309)

Net cash flow used in financing activities (369) (309)

Net change in cash and cash equivalents (117 417) 157 642

Cash and cash equivalents as of 1 January 255 003 97 361

Cash and cash equivalents as of 31 December 9 137 586 255 003

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 33

STATEMENT OF COMPLIANCE

The consolidated financial statements of Philly

Shipyard ASA and its subsidiaries (referred

to herein as a group as Philly Shipyard, the

Group or the Company) have been prepared

in accordance with International Financial

Reporting Standards (IFRS) as adopted by the

European Union in effect at each financial

reporting period.

These accounts have been approved for

issue by the Board of Directors on 17 March

2023. The annual accounts will be submitted

to Philly Shipyard’s annual general meeting

on 19 April 2023 for final 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 Shipyard)

which operates a shipyard located in Phila-

delphia, 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 financial statements have been

prepared on a historical cost basis, except

for derivative financial instruments that have

been measured at fair value. The consoli-

dated financial statements are presented in

USD (thousands), except when indicated oth-

erwise.

ESTIMATES, ASSUMPTIONS AND

SIGNIFICANT JUDGMENTS

The preparation of the consolidated financial

statements in conformity with IFRS requires

the use of estimates and assumptions that

affect the reported amounts in the consol-

idated financial statements. Although these

estimates are based on management’s best

knowledge of current events and actions,

actual results may ultimately differ from

those estimates.

In addition, the preparation of consolidated

financial statements in conformity with IFRS

requires management to make judgments

that affect the application of accounting poli-

cies and the reported amounts of assets and

liabilities, income and expense.

Estimates, underlying assumptions and sig-

nificant judgments are reviewed on an ongo-

ing basis. Revisions to accounting estimates

are recognized in the period in which the esti-

mates are revised if the revision affects that

period or in the period of revision and future

periods if the revision affects both current

and future periods.

Critical accounting estimates, assumptions

and significant judgments are as follows:

Revenue Recognition

Philly Shipyard recognizes revenue over time

in accordance with IFRS 15 Revenue from Con-

tracts with Customers (IFRS 15). This approach

requires Philly Shipyard to measure the

progress of contract activity at each state-

ment of financial position date and estimate

the ultimate outcome of costs and profit on

contracts. Progress towards satisfying per-

formance obligations is measured based

on project costs incurred compared to the

total forecasted project costs. In case of a

loss-making project, a loss provision will be

made when it is estimated that total contract

costs will exceed total contract revenues.

Revenue and cost estimates from shipbuild-

ing activities depend, amongst others, on

variables such as steel prices, supplier and

subcontractor costs, labor costs and avail-

ability, and other production inputs. Philly

Shipyard must also evaluate and estimate

the outcome of variation orders, liquidated

damages, contract claims and requests from

customers to modify contractual terms which

can involve complex negotiations with cus-

tomers. Generally, 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 three separate awards

under one shipbuilding contract in place

for the NSMV program. NSMVs 1-2 were

awarded at contract signing in April 2020;

NSMVs 3-4 were awarded upon the exercise

of an option in January 2021, and NSMV 5 was

awarded upon the exercise of an option in

April 2022. Therefore, the three awards are

treated as three separate performance obli-

gations that are being accounted for using

the percentage-of-completion method per

IFRS 15 Revenue from Contracts with Custom-

ers. The principle of a series of distinct goods

has been applied where NSMVs 1-2, NSMVs

3-4 and NSMV 5 are each treated separate of

one another.

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 significantly 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 properly

execute the engineering and design phase,

availability of skilled resources, manufactur-

ing capacity, productivity and quality factors,

steel prices and performance of subcontrac-

tors. Experience, systematic use of the project

execution model and focus on core compe-

tencies reduce, but do not eliminate, the risk

that cost estimates may change significantly.

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 indicators of

Notes to the

Consolidated Accounts

NOTE 1: ACCOUNTING PRINCIPLES

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202234

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 iden-

tified and assessed either individually 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 effect of the

uncertainty is reflected in the calculation of the

taxable profit, tax bases, unused tax losses or

credits, or tax rates. The effect of the uncer-

tainty is calculated by applying the most appro-

priate method (most likely amount or expected

value). Changes in circumstances are assessed

and reflected at each reporting date.

Deferred Income Taxes

Deferred income tax assets are recognized

when it is probable that they will be realized.

Determining probability requires Philly Ship-

yard to estimate the sources of future taxable

income from operations, including reversing

taxable temporary differences. Determining

these amounts is subject to uncertainty and

is based primarily upon historical earnings,

reversals of taxable temporary differences

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 discussion).

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 qualified for the credit because

of the research it undertook to discover infor-

mation that is technological in nature and

intended to be useful in the development

of a new or improved business component.

The Company recognizes the R&D tax credit

estimate as part of the income tax benefit

based on a calculation of qualifying research

expenses using available guidance and the

applicable rules and regulations.

The Going Concern Assumption

The 2021 and 2022 consolidated financial

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 nor-

mal course of business due to the firm order

backlog which takes operations into 2027.

COVID-19

The world remains in the COVID-19 pandemic,

and how it will continue to unfold is uncertain.

Philly Shipyard is continuing to take measures

to mitigate substantial negative impact for the

Company. Please refer to page 23 of the Board

of Directors’ report for a discussion of COVID-

19 risks. These risks include risks to human

capital resources arising from vaccine man-

dates; supply chain constraints; labor and raw

materials shortages; and inflation. These risks

have caused, and could continue to cause,

delays, productivity loss, and increased costs

with respect to the Company’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 Ship-

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

COVID-19 pandemic could continue to sig-

nificantly impede PSI’s efforts to maintain its

workforce and significantly impact the Com-

pany’s global supply chain for material and

equipment used in the production of vessels.

Climate Risk - Consideration of Climate

Change

Climate-related risk could include both tran-

sition impacts, for example additional costs

incurred by the Company as a result of tran-

sitioning to a low-carbon economy, the need

for different types of vessel construction, or

physical impacts such as damage to assets as

a result of storms or flooding.

In preparing these financial statements the

Board of Directors has considered the poten-

tial impact of climate change and has con-

cluded that there is no material impact from

climate change on financial reporting judge-

ments and estimates. The Board of Directors

considered the impact of climate change

with regards to contract judgments, carrying

value and useful life of PP&E and right-of-

use assets and going concern. The working

capital of the Company as per 31 December

2022 would be realized by 2027 indicating

very little risk of being impacted by climate

changes. The remaining useful lives of PP&E

and right-of-use assets are not likely to be

affected by climate changes due to the num-

ber of remaining useful lives being between 5

to 10 years. Therefore, the Company is of the

opinion that there is no immediate or medi-

um-term impact expected.

While there is no immediate or medium-term

impact expected from climate change, the

Board of Directors is aware of the ever chang-

ing risks attached to climate change and will

regularly assess these risks against judg-

ments and estimates used in preparing the

financial statements.

PHILLY SHIPYARD ACCOUNTING AND

CONSOLIDATION PRINCIPLES

Subsidiaries

The consolidated financial statements

include the financial statements of the par-

ent company, Philly Shipyard ASA, and its sub-

sidiaries. Subsidiaries are entities controlled

by the Group. The Group controls an entity

when it is exposed to, or has rights to, vari-

able returns from its involvement with the

entity and has the ability affect those returns

through its power over the entity.

FOREIGN CURRENCY TRANSLATION AND

TRANSACTIONS

Functional Currency

The consolidated financial 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.

INCOME STATEMENT PRESENTATION

Operating related expenses in the consoli-

dated income statement are presented as a

combination of function and nature in confor-

mity with industry practice. Depreciation is pre-

sented on a separate line based on its nature,

while cost of vessel construction, wages and

other personnel expenses (SG&A), non-payroll

expenses (SG&A), and under-recovered over-

head costs are presented on a functional basis.

Significant expenses such as salaries, pensions,

etc. are presented by their nature in the notes

to the consolidated financial statements.

PROPERTY, PLANT AND EQUIPMENT

General

Property, plant and equipment and right-of-use

assets acquired by the Shipyard are stated at

cost at the date of acquisition. Depreciation is

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 35

calculated on a straight-line basis and adjusted

for impairment charges, if any. The carrying

values of the property, plant and equipment

and right-of-use assets on the consolidated

statement of financial position represent the

cost net of government grants and subsi-

dies received (if applicable) less accumulated

depreciation and any impairment charges.

Cost includes expenditures that are directly

attributable to the asset. The cost of self-con-

structed 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.

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 identifiable, mainly

independent, cash inflows. An impairment loss

is the amount by which the carrying amount of

the assets exceeds the recoverable amount.

The recoverable amount is the higher of the

asset’s net selling price and its value in use.

The value-in-use is determined by discounted

cash flows 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 indicators 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 performance of

industry studies for the U.S. Navy and U.S.

Coast Guard. A detailed review of customer

contracts occurred for contracts which were

open from 1 January 2022 to 31 December

2022 (see note 2 for further discussion).

Construction Contracts

The vessel construction contracts 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 three separate awards

under one shipbuilding contract in place

for the NSMV program (NSMVs 1-2, NSMVs

3-4 and NSMV 5), one separate shipbuilding

award in place for the SRIV program (SRIV

1) and one separate shipbuilding award in

place for the CV program (CVs 1-3). Per IFRS

15, the NSMV projects are being treated as

three separate performance obligations that

are being accounted for using the percent-

age-of-completion over time method based

on project costs incurred compared to the

total project costs. This is considered to be a

faithful depiction of the transfer of goods as

it accurately reflects the underlying transac-

tions and progress.

Constraint of Variable Consideration

Variable considerations are included in esti-

mated contract revenue to the extent that it

is highly probable that a significant 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 Liabili-

ties and Contingent Assets. A provision is recog-

nized when the unavoidable costs of meeting

the obligations under a contract exceed the

economic benefits to be received.

Project revenue is classified as operating rev-

enues in the consolidated income statement.

Vessels-under-construction are presented net

of advances from customers as vessels-un-

der-construction receivable or customer

advances (net) on a contract by contract basis.

Other operating revenues such as design

studies and ship repair and maintenance

work are classified as contract assets and/

or other contract liabilities and are classi-

fied 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 capi-

tal expenditures or construction 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 deprecia-

tion charge over the useful life of the asset.

Grants related to specific programs or proj-

ects are recognized as reductions in expense

over the period in which work that relates to

the grant or support 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.

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 taxa-

tion 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 financial position date.

Deferred Income Taxes

Deferred income tax is recognized using the

asset/liability method on all temporary differ-

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202236

ences at the statement of financial position

date between the tax bases of assets and lia-

bilities and their carrying amounts for finan-

cial 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 differences,

and carry-forward of unused tax losses and

credits, to the extent that it is probable that

taxable income will be available against which

the deductible temporary differences, 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 financial position date and

reduced to the extent that it is not probable

that sufficient 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 calculat-

ing 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

financial 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 defined benefit 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 defined

contribution plan under IAS 19 Employee Ben-

efits revised. Under defined contribution pen-

sion plans, contributions are charged to the

consolidated income statement in the period

to which the contributions relate.

PROVISIONS

A warranty provision is recognized when

Philly Shipyard has a present obligation (legal

or constructive) as a result of a past event

and it is probable (i.e. more likely than not)

that an outflow of resources embodying eco-

nomic benefits will be required to settle the

obligation, and a reliable estimate can be

made of the amount of the obligation. War-

ranty provisions are reviewed at each state-

ment of financial position date and adjusted

to reflect the current estimate.

LEASES AND RIGHT-OF-USE ASSETS

At the lease commencement date, the Group

recognizes a lease liability and corresponding

right-of-use asset for all lease agreements in

which it is the lessee, except for short-term

leases (defined as twelve months or less) and

low-value assets, for which the Group recog-

nizes the lease payments as other operating

expenses in the consolidated income state-

ment 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 com-

mencement date, by using the Group’s

incremental borrowing rate. The lease term

represents the non-cancellable period of 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 fixed 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 commence-

ment 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 reflects 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 reflect

interest on the lease liability, reducing the

carrying amount to reflect the lease pay-

ments made and remeasuring the carrying

amount to reflect any reassessment or lease

modifications, or to reflect 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 consol-

idated statement of financial position.

The Group measures the right-of-use asset at

cost, less any accumulated depreciation and

impairment losses, adjusted for any remea-

surement 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 payments made at or

before the commencement 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 Equipment

in depreciating the right-of-use asset, except

that the right-of-use asset is depreciated from

the commencement date to the earlier of the

lease term and the remaining useful life of

the right-of-use asset. The Group assesses at

the lease commencement 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 significant event or significant

change in circumstances within its control.

As part of the 2011 Authorization Agreement,

PSI’s landlord, Philadelphia Shipyard Develop-

ment Corporation (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.

The net book value of assets under leasing

agreements recorded in the consolidated

statement of financial position at 31 Decem-

ber 2022 amounts to USD 12.6 million.

Included in this are the assets PSDC pur-

chased from PSI in 2011, which at 31 Decem-

ber 2022 the net book value amounts to USD

10.2 million.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 37

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 effect 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 2022

A distinction is made between events both

favorable and unfavorable that provide

evidence of conditions that existed at the

statement of financial position date (adjust-

ing events) and those that are indicative of

conditions that arose after the statement of

financial position date (non-adjusting events).

Financial statements will only be adjusted to

reflect adjusting events and not non-adjust-

ing events (although there are disclosure

requirements for such events).

NEW STANDARDS AND

INTERPRETATIONS ADOPTED

There were no changes to the financial

reporting requirements this year that affected

the disclosures in these financial statements.

While the IASB has made a few amendments

to standards that apply from 1 January 2022,

these are largely clarifications and none of

them required a change in Philly Shipyard

ASA’s accounting policies. One of these clar-

ifications related to Onerous Contracts - Cost

of Fulfilling a Contract (Amendments to IAS

37). The amendment to IAS 37 clarifies that

the direct costs of fulfilling a contract include

both the incremental costs of fulfilling the

contract and an allocation of other costs

directly related to fulfilling contracts. Before

recognizing a separate provision for an

onerous contract, the entity recognizes any

impairment loss that has occurred on assets

used in fulfilling the contract. This clarification

is in accordance with existing accounting poli-

cies on Onerous Contracts.

There has not been any recent IFRS Interpre-

tation Committee (IC) agenda decisions that

have required changes to any of the Compa-

ny’s accounting policies for 2022.

EARLY ADOPTION OF STANDARDS

Philly Shipyard ASA generally only adopts

standards early if they clarify existing practice,

but do not introduce substantive changes.

The Company has not early adopted new

or amended standards in preparing these

consolidated financial statements as of 31

December 2022. None of the new standards

not yet effective are expected to have a mate-

rial impact on the financial statements.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202238

NOTE 2: CONSTRUCTION CONTRACTS

Order backlog of USD 2,143.8 million at 31 December 2022 represents a contractual shipbuilding obligation to deliver newly built vessels (NSMVs

1-5, SRIV 1 and CVs 1-3) that have not yet been produced for the Company’s customers (TOTE Services, Great Lakes and Matson, respectively).

Order backlog consists of future construction contract revenues and is subject to adjustment based on change orders as defined in the con-

struction contracts. Order intake of USD 1,332.1 million at 31 December 2022 represents the total contract value of the new orders for NSMV 5

and CVs 1-3 plus change orders on NSMVs 1-4 and SRIV 1.

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 2022 2022 31 Dec 2021 2021

Total 2 143 763 1 332 094 1 203 243 790 637

Accumulated Remaining

recognized performance Revenue Estimated

revenue obligation recognition year of

Amounts in USD thousands 31 Dec. 2022 31 Dec. 2022 principle completion

NSMVs 1-2 484 868 157 266 Over time 2023

NSMVs 3-4 110 073 499 518 Over time 2025

NSMV 5 6 410 295 434 Over time 2025

SRIV 1 7 512 193 907 Over time 2025

CVs 1-3 1 112 997 638 Over time 2027

Total 609 975 2 143 763

As of 31 December 2022, Philly Shipyard has three separate awards under one shipbuilding contract in place for the NSMV program. NSMVs

1-2 were awarded at contract signing in April 2020; NSMVs 3-4 were awarded upon the exercise of an option in January 2021, and NSMV 5 was

awarded upon the exercise of an option in April 2022. Therefore, the three awards are treated as three separate performance obligations that

are being accounted for using the percentage-of-completion method per IFRS 15 Revenue from Contracts with Customers. PSI is building five NSMVs

(NSMVs 1-5) for TOTE Services, with the first two vessels (NSMVs 1-2) scheduled for delivery in 2023, the next two vessels (NSMVs 3-4) scheduled

for delivery in 2024 and 2025, respectively, and the final vessel (NSMV 5) scheduled for delivery in 2025. As of 31 December 2022, the NSMV

projects for NSMVs 1-2, NSMVs 3-4 and NSMV 5 are 75.5%, 18.1% and 2.3% complete, respectively.

Philly Shipyard has another shipbuilding contract in place for the Subsea Rock Installation Vessel (SRIV) program, which was awarded in Novem-

ber 2021. PSI is building one SRIV (SRIV 1) for Great Lakes, scheduled for delivery in 2025. As of 31 December 2022, the SRIV 1 project is 4.0%

complete.

Philly Shipyard also has one other shipbuilding contract with Matson in place for the containership vessel program, which was awarded in

November 2022. PSI is building three CVs (CVs 1-3) for Matson, scheduled for deliveries in 2026 and 2027. As of 31 December 2022, the CVs 1-3

project is 0.1% complete.

Progress towards completing the NSMV, SRIV and CV contract performance obligations are measured based on project costs incurred compared

to the total forecasted project costs. Construction contract revenue and income recognized in 2022 includes revenue and income for NSMVs

1-2, NSMVs 3-4, NSMV 5, SRIV 1 and CVs 1-3 since the contract for these vessels was accounted for using the principle-over-time revenue rec-

ognition method according to IFRS 15. Philly Shipyard’s accounting policy for projects following NSMVs 3-4 is to not recognize profit on projects

until they are 5.0% complete.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 39

Operating revenues and other income are detailed below:

Amounts in USD thousands 2022 2021

Shipbuilding 391 575 189 275

Government design studies 1 131 4 997

Ship repair and maintenance - 19 788

Total operating revenue 392 706 214 060

Profit in equity-accounted investment 1 112 -

Total other income 1 112 -

The recognized accumulated combined loss on long-term construction contracts in process (NSMVs 1-5, SRIV 1 and CVs 1-3) as of 31 December

2022 is as follows:

Amounts in USD thousands 31 Dec 2022

Construction contracts revenue recognized to date 609 975

Construction contracts expenses recognized to date (616 356)

Construction contracts loss recognized to date (6 381)

The recognized accumulated combined profit on long-term construction contracts in process (NSMVs 1-4) as of 31 December 2021 was as

follows:

Amounts in USD thousands 31 Dec 2021

Construction contract revenue recognized to date 218 400

Construction contract expenses recognized to date (207 650)

Construction contracts profit recognized to date 10 750

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

mance guarantees and warranties.

Customer milestone payments as of 31 December 2022 and 31 December 2021 totaled USD 835.6 million and USD 514.9 million, respectively.

Customer milestone payments received from TOTE Services for NSMVs 1-5, from Great Lakes for SRIV 1 and from Matson for CVs 1-3 were made

at intervals that were intended to be cash neutral and to not require any external financing.

The Company’s construction contract and parent company guarantee for the NSMV program prohibit the payment of dividends by PSI and PHLY

until the delivery of NSMV 3. Thereafter, the payment of dividends by PSI and PHLY is limited based on the Company’s earnings.

Profit in equity-accounted investment of USD 1.1 million in 2022 is for the Company’s 53.7% share of the final distribution from the Philly Tankers

(Hulls 025-028) escrow account which was released in November 2022.

Vessels-under-construction receivable

Vessels-under-construction receivable as of 31 December 2022 and 31 December 2021 totaled USD 4.9 million and USD 0, respectively. Ves-

sels-under-construction receivable represents the difference between (i) cash advances received from customers for NSMVs 1-2 and (ii) revenue

recognized for NSMVs 1-2.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202240

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) 2022 2021

Wages 33 684 24 905

Social security contributions 2 853 2 040

Pension costs (note 14) 1 327 934

Other expenses (1) 5 124 4 318

Total gross expense 42 988 32 197

Expenses charged to vessel construction (24 845) (17 618)

Expenses charged to indirect overhead (14 981) (11 728)

Wages and other personnel expenses (SG&A) 3 162 2 851

Average number of employees 390 268

Number of employees at year-end 411 343

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

CONSOLIDATED ACCOUNTS

Customer advances (net) and other contract liabilities

Customer advances (net) as of 31 December 2022 and 31 December 2021 totaled USD 230.6 million and USD 296.4 million, respectively. Cus-

tomer advances (net) represents the difference between (i) cash advances received from customers plus accounts receivable and (ii) revenue

recognized for NSMVs 3-5, SRIV 1, and CVs 1-3.

Other contract liabilities as of 31 December 2022 and 31 December 2021 totaled USD 348 thousand and USD 0, respectively. Other contract

liabilities represents the difference between (i) cash advances received plus accounts receivable from customers and (ii) revenue recognized on

government design studies.

As of 31 December 2022, Philly Shipyard has USD 340.3 million in unpaid non-cancellable purchase commitments for materials, equipment and

design fees for the construction of NSMVs 1-5 and SRIV 1.

Contract assets

Contract assets as of 31 December 2022 and 31 December 2021 totaled USD 0 and USD 345 thousand, respectively. Contract assets represents

the difference between (i) revenue recognized on government design studies and (ii) cash advances received plus accounts receivable from

customers.

PHILLY SHIPYARD - ANNUAL REPORT 2022 41

NOTE 4: OTHER OPERATING EXPENSES

Other operating expenses consist of:

Amounts in USD thousands 2022 2021

Non-payroll expenses (SG&A) 3 941 4 659

Under-recovered overhead costs 1 718 19 437

Total other operating expenses 5 659 24 096

In 2022 and 2021, 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 2022 and 2021. Non-payroll expenses (SG&A) primarily relate to non-payroll selling, general and admin-

istrative expenses and concept projects.

Fees to auditors for Philly Shipyard are as follows:

Amounts in USD thousands 2022 2021

Audit fees 147 152

Other audit and attestation fees 32 55

Total 179 207

NOTE 5: FINANCIAL INCOME AND FINANCIAL EXPENSE

Amounts in USD thousands 2022 2021

Interest income 2 521 360

Foreign exchange gain 36 3

Financial income 2 557 363

Interest expense (570) (178)

Financial expense (570) (178)

Net financial items 1 987 185

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202242

NOTE 6: TAXES

Income tax expense/(benefit)

Recognized in the consolidated income statement

Amounts in USD thousands 2022 2021

Current income tax expense/(benefit):

Current year - U.S. 2 499 (134)

Current year - Norway - (119)

Total current income tax expense/(benefit) 2 499 (253)

Deferred tax (benefit)/expense:

Origination and reversal of temporary differences - U.S. (13 127) (4 633)

Origination and reversal of temporary differences - Norway - -

Total deferred tax (benefit)/expense (13 127) (4 633)

Total income tax (benefit)/expense in the consolidated income statement (10 628) (4 886)

Reconciliation of effective tax rate:

Amounts in USD thousands 2022 2021

Loss before tax (22 319) (12 268)

Nominal Norwegian tax rate 22.0% 22.0%

Expected tax (benefit)/expense using nominal Norwegian tax rate (4 910) (2 699)

Effect of differences between nominal Norwegian tax rate and U.S. federal, state and city tax rate (2 607) (1 287)

Expenses not deductible for tax purposes 34 113

R&D tax credits (8 695) (4 825)

R&D tax credits used in 2022 5 806 -

Other differences (256) 292

Valuation allowance - 3 520

Total income tax (benefit)/expense in the consolidated income statement (10 628) (4 886)

The effective tax rate differs from the expected tax rate primarily due to the difference between the nominal Norwegian tax rate and U.S. federal,

state and city tax rates, and income that was not taxable in Norway.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 43

Income tax receivable

Amounts in USD thousands 2022 2021

Beginning of the period 13 507 18 279

Taxes (payable)/receivable (2 499) 1 453

Taxes paid/(refunded) 6 799 (6 225)

End of the period 17 807 13 507

Income tax payable

Amounts in USD thousands 2022 2021

Beginning of the period (1 200) 0

Taxes payable - (1 200)

Taxes paid/(refunded) - -

End of the period (1 200) (1 200)

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

relate to different tax authorities, they cannot be offset. The Company’s income tax receivable/(income tax payable) at 31 December 2022 relates

to U.S. tax authorities.

Deferred tax asset/deferred tax liability

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

liabilities, and when the deferred income taxes relate to the same fiscal authority, which through 31 December 2022 for the Company was pri-

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

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

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Deferred tax assets - U.S. tax jurisdictions 26 208 13 081

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

Net deferred tax asset/(liability) 26 208 13 081

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

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Beginning of the period 13 081 8 448

Deferred tax benefit 13 127 4 633

Net deferred tax asset/(liability) 26 208 13 081

Based on its existing order backlog and estimated future taxable profits, the Company has included a deferred tax asset.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202244

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 - movements in the income statement and statement of financial position

Other R&E

Amounts in USD thousands assets expenses Total

31 December 2021 18 598 - 18 598

(Charged)/credited to the consolidated income statement (9 596) 25 403 15 807

31 December 2022 9 002 25 403 34 405

Deferred tax liability

Work-in-

Amounts in USD thousands P,P&E process Total

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

(Charged)/credited to the consolidated income statement (3 715) 1 035 (2 680)

31 December 2022 (8 197) - (8 197)

The balance comprises temporary differences attributable to:

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Deferred tax assets:

Research & experimentation expenses 25 403 -

Work-in-process 1 984 -

Under-recovered overhead costs 3 184 8 084

State and city depreciation 3 166 1 625

Federal R&D tax credits 7 138 5 581

State R&D tax credits 1 430 -

Federal net operating losses - 1 064

State and city net operating losses 5 410 9 806

Other items 1 179 1 945

48 894 28 105

Deferred tax liabilities:

Property, plant & equipment 8 197 4 482

Work-in-process - 1 035

Valuation allowances 14 489 9 507

22 686 15 024

Total deferred tax assets 26 208 13 081

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 45

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 2021 - -

Change in deferred tax liability - -

31 December 2022 - -

PSI had USD 5.0 million of federal tax losses in carryforward at 31 December 2021. These losses were used in 2022. The 2018, 2019 and 2020

losses were carried back.

PSI has state and city tax losses in carryforwards as of 31 December 2022 of USD 60.1 million and USD 14.2 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 50.4 million of state

NOLs and USD 6.8 million of city NOLs due to uncertainty of the Company’s ability to utilize the losses.

Income tax benefit/(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 five 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, 2019 and 2020 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 first quarter of 2024.

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 qualified 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 amount at 1 January 2021 was

USD 3.5 million. In 2021, the Company reserved an additional USD 1.4 million, leaving a reserve amount at 31 December 2021 of USD 4.9 million.

In 2022, the Company reserved an additional USD 5.8 million, leaving a reserve amount at 31 December 2022 of USD 10.7 million.

The Norwegian deferred tax assets of USD 7.6 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 202246

CONSOLIDATED ACCOUNTS

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

Movements in property, plant and equipment and right-of-use assets for 2022 are shown below:

Machinery Land and Assets

and land impro- under con-

Amounts in USD thousands vehicles Buildings vements struction Total

Cost at 1 January 2022 64 373 63 958 20 583 13 198 162 112

Additions - Property, plant & equipment - - - 12 094 12 094

Additions - Right-of-use assets 294 667 - - 961

Transfers 9 011 8 146 5 919 (23 076) -

Cost at 31 December 2022 73 678 72 771 26 502 2 216 175 167

Depreciation and impairment losses at 1 January 2022 62 416 38 481 12 444 - 113 341

Depreciation - Property, plant & equipment 3 853 326 840 - 5 019

Depreciation - Right-of-use assets 126 694 351 - 1 171

Depreciation and impairment losses at 31 December 2022 66 395 39 501 13 635 - 119 531

Net book value at 31 December 2022 (1) 7 283 33 270 12 867 2 216 55 636

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

agreements recorded in the statement of financial

position at 31 December 2022 (see note 13): 403 6 966 6 131 - 13 500

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 2021 are shown below:

Machinery Land and Assets

and land impro- under con-

Amounts in USD thousands vehicles Buildings vements struction Total

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

Additions - Property, plant & equipment - - - 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 - Property, plant & equipment 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 (2) 1 957 25 477 8 139 13 198 48 771

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

agreements recorded in the statement of financial

position at 31 December 2021 (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

PHILLY SHIPYARD - ANNUAL REPORT 2022 47

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 beneficial 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.

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 10.2 million at

31 December 2022 (USD 10.9 million at 31 December 2021).

The right-of-use asset lease is treated as a government grant under IAS 20 Accounting for Government Grants and Disclosure of Government Assis-

tance (IAS 20). Upon transition to IFRS16, the Shipyard will continue to use this policy to record the government grant under IAS 20 against the

investment. This gives a USD 1.3 million balance for the right-of-use asset and a USD 1.5 million balance for the lease liability at 31 December

2022, 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.

In 2022, the Shipyard and Prime Plate leases were adjusted based on a reassessment of the lease terms for both, and an additional right-of-use

asset of USD 0.6 million was recorded. The combined net book value of these right-of-use assets at 31 December 2022 is USD 2.1 million (USD

1.9 million at 31 December 2021).

In addition, office equipment and vehicles were recorded as a right-of-use asset in 2022 totaling USD 324 thousand. The combined net book

value of these right-of-use assets at 31 December 2022 is USD 273 thousand (USD 0 at 31 December 2021).

Determination of recoverable amounts/fair values

Due to the market and company specific developments, including operating results, cash flows and backlog, no impairment indicators were

identified in 2022 for property, plant and equipment.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202248

CONSOLIDATED ACCOUNTS

NOTE 8: PREPAYMENTS AND OTHER RECEIVABLES

Prepayments and other receivables consist of the following items:

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Prepaid ship materials deposits 50 426 56 830

Inventory 1 118 924

Prepayments other 766 858

Trade receivables and other receivables 47 2 511

Total 52 357 61 123

As of 31 December 2022, the Company has USD 50.4 million as prepayments to suppliers for materials and equipment for the construction of

NSMVs 1-5 and SRIV 1.

The Company is required to make deposits on long-lead items as well as some progress payments made before the materials and equipment

are shipped and delivered. It is the Company’s policy to not include these materials and equipment as cost of vessels sold until they are received

at the shipyard.

NOTE 9: CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following items:

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Cash and bank deposits 137 586 255 003

Cash and cash equivalents in the statement of cash flows 137 586 255 003

Cash and bank deposits are invested in overnight deposits.

PHILLY SHIPYARD - ANNUAL REPORT 2022 49

NOTE 10: RESTRICTED CASH

Restricted cash consists of the following items:

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Restricted cash long-term 45 420 43 096

Restricted cash short-term 10 011 1 396

Total 55 431 44 492

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

to NSMVs 1-5 and cash deposited into a reserve fund for NSMV 3 per the contract. Restricted cash short-term represents reserve accounts

established for NSMVs 1-2. It is anticipated that the cash collateral for the bonds and the reserve account funds will be released in tranches

following the delivery of each NSMV.

The USD 1.4 million held in escrow at 31 December 2021 as restricted cash short-term for claims related to the second Matson vessel was

released as a final warranty settlement was reached in 2022.

As of 31 December 2021, in conjunction with the awards of NSMVs 1-2 and NSMVs 3-4, the Company secured P&P bonds in the aggregate

amount of USD 180.0 million. In 2022, in conjunction with the award of NSMV 5, the Company secured a P&P bond in the amount of USD 60.0

million. As a condition of issuing the P&P bonds, the Company was required to post cash collateral for each NSMV. As of 31 December 2021,

cash collateral in the aggregate amount of USD 33.4 million was posted for NSMVs 1-4. In 2022, additional cash collateral of USD 7.0 million was

posted for NSMV 5. Total cash collateral classified as restricted cash long-term amounts to USD 40.4 million as of 31 December 2022. It is antic-

ipated that a portion of the total security will be released following the delivery of each NSMV. Pursuant to the P&P bonds, PSI is not permitted

to pay any dividends without the surety’s consent.

As of 31 December 2021, the Company deposited a total of USD 10.0 million into a reserve fund as contractually required for NSMVs 1 and 2. In

2022, the Company deposited an additional USD 5.0 million into a reserve fund as contractually required for NSMV 3. It is anticipated that USD

5.0 million will be released following the delivery of each NSMV.

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 issued.

Amounts in USD thousands (except share amounts and earnings per share) 2022 2021

Total comprehensive loss attributable to equity holders of PHLY (11 691) (7 382)

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

Basic and diluted loss per share (USD) (0.97) (0.61)

At 31 December 2022 and 31 December 2021, 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 2022 or 2021.

There were no potentially dilutive securities outstanding as of 31 December 2022 and 31 December 2021.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202250

NOTE 13: LEASES

Lease liabilities are payable as follows as of 31 December:

Payments Interest Principal Payments Interest Principal

Amounts in USD thousands 2022 2022 2022 2021 2021 2021

Less than one year 472 186 286 392 70 322

More than one year 3 055 701 2 354 1 726 144 1 582

Total 3 527 887 2 640 2 118 214 1 904

PSI operates on land leased from PSDC through April 2038. At expiration of the initial 20-year lease period in 2018, the shipyard lease was

renewed for the first of three 20 year option periods. PSI retains options to renew the shipyard lease for two more consecutive periods of 20

years each and one final period of 19 years. PSI can acquire the land for USD 1 after the expiration of all renewal periods. 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). Originally, 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 1.3 million balance for the right-of-use asset and a USD 1.5

million balance for the lease liability at 31 December 2022, 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.

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Current balance as of 1 January 1 904 2 213

Remeasurement of leases 780 -

New leases 325 -

Repayment of lease liabilities (369) (309)

Current balance as of 31 December 2 640 1 904

CONSOLIDATED ACCOUNTS

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 2022, each with

a par value of NOK 10, fully paid. As of 31 December 2022, there are no additional authorized shares.

PHILLY SHIPYARD - ANNUAL REPORT 2022 51

NOTE 14: PENSION COSTS

Pension costs recognized in the consolidated income statement:

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Contribution plans (employer’s contribution) 1 327 934

Total 1 327 934

PSI has a defined contribution plan for its non-union employees which provides for a PSI contribution based on a fixed 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 fixed 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 2022 was USD 4.4 million. Currently, PSI has no plans to terminate this relationship. Thus, no termination liability has been recognized

in the consolidated financial 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 0.6 million to the Union Plan in 2023.

NOTE 15: OTHER PROVISIONS - WARRANTIES

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Current balance as of 1 January 1 973 1 787

Provisions made during the period - 282

Provisions used during the period (1 723) (96)

Current balance as of 31 December 250 1 973

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

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

Warranty provisions used for USD 1.7 million in 2022 are for closing out settlement claims for the second containership vessel (Hull 030) deliv-

ered to Matson in 2019.

NOTE 16: TRADE PAYABLES AND ACCRUED LIABILITIES

Trade payables and accrued liabilities comprise the following items:

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Ship material and subcontracting accruals 4 840 25 492

Employee-related cost accruals 3 962 2 920

Trade payables 10 890 15 277

Overhead and capital projects accruals 22 038 6 190

Total 41 730 49 879

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202252

NOTE 17: FINANCIAL INSTRUMENTS

Philly Shipyard’s activities are exposed to a variety of financial 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 financial markets and seeks to minimize potential

adverse effects on Philly Shipyard’s financial performance. The Company may use derivative financial instruments to hedge certain risk expo-

sures. As of 31 December 2022, 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 financial

risk management as as well as policies covering specific areas such as foreign exchange risk, credit risk and use of derivative financial instruments

and non-derivative financial 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 specified milestones.

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

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

The carrying amount of financial assets represents the maximum credit exposure. At 31 December 2022 and 31 December 2021, the maximum

exposure to credit risk is as follows:

Amounts in USD thousands 31 Dec 2022 31 Dec 2021

Cash and cash equivalents 137 586 255 003

Restricted cash 55 431 44 492

Trade receivables 47 2 511

Total 193 064 302 006

Liquidity risk

Liquidity risk is the risk that Philly Shipyard will encounter difficulty in meeting the obligations associated with its financial liabilities that are set-

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

sufficient 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 financing 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 financial liabilities including interest payments:

31 December 2022

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

Amounts in USD thousands value cash flow 6 months months years years 5 years

Non-derivative financial liabilities:

Lease liability 2 640 3 527 (236) (236) (472) (1 417) (1 166)

Trade payables 10 890 (10 890) (10 890) - - - -

Total 13 530 (7 363) (11 126) (236) (472) (1 417) (1 166)

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 53

31 December 2021

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

Amounts in USD thousands value cash flow 6 months months years years 5 years

Non-derivative financial 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)

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), NOK (Norwegian Kroner), and KRW (Korean Won).

The Company had no forward contracts as of 31 December 2022 and 31 December 2021.

Exposure to foreign exchange risk

The Company’s exposure to foreign exchange risk at 31 December 2022 and 31 December 2021 was as follows based on the following notional

amounts:

2022 2021

Amounts in USD thousands EUR NOK KRW EUR NOK KRW

Balance sheet exposure:

Trade payables (-) (41) - - (141) (39) -

Cash - 65 - - 56 -

Gross balance sheet exposure (41) 65 - (141) 17 -

Estimated forecast expenses (-) (21 700) - (711) (3 769) - -

Net balance sheet exposure (21 741) 65 (711) (3 910) 17 -

Sensitivity analysis

In managing currency risks, the Company aims to reduce the impact of short-term fluctuations 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 significantly impacted the Company’s loss

before tax for 2022 and for 2021.

Fair values

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

instruments measured at fair value as of 31 December 2022 or 31 December 2021.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202254

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 2022 and 31 December 2021

2022 2021

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 2022 and 31 December 2021

2022 remuneration 2021 remuneration

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

Kristian Røkke Board Chairman 475 000 48 188 475 000 53 859

Elin Karfjell Board Member 375 000 38 043 375 000 42 520

Jan Petter Hagen Board Member 250 000 25 362 - -

Amy Humphreys Deputy Board Chairperson 125 000 12 681 375 000 42 520

Total Directors’ fees 1 225 000 124 274 1 225 000 138 899

No Board members received any remuneration other than Directors’ fees. 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 Jan Petter Hagen. Remuneration for the Chairperson is NOK 55,000

(USD 5,580) and for each member is NOK 45,000 (USD 4,565). 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: Ingebret G. Hisdal (Chairperson) and Charlotte Håkonsen.

Remuneration earned by each member of the committee in 2022 was NOK 34,000 (USD 3,449).

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 and other members of the Management Team participate in the insurance schemes, applicable to all employees.

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 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 offer share option programs to the President and CEO or other members of the Management Team.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 55

Incentive/retention program for 2021

In 2021, the variable pay program was developed to be in line with, and build off 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 effects 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 effect) and has reduced cash payments compared to the program in place prior to 2020.

Annual variable pay programs for 2022 and 2023

In 2022, the Board 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 financial results and increase shareholder value.

The 2022 and 2023 AVP programs are based on the achievement of defined annual results such as financial targets (profit and working capital),

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

The 2022 and 2023 AVP programs include two payments, i.e., a base award and a deferred payment. The base award represents a potential

for an additional variable pay up to 70% of base salary for the President and CEO and 60% for other members of the Management Team. The

deferred payment, which is designed to incentivize and retain key personnel, is equal to 50% of the base award and is payable 21 months after

the base award.

The 2022 and 2023 AVP programs have minimal effects 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 effect).

Accrued but unpaid variable compensation under the 2022 AVP program for the President and CEO and for the CFO as of 31 December 2022

is USD 133,601 and USD 72,229, respectively.

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 202256

CONSOLIDATED ACCOUNTS

Remuneration paid to Senior Management for 2022 (1)

Pension Total

Base Variable contri- Other remun- Severance

Amounts in USD salary pay (2) bution benefits eration pay

President 1 Jan -

Steinar Nerbøvik and CEO 31 Dec 449 079 111 180 32 000 73 556 665 815 12 months

1 Jan -

Jeffrey Theisen CFO 31 Dec 283 250 70 125 16 166 11 768 381 309 12 months

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

(2) Mr. Nerbøvik’s variable pay in 2022 consisted of a payment under the 2021 HSE/retention program;

Mr. Theisen’s variable pay in 2022 consisted of a payment under the 2021 HSE/retention program.

Remuneration paid to Senior Management for 2021 (1)

Pension Total

Base Variable contri- Other remun- Severance

Amounts in USD salary pay (2) bution benefits 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 -

Jeffrey Theisen CFO 31 Dec 275 000 20 472 15 723 9 263 320 458 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.

PHILLY SHIPYARD - ANNUAL REPORT 2022 57

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

Government grants

For the year ended 31 December 2022, the Shipyard received USD 167 thousand for reimbursement of employee training costs from various

governmental agencies (USD 29 thousand in 2021).

For the year ended 31 December 2022, the Shipyard received USD 720 thousand in grant funds for capital and infrastructure improvements

under the Small Shipyard Grant Program (USD 640 thousand in 2021).

Other commitments and contingencies

PSI is required to pay a common area maintenance charge each month of approximately USD 58 thousand, subject to escalation, through the

term of its shipyard lease.

For the years 2018 through 2025, PSI is committed to a fixed payment-in-lieu-of-taxes (PILOT) of approximately USD 863 thousand per year to

the City of Philadelphia.

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 75 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 five-year term under certain

circumstances. PSI was in compliance with this lease condition as of 31 December 2022.

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 final 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 effect on the Company’s financial 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 202258

NOTE 22: SUBSEQUENT EVENTS AFTER 31 DECEMBER 2022

On 8 February 2023, a new four-year collective bargaining agreement was ratified by the Philadelphia Metal Trades Council (PMTC).

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 2022. 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 2022. TRG Holding AS is controlled by Kjell Inge Røkke through The Resource

Group TRG AS.

Transactions

On 4 March 2022, PSI obtained a USD 25.0 million standby letter of credit from a bank to fulfill its contractual obligation under the SRIV contract.

The standby letter of credit is secured by a first priority lien in the shares and material assets of PSI, subject to certain exclusions, has normal

and customary fees, and accrues interest quarterly in arrears at 4.0% per annum. Pursuant to the standby letter of credit, PSI is not permitted

to pay any dividends without the bank’s consent. Aker Capital AS holds 50.0% of the commitment. As of 31 December 2022, Philly Shipyard has

paid fees of USD 544 thousand for further payment to Aker Capital AS pursuant to this arrangement.

Philly Shipyard has service agreements with Aker ASA and certain of its affiliates which provide specified consulting, tax, financial, insurance

and administrative services. All payables (including service fees and insurance premiums) 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 financial statement amounts are as follows:

Expenses Expenses

Amounts in USD thousands 2022 2021

Aker U.S. Services LLC 132 125

Aker Insurances AS 358 228

Aker ASA 549 6

CONSOLIDATED ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 59

PHILLY SHIPYARD - ANNUAL REPORT 202260

Income Statement

Amounts in USD thousands Note 2022 2021

Operating revenues - -

Operating expenses 2 (598) (473)

Operating loss (598) (473)

Interest income earned from subsidiaries - -

Interest expense payable to subsidiaries (1 094) (1 017)

Other interest income and financial income 58 11

Other interest expense and financial expense (60) (42)

Loss before tax (1 694) (1 521)

Income tax benefit 4 - 119

Net loss after tax (1 694) (1 402)

Allocation of net loss:

Net loss after tax (1 694) (1 402)

Other equity 5 1 694 1 402

PARENT COMPANY ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 61

Statement of

Financial Position

as of 31 December

Amounts in USD thousands Note 2022 2021

ASSETS

Shares in subsidiary 6 67 000 67 000

Total non-current assets 67 000 67 000

Prepayments and other receivables 108 14

Cash and cash equivalents 6 79 159

Total current assets 187 173

TOTAL ASSETS 67 187 67 173

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 3 922 5 616

Total equity 5 39 128 40 822

Loan from subsidiary 8 27 851 26 160

Total non-current liabilities 27 851 26 160

Trade payables and accrued liabilities 208 191

Total current liabilities 208 191

Total liabilities 28 059 26 351

TOTAL EQUITY AND LIABILITIES 67 187 67 173

PARENT COMPANY ACCOUNTS

Kristian Røkke

Board Chairman

Jan Petter Hagen

Board Member

Elin Karfjell

Board Member

Steinar Nerbøvik

President and CEO

Oslo, Norway - 17 March 2023

Board of Directors Philly Shipyard ASA

PHILLY SHIPYARD - ANNUAL REPORT 202262

Cash Flow

Statement

Amounts in USD thousands 2022 2021

Loss before tax (1 694) (1 521)

Payment-in-kind interest expense payable to subsidiary 1 091 1 017

Income taxes paid - (294)

Change in prepayments and other receivables (94) 61

Change in trade payables and accrued liabilities 17 (130)

Net cash flow used in operating activities (680) (867)

Net cash flow used in investing activities - -

Loan proceeds from subsidiary 600 650

Net cash flow from financing activities 600 650

Net change in cash and cash equivalents (80) (217)

Cash and cash equivalents as of 1 January 159 376

Cash and cash equivalents as of 31 December 79 159

PARENT COMPANY ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 63

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 financial position.

Classification and valuation of statement of financial 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 classified 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 benefit/(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 profit for the period in Norwegian Kroner (NOK). Deferred tax at 31 December 2022 is calculated using a 22% income tax rate

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

of financial position date. Tax-increasing and tax-reducing temporary differences that are reversing or can reverse in the same period are offset

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

Cash flow statement

The cash flow 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 financial statements in conformity with generally accepted accounting principles in Norway requires management to make esti-

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

assets and liabilities on the statement of financial position date.

Contingent losses that are probable and quantifiable are expensed when they are identified.

Going concern

As noted in note 1 of the consolidated financial statements, the 2022 financial 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 202264

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 2022 2021

Audit fees 29 35

Other audit and attestation fees - -

Total 29 35

PHLY has no employees. The Senior Management is employed in the operating company. Fees to the Board of Directors of USD 178 thousand

and USD 171 thousand were expensed in 2022 and 2021, respectively.

NOTE 3: SHARES IN SUBSIDIARY

This item comprises the following as of 31 December 2022:

Ownership

and voting Business Historical Book

Amounts in USD thousands rights (%) address cost value

Philadelphia,

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

Total shares in subsidiary 67 000 67 000

PSI’s results after-tax in 2022 and equity at the end of 2022 are (in USD thousands):

Results after-tax 2022 (9 998)

Equity at 31 December 2022 101 645

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 identified at 31 December 2022.

PARENT COMPANY ACCOUNTS

PHILLY SHIPYARD - ANNUAL REPORT 2022 65

NOTE 4: TAXES

The table below shows the difference between book and tax values by the end of 2022 and 2021 and the amounts of deferred taxes at these

dates and the change in deferred taxes.

Amounts in USD thousands 2022 2021

Losses carried forward 6 598 1 424

Other temporary differences 996 2 091

Total differences 7 594 3 515

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

Foreign currency impact - -

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

Estimated result for tax purposes:

Amounts in USD thousands 2022 2021

Loss before tax measured in NOK for taxation purposes (1 694) (1 521)

Change in temporary differences 20 (53)

Interest limitation 1 070 1 025

Foreign currency impact 604 549

Estimated income for tax purposes - -

Income tax payable, 22%/22% - -

Income tax benefit/(expense) in the income statement:

Amounts in USD thousands 2022 2021

Income tax payable - -

Change in deferred tax liability - -

Foreign currency impact - -

Excessive accrued income tax payable from prior year - 119

Income tax benefit - 119

The Norwegian deferred tax assets of USD 7.6 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 202266

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 2022 22 664 22 511 (9 969) 35 206 5 616 40 822

Net loss for the year 2022 - - - - (1 694) (1 694)

Equity as of 31 December 2022 22 664 22 511 (9 969) 35 206 3 922 39 128

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 2022.

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

Twenty largest shareholders

(as of 31 December 2022)

Number of Ownership

Shareholders shares held (in %)

Aker Capital AS 7 237 631 57.6%

J.P. Morgan Securities LLC 1 168 231 9.3%

Goldman Sachs & Co. LLC 678 369 5.4%

Philly Shipyard ASA 466 865 3.7%

J.P. Morgan Securities LLC 270 351 2.1%

Nordnet Livsforsikring AS 171 577 1.4%

Interactive Brokers LLC 120 283 0.9%

Citibank 99 845 0.8%

Tor-Fredrik Naevdal 65 616 0.5%

Nordnet Bank AB 60 184 0.5%

Sivert Berg 49 995 0.4%

Peter Myhre 45 000 0.3%

Kristian Falnes AS 40 000 0.3%

Ronny Kandal 34 000 0.3%

Citibank 33 770 0.3%

Ramadan Kovaci 32 005 0.3%

Heggum Holding AS 31 608 0.3%

Martin Jakob Nagell 30 000 0.2%

Inge Holter 29 100 0.2%

Jarle Kringlebotten 29 000 0.2%

Total, 20 largest shareholders 10 693 430 85.0%

Other shareholders 1 881 336 15.0%

Total shareholders 12 574 766 100.0%

PHILLY SHIPYARD - ANNUAL REPORT 2022 67

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 Matson Navigation Company, Inc.

for the CV project.

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 NSMVs

1-5. The maximum liability of PHLY under this guarantee is USD 250.0 million.

PHLY supplied a parent company guarantee for the obligations of PSI under the standby letter of credit (SBLOC) related to the SRIV. The maxi-

mum liability of PHLY under this guarantee is USD 30.0 million plus interest thereon and fees, costs and expenses. This guarantee is secured by

a pledge of the shares of PSI.

PHLY has service agreements with Aker ASA and certain of its affiliates which provide consulting, tax, financial, insurance and administrative

services. All payables (including service fees and insurance premiums) 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. Total

expenses incurred under these agreements in 2022 and 2021 were USD 140 thousand and USD 112 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, in 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 2022, USD 27.9 million is outstanding under the facility.

PHILLY SHIPYARD - ANNUAL REPORT 202268

AUDITOR’S REPORT

Auditor’s Report

PricewaterhouseCoopers AS, Dronning Eufemias gate 71, Postboks 748 Sentrum, NO

0106 Oslo

T: 02316, org. no.: 987 009 713 MVA, www.pwc.no

Statsautoriserte revisorer, medlemmer av Den norske Revisorforening og autorisert regnskapsførerselskap

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 2022, the income 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 2022, the income statement,

statement of comprehensive income, statement of changes in equity and cash flow statement 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 2022, 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 consolidated financial statements give a true and fair view of the financial position of the Group

as at 31 December 2022, 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

relevant laws and regulations in Norway 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.

This is our first year as the auditor of the Company after the election by the general meeting of the

shareholders on 20 April 2022 for the accounting year 2022.

PHILLY SHIPYARD - ANNUAL REPORT 2022 69

2 / 5

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.

Key Audit Matters How our audit addressed the Key Audit Matter

Revenue recognition from construction

contracts

Philly Shipyard ASA recognizes revenue over

time based on the estimated stage of

completion of contracts. Revenue recognition

requires application of Management judgment

when determining the stage of completion of

contracts at the balance sheet date. The

stage of completion is a function of incurred

project costs relative to total forecasted

project costs.

We focused on revenue recognition from

construction contracts because Management

judgment has a material effect on the financial

statements. Specifically, Management

judgment impacts both revenue, and

customer advances, net.

Estimating total forecasted project costs

related to vessel construction represents the

key Management judgment. Although a

significant part of the vessel cost is fixed, the

estimate involves Management judgment on

the future outcome of comprehensive

production processes based

on a vast amount

of data, including forecasting the cost and

amount of labor hours, the future prices of

certain vessel materials and services, and

contingencies. The existing contracts have

long duration and there is limited history from

similar constructions, which makes the

estimates more demanding.

Note 2 and the accounting principles include

information on Philly Shipyard ASA’s

construction contracts and how Management

exercises their judgment.

We obtained an understanding of construction contracts in

Philly Shipyard ASA by reviewing the contracts, and

through discussions with Management. Based on our

understanding of the Company’s construction contracts,

we evaluated Management’s application of accounting

principles against IFRS 15 Revenue from contracts with

customers. We found that the accounting practices are

consistent with the contracts’ stipulations and IFRS 15.

We performed various procedures to assess whether

Management’s judgements were reasonable. Specifically,

we:

● Interviewed both project and finance Management in

order to understand the Company’s internal control

over financial reporting with respect to project

accounting, and to gain an understanding of the

estimation and accounting process as well as

Management’s competence and experience.

● Performed a retrospective review of historical

estimates on delivered vessels to test historical

accuracy.

● Assessed the reasonableness of the assumptions

used by Management to develop cost estimates for

the different cost components that were not fixed

costs.

● Tested internal controls related to the Company’s

quarterly approval of estimate changes.

● Tested material input factors against supporting

documentation, such as vendor contracts for vessel

materials and services, indexes for steel prices,

approved budgets for production and support hours,

and production schedules.

● Challenged and reviewed Management’s evaluation

of contingencies for uncertain costs

and assessed the

reasonableness of the assumptions used for

overhead allocation.

● Challenged and reviewed estimated cost

development related to production of the five NSMV

vessels and reconciled the stage of completion on

AUDITOR’S REPORT

PHILLY SHIPYARD - ANNUAL REPORT 202270

AUDITOR’S REPORT

3 / 5

open projects to amounts recognised in the financial

statements.

Finally, we evaluated the overall consistency of

information gathered in discussions with key

personnel including Management, performed internal

control testing, test of details, and assessed

information received after the reporting date.

We found that assumptions used, and judgements

made by Management were reasonable. We also

reviewed the disclosures in note 2 and found them to

be appropriate.

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 information accompanying the financial statements otherwise

appear 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 statutory 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 the Norwegian Accounting Act and accounting standards and practices generally

accepted in Norway, and for the preparation and true and fair view of the consolidated financial statements

of the Group 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.

The financial statements of the Company use the going concern basis of accounting insofar as it is not

likely that the enterprise will cease operations. The consolidated financial statements of the Group use 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.

PHILLY SHIPYARD - ANNUAL REPORT 2022 71

AUDITOR’S REPORT

4 / 5

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 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 and 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's 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.

PHILLY SHIPYARD - ANNUAL REPORT 202272

AUDITOR’S REPORT

5 / 5

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 Requirement on European Single Electronic Format (ESEF)

Opinion

As part of the audit of the financial statements of Philly Shipyard ASA, we have performed an assurance

engagement to obtain reasonable assurance about whether the financial statements included in the annual

report, with the file name ”549300HMTSHZZD4YR890-2022-12-31-en.zip

”, have been prepared, in all

material respects, in compliance with the requirements of the Commission Delegated Regulation (EU)

2019/815 on the European Single Electronic Format (ESEF Regulation) and regulation pursuant to Section

5-5 of the Norwegian Securities Trading Act, which includes requirements related to the preparation of the

annual report in XHTML format, and iXBRL tagging of the consolidated financial statements.

In our opinion, the financial statements, included in the annual report, have been prepared, in all material

respects, in compliance with the ESEF regulation.

Management’s Responsibilities

Management is responsible for the preparation of the annual report in compliance with the ESEF

regulation. This responsibility comprises an adequate process and such internal control as management

determines is necessary.

Auditor’s Responsibilities

Our responsibility, based on audit evidence obtained, is to express an opinion on whether, in all material

respects, the financial statements included in the annual report have been prepared in compliance with

ESEF. We conduct our work in compliance 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 about whether

the financial statements included in the annual report have been prepared in compliance with the ESEF

Regulation.

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

processes for preparing the financial statements in compliance with the ESEF Regulation. We examine

whether the financial statements are presented in XHTML-format. We evaluate the completeness and

accuracy of the iXBRL tagging of the consolidated financial statements and assess management’s use of

judgement. Our procedures include reconciliation of the iXBRL tagged data 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, 17 March 2023

PricewaterhouseCoopers AS

Anne Kristin Huuse

State Authorised Public Accountant

PHILLY SHIPYARD - ANNUAL REPORT 2022 73

PHILLY SHIPYARD - ANNUAL REPORT 202274

The timely release of information to the mar-

ket that could affect PHLY’s share price helps

ensure that Philly Shipyard ASA’s share price

reflects 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 significant

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 profitability, and its current priorities

are to retain a strong balance sheet and cash

position. Accordingly, no dividends are con-

templated until further notice.”

In 2022, 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 2023 that the

Board of Directors is granted an authoriza-

tion to pay dividends based on PHLY’s annual

accounts for 2022, valid up to PHLY’s annual

general meeting in 2024. 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 2022, 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 2022 accounts). As of 31

December 2022, PHLY had 1,393 sharehold-

ers, of whom 64 shareholders, or 4.6%, 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 3.7% of

the shares outstanding, as of 31 December

2022.

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 Cen-

tral Securities Depository; the shares have

the securities registration number ISIN NO

0010395577. DNB Bank ASA is PHLY’s regis-

trar.

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 financially independent units.

Aker Capital AS exercises active ownership as

part of systematic efforts 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

Shares and

Shareholder Matters

Philly Shipyard ASA (referenced to herein as “PHLY” or the “Company”) is committed to

maintaining an open and direct dialogue with its shareholders, potential investors, ana

lysts, brokers and the financial 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 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

Change in 2022 - - - -

31 December 2022 - 125 747 660 12 574 766 10.00

PHILLY SHIPYARD - ANNUAL REPORT 2022 75

matters in the best interests of the involved

companies, in accordance with good corpo-

rate governance practice. If needed, external,

independent opinions are sought.

CURRENT BOARD AUTHORIZATIONS

As of 31 December 2022, 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

2023. For more details, please see “Board

authorizations” on pages 77-78.

STOCK OPTION PLANS

As of 31 December 2022, Philly Shipyard ASA

has no stock option program.

INVESTOR RELATIONS

Philly Shipyard ASA seeks to maintain an

open and direct dialogue with shareholders,

financial analysts and the financial 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, financial calendar and its Inves-

tor Relations and Corporate Governance pol-

icies, along with other information.

Shareholders can contact the Company at

communications@phillyshipyard.com.

QUARTERLY AND ANNUAL REPORTS

Philly Shipyard’s quarterly and annual reports

are published electronically on the company’s

website at the same time as they are released

via the Oslo Stock Exchange distribution ser-

vice, www.newsweb.no (ticker: PHLY).

SHARES AND SHAREHOLDER MATTERS

TWENTY LARGEST SHAREHOLDERS

(as of 31 December 2022)

Number of Ownership

Shareholders shares held (in %)

Aker Capital AS 7 237 631 57.6%

J.P. Morgan Securities LLC 1 168 231 9.3%

Goldman Sachs & Co. LLC 678 369 5.4%

Philly Shipyard ASA 466 865 3.7%

J.P. Morgan Securities LLC 270 351 2.1%

Nordnet Livsforsikring AS 171 577 1.4%

Interactive Brokers LLC 120 283 0.9%

Citibank 99 845 0.8%

Tor-Fredrik Naevdal 65 616 0.5%

Nordnet Bank AB 60 184 0.5%

Sivert Berg 49 995 0.4%

Peter Myhre 45 000 0.3%

Kristian Falnes AS 40 000 0.3%

Ronny Kandal 34 000 0.3%

Citibank 33 770 0.3%

Ramadan Kovaci 32 005 0.3%

Heggum Holding AS 31 608 0.3%

Martin Jakob Nagell 30 000 0.2%

Inge Holter 29 100 0.2%

Jarle Kringlebotten 29 000 0.2%

Total, 20 largest shareholders 10 693 430 85.0%

Other shareholders 1 881 336 15.0%

Total shareholders 12 574 766 100.0%

OWNERSHIP STRUCTURE BY NUMBER OF SHARES HELD

(as of 31 December 2022)

Number of % of share

Shares owned shareholders capital

1 - 100 452 0.1%

101 - 1 000 579 2.0%

1 001 - 10 000 302 7.4%

10 001 - 100 000 53 10.0%

100 001 - 500 000 4 8.2%

Over 500 000 3 72.3%

Total 1 393 100.0%

PHILLY SHIPYARD - ANNUAL REPORT 202276

SHARES AND SHAREHOLDER MATTERS

NOMINATION COMMITTEE

PHLY’s nomination committee has the follow-

ing members: Ingebret G. Hisdal and Char-

lotte Håkonsen. Shareholders who wish to

contact Philly Shipyard’s nomination commit-

tee may do so using the following address:

Nomination Committee of

Philly Shipyard ASA

Vika Atrium

Munkedamsveien 45

NO-0250 Oslo, Norway

ANNUAL GENERAL MEETING

Philly Shipyard ASA’s annual general meeting

is normally held in March or April. Written

notification is sent to all shareholders individ-

ually or to shareholders’ nominees. To vote at

general meetings, shareholders (or their duly

authorized representatives) must either be

present or vote by proxy.

Annual general meeting notices and atten-

dance registration forms are sent to share-

holders by the deadlines laid down in the

Norwegian Public Limited Liability Compa-

nies Act and made available on the com-

pany’s website and through the Oslo Stock

Exchange distribution service. The annual

report and other enclosures to the meeting

notice are made available solely via the com-

pany’s website and the Oslo Stock Exchange

distribution service. Shareholders who wish

to receive the enclosures by post must con-

tact the company.

2022 SHARE DATA

PHLY’s total market capitalization as of 31

December 2022 was NOK 572 million. During

2022, a total of 2,550,464 Philly Shipyard ASA

shares traded, corresponding to 0.203 times

PHLY’s freely tradable stock. The shares

traded on 253 trading days in 2022.

GEOGRAPHIC DISTRIBUTION OF SHAREHOLDERS

(as of 31 December 2022)

Number of Ownership

Shareholders shares held (in %)

Norwegian shareholders 9 982 777 79.4%

Non-Norwegian shareholders 2 591 989 20.6%

Total 12 574 766 100.0%

SHARE PRICE DEVELOPMENT IN 2022

(2022 share data)

Highest traded (in NOK) 63.1

Lowest traded (in NOK) 42.9

Share price as of 31 December (in NOK) 45.5

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) 572

Proposed share dividend (NOK per share) -

SHARE PRICE DEVELOPMENT

(2020 - 2022)

NOK / share

100

1 Jan 2020 31 Dec 2022

PHILLY SHIPYARD - ANNUAL REPORT 2022 77

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

has reviewed and updated PHLY’s principles

for corporate governance. The principles

are based on the Norwegian Code of Prac-

tice for Corporate Governance, dated 14

October 2021 (the “Code of Practice”), the

principles set out in the continuing obliga-

tions of companies listed on the Oslo Stock

Exchange, and the relevant Norwegian back-

ground law such as the Norwegian Account-

ing Act and the Norwegian Public Limited

Liability Companies Act. The Code of Practice

is available at www.nues.no and the con-

tinuing obligations of stock exchange listed

companies may be found at www.euronext.

com/en/markets/oslo.* 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 corporate

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 benefit of owners and other

stakeholders.

Values and ethical guidelines

The Board has adopted corporate values

and ethical guidelines. The Company’s corpo-

rate values are presented on page 8 of this

annual report. PHLY 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. PHLY works to

promote a sustainable and responsible com-

pany that is driven by good results and the

demands for social responsibility.

PHLY has not adopted specific guidelines on

equality and diversity due to its lack of employ-

ees. The Company is focused however on car-

rying on its business in line with the principles

of equality and diversity with respect to the

composition of its management and Board,

and its Board currently comprise of three

members where one is a 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 profile, without limit-

ing the Board or management’s ability to carry

out strategic and financially viable decisions

within the defined 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

America that delivers on its commitments,

every time” and its supporting strategies for

2023 are executing its existing order backlog,

securing new orders for major shipbuilding

programs, and pursuing a mix of commercial

and government work. When carrying out this

work, the Board of Directors and manage-

ment will take into account financial, social,

and environmental considerations.

EQUITY AND DIVIDENDS

Equity

PHLY’s equity as of 31 December 2022

amounted to USD 73.8 million, which corre-

sponds to an equity ratio (total equity divided

by total assets) of approximately 21%. PHLY

regards its current equity structure as appro-

priate and adapted to its objectives, strategy

and risk profile.

Dividends

PHLY’s dividend policy is included in the sec-

tion “Shares and shareholder matters” (see

page 74). 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 profitability,

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 propos-

als for future Board authorizations to issue

Corporate

Governance

Philly Shipyard ASA (referenced to herein as “PHLY” or the “Company”) aims to create

maximum value for its shareholders over time. Good corporate governance will help to

reduce risk and ensure sustainable value creation.

CORPORATE GOVERNANCE

* The Issuer Rules / Regulations / Oslo Børs / Home - Oslo Børs (www.euronext.com/en/markets/oslo)

PHILLY SHIPYARD - ANNUAL REPORT 202278

shares and to undertake share buy backs are

to be limited to defined purposes and to be

valid only until the next annual general meet-

ing.

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 2021.

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 general meeting in 2023.

The Board currently has no other authoriza-

tions to issue shares or undertake share buy-

backs. The Board will propose to the annual

general meeting in 2023 that the Board is

granted an authorization for payment of divi-

dends, an authorization to increase the share

capital and two authorizations to acquire own

shares similar to the authorizations 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 justification 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 general meetings. It is PHLY’s pri-

ority to hold the annual general meeting as

early as possible after the year-end. Notices

of general meetings are sent physically by

post and comprehensive supporting informa-

tion, including the recommendations 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 general

meeting. The Board seeks to ensure that the

resolutions and supporting information are

sufficiently detailed and comprehensive to

enable the shareholders to form a view on all

matters to be considered at the meeting. The

deadline for shareholders to register to the

general meetings is set as close to the date

of the meeting as possible and the deadline

for registration may not expire earlier than

five days prior to the date of the meeting. Due

to upcoming changes to the Norwegian Public

Limited Liability Companies Act, the Company

will propose to the annual general meeting

in 2023 that the Articles of Association are

amended so that there will be no such dead-

line for registration of attendance to the gen-

eral meeting. The notice materials include a

thorough explanation of all procedures for

registration, voting and attendance. In addi-

tion, information on how to propose a resolu-

tion to the items on the agenda at the annual

general 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 virtually unless

the Board of Directors finds there is sufficient

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 nom-

inate a person who will be available to vote on

behalf of the shareholders. In addition, to the

extent possible, the proxy form includes sep-

arate voting instructions to be given for each

matter to be considered by the meeting. The

shareholders may also vote electronically in

advance of the general meeting.

Pursuant to PHLY’s articles of association,

the Chairman of the Board (the “Chairman”),

or any other person appointed by the Chair-

man, chairs the general meetings. Although

the Code of Practice recommends an inde-

pendent chair for annual general meetings,

it is the view of PHLY that the procedure fol-

lowed by PHLY provides efficient and well

prepared annual general meetings and is in

the interests of the shareholders. The share-

holders are invited to make a joint voting on

the composition of the Board as proposed by

the nomination committee and not on each

Board member separately. Hence, PHLY devi-

ates from the Code of Practice in this regard

as the nomination committee emphasizes that

the Board’s composition shall reflect a variety

of experience, knowledge and qualifications.

To the extent possible, the CEO/general man-

ager, the chairperson of the nomination com-

mittee and the auditor attend annual general

meetings.

Minutes of general meetings are published

as soon as practically possible on the Oslo

Stock Exchange, https.newsweb.oslobors.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

CORPORATE GOVERNANCE

PHILLY SHIPYARD - ANNUAL REPORT 2022 79

fewer than two members. Each member is

normally elected for a two-year period. The

composition of the nomination committee

reflects the interests of the shareholders, and

its members are independent from the Board

and executive management. The members

and chairperson of the nomination commit-

tee are elected by PHLY’s annual general

meeting, which also approves the remunera-

tion payable to committee members.

Pursuant to PHLY’s articles of association, the

nomination committee recommends candi-

dates for members of the Board. The nomina-

tion committee also makes recommendations

as to remuneration of the members of the

Board and the nomination committee. The

nomination committee will justify its recom-

mendation and such justification will address

the criteria specified in section 8 of the Code

of Practice on the composition of the Board.

The nomination committee comprises the

following members:

– Ingebret G. Hisdal, Chairperson (2022-2024)

– Charlotte Håkonsen (2022-2024)

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 general meeting has stipulated guide-

lines for the duties of the nomination com-

mittee.

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 at

the annual general meeting. 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 effectively

as a collegiate body. A majority of the share-

holder-elected Board members are indepen-

dent of PHLY’s executive management and

its significant business associates. The Board

does not include any executive personnel.

Further, one of the three shareholder-elected

Board members, Elin Karfjell, is independent

of PHLY’s main shareholder, Aker ASA. Kris-

tian Røkke, the Chairman, is Chief Execu-

tive Officer of Aker Horizons ASA. Jan Petter

Hagen, Board member, is Managing Partner

of Converto AS.

The current composition of the Board, as

well as the Board members’ status on inde-

pendence and expertise, capabilities, and

experience, are presented on page 82 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.

One of the three shareholder-elected Board

members is up for election in 2023. In addi-

tion, the Nomination Committee has nomi-

nated a fourth Board member for election

in 2023. PHLY will provide the relevant infor-

mation regarding election of Board mem-

bers 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 profile 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 2022, 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 relationship 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, the 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 Chairman is, or has been, per-

sonally involved, the Board’s consideration

of such matters are chaired by the Deputy

Board Chairman, if there is one serving 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

committee in 2010. The audit committee

consists of two members elected by and

among the Board’s members, Elin Karfjell

(Chairperson) and Jan Petter Hagen. Both

members are independent from operations

of the Company. One member, Jan Petter

Hagen, is linked to PHLY’s main shareholder,

Aker ASA.

CORPORATE GOVERNANCE

PHILLY SHIPYARD - ANNUAL REPORT 202280

CORPORATE GOVERNANCE

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.

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 sustainability and environ-

mental, social, and governance (ESG) is set

forth on pages 23-25 of this annual report.

The Board annually reviews the Company’s

most important risk areas and internal con-

trol 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 mitigating

actions, on a quarterly basis. The issue is fur-

ther described in notes 1 and 17 to the con-

solidated accounts.

Audit committee

The audit committee has reviewed the Com-

pany’s financial 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 financial policies ensure follow-up

of financial risk. Key targets are identified

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.

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 financial

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 reflects the Board’s

responsibility, expertise, time spent, and the

complexity of the business. Remuneration

does not depend on PHLY’s financial 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 2022 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, at a minimum. The guide-

lines currently approved by the shareholders

are available on the Company’s website. The

Company will propose to the annual general

meeting in 2023 that the guidelines currently

approved by the shareholders are changed

to facilitate remuneration in the form of

shares in the Company. Salary and other

remuneration of the CEO/general manager

of PHLY are determined in a Board meet-

ing. The basis of remuneration of executive

management has been developed in order

to create a system based on performance

and retention.

The system of reward is designed to con-

tribute to the achievement of good financial

results and increase shareholder value.

PHLY does not have stock option plans

or other such share award programs for

employees. Further information on remuner-

ation for 2022 for members of the Compa-

ny’s executive management is presented in

note 18 to the consolidated accounts. PHLY’s

guidelines for remuneration to executive

management are discussed on pages 54-55

of this annual report and will be presented to

the shareholders at the annual general meet-

ing. The maximum size of any payment under

the existing performance-related remunera-

tion program to any executive is linked to the

size of the executive’s base salary.

The Board will prepare and present a report

on remuneration of executive management

every year as part of the annual general

meeting, in accordance with the Norwegian

Public Limited Company Act section 6-16b.

This report is subject to the shareholders’

advisory vote only.

INFORMATION AND COMMUNICATIONS

PHLY’s reporting of financial and other infor-

mation is based on openness and on equal

treatment of shareholders, the financial com-

munity, and other interested parties.

PHILLY SHIPYARD - ANNUAL REPORT 2022 81

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 cor-

rect and timely distribution of information

that can affect PHLY’s share price. PHLY is

also to comply with current rules and market

practices, including the requirement of equal

treatment.

All stock exchange notifications and press

releases are made available on PHLY’s

home page www.phillyshipyard.com; stock

exchange notices are also available from

www.newsweb.oslobors.no. All information

that is distributed to shareholders is simul-

taneously published on PHLY’s home page.

PHLY’s financial calendar is found on the

inside front cover of this annual report and

its home page www.phillyshipyard.com.

PHLY’s investor relations staff is responsible

for maintaining regular contact with PHLY’s

shareholders, potential investors, analysts

and other financial market stakeholders. The

Board is regularly informed about PHLY’s

investor relations activities. For more infor-

mation regarding PHLY’s guidelines for

reporting of financial and other information,

see pages 74-76.

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 principle 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 general meeting after the takeover offer

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 provision shall also

apply to any agreement on the payment of

financial compensation to the bidder if the

bid does not proceed. Any financial compen-

sation 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 offer 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 offer will make it clear whether the

views expressed are unanimous, and if this

is not the case, it will explain the basis on

which specific 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 effect of sale of

PHLY or a major component of it are to be

decided on by shareholders at a general

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 confirmation 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 figures

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 final

audit findings to the committee during such

meetings.

CORPORATE GOVERNANCE

PHILLY SHIPYARD - ANNUAL REPORT 202282

KRISTIAN RØKKE

Board Chairman

Kristian Røkke (b. 1983) is Chief Executive

Officer 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 Officer

of Aker ASA and has extensive experience

from operations and M&A. Mr. Røkke is

Chair of the board of Akastor ASA, a Direc-

tor of TRG Holding AS, American Shipping

ASA, Aker Carbon Capture AS, Aker Offshore

Wind AS, and Abelee AS. Mr. Røkke has an

MBA from The Wharton School, University of

Pennsylvania. Mr. Røkke holds both Norwe-

gian and American citizenships. Mr. Røkke

owns no shares in the company and has no

stock options. Mr. Røkke has been elected

for the period 2022-2024.

JAN PETTER HAGEN

Board Member

Jan Petter Hagen (b. 1965) is Managing Part-

ner in the advisory firm Converto AS. Before

joining Converto in 2017, Mr. Hagen held the

position as Director of Business Transforma-

tion in Rolls-Royce Marine. Mr. Hagen also

served as CFO in Stokke, a high-end, global,

well-recognized brand in the children prod-

uct segment from 2009-2014. Mr. Hagen

has previously held a variety of executive

positions in Aker Yards, Offshore & Special-

ized Vessels, including Senior Vice President

Finance and Senior Vice President Shipbuild-

ing. Mr. Hagen also has experience from the

oil and gas industry. Mr. Hagen’s current

board positions include inter alia Brattvaag

Electro and Peil. Mr. Hagen holds a MSc in

Energy Economics and Management and a

Bachelor of Science in Business Administra-

tion from Norwegian Business School BI in

Oslo. Mr. Hagen owns no shares in the com-

pany and has no stock options. Mr. Hagen

has been elected for the period 2022-2024.

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 indus-

tries. 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 Drilling 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 College (Hoyskolen i Oslo) and a

CPA from the Norwegian School of Econom-

ics and Business Administration. Ms. Karfjell is

a Norwegian 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. Ms. Karfjell serves as an

independent director.

Presentation of

the Board of Directors

THE BOARD OF DIRECTORS

PHILLY SHIPYARD - ANNUAL REPORT 2022 83

STEINAR NERBØVIK

President and CEO

Steinar Nerbøvik (b. 1961) was appointed

President and Chief Executive Officer 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 offshore support vessels. Mr.

Nerbøvik first 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 2023, Mr. Nerbøvik holds 1,000 shares

in the company and has no stock options.

JEFFREY THEISEN

Chief Financial Officer

Jeffrey Theisen (b. 1968) rejoined Philly Ship-

yard, Inc. as Chief Financial Officer in Septem-

ber 2020. Mr. Theisen previously served as

CFO from 2007-2015. Mr. Theisen has over

30 years of experience in financial and stra-

tegic planning, organizational leadership,

growth and expansion strategies, debt and

equity financing, investor and banking rela-

tions, and budgeting and cost accounting. Mr.

Theisen has held finance 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 certified

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

2023, 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 firm 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

finance. 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 2023, 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 202284

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 2023, 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 fields. 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 2023,

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-

nificant 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 2023, Mr.

Miller holds zero shares in the company and

has no stock options.

THE MANAGEMENT TEAM

PHILLY SHIPYARD - ANNUAL REPORT 2022 85

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 2023, Mr. Grunwald holds zero shares in

the company and has no stock options.

STEVEN MATZ

Vice President Engineering and Planning

Steven Matz (b. 1966) joined Philly Shipyard,

Inc. in 1998 and held key positions in project

planning and engineering until his depar-

ture in November 2004. Mr. Matz returned

to Philly Shipyard in January 2013 and was

promoted to Vice President Engineering and

Planning in February 2022. Mr. Matz has pre-

viously performed project engineering and

management roles at the Naval Surface War-

fare Center and Lockheed Martin. Mr. Matz

holds a Bachelor of Science in Naval Archi-

tecture and Marine Engineering from Webb

Institute in Glen Cove, NY, USA and a Master

of Science in Project Management from Ste-

vens Institute of Technology in Hoboken, NJ,

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

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

2023, Mr. Matz holds zero shares in the com-

pany 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 2023,

Mr. Haugland owns 700 shares in the com-

pany through his private company Elysium AS

and has no stock options.

PHILLY SHIPYARD - ANNUAL REPORT 202286

PHILLY SHIPYARD - ANNUAL REPORT 2022 87

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 differ. 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 affiliates (the “Philly

Shipyard Group”) lines of business. These

expectations, estimates, and projections

are generally identifiable by statements con-

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

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

expressions. Important factors that could

cause actual results to differ 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,

fluctuations in currency exchange rates, the

COVID-19 pandemic and subsequent eco-

nomic effects, 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

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, officers 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 iden-

tifying any particular Philly Shipyard company.

This report does not constitute an offer 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: communications@phillyshipyard.com

Photos/illustrations:

All photos courtesy of:

Philly Shipyard, Inc.

Design/production:

www.report.no