printmgr file - Zetta ASfiles.zetta.no/...Contents In review 1 Company overview 2 History 4 Key...

Contents

In review

1 Company overview

2 History

4 Key events

5 Investment highlights

6 Our values

7 Our safety

8 Letter from the President and CEO

Performance 2017

10 Board of Directors’ report

18 Directors’ responsibility statement

20 Consolidated accounts

46 Parent company accounts

54 Auditor’s report

58 Shares and shareholder matters

Our organization and governance

60 Corporate governance

64 Presentation of the Board of Directors

66 Presentation of the Management Team

68 Company information

Financial calendar 2018

Annual general meeting 5 April

Interim report Q1 2018 8 May

Interim report Q2 2018 17 July

Interim report Q3 2018 6 November

Dates are subject to change.

In review

Company overview

We are Philly ShipyardPhilly Shipyard is a leading U.S. commercial shipyard constructingvessels for operation in the Jones Act market. It possesses a state-of-the-art shipbuilding facility and has earned a reputation as apreferred provider of ocean-going merchant vessels with a trackrecord of delivering quality ships, having delivered around 50% ofall large ocean-going Jones Act commercial ships since 2000.

Philly Shipyard ASA is a holding company with headquarters inOslo, Norway, and an operating subsidiary in Philadelphia, PA,USA.

Philly Shipyard ASA was listed on Oslo Axess in December 2007.Aker Capital AS, a wholly-owned subsidiary of Aker ASA, is themajority shareholder, holding 57.56% of the shares as of31 December 2017.

Elements contributing to success:

• State-of-the-art shipyard with modern equipment

• Access to global shipbuilding and design expertise throughagreements with partners in Asia and Europe

• A solid track record demonstrated by the delivery of 28quality vessels (4 containerships, 22 product tankers and2 aframax tankers) through 2017

• Skilled workforce consisting of direct and contractedemployees with a strong HSE mindset and culture ofimprovement

• Opportunistic investment approach with respect to thepost-delivery economics of the vessels that it builds

• Proven history of promoting new vessel owners

U.S. Jones Act

U.S. coastwise law, commonly referred to as the Jones Act,requires all commercial vessels transporting merchandisebetween ports in the United States to be built in the UnitedStates, owned, operated and manned by U.S. citizens andregistered under the U.S. flag. The Jones Act market encom-passes all water-borne transportation between U.S. ports,including between the mainland U.S. and non-contiguousareas of Alaska, Hawaii and Puerto Rico, as well as shuttletankers in the Gulf of Mexico.

Philly Shipyard annual report 2017 1

In review

History

Facility in 1997

2 Philly Shipyard annual report 2017

In review

History

,

Facility today


In review

Key events

2017 key events and highlights

Completed four-ship order for Kinder MorganConcluded investment program inUSD 1.0 billion product tanker series

Philly Shipyard deliv-ered Hulls 026, 027and 028, the AmericanFreedom, the AmericanLiberty and the Ameri-can Pride, respectively,to a subsidiary ofKinder Morgan, repre-senting the second,third and fourth prod-uct tankers in the four-vessel order by KinderMorgan

The delivery of Hull 028marked a successfulconclusion to aninnovative plan to investin eight Jones Actproduct tankers with anapproximate contractvalue of USD 1.0 billionthrough the PhillyShipyard-Crowley jointventure (Hulls 021-024)and Philly Tankers (Hulls025-028)

Philly Shipyard’s 20-yearanniversary celebration

Hull 029 milestone |Dock mounting ceremony

Philly Shipyard cele-brated its 20-yearanniversary with 2,000close family andfriends. This eventwas marked by anhonor received fromthe City of Phila-delphia for theshipyard’s excellencein the art of shipbuild-ing and for continuingthe legacy ofshipbuilding bothlocally and nationally

The first engine roomsection on the firstcontainership PhillyShipyard has built inover a decade waslowered into place inthe dry dock during aceremony with repre-sentatives from Matsonand Philly Shipyard

Record strong earnings 2017 AOTOS award recipient

Philly Shipyard earneda record-high EBITDAof USD 105.1 millionin 2017, compared toEBITDA of USD 70.4million in 2016

Chairman Jim Miller (onthe right along withpast and present CEOs)accepted on behalf ofPhilly Shipyard the2017 Admiral of theOcean Seas (AOTOS)award from UnitedSeamen’s Service


In review

Investment highlights

Investment highlights1 Leading Jones Act

commercial shipyard 2 Successful track record invessel ownership 3 Opportunistic approach to

Jones Act market 4 Strong balance sheet andcash position

Š State-of-the-art facility withmore than USD 650 millioninvested since founding

Š 10 of the 28 vessels builtsince start-up with someownership or participation bythe shipyard

Š Dynamic activities in variousJones Act market sectorsfundamentals

Š Record high earnings in 2017with EBITDA of USD 105.1million

Š Built around 50% of all largeocean-going Jones Actcommercial ships since 2000

Š All stakes in post-deliveryeconomics of vessels havebeen successfully divested

Š Opportunities within specialtyand high-end segments of theJones Act market

Š Dividend payment on hold topreserve maximum flexibilityfor new projects

Š Highly skilled workforce withintegrated, fully flexible sub-contracting

Š PSI benefits from being earlymover and initiating projectsbefore positive segmentdevelopment is fully visible

Š Considering a wide range ofvessel types and alternativestructures for new contracts

Š Strong balance sheet withavailable debt capacity

Š Increased competitivenessthrough efficiency gains fromrecently completed series of8 product tankers

Š PSI targets to secure ordersin 2018 for its next availableslots 031-032

Š Replacement needs remainfor segments of aging JonesAct fleet

Š Solid cash position enablesthe shipyard to participate innew projects and enjoyupside from ownership inshipping assets

Philly Shipyard recent deliveries and order backlog

Matson

Crowley023 PT

024 PT

025 PT

026 PT

027 PT

028 PT

029 Containership

030 Containership

PhillyTankers

15 Apr. 2016

12 Aug. 2016

30 Nov. 2016

29 Mar. 2017

26 July 2017

20 Nov. 2017

Q3 2018

Q1 2019

2019Vessel Delivery 2016 2017 2018Customer


In review

Our values

Our CORE valuesPhilly Shipyard’s CORE values were designed as a reflection of who we are, and who we aspire to be, as ashipyard, as an organization and as individuals.

They capture the pride, passion and commitment behind each action we take and decision we make. They are not words on a page, butour stand – a united commitment to conquer all challenges and build long lasting relationships. For years to come we will be united bythese values, that give us the platform to deliver on our commitments, every time.

Caring One shipyard Responsible Efficient

Working as family Selfless for every customer Treat it like you own it Being better than yesterday

We are a shipbuilding family, aunique group comprised ofmany backgrounds and eth-nicities, teams and depart-ments; but at the end of theday, we have a healthy respectand a natural need to protecteach other.

Customers are all around.From ship owner to processowner, we are all powerfullyunited to deliver. That meansdecisions are made in thebest interest of the company,rather than oneself, or oneteam. We are strongest whenwe act together.

If you’re responsible for it,you own it, so treat it like it’syours. This means taking theutmost care for tools andequipment, making deci-sions based on the impact toyour bottom line, and simplydoing the right thing. Suc-cess is in our hands.

A healthy dissatisfaction forthe status quo lives within us.It fuels the need to challengeourselves, and each other, tofind a better way. Being effi-cient keeps our costs down,while driving our competitiveedge up.

Caring in actionAt Philly Shipyard, the way in which we achieve growth and profitability is as important asthe achievements themselves. Our overriding corporate responsibility is concern for thecommunities that we are a part of. We strive to provide products and services in a safe,environmentally sound, ethical and socially responsible manner.

More information regarding the Company’s corporate social responsibility efforts can be foundon pages 14-16 of the Board of Directors’ report.


Vision: To be - and be recognized as - America’s leading commercial shipyard that

delivers on its commitments, every time.

In review

Our safety

HSE — 2017, the Year of Renewed Focus

Safety is the foundation for the decisions we make and the actions we take on the road to zero incidents.

At Philly Shipyard, safety is personal and our credo is clear: We funda-mentally believe that all incidents are preventable and safety is everyone’sresponsibility; and we promise to be relentless in our pursuit of an injury-free workforce by creating and maintaining safe working conditions andnever compromising safety for anyone, anywhere, at any time.

In order to achieve this objective, we will identify Health, Safety andEnvironment (HSE) risks arising from our activities, utilizing lessons learned fromprevious incidents to prevent future incidents. We continue our belief that,together, we can build a safer future. At Philly Shipyard, it doesn’t matter whatposition you have - we are all united on the journey toward best-in-class safety.

In 2017, Philly Shipyard, Inc. (PSI) took decisive action to reinvigorate oursafety culture. With our CORE principles embedded in the mindset for a fewyears now, we improved upon our HSE action plan with specific targets involv-ing management as well as workers. This living document is our roadmap to aculture change journey from top to bottom throughout the organization.

The first item on our list was to roll-out our new HSE policy statementsigned by PSI’s President and CEO. With an emphasis on all three aspects ofHSE, this document set the tone for 2017.

Throughout the year our HSE group held weekly safety walks with membersof PSI’s executive team, giving them the opportunity to walk the shops, observethe ships under construction and talk to the workers about safety. In addition,PSI’s VP of Production led weekly safety walks with his production managers intheir respective areas. The walks took place rain or shine, and became a val-uable tool in ensuring our executive team and production managers take a per-sonal interest in safety.

With the transition in 2017 from construction of product tankers to container-ships, we knew this would present multiple safety challenges; therefore the HSEdepartment implemented a dedicated HSE coordinator with sole responsibilityfor the dock construction activities. This proved to be a valuable move in ensur-ing our dock supervisors could interact with a safety resource earmarked solelyfor the container vessel (CV) project.

In December of 2017, we were notified by our insurance provider, SignalMutual, that PSI’s President and CEO had been awarded the Francis R. Sharp —Executive Leadership in Safety Award and would be presented with this award atthe annual meeting in January 2018. This award is a clear indication of the pos-itive direction PSI is going in achieving best-in-class safety.

While recordable injuries increased in frequency in 2017, this can be attrib-uted in part to the many bumps and bruises and strains and sprains. The ele-vated risk of these types of injuries due to smaller, tighter work spaces wasidentified at the beginning of the CV project. Many lessons learned have beenincorporated throughout the build program. We finished the year on a positivenote with a lower lost time incident (LTI) frequency rate than the previous year.

In addition to our strong focus on improving health and safety performance,PSI takes its environmental responsibilities seriously, beginning with the vesseldesign. The industrial nature of our activities requires the use of significantamounts of energy, both electrical and gas, as well as the release of particulateand VOC emissions. PSI will continue to address the environmental impact ofour operations by reducing waste, emissions and discharges and by usingenergy efficiently.

All incident frequency (2001-2017)

01 02 03 04 05 06 07 08 09 10 11 12 14 16 1715130

10

20

30

40

50

60

Observations (2012-2017)

2012 2013 2014 2015 2016 20170

1000

2000

3000

4000

5000

6000

7000

8000

9000


In review

Letter from the President and CEO

Tim Hightower (left), shipbuilder and2017 recipient of the President’sAward and Bill Burns (right), pro-duction supervisor, together withSteinar Nerbovik in our Grand Blockshop

Philly Shipyard: From Tailwinds to Headwinds2017 was a historic year for Philly Shipyard, as we completed the deliveries of three product tankers andmoved forward with construction of our first two container vessels in more than a decade, while achievingrecord financial results. The quality of our construction and the productivity of our workforce continue toimprove and our reputation as the leading commercial shipbuilder in the United States is secure.

While there is much to be proud of that occurred in 2017, as weenter 2018 the realities of building for the U.S. Jones Act marketare making it challenging for us to secure new work after our twocontainership order for Matson. The Jones Act dry cargo marketis limited, largely consisting of trade between the mainland UnitedStates and Puerto Rico, Hawaii and Alaska. In addition, thereplacement cycles for vessels in these trades are much longerthan seen elsewhere in the world, with some steam poweredvessels still in operation. The domestic tanker market has beenentirely recapitalized over the last ten years, with Philly Shipyardconstructing almost 50% of all of those ships.

There is no question that Philly Shipyard is facing headwinds, butwe will meet this challenge head-on and work tirelessly to securenew shipbuilding orders. The greatest source of my confidence isour people and our reputation throughout the marine community.Our workforce has shown time and again that we construct thebest ships in the United States, and our customers are our great-est advocates. Yes, there are challenges, but I will do my best toextend our order book into 2019 and beyond.

Product tanker status | End of the series

In 2017, we completed the final three product tankers for KinderMorgan: Hull 026 (the American Freedom), Hull 027 (the AmericanLiberty) and Hull 028 (the American Pride). All three vessels ach-ieved a “clean sweep” during sea trials and were delivereddeficiency-free and either on time or early. With that, we bid fare-well to this series of vessels. While this was somewhat of a bitter-sweet moment for us, given our success in building these vessels,it has been a remarkable period of time for Philly Shipyard, one inwhich we realized our full potential and something that gives all ofus a large measure of pride and sense of accomplishment.

Container vessel status | CV3600 project

In May 2017, we laid the keel on the first container ship we havebuilt since 2005 and in February 2018, Hull 029 was successfully

launched from the building dock; it is now in final outfitting andcommissioning. Work has begun on Hull 030, and its first blockwill be placed in the building dock this quarter. Both of thesevessels are proceeding according to plan, which is a reflection ofour talented and experienced workforce, and when completed willbe the largest container vessels ever built in the United States. Weare grateful that Matson has returned to Philly Shipyard to buildthese vessels and know that part of the decision to choose uswas based on the satisfaction Matson has with the first four ves-sels we built for them.

Shipping investment status | Divestment completed

With the successful delivery of Hull 028 in Q4 2017 to KinderMorgan, Philly Shipyard has now completely divested itself of allof its shipping assets and is once again focused entirely on ship-building operations. However, going forward, we will remainopportunistic in participating in the post-delivery economics ofthe ships we build.

Subsequent events

In January 2018, Philly Shipyard placed its potential TOTEcontainership project on hold, following notification from TOTEthat it would not renew our Letter of Intent due to issues with itsproposed terminal in Hawaii. As a result of the delay we haveexperienced in securing new orders after the Matson project, ithas been necessary to freeze operations in various departmentsthroughout the shipyard, and place some employees in layoffstatus. Regretably, these actions will continue until a follow-onproject is secured.

Market outlook

The legislative approval for crude oil exports from the UnitedStates has reduced demand for tankers, but starting late in 2017,there were signs of improving market conditions in the liquid bulktrades. Consequently, the tanker market outlook is turning


In review

Letter from the President and CEO

positive. As noted, the Jones Act dry cargo market is limited in itssize and the number of potential customers for Philly Shipyard,but the impending IMO regulations prohibit steam powered ves-sels from operating unless they fully comply with new emissionsrequirements. This may present an opportunity for Philly Shipyardto construct replacement vessels for these ships. Philly Shipyardis expanding its search for new opportunities throughout themarine industry, including various specialized vessels such asfishing trawlers and cable layers, as well as vessels to support thegrowing offshore wind industry, which appears to be in the initialstages of a major expansion along the East Coast of the UnitedStates.

On a longer term basis, the future strategy for the yard is to com-bine governmental and commercial work and our first opportunityis to build the first-in-class heavy polar icebreaker (HPIB) for theUnited States Coast Guard (USCG). Philly Shipyard has teamedwith Fincantieri Marine Group (FMG) and received one of fiveawards in 2017 to develop the preliminary design of the newvessel. The final request for proposal (RFP) was issued earlier thismonth, with award of the contract for construction expected in Q22019. The USCG is hoping to purchase three vessels of this class.So, if we are successful in winning the contract for the first HPIB,then there is a possibility of additional vessels which would repre-sent long term stability for the shipyard.

Striving for operational excellence

Our accomplishments in shipbuilding are the result of an unrelent-ing focus on operational excellence throughout the entire orga-nization. This can be measured in a number of key areas:

✓ HSE – In 2017, we felt it necessary to seriously examine ourapproach to safety and determine what steps were necessaryto improve the safety culture in the shipyard and to strive fora goal of zero incidents. We implemented significant changesto our HSE action plan with specific targets and increasingthe accountability of management as well as our workers.

I am proud to report that Philly Shipyard was recognized byits insurance carrier, Signal Mutual, as the recipient of theFrancis R. Sharp — Executive Leadership in Safety Award.This award reaffirms the positive direction Philly Shipyard’ssafety performance is moving to become the best-in-classamong U.S. shipyards.

While we saw a slight increase in recordable injuries during2017 compared to 2016, we are pleased to report that wefinished 2017 with a lower lost time incident (LTI) frequencyrate than 2016.

✓ People – I never lose sight of the fact that the primary reasonfor the success of this shipyard is its dedicated and pro-fessional men and women who build the finest ships in thiscountry. Over the last twenty years, we have assembled themost highly skilled and experienced shipbuilding team in theentire industry and the results of this are reflected in the qual-ity of the vessels we build.

2018 began on a difficult note due to the consequences ofthe suspension of the potential TOTE containership project.Our management team faced the very difficult task of slowingdown operations, or in some cases ceasing them altogether,due to a lack of continuing work. The inevitable result of this

was a decision to issue layoff notices to some of our work-force, and this difficult process will continue until we gaincertainty about the near term prospects for new work in theshipyard. But for all the joy that shipbuilding brings to mepersonally, this is one of the hardest things that any managercan face.

✓ Cost – In 2017, we had extremely positive financial results,and Philly Shipyard achieved record high revenues and prof-its in 2017. We saw net income for the full year of USD 67.2million compared to net income of USD 38.7 million in 2016.Our EBITDA for the full year 2017 was USD 105.1 million,compared to EBITDA of USD 70.4 million in 2016. Theseresults exceeded our projections. So, overall, we were verypleased with our financial performance in 2017.

Maintaining our strategic focus

It is imperative in these challenging times to maintain our strategicfocus. First, we must do our best to deliver Hulls 029 and 030 toMatson according to plan and with the quality and workmanshipexpected of our shipyard.

Second, we must aggressively pursue any and all business oppor-tunities, including seeking and evaluating potential partnershipsthat can create a stronger entity to secure new work into theshipyard and create value for our shareholders. We are talkingwith potential customers every week, and developing proposalsfor new vessels.

Third, we must remain fully engaged with FMG to respond to theRFP and to put ourselves in the position to be awarded the con-tract to construct the heavy polar icebreakers. That would be ahuge boost for our future, and it offers Philly Shipyard an oppor-tunity to enter an entirely new market.

Finally, we must be open, honest and direct with our workforcewith regard to the status of the shipyard. We must at all timesaffirm to them that they are the most important part of this ship-yard, that we value what they do for us and that we will alwaysstrive to treat them with respect and understanding during thesevery uncertain times.

Building the future

I would like to thank all our employees for another fantastic yearand for their great dedication in the face of tough competition. Iwould also like to extend my deep gratitude to our customers forshowing confidence in us. Finally, I would like to thank our share-holders, suppliers and other partners for their support and goodcollaboration over the past year.

We are looking forward to a challenging 2018. Shipbuilding canbe a difficult business, but one thing is certain – the United Stateswill always need ships, and we’ll do our utmost to be there toanswer the call.

Steinar NerbovikPresident and CEO

Philadelphia, March 5, 2018


Performance 2017

Board of Directors’ report

Board of Directors’ report 2017Philly Shipyard ASA and its subsidiaries (referred to herein as a group as “Philly Shipyard” or the “Company”)is a leading shipbuilder in the U.S. Jones Act market. Aker Capital AS, a wholly-owned subsidiary of AkerASA, is the majority shareholder in Philly Shipyard ASA.

Highlights

✓ Philly Shipyard delivered Hulls 026-028 to Kinder Morgan, Inc. (KMI), representing the final three producttankers in the four-vessel series for KMI

✓ Philly Shipyard received dividends totaling USD 39.9 million from Philly Tankers AS

✓ As of 31 December 2017, Philly Shipyard had an order backlog of USD 187.7 million with the last delivery inQ1 2019

✓ Philly Shipyard earned record strong EBITDA of USD 105.1 million in 2017, compared to EBITDA of USD70.4 million in 2016

ActivitiesThe main entities in Philly Shipyard are theNorwegian holding company, Philly Ship-yard ASA (referred to herein as “PHLY”),and its U.S. operating subsidiary, PhillyShipyard, Inc. (referred to herein as “PSI”or the “Shipyard”), a leading U.S. commer-cial shipyard. PHLY is located in Oslo,Norway, while PSI is located in Phila-delphia, Pennsylvania, USA. Philly Shipyardowns 53.7% of the outstanding shares ofPhilly Tankers AS (referred to herein as“Philly Tankers”), a Jones Act shippingcompany.

As of 31 December 2017, PSI’s work-force consisted of 1,202 people, with abreakdown of 588 direct employees and614 subcontracted personnel.

Philly Shipyard’s business strategy forPSI is to build vessels for operation in theU.S. Jones Act market and to opportunisti-cally participate in the post-delivery eco-nomics of those vessels. At the end of2017, PSI was building two containershipsunder contract with Matson (Hulls 029-030).

Safe, cost efficient and cost com-petitive construction of new vessels is crit-ical for the success of Philly Shipyard’sbusiness model. There are several factorsthat position Philly Shipyard to capitalizeon this market: a state-of-the-art shipyardwith modern equipment; access to globalshipbuilding and design expertise withpartners in Asia and Europe; a solid trackrecord demonstrated by the delivery of 28quality vessels (4 containerships, 22 prod-uct tankers and 2 aframax tankers) through2017; a skilled workforce consisting of

direct and contracted employees with astrong HSE mindset and culture ofimprovement; an opportunistic investmentapproach with respect to the post-deliveryeconomics of the vessels that it builds; anda proven history of promoting new vesselowners.

The Jones Act marketThe U.S. Jones Act generally restricts themarine transportation of cargo and pas-sengers between points in the UnitedStates to vessels built in the United States,registered under the U.S. flag, manned bypredominately U.S. crews, and 75% ownedand controlled by U.S. citizens. The abilityof the Company to win contracts is in partdependent on its unique ability to constructvessels that are eligible for U.S. Jones Acttrades, and the Jones Act requirement forconstruction of the vessels in the UnitedStates limits competition for future con-tracts by excluding foreign shipyards.Since the Company is not a U.S. citizen forpurposes of the Jones Act, the Company’sability to maintain an economic interest inthe vessels it constructs depends on com-pliance with certain Jones Act rules andinterpretations.

The Master Agreement, ShipyardLease and Authorization Agreementwith PSDCPSI currently operates its shipyard under a99-year lease with PSDC, a government-sponsored non-profit corporation. A MasterAgreement, a Shipyard Lease and anAuthorization Agreement govern PSI’s rela-tionship with PSDC and the various

governmental parties that have contributedto the establishment of the Shipyard.

Under the Master Agreement, the gov-ernmental parties have provided approx-imately USD 438 million for the renovationand modernization of the facility and trainingof the workforce. PSI was required to makecertain qualified infrastructure investmentstotaling USD 135 million, which have beenfully satisfied. PSI was also required to matchgovernment funding for certain training coststotaling USD 50 million, which has been ful-filled.

Under the Shipyard Lease, PSDC has theright to recapture the Shipyard if PSI fails tomaintain an average of at least 200 full-timeemployees at the Shipyard for 90 consecutivedays, subject to the right of PSI to completework-in-process projects and a one-time, lim-ited cure right which allows PSI to restore thelease to a 5-year term under certain circum-stances. With the current business plan, theCompany considers it unlikely that this termi-nation event will be triggered as long as thereis ongoing shipbuilding activity at the Ship-yard.

StrategyPhilly Shipyard will, through its unique partner-ships and experience obtained during con-struction of tankers and containerships, striveto be the most efficient shipyard in the U.S.Jones Act market for production of ocean-going vessels. Philly Shipyard expects itspowerful resume to facilitate possibilities forprofitable construction of vessels within exist-ing and new market segments, including gov-ernmental work. Philly Shipyard will continue


Performance 2017


to monitor and evaluate how to derive themaximum benefit from its competitive advan-tage and market share. If production capacityis available, PSI will also pursue fabricationopportunities outside of traditional shipbuild-ing where its core competencies in steel fab-rication, heavy lifting and project managementare advantageous.

In 2015, Philly Shipyard launched aplan to divest all of its shipping assets,consisting of its investments in both thePhilly Shipyard-Crowley joint venture andPhilly Tankers. With the delivery of Hull 028in Q4 2017, all of these shipping assetshave been sold, streamlining the businessand marking a successful conclusion to aninnovative plan to invest in eight Jones Actproduct tankers with an approximate con-tract value of USD 1.0 billion through thePhilly Shipyard-Crowley joint venture(Hulls 021-024) and Philly Tankers(Hulls 025-028). Going forward, PhillyShipyard will remain opportunistic in itsapproach with respect to investing in thepost-delivery economics of the vessels thatit builds.

Philly Shipyard’s research and develop-ment activities are primarily related to twoareas. The first area is the development ofPSI’s building methodology and workingmethods to ensure that PSI takes maximumbenefit of the learning curve and produceseach grand block and each vessel moreefficiently than the previous one. The sec-ond area is work related to the developmentof new vessels. Ordinarily, PSI will attemptto identify and license existing best-in-classdesigns and cooperate with the owners ofsuch designs to make such modificationsas are necessary. However, when existingdesigns are unavailable or unsuitable, PSIwill develop new designs to meet the needsof the market.

Key events 2017On 18 January 2017, Philly Shipyardreceived USD 21.1 million in dividends fromPhilly Tankers AS following delivery in Q42016 of the first product tanker (Hull 025)sold to Kinder Morgan.

On 29 March 2017, PSI delivered Hull026, the American Freedom, to KinderMorgan. In connection with this delivery,Philly Tankers sold its shipbuilding contractand related assets for Hull 026 to KinderMorgan.

On 18 April 2017, Philly Shipyardreceived USD 18.8 million in dividends fromPhilly Tankers AS following delivery in Q12017 of the second product tanker (Hull026) sold to Kinder Morgan.

On 21 July 2017, PSI and TOTEentered into a Letter of Intent (LOI) for theconstruction and sale of up to four new,cost-efficient and eco-friendly container-ships for the Hawai’i trade, with planneddeliveries for the first pair (Hulls 031-032) in2020 and the second pair (Hulls 033-034) in2021. In order to support this timetable,and minimize the gap in its shipbuildingactivities, PSI initiated design, planning andprocurement activities for these vessels. InJanuary 2018, the LOI expired in accord-ance with its terms and the TOTEcontainership project was placed on hold.For more details, please see the Outlookdiscussion on pages 16-17.

On 26 July 2017, PSI delivered Hull027, the American Liberty, to Kinder Mor-gan. In connection with this delivery, PhillyTankers sold its shipbuilding contract andrelated assets for Hull 027 to Kinder Mor-gan.

On 20 November 2017, PSI deliveredHull 028, the American Pride, to KinderMorgan. In connection with this delivery,Philly Tankers sold its shipbuilding contractand related assets for Hull 028 to KinderMorgan.

As of 31 December 2017, the projectto construct four 50,000 dwt product tank-ers (Hulls 025-028) for Philly Tankers was100% complete. The final three vessels(Hulls 026-028) were delivered to KinderMorgan in 2017. All of these product tank-ers were delivered on or before their con-tract delivery dates.

As of 31 December 2017, the projectto construct two containership vessels(Hulls 029-030) for Matson was approx-imately 54% complete.

Philly Shipyard paid dividends totalingUSD 3.0 million, consisting of an ordinarydividend of USD 0.25 per share, for Q42016.

Review of the annual accountsPhilly Shipyard prepares and presents itsaccounts according to International Finan-cial Reporting Standards (IFRS) as adoptedby the European Union.

PHLY was formed on 16 October 2007to be the holding company of PSI whichoperates the shipyard located in Phila-delphia, Pennsylvania, USA.

In accordance with IFRS, Philly Shipyardis recognizing the two containership order byMatson as a single combined project. Assuch, revenue and expense for these vesselshave been recognized on a combined projectbasis, whereby the construction progress ismeasured together. 100% of the revenue

and expense for each vessel included in thefour MT-50 tanker order by Philly Tankers(Hulls 025-028) were recognized at delivery,as if PSI was originally building these vesselsfor its own account. This accounting treat-ment was required for Hulls 025-028because there were no external customers atthe time these contracts were signed andshipbuilding activities commenced. As of 31December 2017, the Philly Tankers projectwas 100% complete and the Matson projectwas approximately 54% complete.

Order backlogAs of 31 December 2017, PSI’s order back-log was USD 187.7 million and representsan obligation to produce vessels that havenot yet been delivered to PSI’s customer.Order backlog consists of future contractrevenues and is subject to adjustmentbased on change orders as defined in theshipbuilding contracts. At the end of theyear, the order backlog was comprised oftwo container vessels under contract withMatson. The net order backlog decrease ofUSD 596.8 million from 2016 is due to thedelivery of the three remaining producttankers sold to Kinder Morgan and con-tinued progress made on the Matsonproject.

Profit and loss accountsIn 2017 Philly Shipyard had total operatingrevenues and other income of USD 614.6million from continued progress on theMatson project and the delivery of Hulls026-028 to Kinder Morgan. The Matsonproject recognizes revenue based on thepercentage of completion method, basedprimarily on the scope of completed workcompared to estimated overall projectscope. 100% of the shipbuilding profits oneach of Hulls 026-028 were recognizedupon its delivery. The Matson containervessels (Hulls 029 and 030) are based onan all-new design and this project, whichwas approximately 54% complete at year-end 2017, has been recognized without anymargin. 2016 total operating revenues andother income of USD 233.6 million repre-sented revenues from continued progresson the Crowley and Matson projects andthe delivery of Hull 025 to Kinder Morgan.Both of the Crowley and Matson projectsrecognized revenues based on thepercentage of completion method, basedprimarily on the scope of completed workcompared to estimated overall projectscope. 100% of the shipbuilding profit onHull 025 was recognized upon its delivery.

2017 other income of USD 22.8 millionwas comprised of profit in equity-accounted


Performance 2017


investments pertaining to Hulls 026-028and recognition of deferred net gain onequity-accounted investments pertaining toHulls 026-028. 2016 other income of USD28.4 million was comprised of thegain-on-sale of Philly Shipyard’s joint ven-ture interests pertaining to Hulls 023 and024, profit in equity-accounted investmentspertaining to Hull 025 and recognition ofdeferred gain on equity-accounted invest-ments pertaining to Hull 025.

Philly Shipyard’s earnings before inter-est, taxes, depreciation and amortization(EBITDA) was USD 105.1 million in 2017,compared to EBITDA of USD 70.4 million in2016. These figures correspond to EBITDAmargins of 17.1% and 30.1%, respectively.

Depreciation and amortization expensewas USD 5.8 million in 2017 andUSD 3.7 million in 2016. Philly Shipyard’searnings before interest and taxes (EBIT)was USD 99.3 million in 2017, compared toEBIT of USD 66.7 million in 2016.

In addition to the IFRS financial meas-ures, EBITDA and EBIT are consideredrelevant earnings indicators for the Com-pany as it measures the operational per-formance of the shipyard. These non-IFRSmeasures are included as items in theconsolidated income statement.

Net financial items in 2017 and 2016were income of USD 0.7 million andUSD 1.5 million, respectively. Net financialitems in 2017 were primarily driven byunrealized currency gains on foreignexchange forward contracts and higher netinterest expense on debt, whereas in 2016net financial items were driven by unreal-ized currency gains on foreign exchangeforward contracts and lower net interestexpense on debt.

Income tax expense for 2017 was USD32.7 million, compared to income tax expenseof USD 29.6 million in 2016. The 2017 incometax expense of USD 32.7 million includes anR&D tax credit of USD 8.7 million.

In 2017, Philly Shipyard’s net incomewas USD 67.2 million and its basic anddiluted earnings per share was USD 5.55.The corresponding figures for 2016 werenet income of USD 38.7 million and basicand diluted earnings per share ofUSD 3.19.

The increase in EBITDA year-over-yearwas mainly driven by recognition of 100%of the shipbuilding profits along with thecombined profit in equity-accountedinvestments and recognition of deferred netgain on equity-accounted investments onthree vessels in 2017 (i.e. Hulls 026-028),

compared to only one vessel in 2016(i.e. Hull 025).

Cash flowsThe Company’s cash flow from operationsdepends on payment terms for con-struction and delivery settlement for thevessels sold to external customers. Totalnet cash flow from operating activities in2017 was USD 109.6 million compared tototal net cash flow from operating activitiesof USD 20.7 million in 2016. There are sig-nificant changes year-to-year caused bythe timing of ship deliveries, the level ofcompletion of vessels and customer andvendor contract payment schedules.

Net cash flow from investment activ-ities was USD 32.7 million in 2017 and netcash flow from investment activities wasUSD 14.2 million in 2016. 2017 investmentactivities were primarily from the dividendreceived from Philly Tankers offset slightlyby capital improvements. 2016 investmentactivities were primarily proceeds from thesale of the shipping assets for Hulls 023and 024 offset slightly by capital improve-ments.

Net cash flow used in financing activ-ities was USD 101.3 million in 2017 and netcash flow used in financing activities wasUSD 35.8 million in 2016. Net outflows in2017 were primarily from repayment of theCat Financial construction loans and thedividend paid. Net outflows in 2016 wereprimarily from the dividend paid andrepayment of the Philly Tankers note offsetslightly by (net) draws on the Cat Financialconstruction loan facility.

Statement of financial position andliquidityAs of 31 December 2017, Philly Shipyard hadcash and cash equivalents (excluding restrictedcash) of USD 110.1 million. The correspondingfigure for 2016 was USD 69.1 million. PhillyShipyard’s net working capital (current assetsless current liabilities) was USD 104.0 million at31 December 2017, compared to USD 6.9 mil-lion at 31 December 2016. As of 31 December2017, Philly Shipyard had restricted cash ofUSD 13.2 million related to the Welcome Fundloan, which is expected to be released in 2020when the loan matures.

Current assets as of 31 December 2017totaled USD 141.3 million and are comprisedof cash and cash equivalents, vessels-under-construction receivable, work-in-process,income tax receivable, restricted cash andprepayments and other receivables. Thework-in-process of USD 13.4 million at year-end 2017 represents the costs incurred by PSI

on the CV3700 project (Hulls 031-032) built forits own account. Current assets as of31 December 2016 totaled USD 263.9 millionand were comprised of cash and cash equiv-alents, work-in-process, income tax receiv-able, restricted cash and prepayments andother receivables. The decrease in currentassets is primarily due to the aggregatedecrease in vessels-under-constructionreceivable and work-in-process.

Non-current assets as of 31 December2017 of USD 111.7 million consist of prop-erty, plant and equipment, restricted cash,equity-accounted investments, deferred taxasset and other non-current assets.Non-current assets as of 31 December2016 of USD 144.9 million consisted ofproperty, plant and equipment, restrictedcash, equity-accounted investments,deferred tax asset and other non-currentassets.

Current liabilities as of 31 December2017 of USD 37.3 million consist of tradepayables and accrued liabilities, warranties,income tax payable and the current portionof the capital lease. The correspondingfigure for 31 December 2016 wasUSD 257.0 million and consists of tradepayables and accrued liabilities, warranties,income tax payable, construction loans,customer advances, net and the currentportion of the capital lease. The decrease isprimarily driven by payoff of the con-struction loans and customer advances,net.

Non-current liabilities as of31 December 2017 of USD 60.1 millionconsist of interest-bearing long-term debtand deferred tax liability. The correspond-ing figure for 31 December 2016 was USD60.4 million and consists of interest-bearing long-term debt, deferred taxliability and other non-current liabilities.

Interest-bearing debt decreased toUSD 59.6 million at 31 December 2017compared to USD 157.6 million as of31 December 2016. This decrease wasprimarily attributable to payoff of the con-struction loans.

At year-end 2017, total equity wasUSD 155.6 million and the equity ratio (totalequity divided by total assets) was 61%.Corresponding figures for 2016 wereUSD 91.4 million and 22%, respectively.The increase in equity was the result of thecurrent year’s profit slightly reduced by thedividend paid.

The Board deems that the Company asof 31 December 2017 is financially soundand has an appropriate financing structure.


Performance 2017


RisksMarket risksThe overall market risk is related to theJones Act. Interest groups have lobbied theU.S. Congress in the past to repeal ormodify the Jones Act, and legislation toremove the U.S-build requirement of theJones Act has been proposed, but marketexperts believe that repeal of or significantchanges to the Jones Act are unlikely.Repeal of or significant changes to theJones Act could, among other things,increase competition from foreign (non-U.S.) shipbuilders with lower costs orrequire increased use of higher priceddomestic content, and as a result reducethe demand for U.S.-built vessels. In orderto address this risk, the Company has con-tinuous engagement with local, state andfederal government officials.

Philly Shipyard is also exposed tomarket risk related to imbalance betweensupply and demand for vessels in theJones Act market, which may result in areduction of vessel prices and/or delay innew projects. PSI faces risks related to thecontracts for its vessels, including the riskthat those contracts are cancelled and theunderlying vessels are ultimately sold tothird parties for less favorable terms.

The delay PSI has experienced in secur-ing new contracts and financing for workafter the last vessel in the current orderbacklog (Hull 030) has interrupted its buildingprogram, causing PSI to temporarily haltcertain operations and lay-off some employ-ees. This interruption in PSI’s building pro-gram has resulted in and will continue toresult in under-recovered overhead costs. Ifthis delay continues, then it will further inter-rupt PSI’s building program and increase therisks faced by PSI, including challengesrelated to attracting and retaining skilledworkers at current forecasted rates. In addi-tion, because multiple vessels are in pro-duction at any one time, lack of a continuedfirm order backlog may cause operationalinefficiencies for completion of the remainingvessels in the current order backlog.

Philly Shipyard faces additional risks ifit is unable to secure new orders and/orfinancing for vessels after Hull 030. Therecan be no assurance that PSI will obtainnew orders or financing for these vessels. Ifthe Shipyard fails to obtain new orders orfinancing for these vessels before theMatson project is substantially complete,then it is expected that the Company wouldincur significant expenses (including can-cellation costs for long-lead items) and itwould be challenging for PSI to continue

shipbuilding operations after delivery ofHull 030, which is scheduled in Q1 2019.

Operational risksPhilly Shipyard faces risks related to con-struction of vessels. The Shipyard’s abilityto meet budgets and schedules may beadversely affected by many factors, includ-ing changes in productivity, shortages ofmaterials, equipment and labor andchanges in the cost of goods and services,both Philly Shipyard’s own and thosecharged by its suppliers. The Shipyard’soperations also depend on stable suppliernetworks and the availability of key vendorsfor design and procurement services. Inaddition, the Shipyard faces challengesattracting and retaining skilled workers atcurrent forecasted rates.

The Company furthermore faces chal-lenges related to the construction of newclasses of vessels, as well as managingmultiple projects at the same time. Thesechallenges sometimes tend to impact qual-ity, timely delivery and cost efficiencies. Inorder to reduce these risks, the Shipyardenters into contracts with design and pro-curement partners.

During 2017, PSI completed the tran-sition from building Hulls 021-028 as tankersto building Hulls 029-030 as prototypecontainer vessels. The container vessels areviewed as a higher risk since PSI’s main activ-ity during the last ten years has been buildingtankers and the last container vessel wasdelivered by PSI in 2006. Accordingly, there isa higher technical design risk and a higherproject execution risk compared to the recentconstruction of multiple product tankers,which increases the current construction costestimation uncertainty and the occurrence ofcontract contingencies. In addition, due to thebreakeven projected margins on Hulls 029and 030, there is a risk that these vessels willend up as a loss-making project. Furthermore,failure to meet the Shipyard’s performanceobligations to deliver vessels on time andwithin the contract specifications (e.g., speed,container capacity and fuel consumption) canpotentially lead to penalties and ultimatelycontract termination.

The Shipyard depends on unionizedlabor for construction of vessels. Workstoppages or other labor disturbances couldhave a material adverse effect on theCompany’s business, results of operationsand financial condition. In order to mitigatethis risk, the Shipyard has signed a collectivebargaining agreement with the Unions whichis effective through January 2019. Thecollective bargaining agreement includes a

no-strike clause. In 2018, PSI intends tonegotiate a multi-year extension of thecollective bargaining agreement.

The Shipyard further depends upon a99-year lease agreement for the shipyardfacility and the future operations of the yardwill accordingly be dependent upon PSIfulfilling its obligations under this leaseagreement. Failure to maintain certainemployment levels may result in earlytermination of this lease. For more detailsregarding this lease, see “The MasterAgreement, Shipyard Lease and Author-ization Agreement with PSDC” onpages 10-11.

The Shipyard’s operations are subjectto the usual hazards inherent in shipbuild-ing, such as the risk of equipment failureand work accidents. Despite the Shipyard’sbest efforts to eliminate these hazards, theycan sometimes cause personal injury, busi-ness interruption, construction delays,property and equipment damage, pollutionand environmental damage. PSI continuesto implement its Health, Safety andEnvironment (HSE) management systemand provide training to its workforce tomitigate these risks. The Shipyard’s policyof covering these risks through contractuallimitations of liability and indemnities andthrough insurance may not always be effec-tive, and customers and subcontractorsmay not have adequate financial resourcesto meet their indemnity obligations to PSI.

The Company faces risk of significantfinancial, business and intelligence loss ifthere are cyber security breaches. PhillyShipyard has invested significant resourcesto provide a more secure computing envi-ronment over the last several years, result-ing in improved security and businessresiliency. PSI maintains a continued highawareness of the Company’s risk profileregarding cyber security because newthreats can emerge quickly.

The Shipyard’s operations are subject tonumerous international, national, state andlocal environmental, health and safety laws,regulations, treaties and conventions, includ-ing, inter alia, those controlling the permittedand unpermitted discharge of materials intothe environment, requiring removal andcleanup of environmental contamination,establishing certification, licensing, healthand safety, labor and training standards orotherwise relating to the protection of humanhealth and the environment. Sanctions forfailure to comply with these requirements,which may be applied retroactively, mayinclude: administrative, civil and criminalliabilities, revocation of permits to conduct


Performance 2017


business and corrective action orders, includ-ing orders to investigate and clean up con-tamination.

Financial risks

Philly Shipyard’s activities expose it to avariety of financial risks: market risk(including commodity pricing risk, currencyrisk and price risk), credit risk and cash flowinterest-rate risk. Philly Shipyard’s overall riskmanagement program focuses on theunpredictability of financial markets andseeks to minimize potential adverse effectson Philly Shipyard’s financial performance.Philly Shipyard uses derivative financialinstruments to hedge certain risk exposures.

Risk management is carried out underpolicies and protocols approved by theBoard of Directors. The Board of Directorsprovides principles for overall financial riskmanagement as well as policies coveringspecific areas such as foreign exchangerisk, interest-rate risk, credit risk and use ofderivative financial instruments andnon-derivative financial instruments.

The Company is exposed to changesin prices of steel and other materials andduties, tariffs and other taxes imposed ongoods imported from foreign (non-U.S.)countries. The Company attempts to miti-gate its exposure with respect to steel andother material price escalation andincreased taxes on imported goods byattempting to pass these risks on to its endcustomers. PSI carried the risk of steelprice escalation on Hulls 025-028. Matsoncarries the risk of steel price escalation onHulls 029 and 030.

The Company is subject to exchangerate risk. In order to mitigate exposure to thisrisk, PSI has secured foreign exchange for-ward contracts for its known requirementsfor foreign currency for Hulls 029-030.

PSI operates in business areas that arecapital intensive. The Shipyard is depend-ent upon having access to constructionfinancing facilities and other loans and debtfacilities to the extent its own cash flowfrom operations and milestone paymentsfrom customers are insufficient to fund itsoperations and capital expenditures. Inturn, the Shipyard must secure and main-tain sufficient equity capital to supportconstruction financing facilities.

Philly Shipyard regularly monitors thefinancial health of its construction financinglenders as well as the financial health of thefinancial institutions which it uses for cashmanagement services and in which itmakes deposits and other investments.

Through construction financing, theCompany is exposed to fluctuations in inter-est rates. There is no construction financingfor the Matson project (i.e. Hulls 029 and030), as these contracts will be fully fundedby customer milestone payments.

The credit risk of ship owners is eval-uated upon contract signing. Typically, shipowners have financing approvals in placebefore they enter into contracts with PSI.During the construction period, Philly Ship-yard continually evaluates the credit riskassociated with ship owners and, except incases where PSI arranges constructionfinancing, manages this risk by requiringpayment for substantially the entire con-tractual amount prior to delivering a vessel,including milestone payments upon com-pletion of specified milestones. At thecompletion of a vessel, transfer of owner-ship takes place upon settlement. Should aship owner fail to pay, PSI may attempt todispose of the vessel in the open-market torecover its construction costs.

PSI accrues an estimate for futurewarranty claims on its delivered vessels.Thus far the claims have been within thereserve amounts. In order to mitigate therisk of warranty claims exceeding warrantyprovisions, PSI has secured back-to-backwarranties for most major components onthe vessels.

Events after 31 December 2017On 26 January 2018, PSI announced that ithad placed the TOTE containership projecton hold and is considering alternative proj-ects. On 31 January 2018, the Letter of Intentbetween PSI and TOTE expired in accord-ance with its terms. For more details, pleasesee the Outlook discussion on pages 16-17.

The going concern assumptionIn view of Philly Shipyard’s current equityand cash position and order backlog, theBoard confirms the going concern assump-tion and that the 2017 annual accounts havebeen prepared based on the assumption ofa going concern. PSI does not currently haveany vessels in its order backlog afterHull 030, which is scheduled for delivery inQ1 2019. For accounting purposes, thegoing concern principle is for the 12-monthperiod after the Board of Directors approvesthe 2017 annual financial statements. If PSIfails to obtain new orders or financing forvessels before the Matson project is sub-stantially complete, then it would bechallenging for PSI to continue shipbuildingoperations after delivery of Hull 030.

Parent company accounts andallocation of income for the yearThe income/(loss) account of Philly Ship-yard ASA for the year 2017 shows incomeof USD 1.1 million. The Board of Directorsproposes that the income for the year beallocated as shown below:

Dividend payment USD (3.0) million

Other equity USD 1.1 million

Total allocated USD (1.9) million

As of 31 December 2017, the parentcompany has approximately USD 5.5 millionof equity which could be distributed toshareholders by the Board in accordancewith PHLY’s dividend policy.

Due to the delay in securing new ordersbeyond Hull 030, at this time, PHLY does notplan to pay any further ordinary or extra-ordinary dividends in 2018. The PHLY Boardwill revisit PHLY’s dividend policy and divi-dend plan when it has more clarity about theCompany’s new order situation and relatedcapital requirements.

The parent company’s only assets arecash and the investment in subsidiary (PSI).

Corporate social responsibilityMaintaining a healthy and safe workplaceand being friendly to the environment is anessential part of Philly Shipyard’s strategy.Philly Shipyard develops policies to complywith or exceed all federal, state and localrequirements.

All of PSI’s employees work at the ship-yard facility located in Philadelphia, Pennsyl-vania in the United States of America. TheCompany believes that being a good corpo-rate citizen is good business. As a platformfor these beliefs, PSI developed a WeCareprogram, which provides support foremployees and the community throughteambuilding, volunteering and educationalinitiatives.

PSI’s WeCare program was in full gearduring 2017. The Shipyard worked with theGreater Philadelphia Chamber of Com-merce to support the Read to Me program.Volunteers were given a book to read tostudents in Pre-K and kindergarten in sev-eral area schools in need. During anotherevent through the Chamber of Commerce,Future Ready, students were invited intothe Shipyard and met with various depart-ments. With experiences from the financedepartment and engineering department,and meeting with welders, students wereshown firsthand how it takes a diverseteam of people to work together to build a


Performance 2017


ship. The Shipyard also organized fund-raisers to help with several of the naturaldisasters that occurred during 2017. PhillyShipyard continued to work, for a secondyear, with a local non-profit to organize abook drive for a school in need, and thenassisted in setting up a pop-up book storein the school. Philly Shipyard also workedwith the Seamen’s Church Institute todonate goodie bags for local seafarersarriving in Philadelphia, organized anotherannual toy drive and volunteered at thelocal hunger relief center to sort and packfood. All left over non-perishable fooditems from sea trials are also donated tothe food bank. PSI employees also cametogether to raise funds that supported fel-low employees in need. Raffles, bake salesand donations were made to help supportcolleagues through the year. Embeddingthese activities into the organizationreinforces Philly Shipyard’s CORE valuesand brings employees together in a newand powerful arrangement.

PSI seeks to be an attractive employerand maintains a human relations policy thatis open and fair. PSI is committed toproviding equal employment opportunity toall employees and applicants for employ-ment, regardless of race, color, ethnicbackground, gender, religion, age, maritalstatus, sexual orientation, national origin,citizenship status, disability, veteran statusor any other legally protected status.Diversity strengthens the Shipyard’s overallcapacity and skills. In support of this diver-sity, PSI currently maintains an approx-imately 38% minority workforce.

The maritime industry has traditionallybeen male-dominated. The entire industryfaces the challenge of increasing the pro-portion of female employees. PSI has takensome affirmative steps to address this chal-lenge. For example, the Shipyard encour-ages female applicants and has seenincreased interest among potential femaleemployees to pursue a career with PSI. Tofurther this goal, PSI participates in availablegovernment programs that encouragewomen in manufacturing and has recruited atschools and training programs with morewomen. PSI has also continued to trainsupervisors, managers and employees in ourEqual Employment Opportunity (EEO) policy.

At year-end 2017, approximately 5%of the workforce was women. While therewere no women on PSI’s senior manage-ment team, women held key positions suchas Project Cost Controller, AccountingManager, Payroll/Benefits Supervisor andHR/Communications Manager. In addition,

two of the four members of PHLY’s Boardof Directors are women.

The Shipyard is committed to maintain-ing a work environment that is free of dis-crimination, harassment and hostilities. Inkeeping with this commitment, PSI main-tains a strict Harassment Free EnvironmentPolicy and does not tolerate unlawful har-assment of employees by anyone.

Philly Shipyard believes all peopleshare the same fundamental human rights.The Company follows legal and responsiblesourcing practices and expects its suppli-ers to uphold the same standards. In 2017,the Company did not have a formal policyregarding human rights as its sole operat-ing company is located in the UnitedStates, which has extensive human rightslaws in place.

At the operating subsidiary in Phila-delphia, worker’s rights are protected byfederal, state and local laws. In addition,approximately three-fourths of PSI’semployees are members of the PhiladelphiaMetal Trades Council (PMTC) union and arecovered under the collective bargainingagreement between the PMTC and theShipyard. This agreement is effective until31 January 2019.

Under this collective bargaining agree-ment, union employees are granted vaca-tion and personal time, and most unionemployees receive shutdown pay duringthe week of the Fourth of July holiday andin between the Christmas and New Year’sholidays. In addition, union employees maytake up to 6 unpaid days within a 12-monthperiod. Traditional sick days are not part ofthe collective bargaining agreement.Non-union employees accrue sick time ona monthly basis and may maintain a bal-ance of up to 200 hours. During 2017, 217non-union employees used 8,651 hours ofsick time, representing 2.2% of totalnon-union work hours. Comparably, in2016, 191 non-union employees used7,121 hours of sick time, representingapproximately 1.9% of the total non-unionwork hours.

At the Shipyard, HSE is not just a prior-ity, but is a mindset embedded in all deci-sions and actions. The Union-ManagementSafety and Environmental Board reviewsthe various HSE programs, and makesrecommendations on policies and proce-dures. The HSE system includes safetytraining of employees and subcontractors,safety inspections, industrial health andwellness programs, drug testing, emer-gency response and environmental pro-grams. PSI expects to implement new

initiatives to continuously improve its HSEmindset during 2018.

In 2017, the frequency of lost-timeincidents (incidents resulting in absence fromwork per one million hours) was 4.9, com-pared with 5.5 in 2016. The incidents camefrom a total of 2,845,014 hours worked byPSI employees and subcontractors in 2017,compared with 2,900,698 hours worked byPSI employees and subcontractors in 2016.PSI had 14 lost time incidents in 2017. Themost serious incidents to occur resulted infractures, including fractured fingers. Themost common injuries were sprains, strainsand eye injuries. PSI continues to workproactively to further improve safety andreduce the number of incidents at the Ship-yard. In 2017, several HSE department ini-tiatives took place including the purchase ofa training manikin for emergency rescue. Thiswas utilized to conduct more realistic drillsfor our Emergency Response Team (ERT)members.

In 2018, the Shipyard will continue onthe journey of culture change based on theSignal Mutual SEE audit. This effort includesmore dedicated safety inspection walks withexecutive team members as well as theproduction managers. With these initiativesand additional training opportunities, theShipyard continues to believe that improve-ments will be made.

Philly Shipyard takes its environmentalresponsibilities seriously beginning with thevessel design. The Shipyard uses the latestInternational Maritime Organization (IMO)requirements as guidance for environmentalprotection and efficiency during the designand production process. The industrialnature of the Shipyard’s activities requiresthe use of significant amounts of energy,both electrical and gas, as well as the releaseof particulate and VOC emissions. During2017 PSI used approximately 34.1 GWh ofelectricity and approximately 889,700 ccf ofnatural gas.

Its VOC emissions were 126 tons forthe reporting period ending in 2017. PSIhad no reported discharges into the sur-rounding waterways. Environmental statusreporting is an integral part of theShipyard’s reporting system, on par withreporting on financial matters and oper-ations. This commitment extends toevaluating and adopting environmentallybeneficial improvements in productionprocesses, alternative materials and serv-ices. PSI promotes open communicationon environmental issues with employees,neighbors, public authorities and otherinterested parties and has implemented a


Performance 2017


system through which employees canmake observations and suggestions aboutthe Shipyard’s environmental performance.In 2017, PSI’s HSE department continuedits emphasis on advanced environmentaltraining for the HSE coordinators to keepthem updated on state and federal EPAstandards and guidelines.

In 2017, PSI generated approximately80 tons of hazardous waste and recycledapproximately 1,284 tons of wood and2,765 tons of steel. PSI has continued itsprogram to gather and sort waste to pro-mote environmentally responsible handling,disposal and recovery of any residual value.

A basic principle of ethical businessconduct requires that each employee of theShipyard support positively, both on and offthe job, the Shipyard’s business activities.One important way we satisfy thisresponsibility is to ensure that our businessdealings are never influenced by – or evenappear to be influenced by – our own per-sonal interests. The Company has zerotolerance for corruption and has adopted anAnti-Corruption Policy that is in line with theanti-corruption policies at other AkerASA-related companies. The Company alsomaintains a strict Conflict of Interestspolicy, which is reflected in PSI’s employeehandbook, as well as its Terms and Con-ditions to outside suppliers.

In support of the above initiatives andpolicies, the Shipyard maintains a formalpolicy for the disclosure of wrongful con-duct and protection from retaliation (the“Whistleblower Policy”). This policy is avail-able to all employees and is administeredby the Vice President of Human Resources.During 2014, a simplified process to makeanonymous reports of violations through athird party administrator was implemented.In 2017, there were 4 cases reported usingthis process, none of which were consid-ered material.

OrganizationOn 31 December 2017, PSI had 588 directemployees and 614 subcontracted person-nel. The Shipyard experiences higher turn-over amongst its union and productionsubcontractor employees compared toother employees. The delay PSI has experi-enced thus far in securing new ordersbeyond the Matson project has caused it,and will continue to cause it, to experiencea slow-down of various departments. Dueto this interruption of PSI’s building pro-gram, it is necessary to temporarily ceasecertain operations and place some employ-ees in a layoff status. Accordingly, PSI has

reduced and will continue to adjust its work-force in line with its order backlog.

Corporate governancePhilly Shipyard’s corporate governancepolicy exists to ensure an appropriate divi-sion of roles among the Company’s owners,Board of Directors and Executive Manage-ment. Such a separation of roles ensuresthat goals and strategies are prepared, thatadopted corporate strategies areimplemented, and that the results achievedare subject to verification and follow-up.Applying these principles also contributesto satisfactory group-wide monitoring andverification of activities. An appropriatedivision of responsibilities and satisfactorycontrols will contribute to the greatestpossible value creation over time, to thebenefit of shareholders and other interestgroups. Philly Shipyard’s corporate gover-nance guidelines are presented in greaterdetail on pages 60-63 of this annual report.

OutlookShipbuildingPhilly Shipyard has built a strong founda-tion for its future through both its reputa-tion for delivering on its promises and theefficient and innovative organization thathas been developed.

Today the Shipyard has a single con-tract with Matson (Hulls 029-030) whichprovides for shipbuilding activity with deliv-ery dates through Q1 2019. As of31 December 2017, PSI had an order back-log of USD 187.7 million.

Philly Shipyard achieved record highrevenues and profits in 2017. The maindrivers of the record high revenues were thedeliveries of three product tankers (Hulls026-028) to Kinder Morgan, as well as con-tinued progress on two containerships(Hulls 029-030) for Matson. While PhillyShipyard recognized 100% of the profit(including profit and deferred net gain fromequity-accounted investments) on Hulls026-028 in 2017, there was no profitrecognized on the Matson project in 2017(currently being forecasted as a breakevenproject). The container vessels are based onan all-new design and the Shipyard lastdelivered a containership in 2006. Accord-ingly, there is a higher technical design riskand a higher project execution risk com-pared to the recent construction of multipleproduct tankers, which increases the cur-rent construction cost estimationuncertainty. In addition, due to theprojected breakeven margin on Hulls 029and 030, there is a risk that these vesselswill end up as a loss-making project.

Furthermore, failure to meet the Shipyard’sperformance obligations to deliver vesselson time and within the contract specifica-tions (e.g. speed, container capacity andfuel consumption) can potentially lead topenalties and ultimately contract termi-nation.

In contrast, Philly Shipyard expects itwill recognize revenues in 2018 only for thecontinued progress on the Matson project(Hulls 029-030) and potentially some initialprogress on contracts for new vessel con-struction projects, if and when secured,provided that revenue recognition over timeis allowed for such other contracts underthe new IFRS 15 standard. Although thenew IFRS 15 standard had no impact onthe Matson vessels in 2017, it will have animpact on those vessels in 2018 when it isin effect. The revenues in 2018 will in anycase be significantly lower than in 2017.Philly Shipyard expects that the margincontribution from the Matson project andany other vessel construction projects tobe recognized in 2018 will not be sig-nificant and is not expected to cover anyS,G&A or other operating costs not allo-cated to projects for 2018.

The key focus area for PSI’s operationsis continued progress on the containershipsunder construction for Matson. In addition,the main focus areas for PSI’s business aresecuring new contracts to expand its orderbacklog beyond Hull 030 and seeking capi-tal to finance the construction of new ves-sels. As noted in the Organizationdiscussion above, the delay PSI has alreadyexperienced in securing this new businessand financing has interrupted its buildingprogram, causing PSI to temporarily haltcertain operations and lay-off someemployees.

Until earlier this year, PSI had beenworking on a long-term project that con-templated the construction and sale of upto four state-of-the-art containerships(CV3700 vessels) for delivery to TOTE in2020 and 2021. The parties signed a Letterof Intent (LOI) for this project in July 2017.However, in January 2018, TOTEannounced that its plans to enter the U.S.mainland to Hawai’i containership serviceare on hold as a result of its Phase 1technical review of Piers 1 and 2 inHonolulu Harbor and the LOI was allowedto expire in accordance with its terms on31 January 2018.

Based on these developments, PSI’sproject to build Hulls 031-034 ascontainerships was put on hold. PhillyShipyard has suspended substantially all


Performance 2017


construction-related activities on thesevessels. As previously disclosed, the Ship-yard has placed orders for all major long-lead items for the first pair, enabling a rapidstart-up if conditions permit. If these orderswere to be cancelled, then the cancellationcosts would be substantially lower than thevalue of the orders placed. In case of acancellation of the CV3700 project, thetotal cost is estimated to be less than USD20.0 million, of which a majority of the cashimpact has already been included in thefinancial statements for year-end 2017.

The Shipyard intends to resume thisproject when there is more clarity regardingthe new order situation and related capitalrequirements. Accordingly, PSI is exploringalternatives in order to secure contractsand financing for these vessels. In addition,PSI is continuing to pursue potential newconstruction projects for other types ofJones Act vessels.

In the longer term, the Shipyard isseeking to diversify its business beyond the

traditional vessels it has built for thecommercial market. In order to be able tomaintain continuous shipbuilding activities,the Shipyard is pursuing opportunities toexpand its base for operations also intonew long-term projects for non-commercialend users.

Among other endeavors, PSI hasteamed with Fincantieri Marine Group andVard Marine to compete for the detail designand construction of the U.S. Coast Guard’snext generation heavy polar icebreaker. Insupport of this effort, the team is participat-ing in a government funded industry study todevelop a baseline icebreaker design, costestimate, and project schedule and refinekey vessel features and performancerequirements.

The timing of contracts for new vesselsremains uncertain. Philly Shipyard continuesto be committed to providing the Jones Actmarket with the most cost-efficient andenvironmentally-friendly vessels possible andbelieves that PSI will be the supplier of choice

when these vessels are ordered. Philly Ship-yard considers each opportunity for the valueit would create for the Company and itsshareholders.

Shipping

With the delivery of Hull 028 in 2017, PhillyShipyard has successfully divested all of itsshipping assets related to Hulls 021-028.These transactions streamlined the busi-ness and marked a successful conclusionto an innovative plan to invest in eightJones Act product tankers with an approx-imate contract value of USD 1.0 billionthrough the Philly Shipyard-Crowley jointventure (Hulls 021-024) and Philly Tankers(Hulls 025-028). Philly Tankers has initiateda liquidation process with a target ofdistributing a majority of its cash to PhillyShipyard and its other shareholders in 2018.In line with its business strategy, PhillyShipyard will continue to evaluate oppor-tunities to participate in the post-deliveryeconomics of the ships that it constructs.


Oslo, Norway5 March 2018

Board of DirectorsPhilly Shipyard ASA

James H. Miller Amy Humphreys Elin KarfjellBoard Chairman Board Member Board Member

Audun Stensvold Steinar NerbøvikDeputy Board Chairman President and CEO

Performance 2017

Directors’ responsibility statement

Directors’ responsibility statementToday, the Board of Directors and the ChiefExecutive Officer reviewed and approvedthe Board of Directors’ report and theconsolidated and separate annual financialstatements for Phillly Shipyard ASA, as ofand for the year ending 31 December 2017(annual report 2017).

The Philly Shipyard ASA consolidatedfinancial statements have been prepared inaccordance with IFRS, as adopted by theEuropean Union, and additional disclosurerequirements in the Norwegian AccountingAct, and that should be used as of31 December 2017. The separate financial

statements for Philly Shipyard ASA have beenprepared in accordance with the NorwegianAccounting Act and Norwegian AccountingStandards as of 31 December 2017. TheBoard of Directors’ report for Philly Shipyardand the parent company is in accordance withthe requirements in the Norwegian AccountingAct and Norwegian accounting standardno. 16, as of 31 December 2017.

To the best of our knowledge:

� The consolidated and separate annualfinancial statements for 2017 have beenprepared in accordance with applicableaccounting standards

� The consolidated and separate annualfinancial statements give a true and fairview of the assets, liabilities, financialposition and profit as a whole as of31 December 2017 for Philly Shipyardand the parent company

� The Board of Directors’ report for PhillyShipyard and the parent companyincludes a true and fair review of:

– The development and performance ofthe business and the position of PhillyShipyard and the parent company

– The principal risks and uncertaintiesPhilly Shipyard and the parent com-pany face




Audun Stensvold Steinar NerbøvikDeputy Board Chairman President and CEO


Performance 2017

Consolidated accounts

Philly Shipyard ASA

Consolidated Income Statement

Amounts in USD thousands (except share amounts and earnings per share) Note 2017 2016

Operating revenues 2 591 784 205 249Other income 2 22 851 28 378

Operating revenues and other income 614 635 233 627Cost of vessels sold (499 400) (154 935)Wages and other personnel expenses, net 4 (3 308) (2 864)Other operating expenses 5 (6 868) (5 423)

Operating income before depreciation and amortization (EBITDA) 105 059 70 405Depreciation 8 (5 797) (3 666)

Operating income before interest and taxes (EBIT) 99 262 66 739Financial income 6 2 703 2 792Financial expense 6 (2 032) (1 299)

Income before tax 99 933 68 232Income tax expense 7 (32 710) (29 580)

Net income for the year * 67 223 38 652

Weighted average number of ordinary shares 13 12 107 901 12 107 901Basic earnings per share (USD) 13 5.55 3.19Diluted earnings per share (USD) 13 5.55 3.19

Consolidated Statementof Comprehensive Income

Amounts in USD thousands 2017 2016

Net income for the year 67 223 38 652Other comprehensive income, net of income tax - -

Total comprehensive income for the year * 67 223 38 652

* All attributable to equity holders of the parent company.


Performance 2017


Philly Shipyard ASA

Consolidated Statement of Financial Positionas of 31 DecemberAmounts in USD thousands Note 2017 2016

ASSETSProperty, plant and equipment 8 50 103 50 560Restricted cash 12 13 154 13 101Deferred tax asset 7 897 16 624Equity-accounted investments 24 47 310 64 335Other non-current assets 9 239 238Total non-current assets 111 703 144 858

Vessels-under-construction receivable 3 7 275 -Work-in-process 3 13 420 180 321Restricted cash 12 14 7 001Prepayments and other receivables 10 4 603 5 696Income tax receivable 7 5 912 1 805Cash and cash equivalents 11 110 066 69 109Total current assets 141 290 263 932

Total assets 252 993 408 790

EQUITY AND LIABILITIESPaid in capital 14 35 206 35 206Other equity 120 371 56 175Total equity attributable to equity holders of the parent company 155 577 91 381

Total equity 155 577 91 381

Interest-bearing long-term debt 15 59 370 59 329Other non-current liabilities 16 - 3Deferred tax liability 7 704 1 031Total non-current liabilities 60 074 60 363

Construction loans 15 - 98 000Interest-bearing short-term debt 15 248 235Trade payables and accrued liabilities 20 34 814 56 544Income tax payable 7 965 2 134Customer advances, net 3 - 97 887Other provisions - warranties 19 1 315 2 246Total current liabilities 37 342 257 046Total liabilities 97 416 317 409

Total equity and liabilities 252 993 408 790




Audun Stensvold Steinar NerbovikDeputy Board Chairman President and CEO


Performance 2017


Philly Shipyard ASA

Consolidated Statement of Changes in Equity

Amounts in USD thousands Share capital Share premium Treasury shares Other equity Total equity

Balance at 31 December 2015 22 664 56 797 (9 969) 73 942 143 434

Dividend paid - (34 286) - (56 419) (90 705)

Total comprehensive income for the year 2016 - - - 38 652 38 652


Dividend paid - - - (3 027) (3 027)

Total comprehensive income for the year 2017 - - - 67 223 67 223



Performance 2017


Philly Shipyard ASA

Consolidated Cash Flow Statement

Amounts in USD thousands Note 2017 2016

Income before tax 99 933 68 232Unrealized foreign exchange gain 6 (1 829) (2 199)Depreciation 8 7 649 3 666Amortization of fees of interest-bearing non-current debt 15 289 221Profit in equity-accounted investments 2,24 (19 618) (6 227)Recognition of deferred net gain on equity-accounted investments 2,24 (3 233) (1 462)Gain-on-sale of shipping assets 2 - (20 689)Interest expense accreted 6 - 72Net financial expense 6 1 399 679(Increase)/decrease in:

Vessels-under-construction receivable 3 (7 275) 111 736Work-in-process 3 166 901 (134 913)Restricted cash (current) 12 6 987 (1)Prepayments and other receivables 10 1 326 (1 812)Other non-current assets 9 (1) (9)

Increase/(decrease) in:Trade payables and accrued liabilities 19,20 (21 065) 12 054Customer advances, net 3 (97 887) 43 918Other non-current liabilities 16 (3) (7 399)

Income taxes paid 7 (22 586) (44 488)Interest paid, net of capitalized interest 6 (5 076) (2 721)Interest received 6 3 677 2 042

Net cash flow from operating activities 109 588 20 700

Investments in property, plant and equipment 8 (7 192) (8 515)Distribution received from equity-accounted investments 39 876 -Sale of shipping assets, net of transaction costs 2 - 22 744

Net cash flow from investing activities 32 684 14 229

Proceeds from construction loans 15 127 000 260 000Repayment of construction loans 15 (225 000) (191 000)Repayment of interest-bearing debt 15 (235) (14 059)Portion of interest-bearing non-current debt held in escrow 12 (53) (1)Dividend paid (3 027) (90 705)

Net cash flow used in financing activities (101 315) (35 765)

Net change in cash and cash equivalents 40 957 (836)Cash and cash equivalents as of 1 January 69 109 69 945

Cash and cash equivalents as of 31 December 11 110 066 69 109


Performance 2017


Philly Shipyard ASA

Notes to the accounts

� Note 1: Accounting principles

STATEMENT OF COMPLIANCEThe consolidated financial statements ofPhilly Shipyard ASA and its subsidiaries (referredto herein as a group as Philly Shipyard or theCompany) have been prepared in accordancewith International Financial Reporting Standards(IFRS) as adopted by the European Union ineffect at each financial reporting period.

These accounts have been approved forissue by the Board of Directors on 5 March 2018.The annual accounts will be submitted to PhillyShipyard’s annual general meeting on 5 April2018 for final approval.

BACKGROUND AND BASIS FORPREPARATIONPhilly Shipyard ASA (referred to herein as PHLY)was formed on 16 October 2007 to be the hold-ing company of Philly Shipyard, Inc. (referred toherein as PSI or the Shipyard) which operates ashipyard located in Philadelphia, Pennsylvania,USA. PSI owns certain subsidiaries in connectionwith its investments in its shipping assets.

PHLY is domiciled in Oslo, Norway. PSI isdomiciled in the Commonwealth of Pennsylvania,USA. The subsidiaries of PSI are domiciled in theState of Delaware, USA.

These consolidated financial statementshave been prepared on a historical cost basis,except for derivative financial instruments thathave been measured at fair value.

The consolidated financial statements arepresented in USD (thousands), except whenindicated otherwise.

USE OF ESTIMATESThe preparation of financial statements in con-formity with IFRS requires the use of estimatesand assumptions that affect the reportedamounts in the financial statements. Althoughthese estimates are based on management’s bestknowledge of current events and actions, actualresults may ultimately differ from those estimates.

Critical accounting estimates and assump-tions are as follows:

Revenue and Cost RecognitionPhilly Shipyard uses the percentage of com-pletion method for accounting for constructioncontracts which meet the definition of con-struction contracts under IAS 11. The use of thepercentage of completion method requires PhillyShipyard to estimate the stage of completion ofcontract activity at each statement of financialposition date and estimate the ultimate outcomeof costs and profit on contracts. In case of aloss-making project, a loss provision will bemade when it is probable that total contractcosts will exceed total contract revenues. Rev-enue and cost estimates from shipbuilding

activities depend, amongst others, on variablessuch as steel prices, supplier and subcontractorcosts, labor costs and availability, and otherproduction inputs. Philly Shipyard must alsoevaluate and estimate the outcome of variationorders, contract claims and requests from cus-tomers to modify contractual terms which caninvolve complex negotiations with customers.Generally, estimates are subject to a greater levelof uncertainty when a vessel design is new to theShipyard than if a vessel is being constructedlater in a series.

Estimates of the Fair Value of its CashGenerating UnitPhilly Shipyard has concluded that it has only oneprimary cash generating unit and must determinethe recoverable amount of its cash generatingunit in order to perform impairment tests of itslong-lived assets when impairment indicators arepresent. Philly Shipyard evaluates its investmentsin the joint venture with Crowley and its invest-ment in Philly Tankers LLC (see note 24) sepa-rately from its primary cash generating unit.Determining the recoverable amount of the cashgenerating unit that includes Philly Shipyard’sactivities is subject to uncertainty and requiresestimates of the recoverable amount which is thehigher of the fair value less costs to sell and valuein use. The estimated recoverable amount isdetermined based upon the present value of thefuture cash flows of the cash generating unit.Generally, there will be uncertainties regardingthe timing and amount of cash flows for variousreasons, including the costs of production anddemand in the U.S. Jones Act shipping market. Inaddition, Philly Shipyard must determine anappropriate interest rate to discount expectedfuture cash flows.

Deferred Income TaxesDeferred income tax assets are recognized whenit is probable that they will be realized. Determin-ing probability requires Philly Shipyard to esti-mate the sources of future taxable income fromoperations, including profit sharing agreementsand reversing taxable temporary differences.Determining these amounts is subject touncertainty and is based primarily upon historicalearnings, reversals of taxable temporary differ-ences and expected earnings due to contracts inprogress and contract order backlog. The recog-nition of deferred tax assets is primarily appli-cable to U.S. taxes where Philly Shipyard has anet deferred tax asset position.

R&D Tax CreditSince 2015, PSI has qualified for the researchand development (R&D) tax credit for both

federal and Pennsylvania tax purposes. TheShipyard qualified for the credit because of theresearch it undertook to discover information thatis technological in nature and intended to beuseful in the development of a new or improvedbusiness component. The Company recognizesthe R&D tax credit estimate as part of the incometax expense based on a calculation of qualifyingresearch expenses using available guidance andthe applicable rules and regulations. An R&D taxcredit of USD 8.7 million has been included in theincome tax expense in 2017.

Accruals/ProvisionsPhilly Shipyard has various accruals/provisionswhich require management to make estimates.Accruals/provisions are typically made for coststhat arise after vessel deliveries, including war-ranty costs, and regular accruals/provisionsmade at the end of a financial period where costshave been incurred but an invoice has not yetbeen received. In addition, accruals/provisionsare made if the Company has identified acommitment or event that will trigger a futurepayment. Management uses all available factsand circumstances when determining theseestimates including historical experiences as wellas input from outside advisors.

Estimates and underlying assumptions arereviewed on an ongoing basis. Revisions toaccounting estimates are recognized in theperiod in which the estimates are revised if therevision affects that period or in the period ofrevision and future periods if the revision affectsboth current and future periods.

SIGNIFICANT JUDGMENTSThe preparation of consolidated financial state-ments in conformity with IFRS requiresmanagement to make judgments that affect theapplication of accounting policies and thereported amounts of assets and liabilities,income and expense.

The most significant judgments made bymanagement in preparing these financial state-ments in applying the Company’s accountingpolicies are as follows:

Equity-Accounted InvestmentsAs of 31 December 2017, the Company owns53.7% of the outstanding shares of Philly Tank-ers. The Company has performed an analysis ofits ownership interests and voting rights in thearticles of association in Philly Tankers and con-cluded that it does not control the relevant activ-ities of Philly Tankers. Therefore, the Companyaccounts for the investment using the equitymethod and does not consolidate Philly Tankers.


Performance 2017


Revenue and Cost Recognition of PhillyTankers VesselsPhilly Shipyard did not use the percentage ofcompletion method for accounting for PSI’sshipbuilding contracts with Philly Tankers forHulls 025-028. In management’s judgment, thesecontracts did not meet the definition of con-struction contracts under IAS 11. Accordingly,Philly Shipyard recognized the revenues, costsand profit on each of these vessels at its deliverydate, as if PSI was originally building these ves-sels for its own account. This accounting treat-ment for Hulls 025-028 is required because therewere no external customers at the time thesecontracts were signed and shipbuilding activitiescommenced.

PHILLY SHIPYARD ACCOUNTING ANDCONSOLIDATION PRINCIPLESSubsidiariesThe consolidated financial statements include thefinancial statements of the parent company,Philly Shipyard ASA, and its subsidiaries. A sub-sidiary is an entity in which Philly Shipyard ASAhas the power to control and govern the operat-ing and financial policies.

Equity-Accounted InvestmentsPhilly Shipyard’s equity-accounted investmentscomprise its interests in an associate and a jointventure.

Associates are those entities in whichPhilly Shipyard has significant influence, but notcontrol or joint control, over the financial andoperating policies. A joint venture is an arrange-ment in which Philly Shipyard has joint control,whereby Philly Shipyard has rights to the netassets of the arrangement, rather than rights toits assets and obligations for its liabilities.

Interest in associates and joint ventures areaccounted for using the equity method. They areinitially recognized at cost, which includes trans-action costs. Subsequent to initial recognition,the consolidated financial statements includePhilly Shipyard’s share of the profit or loss andother comprehensive income of equity–accounted investments, until the date on whichsignificant influence or joint control ceases.

Transactions Eliminated on ConsolidationIntra-group balances and transactions, and anyunrealized income and expenses arising fromintra-group transactions, are eliminated.

Revenues and costs related to vessel con-struction transactions with equity-accountedinvestees are not eliminated. However, profitsfrom revenue transactions accounted for asconstruction contracts are deferred to the extentof Philly Shipyard’s ownership of the investeeuntil the investee either sells or operates therelated vessel at which time the deferred profit isrecognized in full when the investee sells thevessel or ratably over the useful life for vesselsheld for use by the investee. Deferred profit istreated as an adjustment to revenue with acorresponding adjustment to the investmentbalance for the equity-accounted investments.

For revenue transactions with equity-accounted investments that are not accountedfor as construction contracts, any unrealizedgains are eliminated prior to delivery of the vesseland treated as an adjustment to the investment

to the extent of Philly Shipyard’s interest in theinvestments. Unrealized losses are eliminated inthe same way as unrealized gains, but only to theextent that there is no evidence of impairment.

Foreign Currency Translation and TransactionsFunctional CurrencyItems included in the financial statements of eachentity in Philly Shipyard are initially recorded inthe entity’s functional currency, i.e. the currencythat best reflects the economic substance of theunderlying events and circumstances relevant tothat entity.

The consolidated financial statements arepresented in United States dollars (USD),rounded to the nearest thousand, which is thereporting currency for the consolidated accountsand the functional currencies for all the entitieswithin Philly Shipyard.

Transactions and BalancesForeign currency transactions are translated intothe functional currency using the exchange ratesprevailing at the dates of the transactions. Mone-tary assets and liabilities in foreign currencies aretranslated into the functional currency at theexchange rates in effect on the statement offinancial position date. Foreign exchange gainsand losses resulting from the settlement of suchtransactions and from the translation of monetaryassets and liabilities denominated in foreign cur-rencies are recognized in the consolidatedincome statement. Foreign exchange differencesarising in respect of operating items are includedin operating profit in the consolidated incomestatement, and those arising in respect of finan-cial assets and liabilities are recorded net as afinancial item.

PROPERTY, PLANT AND EQUIPMENTGeneralProperty, plant and equipment acquired bythe Shipyard is stated at cost at the date ofacquisition. Depreciation is calculated on astraight-line basis and adjusted for impairmentcharges, if any. The carrying value of the prop-erty, plant and equipment on the statement offinancial position represents the cost net of gov-ernment grants and subsidies received (if appli-cable) less accumulated depreciation and anyimpairment charges. Cost includes expendituresthat are directly attributable to the asset. The costof self-constructed assets includes the costs ofmaterial and direct labor, and any other costsdirectly attributable to bringing the asset to work-ing condition for its intended use. Interest costson borrowings to finance the construction ofproperty, plant and equipment are capitalizedduring the period of time that is required to com-plete and prepare the asset for its intended use.

Land is not depreciated, but other property,plant, and equipment in use are depreciated on astraight-line basis. Expected useful lives of long-lived assets are reviewed annually and, wherethey differ significantly from previous estimates,depreciation periods are changed accordingly.

Ordinary repairs and maintenance costs arecharged to the consolidated income statementduring the financial period in which they areincurred. The cost of improvements is included inthe asset’s carrying amount when it is probablethat the Shipyard will derive future economic

benefits in excess of the originally assessedstandard of performance of the existing asset.Improvements are depreciated over the usefullives of the related assets.

Gains and losses on disposals aredetermined by comparing the disposal proceedswith the carrying amount and are included inoperating profit. Assets to be disposed of arereported at the lower of the carrying amount andthe fair value less selling costs.

Component Cost AccountingThe Company allocates the amount initially recog-nized in respect of an item of property, plant andequipment to its significant components anddepreciates separately each such componentpart over its useful life.

IMPAIRMENT OF LONG-LIVED ASSETSProperty, plant and equipment and othernon-current assets are reviewed for potentialimpairment whenever events or changes in cir-cumstances indicate that the carrying amount ofan asset may not be recoverable.

For the purposes of assessing impairment,assets are grouped at the lowest levels for whichthere are separately identifiable, mainlyindependent, cash inflows. An impairment loss isthe amount by which the carrying amount of theassets exceeds the recoverable amount. Therecoverable amount is the higher of the asset’snet selling price and its value in use. The value inuse is determined by discounted cash flows andfair market value is based on recent third partyappraisals.

A previously recognized impairment loss isreversed only if there has been a change in theestimates used to determine the recoverableamount, however not to an extent higher than thecarrying amount that would have beendetermined had no impairment loss been recog-nized in prior years.

LEASESLeases of property, plant and equipment, wherethe Shipyard has substantially all the risks andrewards of ownership, are classified as financeleases. Finance leases are capitalized at theinception of the lease at the lower of the fairvalue of the leased property or the present valueof the minimum lease payments. Lease paymentsare apportioned between the finance chargesand reduction of the lease liability. Financecharges are charged to interest expense. Prop-erty, plant and equipment acquired under financeleases are depreciated over the shorter of theuseful life of the asset or the lease term.

Leases where a significant portion of therisks and rewards of ownership are retained bythe lessor are classified as operating leases.Payments made under operating leases net ofany incentives received from the lessor ischarged to the consolidated income statementon a straight-line basis over the period of thelease when annual installments vary.

When a sale and leaseback results in afinance lease, any gain on the sale is deferredand recognized as income over the lease term. Ifthe leaseback is classified as an operating lease,then any gain is recognized immediately if thesale and leaseback are at fair value.

CONSTRUCTION CONTRACTSPhilly Shipyard’s business activities mainlyinvolve deliveries of vessels under contract with


Performance 2017


customers. Revenue and expenses related toconstruction contracts with customers is recog-nized using the percentage of completionmethod, based primarily on the scope of com-pleted work compared to estimated overall proj-ect scope at the statement of financial positiondate. The stage of completion is assessed byreference to production hours incurred to totalestimated production hours. The percentage ofcompletion is measured by production hoursearned over total budgeted production hours. Assoon as the outcome of the construction contractcan be estimated reliably, contract revenue andexpenses are recognized in the consolidatedincome statement in proportion to the degree ofcompletion of the contract.

If the final outcome of a contract cannot beestimated reliably, contract revenue is recog-nized only to the extent costs incurred areexpected to be recovered. Any projected losseson future work done under existing contracts areexpensed and classified as accrued costs/provisions in the statement of financial positionunder accrued liabilities. Losses on contracts arerecognized in full when identified. Recognizedcontract profit includes profit derived fromchange orders and disputed amounts when, inmanagement’s assessment, realization is prob-able and reasonable estimates can be made.

Project costs include costs directly relatedto the specific contract and indirect costsattributable to the contract. Interest expense isincluded in project costs to the extent there arequalifying assets, which normally occurs whencustomer payments lag behind constructionprogress.

To the extent the Shipyard’s procurementactivities result in it acting as an agent for itscustomer, the related costs and revenues arepresented net within revenue. This situation typi-cally occurs when certain materials are paid forand supplied by the customer directly.

Project revenue is classified as operatingrevenues in the consolidated income statement.Vessels-under-construction receivable is classi-fied as a current asset in the statement of finan-cial position. Advances from customers arededucted from the value of vessels-under-construction receivable of the contract involvedor, to the extent they exceed this value, recordedas customer advances, net. Customer advances,net that exceed contract offsets would be classi-fied as current liabilities.

Variable revenues are also classified asoperating revenues in the consolidated incomestatement and are recognized under applicablestandards when estimable and probable.

VESSEL CONSTRUCTION WHENCONSTRUCTION CONTRACT ACCOUNTINGDOES NOT APPLYVessels Constructed for Specified CustomersVessels under construction pursuant to contractsthat do not meet the criteria to be accounted forusing the percentage of completion method arecapitalized into work-in-process. When the ves-sel is completed and sold both revenue and costare recognized. If conditions indicate that theultimate sales price will be below the estimatedcost of the vessel, Philly Shipyard determines theestimated sales price and records an impairmentcharge as appropriate. The accumulated costs

for vessels-under-construction receivables areincluded in work-in-process.

Vessels Constructed for Its Own AccountVessels which do not have a contractual buyer atthe start of construction and are being built withthe expectation of identifying a customer duringthe construction phase are capitalized into work-in-process. When the vessel is completed andsold both revenue and cost are recognized. Ifconditions indicate that the ultimate sales pricewill be below the estimated cost of the vessel,Philly Shipyard determines the estimated salesprice and records an impairment charge asappropriate. The accumulated costs for vessels-under-construction receivable for unspecifiedcustomers is included in work-in-process.

GOVERNMENT GRANTS AND SUPPORTGovernment grants and support are recognizedat their fair value where there is reasonableassurance that amounts will be received andconditions have been met. In some cases,recognition occurs over a period of time asrestrictions lapse or as conditions are met.Grants and support related to capitalexpenditures or construction of assets for theShipyard’s account are recognized as a reduc-tion of the related asset cost. For assets held foruse, this results in a lower depreciation chargeover the useful life of the asset. Grants related tospecific programs or projects are recognized asreductions in expense over the period in whichwork that relates to the grant or support is per-formed.

CASH AND CASH EQUIVALENTSCash and cash equivalents comprise cash onhand, demand deposits with banks and othershort-term highly liquid investments with originalmaturities of three months or less.

INTEREST-BEARING LIABILITIESAll loans and borrowings are initially recognizedat cost, being the fair value of the considerationreceived net of issue costs associated with theborrowing.

After initial recognition, interest-bearingborrowings are subsequently measured at amor-tized cost using the effective interest method;any difference between proceeds (net of trans-action costs) and the redemption value is recog-nized in the consolidated income statement overthe period the interest bearing liabilities are out-standing. Amortized cost is calculated by takinginto account any issuance costs, and any dis-count or premium.

Gains and losses are recognized in net profitor loss when the liabilities are derecognized orimpaired, as well as through the amortizationprocess.

INCOME TAXESCurrent Income TaxesIncome taxes receivable and payable for thecurrent period are measured at the amountexpected to be recovered or paid to the taxationauthorities. The tax rates and tax laws as used tocompute the amount are those that are enactedor substantively enacted by the statement offinancial position date.

Deferred Income TaxesDeferred income tax is provided, using the asset/liability method, on all temporary differences atthe statement of financial position date betweenthe tax bases of assets and liabilities and theircarrying amounts for financial reporting pur-poses, except upon initial recognition of an assetor a liability that does not impact income.

Deferred income tax assets are recognizedfor all deductible temporary differences, andcarry-forward of unused tax losses and credits,to the extent that it is probable that taxable profitwill be available against which the deductibletemporary differences, and the carry-forward ofunused tax losses and credits can be utilized.The carrying amount of deferred income taxassets is reviewed at each statement of financialposition date and reduced to the extent that it isno longer probable that sufficient taxable profitwill be available to allow all or part of thedeferred income tax asset to be utilized. Theexpected utilization of tax losses are not dis-counted when calculating the deferred tax asset.

Deferred income tax assets and liabilities aremeasured at the tax rates that are expected toapply to the year when the asset is realized orthe liability is settled, based on tax rates (and taxlaws) that have been enacted or substantivelyenacted at the statement of financial positiondate.

PENSION OBLIGATIONSThe Shipyard has a pension plan that covers itsnon-union employees whereby contributions arepaid to a qualifying pension plan. The Shipyard’sunion employees are participants in a unionselected pension plan. Although the Union Planis a defined benefit pension plan, because theunion does not provide information on the Ship-yard’s employees and their share of the pensionassets and obligations, the plan is accounted forin accordance with the requirements of a definedcontribution plan. Under defined contributionpension plans, contributions are charged to theconsolidated income statement in the period towhich the contributions relate.

PROVISIONSA provision is recognized when Philly Shipyardhas a present obligation (legal or constructive) asa result of a past event and it is probable (i.e.more likely than not) that an outflow of resourcesembodying economic benefits will be required tosettle the obligation, and a reliable estimate canbe made of the amount of the obligation. Provi-sions are reviewed at each statement of financialposition date and adjusted to reflect the currentestimate.

The amount of the provision is the presentvalue of the risk adjusted expenditures expectedto be required to settle the obligation,determined using the estimated risk free interestrate as the discount rate. Where discounting isused, the carrying amount of provision increasesin each period and is recognized as interestexpense.

FINANCIAL RISK MANAGEMENTPhilly Shipyard’s activities expose it to a varietyof financial risks: market risk (including commod-ity pricing risk, currency risk and price risk),credit risk and cash-flow interest-rate risk. PhillyShipyard’s overall risk management program


Performance 2017


focuses on the unpredictability of financial mar-kets and seeks to minimize potential adverseeffects on Philly Shipyard’s financial perform-ance. Philly Shipyard uses derivative financialinstruments to hedge certain risk exposures.

Risk-management is carried out under poli-cies approved by the Board of Directors. TheBoard of Directors provides principles for overallfinancial risk management as well as policiescovering specific areas such as foreign exchangerisk, interest-rate risk, credit risk, and use ofderivative financial instruments and non-derivativefinancial instruments.

Credit RiskDue to the nature of the Shipyard’s operations,revenues and related receivables are typicallyconcentrated amongst a few customers. As of31 December 2017, the Shipyard has one cus-tomer: Matson Navigation Company, Inc.(referred to herein as Matson). Philly Shipyardcontinually evaluates the credit risk associatedwith customers and their assignees and managesthis risk by requiring payment for substantiallythe entire contractual amount prior to delivering avessel, including milestone payments uponcompletion of specified milestones.

Interest Rate RiskPhilly Shipyard is exposed to fluctuations in inter-est rates for its variable interest rate debt relatedto construction financing and working capitalfacilities.

Foreign Exchange RiskPhilly Shipyard is exposed to foreign currencyrisk for purchases made in currencies other thanthe U.S. dollar which primarily relates to materi-als, supplies and costs related to the services ofexpatriate workers purchased from Korea, Nor-way and other countries in Europe. Philly Ship-yard attempts to mitigate this risk through itsforeign exchange hedging program or passingthis risk onto its end customers by having thempurchase certain materials directly in foreigncurrency.

Commodity Price RiskThe Shipyard is exposed to commodity price riskon the steel that it procures in the shipbuildingprocess. The Shipyard seeks to mitigate this riskby attempting to pass this risk on to its end cus-tomers by having them purchase materialsdirectly or by including steel escalation clauses inthe shipbuilding contracts. The Shipyard alsoseeks to mitigate this risk by attempting to passthe risk on to its suppliers by capping theincrease in pricing to be paid by the Shipyard.

Capital Management RiskPhilly Shipyard’s objectives when managing capi-tal are to safeguard its ability to continue as agoing concern in order to provide returns forshareholders and benefits for other stakeholders,while maintaining an optimal capital structure tominimize the cost of capital. To meet these capi-tal structure objectives, Philly Shipyard reviewson a quarterly basis with its Board any proposeddividends as well as any needs to raise additionalequity for future business opportunities or toreduce debt. Any payment of dividends, includ-ing ordinary dividends, is dependent on, among

other things, performance on existing contractsand possible new orders and will be consideredin conjunction with the Company’s financial posi-tion, debt covenants, capital requirements,market prospects and potential strengthening ofthe Company’s financial structure.

Funding/Investment RiskPhilly Shipyard regularly monitors the financialcondition of its construction financing lenders.Additionally, Philly Shipyard monitors the finan-cial condition of the financial institutions which ituses for cash management services and in whichit makes deposits and other investments. PhillyShipyard responds to changes in conditionsaffecting its financing sources and deposit rela-tionships as situations warrant.

Liquidity RiskLiquidity risk is the risk that Philly Shipyard willencounter difficulty in meeting the obligationsassociated with its financial liabilities that aresettled by delivering cash or other financialassets. Philly Shipyard’s approach to managingliquidity is to ensure, to the extent possible, thatit will always have sufficient liquidity to meet itsliabilities when due, under both normal andstressed conditions, without incurringunacceptable losses or risking damage to PhillyShipyard’s reputation. Philly Shipyard attemptsto mitigate this risk through project financing andworking capital facilities, progress paymentsfrom its customers, and material supplied andpaid directly by its customers.

Accounting for Derivative FinancialInstruments and Hedging ActivitiesDerivative financial instruments are recognizedinitially and in subsequent periods on the state-ment of financial position at fair value with theresulting gains and losses included in the con-solidated income statement.

In accordance with its treasury policy, PhillyShipyard does not hold or issue derivative finan-cial instruments for trading purposes. However,derivatives that do not qualify for hedge account-ing are accounted for as trading instruments.

Estimates of the fair value for foreign cur-rency contracts are obtained from a third party.The fair value of derivative long-term financialliabilities is disclosed in note 22 regarding finan-cial instruments.

RELATED PARTY TRANSACTIONSThe Company’s policy is that all transactions,agreements and business activities with relatedparties are conducted on an arm’s length basisaccording to ordinary business terms and con-ditions.

SEGMENT INFORMATIONPhilly Shipyard currently has one business seg-ment which is building vessels for the U.S. JonesAct market.

BASIC AND DILUTED EARNINGS PER SHAREThe calculation of basic earnings per share isbased on the profit attributable to ordinaryshareholders using the weighted average numberof shares outstanding during the year. The calcu-lation of diluted earnings per share is consistentwith the calculation of basic earnings per share

while giving effect to all potential dilutive ordinaryshares that were outstanding during the period.Philly Shipyard currently has no potentially dilu-tive shares outstanding.

EVENTS AFTER 31 DECEMBER 2017A distinction is made between events both favor-able and unfavorable that provide evidence ofconditions that existed at the statement of finan-cial position date (adjusting events) and thosethat are indicative of conditions that arose afterthe statement of financial position date(non-adjusting events). Financial statements willonly be adjusted to reflect adjusting events andnot non-adjusting events (although there are dis-closure requirements for such events).

NEW STANDARDS AND INTERPRETATIONSADOPTEDStandards Issued But Not Yet EffectiveAt the date of authorization of the consolidatedfinancial statements, a number of new standardsand interpretations were issued but not yet effec-tive. The Company has not early adopted anynew or amended standards for the financialstatements as of 31 December 2017.

The Company is required to adopt IFRS 15Revenue from Contracts with Customers andIFRS 9 Financial Instruments from 1 January2018. The Company has assessed the estimatedimpact of these two new standards as follows.The actual impacts may deviate from the esti-mates.

IFRS 15 Revenue from Contracts withCustomers (effective from 1 January 2018)The standard will supersede the current revenuerecognition guidance including IAS 18 Revenue,IAS 11 Construction contracts and the relatedinterpretations when it becomes effective. IFRS15 introduces a new five-step model that appliesto revenue arising from contracts with custom-ers.

Philly Shipyard initiated an implementationprocess in 2017 to analyze and evaluate theapplication impact. Philly Shipyard principallygenerates revenues from activities relating tolong-term shipbuilding construction contracts,and no material revenues are recorded from thesale of goods or rendering of services. A detailedreview of existing customer contracts have beencarried out on the contracts for Hulls 029 and030 with Matson, which are the only open ship-building construction contracts at the date of ini-tial application of IFRS 15 (1 January 2018).

• Construction contracts:The construction contracts currently in thescope of IAS 11 are reassessed accordingto IFRS 15 to evaluate whether the rev-enue from such contracts shall be recog-nized over time or at a point in time. TheCompany is currently using the percent-age of completion method for revenuerecognition for the contracts for Hulls 029and 030 with Matson. Based on itsassessment, the Company does notexpect the application of IFRS 15 to resultin significant changes in the over timemethod of revenue recognition for thesecontracts.

The Company has assessed whether thecurrent method of measuring progress is


Performance 2017


consistent with the requirements of meas-uring progress according to IFRS 15.Based on its assessment, the Companyplans to continue the current method(production hours earned over total budg-eted production hours) to measure rev-enue over time under IFRS 15.

• Constraint of variable consideration:To include variable consideration in theestimated contract revenue under IFRS15, the entity has to conclude that it ishighly probable that a significant revenuereversal will not occur when theuncertainties related to the variability areresolved. The threshold of including varia-ble considerations in revenue recognitionis higher than the requirements undercurrent standards.

Based on its assessment, Philly Shipyarddoes not anticipate significant changes inthe measurement of revenue from theapplication of IFRS 15.

On transition to IFRS 15, the Company plansto apply the cumulative effect method whichwould require the cumulative effect of initialapplication recognized as an adjustment to theopening balance of retained earnings as of 1January 2018. Under this transition method, thenew standard will be applied only to the con-tracts for Hulls 029 and 030 with Matson, whichare the only open shipbuilding construction con-tracts that are not completed by 1 January 2018,and the comparable information presented willnot be restated. Based on its assessment, andconsidering that the contracts for Hulls 029 and030 with Matson are forecasted as a breakevenproject, Philly Shipyard does not anticipate anysignificant cumulative effect of initially applyingthe new standard on the opening balance ofequity at the date of initial application of 1 Jan-uary 2018. However it is estimated that the tim-ing of revenue recognition may be impacted bychanges in the required treatment of deferredcosts under IFRS 15. The actual impact maychange if new information and guidancebecomes known before the group presents itsfirst financial statements using the new standard.

IFRS 9 Financial Instruments (effectivefrom 1 January 2018)The standard will replace IAS 39 Financial Instru-ments Recognition and Measurement. The stan-dard includes revised guidance on classification

and measurement of financial instruments, includ-ing a new expected credit loss model forcalculating impairment on financial assets. Thestandard also introduces new general hedgeaccounting requirements, however Philly Ship-yard does not apply hedge accounting to forwardforeign exchange contracts held.

• Classification – Financial assets

IFRS 9 contains a new classification and meas-urement approach for financial assets thatreflects the business model in which assets aremanaged and their cash flow characteristics. Thestandard contains three principal classificationcategories: measured at amortized costs, FairValue to Other Comprehensive Income (FVOCI)and Fair Value to Profit and Loss (FVTPL).

Based on its assessment and the nature offinancial assets held by Philly Shipyard, theCompany expects the current classifications ofthe financial instruments held as at 31 December2017 will not have a significant impact on theconsolidated financial statements as of 1 January2018.

• Impairment – Financial assets and con-tract assets

IFRS 9 replaces the “incurred loss” model in IAS39 with a forward-looking “expected credit loss”(ECL) model. The new impairment model willapply to financial assets measured at amortizedcost or FVOCI and contract assets, except forequity instruments. Under IFRS 9, loss allowancewill be measured based on either “12-monthECLs” or “lifetime ECLs”. The Company willapply the simplified approach and apply “lifetimeECLs” for all trade receivables and contractassets.

Based on the Company’s assessment, nosignificant changes in loss allowance are deemednecessary in order to satisfy the impairmentrequirement under IFRS 9. The Company doesnot expect significant impact on the consolidatedfinancial statements from the adoption of thenew impairment model.

The transition to IFRS 9 will generally beapplied retrospectively, with the followingexemptions:

• The Company will adopt the exemptionallowing it not to restate comparativeinformation for prior years with respect to

classification and measurement changes,including impairment measurement. Anyimpact from the adoption of IFRS 9 will berecognized as an adjustment to the open-ing balance of the equity as of 1 January2018.

• IFRS 9 is not applied to financial assets orfinancial liabilities that have beenderecognized at the initial application on 1January 2018.

IFRS 16 Leases (effective from 1 January2019, but not approved by the EU)The standard replaces IAS 17 Leases and therelated interpretations. The new standardintroduces a single, on-balance sheet leaseaccounting model for lessees, with optionalexemptions for short-term leases and leases oflow value items. A lessee recognizes a right-of-use asset representing its right to use the under-lying asset and a lease liability representing itsobligation to make lease payments. With regardsto lessor accounting, the requirements remainsimilar to the current standard.

The Company has started an initial assess-ment of the potential impact on its consolidatedfinancial statements and has identified the follow-ing main impact.

• The Company anticipates that new assetsand liabilities will be recognized for itsoperating lease agreements where theCompany is a lessee. In addition, thenature and timing of expenses related tothese leases will change when thestraight-line operating lease expenses willbe replaced by depreciation charge forlease assets and interest expenses forlease liabilities under IFRS 16.

• The Company does not anticipate sig-nificant impact for the Company’s financeleases.

The assessment of potential impact ofimplementation will be continued in 2018. TheCompany plans to apply IFRS 16 initially on 1January 2019, using the modified retrospectiveapproach. Therefore, the cumulative effect ofadopting IFRS 16 will be recognized as anadjustment to the opening balance of retainedearnings as of 1 January 2019, with no restate-ment of comparative information.


Performance 2017


� Note 2: Operating revenues and other income

Operating revenues and other income consist of the following items:


Operating revenues 591 784 205 249

Profit in equity-accounted investments 19 618 6 227Recognition of deferred net gain on equity-accounted investments 3 233 1 462Gain-on-sale of shipping assets - 20 689

Other income 22 851 28 378

Total operating revenues and other income 614 635 233 627

Profit in equity-accounted investments (Hulls 025-028) represents the Company’s 53.7% share of the total comprehensive income of Philly Tankers whichat 31 December 2017 and 31 December 2016 amounted to USD 19.618 million and USD 6.227 million, respectively (see note 24).

Recognition of deferred net gain on equity-accounted investments (Hulls 025-028) represents the Company’s USD 5.848 million gain that was deferred onthe issuance of Philly Tankers shares in July 2014 to external parties at a price exceeding the Company’s cost basis, which at 31 December 2017 andDecember 2016 amounted to USD 4.386 million and USD 1.462 million, respectively. The entire USD 5.848 million was recognized at delivery of each ofHulls 025-028, reduced with recognition of a deferred transaction cost of USD 1.153 million in 2017 (see note 24).

In 2016, the Company sold its joint venture interests pertaining to Hulls 023 and 024, resulting in a gain-on-sale of USD 20.689 million. The Companyrecorded the gain-on-sale as part of other income in the income statement.

� Note 3: Construction contracts/vessels built for own account

The order backlog is USD 187.7 million at 31 December 2017 and represents an obligation to produce vessels that have not yet been delivered to theShipyard’s customer (Matson). Order backlog consists of future contract revenues and is subject to adjustments based on change orders as defined in theshipbuilding contracts.

The order backlog on long-term contracts is as follows:

Amounts in USD thousandsOrder backlog

31 Dec. 2017Order intake

2017Order backlog31 Dec. 2016

Order intake2016

Order backlog31 Dec. 2015

Total 187 668 (4 033) 784 427 (3 097) 983 819

The recognized profits on long-term contracts in process at year-end are as follows:

Amounts in USD thousands 31 Dec. 2017

Contract revenue recognized to date 221 744Less: contract expenses recognized to date (221 744)

Recognized contract profit to date -

Other construction contracts figures:Contract costs incurred to date for Hulls 029-030 260 141

Contract revenue and profit recognized to date includes revenue and profit for Hulls 029-030 since the contract for these vessels is accounted for as along-term construction contract on a percentage of completion basis.

100% of the revenue, cost and profit for each of Hulls 025-028 was recognized at its delivery in Q4 2016, Q1 2017, Q3 2017 and Q4 2017, respectively.This accounting treatment is required for Hulls 025-028 because there were no external customers at the time these contracts were signed and shipbuildingactivities commenced, and these vessels were considered as built for its own account.

As of 31 December 2017, the Shipyard has one contract in progress that is accounted for using the percentage of completion method. The Shipyard isbuilding two containerships (Hulls 029-030) to be delivered to Matson in 2018 and 2019. These vessels are based on an all-new design and the Shipyardlast delivered a containership in 2006. Accordingly, there is a higher technical design risk and a higher project execution risk compared to the recent con-struction of multiple product tankers, which increases the current estimation uncertainty. In addition, due to the projected breakeven margin on Hulls 029and 030, there is a risk that these vessels will end up as a loss-making project. Philly Shipyard recognizes contract revenues and expenses for the twocontainership order from Matson as one project. As of 31 December 2017, the Matson project is approximately 54% complete.

Customer milestone payments (excluding repayment of the USD 58.0 million Philly Tankers note) as of 31 December 2017 and 31 December 2016 totaledUSD 253.8 million and USD 178.1 million, respectively. Customer milestone payments pertaining to repayment of the USD 58.0 million Philly Tankers noteas of 31 December 2017 and 31 December 2016 totaled USD 0 and USD 29.0 million (Hull 026), respectively. See note 24 for further details on the PhillyTankers note.

Customer advances, net as of 31 December 2017 and 31 December 2016 totaled USD 0 and USD 97.9 million, respectively.


Performance 2017


Vessels-under-construction receivable as of 31 December 2017 and 31 December 2016 totaled USD 7.3 million and USD 0, respectively. As of31 December 2017, vessels-under-construction receivable represents the difference between costs incurred for the Matson vessels (Hulls 029-030) andcustomer advances received from Matson for those vessels.

Work-in-process as of 31 December 2017 and 31 December 2016 totaled USD 13.4 million and USD 180.3 million, respectively. Work-in-process related tonon-percentage-of-completion accounting projects is presented gross (where costs incurred are presented as a work-in-process asset, and payments fromcustomers received are presented as customer advances, net liability). Percentage-of-completion accounted projects are presented net.

The work-in-process at year-end 2017 represents the costs incurred by the Shipyard on the CV3700 project (Hulls 031-032) built for its own account. Incase of a cancellation of the CV3700 project, the total cost is estimated to be less than USD 20.0 million, of which a majority of the cash impact has alreadybeen included in the financial statements for year-end 2017.

As of 31 December 2017, PSI has non-cancellable purchase commitments for materials and equipment of approximately USD 28.4 million for the con-struction of Hulls 029-030.

� Note 4: Wages and other personnel expenses, net

Wages and other personnel expenses, net consist of:

Amounts in USD thousands (except number of employees) 2017 2016

Wages 47 462 44 938Social security contributions 4 005 4 052Pension costs (note 18) 1 663 2 137Other expenses 8 542 8 506

Total gross expense 61 672 59 633Expenses related to vessel construction (58 364) (56 769)

Wages and other personnel expenses, net 3 308 2 864

Average number of employees 624 633Number of employees at year-end 588 632

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

� Note 5: Other operating expenses

Other operating expenses consist of:


Other operating expenses 6 868 5 423

Total 6 868 5 423

Other operating expenses primarily relate to selling, general and administrative expenses. Fees to auditors for Philly Shipyard are as follows:


Audit fees 134 132Other audit and attestation fees 2 36Tax non-attest fees 5 6

Total 141 174


Performance 2017


� Note 6: Financial income and financial expense


Interest income 874 545Gain on foreign currency forward contracts 1 829 2 199Foreign exchange gain - 48

Financial income 2 703 2 792

Interest expense (5 329) (4 751)Interest expense capitalized on construction contracts 3 359 3 524Foreign exchange loss (62) -Interest expense accreted - (72)

Financial expense (2 032) (1 299)

Net financial items 671 1 493

Details regarding the Company’s debt facilities and interest rates are provided in note 15 and foreign exchange gain/(loss) details are provided in note 22. In2017, the gain on foreign currency forward contracts is attributable to mark-to-market of foreign currency forward contracts in Korean Won, NorwegianKroner and Euro and the foreign exchange loss is attributable to certain cash balances which are held in Norwegian Kroner. In 2016, the gain on foreigncurrency forward contracts was attributable to mark-to-market of foreign currency forward contracts in Korean Won, Norwegian Kroner and Euro and theforeign exchange gain was attributable to certain cash balances which were held in Norwegian Kroner.

� Note 7: Taxes

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


Current income tax expense:Current year - U.S. 16 345 33 078Current year - Norway 965 6 642

Total current income tax expense 17 310 39 720

Deferred tax expense/(benefit):Origination and reversal of temporary differences - U.S. 15 725 (9 941)Origination and reversal of temporary differences - Norway (325) (199)

Total deferred tax expense/(benefit) 15 400 (10 140)

Total income tax expense in the income statement 32 710 29 580

Reconciliation of effective tax rate:


Income before tax 99 933 68 232

Nominal Norwegian tax rate 24.0% 25.0%Expected tax expense using nominal Norwegian tax rate 23 984 17 058Effect of differences between nominal Norwegian tax rateand U.S. federal, state and city tax rate 19 848 12 919Expenses deductible for tax purposes (2 091) (3 084)Expenses not deductible for tax purposes 246 100R&D tax credits (8 659) (2 374)Other differences (618) (1 474)U.S. withholding on dividends to Parent company - 6 435

Total income tax expense in the income statement 32 710 29 580

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


Performance 2017


Income tax receivable/income tax payable


Beginning of the period (329) (5 096)Taxes payable (17 310) (39 721)Taxes paid 22 586 44 488

End of the period 4 947 (329)

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 dif-ferent tax authorities, they cannot be offset. The Company’s income tax receivable and income tax payable at 31 December 2017 relate to different taxauthorities and, therefore, cannot be offset. Accordingly, the Company has an income tax receivable of USD 5.912 million and an income tax payable ofUSD 965 thousand on its statement of financial position at 31 December 2017.

Deferred tax asset/deferred tax liabilityDeferred tax asset and deferred tax liability are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, andwhen the deferred income taxes relate to the same fiscal authority, which through 31 December 2017 for the Company was primarily Norway, the UnitedStates, 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. 2017 31 Dec. 2016

Deferred tax assets - U.S. tax jurisdictions 6 825 23 802Deferred tax liabilities - U.S. tax jurisdictions (5 928) (7 178)

Net deferred tax asset 897 16 624

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


Beginning of the period 16 624 6 683Deferred tax benefit (15 727) 9 941

Net deferred tax asset 897 16 624

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

Amounts in USD thousandsOther

assetsWork-in-process Total

31 December 2016 6 980 16 822 23 802(Charged)/credited to the income statement (200) (16 777) (16 977)

31 December 2017 6 780 45 6 825

Deferred tax liability

Amounts in USD thousandsProperty,

plant and equipment Other Total

31 December 2016 (6 838) (340) (7 178)(Charged)/credited to the income statement 910 340 1 250

31 December 2017 (5 928) - (5 928)

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

Deferred tax liability

Amounts in USD thousandsOther

liabilities Total

31 December 2016 (1 031) (1 031)Charged to the income statement 327 327

31 December 2017 (704) (704)

As a result of the recently passed U.S. federal tax reform legislation, which reduced the corporate income tax rate from 35.0% to 21.0%, and changes tothe Company’s effective state tax rate, PSI booked a one-time non-cash tax benefit of USD 1 472.

PSI is currently under audit by the State of Pennsylvania for the four-year period ended 31 March 2018. The Company does not anticipate any materialadjustments resulting from the audit.


Performance 2017


� Note 8: Property, plant and equipment

Movements in property, plant and equipment for 2017 are shown below:

Amounts in USD thousandsMachinery and

vehicles BuildingsLand

improvementsAssets-under-

construction Total

Cost at 1 January 2017 48 060 60 689 18 524 2 805 130 078Purchases - - - 7 192 7 192Transfers 6 988 486 404 (7 878) -Assets written-off (155) - - - (155)

Cost at 31 December 2017 54 893 61 175 18 928 2 119 137 115

Depreciation and impairment losses at 1 January 2017 42 660 28 679 8 179 - 79 518Depreciation 4 389 2 467 793 - 7 649Assets written-off (155) - - - (155)

Depreciation and impairment losses at 31 December 2017 46 894 31 146 8 972 - 87 012

Net book value at 31 December 2017 (1) 7 999 30 029 9 956 2 119 50 103

(1) Net book value of assets under financial leasing agreementsrecorded in the statement of financial position (see note 17): 892 7 930 7 635 - 16 457

Depreciation period 3-12 years 7-30 years 20 yearsDepreciation method Straight-line Straight-line Straight-line

Movements in property, plant and equipment for 2016 are shown below:

Amounts in USD thousandsMachinery and

vehicles BuildingsLand

improvementsAssets-under-

construction Total

Cost at 1 January 2016 42 752 59 977 17 930 904 121 563Purchases - - - 8 515 8 515Transfers 5 308 712 594 (6 614) -Assets written-off - - - - -

Cost at 31 December 2016 48 060 60 689 18 524 2 805 130 078

Depreciation and impairment losses at 1 January 2016 38 233 26 253 7 418 - 71 904Depreciation 4 427 2 426 761 - 7 614Assets written-off - - - - -

Depreciation and impairment losses at 31 December 2016 42 660 28 679 8 179 - 79 518

Net book value at 31 December 2016 (1) 5 400 32 010 10 345 2 805 50 560

(1) Net book value of assets under financial leasing agreementsrecorded in the statement of financial position (see note 17): 1 413 8 835 8 225 - 18 473

Depreciation period 3-12 years 7-30 years 20 yearsDepreciation method Straight-line Straight-line Straight-line

Leased plant and machineryThe Shipyard leases production equipment and land improvements under a number of finance lease agreements. At the end of each of the leases, theShipyard has the option to purchase the equipment at a beneficial price. The leased equipment secures lease obligations (see note 17).

Property, plant and equipment under constructionAssets-under-construction primarily relate to upgrades in facilities and equipment.

DepreciationPhilly Shipyard’s practice is to present its annual depreciation expense on a separate line item in its consolidated income statement when it is buildingvessels-under-construction contracts.

During 2017, Philly Shipyard, in accordance with IFRS, recognized 100% of the revenue and cost for Hulls 026-028 at its delivery. The allocated deprecia-tion expense relating to the construction of Hulls 026-028 during 2017 was reclassified to the cost-of-vessels expense line and recognized in 2017. USD2.0 million of depreciation expense was reclassified to the cost-of-vessels expense line in 2017.


Performance 2017


During 2016, Philly Shipyard, in accordance with IFRS, recognized 100% of the revenue and cost for Hull 025 at its delivery. The allocated depreciationexpense relating to the construction of Hull 025 during 2016 was reclassified to the cost-of-vessels expense line and recognized in 2016. USD 3.9 million ofdepreciation expense was reclassified to the cost-of-vessels expense line in 2016.

A reconciliation of depreciation on property, plant and equipment to depreciation recognized in the consolidated income statement is as follows:


Depreciation of property, plant and equipment 7 804 7 614Amount charged as cost of Philly Tankers vessels (2 007) (3 948)

Net depreciation expense 5 797 3 666

Determination of recoverable amounts/fair valueAt 2017 year-end, the Company has assessed the risk of impairment due to the uncertainty related to PSI’s new order situation and the recent cessation ofcertain operations and layoffs at the Shipyard. No impairment has been recorded in 2017 based on the key uncertain assumption that the Shipyard will beable to secure new contracts and continue operations following the delivery of the last vessel in its backlog (Hull 030), which is scheduled for Q1 2019. Noimpairment was recorded in 2016 for property, plant and equipment due to the market and company specific developments including operating results andorder backlog.

Sale leasebackThe assets sold and leased back from PSDC are being accounted for as a finance lease and as such the gain is being deferred and recognized over theassets’ useful lives. As part of the 2011 Authorization Agreement, PSDC purchased certain shipyard assets from PSI for a purchase price of USD42.0 million with funds provided by the Commonwealth of Pennsylvania. PSI leases back those same assets from PSDC subject to the terms of its shipyardlease and the Authorization Agreement. The net book value of assets under financial leasing agreements recorded in the statement of financial position at31 December 2017 amounts to USD 16.5 million (see page 33).

� Note 9: Other non-current assets

Other non-current assets consist of the following items:


Prepaid lease payments and deposits 239 238

Total 239 238

Prepaid lease payments and deposits are unsecured and have no collateral.

� Note 10: Prepayments and other receivables

Prepayments and other receivables consist of the following items:


Prepayments to suppliers and other 2 444 2 079Claims receivable 1 787 3 343Trade receivables 240 274Loan to employee 132 -

Total 4 603 5 696

Claims receivable represents amounts the Company anticipates recovering from vendors and insurers.

Loan to employee represents advances made to PSI’s SVP Operations. For more details, please see note 27.

� Note 11: Cash and cash equivalents

Cash and cash equivalents consist of the following items:


Cash and bank deposits 110 066 69 109

Cash and cash equivalents in the statement of cash flows 110 066 69 109

Cash and bank deposits are invested in overnight deposits.


Performance 2017


� Note 12: Restricted cash

Restricted cash consists of the following items:


Restricted cash (non-current) 13 154 13 101Restricted cash (current) 14 7 001

Total 13 168 20 102

Restricted cash amounts represent a custody account established in 2015 in connection with the Welcome Fund loan and an escrow account establishedin 2011 in conjunction with the SeaRiver contract.

PSI deposited USD 13.1 million into the Welcome Fund custody account upon the delivery of Hull 021 in 2015. This amount is expected to be released in2020 which is when the Welcome Fund loan matures.

PSI deposited USD 20.0 million in the SeaRiver escrow account in 2011. USD 13.0 million of the SeaRiver escrow account was released upon delivery ofHull 020 in 2015. The remaining funds in the SeaRiver escrow account (excluding USD 14 thousand of interest income) were released in 2017.

� Note 13: Earnings per share

Basic and dilutedBasic and diluted earnings per share are calculated by dividing the total comprehensive income attributable to equity holders of PHLY by the weightedaverage number of ordinary shares.

Amounts in USD thousands (except share amounts and earnings per share) 2017 2016

Total comprehensive income attributable to equity holders of PHLY 67 223 38 652Weighted average number of ordinary shares in issue 12 107 901 12 107 901

Basic and diluted earnings per share (USD) 5.55 3.19

At 31 December 2017 and 31 December 2016, PHLY had 12,107,901 ordinary shares (excluding 466,865 treasury shares) at a par value of NOK 10 pershare. There were no share issuances or repurchases in 2017 or 2016.

There were no potentially dilutive securities outstanding as of 31 December 2017 and 31 December 2016.

� Note 14: Paid in capital

The current share capital (excluding 466,865 treasury shares) is 12,107,901 shares issued and outstanding as of 31 December 2017, each with a par valueof NOK 10, fully paid. As of 31 December 2017, there are no additional authorized shares.

Amounts in USD thousands Share capital Share premium Paid in capital

31 December 2015 22 664 56 797 79 461Dividend paid - (34 286) (34 286)

31 December 2016 22 664 22 511 45 175Dividend paid - - -

31 December 2017 22 664 22 511 45 175

Summary of purchases of treasury shares:

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

shares Consideration

Treasury shares at 31 December 2015 466 865 (9 969)Purchases - -

Treasury shares at 31 December 2016 466 865 (9 969)Purchases - -

Treasury shares at 31 December 2017 466 865 (9 969)

As of 31 December 2017, the parent company had approximately USD 5.5 million of equity which could be distributed to shareholders by the Board inaccordance with PHLY’s dividend policy.


Performance 2017


� Note 15: Interest-bearing debt

This note provides information about Philly Shipyard’s contractual terms of interest-bearing loans and borrowings. For more information about PhillyShipyard’s exposure to interest rate and foreign currency risk, see note 22.


Interest-bearing long-term debt:Welcome Fund loan, net of fees 59 350 59 061Finance lease liability (non-current portion) 20 268

Total interest-bearing long-term debt 59 370 59 329

Interest-bearing short-term debt and construction loans:Finance lease liability (current portion) 248 235Construction loans - 98 000

Total interest-bearing short-term debt and construction loans 248 98 235

PSI had a loan agreement with Caterpillar Financial Services Corporation (Cat Financial) for a USD 150.0 million loan facility, subject to a maximum borrow-ing amount of USD 75.0 million per vessel, for construction financing on Hulls 025-028. The loan was secured by a first lien on Hulls 025-028. The loanaccrued interest at three-month LIBOR plus 3.0% per annum as defined in the loan agreement. This facility was repaid in full and terminated upon thedelivery of Hull 028 on 20 November 2017.

PSI has a secured term loan of up to USD 60.0 million (USD 59.4 million on the statement of financial position which is the loan amount net of unamortizedloan fees) with PIDC Regional Center, LP XXXI, a partnership between CanAm Enterprises and the Philadelphia Industrial Development Corporation (PIDC).The loan has a fixed interest rate of 2.625% per annum through maturity. The loan matures in March 2020. This loan was made through the Welcome Fundloan program, a source of low-cost capital generally available to commercial, retail, industrial or non-profit firms that create significant job growth and arelocated in or planning to locate to the City of Philadelphia. The loan has a five-year term and is secured by a first lien on: (1) USD 13.1 million of cash collat-eral; (2) PSI’s shares in its wholly-owned subsidiary, APSI Tanker Holdings II LLC (ATH II); and (3) ATH II’s shares in Philly Tankers AS. The loan also con-tains a covenant restricting dividends and other distributions by ATH II until an additional USD 39.3 million of cash collateral has been deposited to securethe loan. It is expected that the additional USD 39.3 million of cash collateral will be deposited to secure the loan in 2018 in connection with the liquidationof Philly Tankers. USD 60.0 million is drawn under this term loan at 31 December 2017.

PSI has an unsecured three-year revolving credit facility for up to USD 10.0 million from TD Bank, N.A., which automatically reduced from a maximum ofUSD 20.0 million on 1 May 2017. The facility terminates in April 2019. The loan accrues interest at 30-day LIBOR plus 2.50% per annum as defined in thecredit agreement. USD 1.2 million of this facility was utilized as of 31 December 2017 for the issuance of letters of credit.

Loan covenantsThe Welcome Fund loan contains certain financial covenants related to a minimum consolidated equity, as defined, of USD 80.0 million (USD 155.4 millionat 31 December 2017) and a maximum consolidated total debt to tangible net worth, as defined, of no greater than 4.0 to 1.0 (0.4 at 31 December 2017).The TD Bank loan facility contains a financial covenant requiring a minimum liquidity amount at 31 December 2017, as defined, of USD 25.0 million (USD131.9 million at 31 December 2017). As of 31 December 2017, the Company was in compliance with these existing covenants and is expected to remain incompliance during 2018.

Undrawn credit facilitiesAs of 31 December 2017, PSI has USD 8.8 million of undrawn credit facilities with TD Bank.

� Note 16: Other non-current liabilities


Withholding tax on dividends paid to shareholders - 3

Total - 3

� Note 17: Operating lease and finance lease liabilities

Non-cancellable operating lease rentals are payable as follows as of 31 December:


Less than one year 91 76Between one and five years 145 4

Total 236 80

The operating leases are for facilities, vehicles and printing and copying equipment.

The building lease for PSI’s plate priming facility has been extended on a month-to-month basis. The base rent is USD 16 thousand per month. Thisamount is not included in the operating lease rentals recorded above.


Performance 2017


Finance lease liabilities are payable as follows as of 31 December:

Amounts in USD thousandsPayments

2017Interest

2017Principal

2017Payments

2016Interest

2016Principal

2016

Less than one year 256 8 248 256 21 235Between one and five years 20 - 20 276 8 268

Total 276 8 268 532 29 503

PSI has a finance lease for priming equipment with a carrying amount of USD 268 thousand at year end 2017.

PSI operates on land leased from PSDC through April 2018. Lease payments include rent, taxes and operating expenses. The lease payments are subjectto an annual revision based on PSDC’s operating expenses. PSI has options to renew the lease for three consecutive periods of 20 years each and onefinal period of 19 years. PSI can acquire the land for USD 1 after the expiration of all renewal periods. Lease payments for rent due under the finance leaseare USD 1 per year.

PSDC has the right to terminate the lease if PSI fails to maintain an average of at least 200 full-time employees at the shipyard for 90 consecutive days,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 5-year termunder certain circumstances. Based on its current construction schedule and order backlog, the Company expects that PSI will have at least 200 full-timeemployees on staff so long as there is ongoing shipbuilding activity at the Shipyard. If PSI fails to obtain new orders or financing for vessels before theMatson project is substantially complete, then it would be challenging for PSI to continue shipbuilding operations after delivery of the last vessel in its orderbacklog (Hull 030), which is scheduled in Q1 2019.

� Note 18: Pension costs

Pension costs recognized in the income statement:


Contribution plans (employer’s contribution) 1 663 2 137

Total 1 663 2 137

PSI has a defined contribution plan for its non-union employees which provides for a PSI contribution based on a fixed percentage of certain employeecontributions plus a discretionary percentage of salaries. In addition, PSI’s union employees are participants in a multi-employer union selected pensionplan (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 couldbe statutorily liable for a termination liability calculated at the termination date. The termination liability at 31 December 2017 was USD 5.8 million. Currently,PSI has no plans to terminate this relationship. Thus, no termination liability has been recognized in the financial statements. PSI estimates that it will con-tribute approximately USD 1.0 million to the Union Plan in 2018.

� Note 19: Other provisions — warranties


Current balance as of 1 January 2 246 1 501Provisions made during the period 1 079 1 840Provisions released during the period (1 417) -Provisions used during the period (593) (1 095)

Current balance as of 31 December 1 315 2 246

The warranty provision relates to the warranty work for vessels (Hulls 021-028) which were delivered through 31 December 2017. The warranty provisiondecreased as specific issues previously accrued for were resolved in 2017. The normal warranty period for a new vessel is typically 12 months after deliv-ery, but can be extended in cases where there are specific issues that have not been fully resolved within the normal warranty period.

� Note 20: Trade payables and accrued liabilities

Trade payables and accrued liabilities comprise the following items:


Ship material and subcontracting accruals 14 396 27 569Trade payables 6 496 9 863Employee-related cost accruals 8 121 5 806Overhead and capital projects accruals 5 801 5 487Deferred real estate tax liability - 7 819

Total 34 814 56 544


Performance 2017


In connection with the PSDC agreement, the City of Philadelphia agreed to temporarily defer USD 8.0 million in real estate tax payments due from PSI overthree years (2011-2013). The Company discounted the deferred payments and imputed interest expense over the deferral period. At 31 December 2016,the deferred real estate tax liability was classified in trade payables and accrued liabilities as a current liability. The full deferred real estate tax amount ofUSD 8.0 million was paid in 2017.

� Note 21: Net interest-bearing debt

Net interest-bearing debt comprise the following items at 31 December:


Interest-bearing long-term debt (see note 15) 59 370 59 329+ Interest-bearing short-term debt (see note 15) 248 235+ Construction loans (see note 15) - 98 000

Total interest-bearing debt 59 618 157 564

- Cash and cash equivalents (see note 11) (110 066) (69 109)- Restricted cash (see note 12) (13 168) (20 102)

Total interest-bearing assets (123 234) (89 211)

Net interest-bearing debt (63 616) 68 353

Net interest-bearing debt is defined by the Company to be total interest-bearing debt less total interest-bearing assets.

� Note 22: Financial instruments

Exposure to credit, liquidity, currency and interest rate risks arise in the normal course of the Company’s business. Derivative financial instruments are usedto hedge exposure to fluctuations in foreign exchange rates for business purposes.

Credit riskThe carrying amount of financial assets represents the maximum credit exposure. At 31 December 2017 and 2016, respectively, the maximum exposure tocredit risk is as follows:


Cash and cash equivalents 110 066 69 109Restricted cash 13 168 20 102Vessels-under-construction receivable 7 275 -Trade receivables 240 274Work-in-process - 180 321

Total 130 749 269 806

Work-in-process of USD 13.4 million at 31 December 2017 is not accounted for as a credit risk given that it represents the costs incurred by PSI on theCV3700 project (Hulls 031-032) built for its own account. At 31 December 2016, work-in-process of USD 180.3 million was due from a specified externalcustomer under contract with PSI.

Liquidity riskThe following are the contractual maturities of financial liabilities including interest payments:

31 December 2017

Amounts in USD thousandsBookvalue

Contractualcash flow

Less than6 months

6-12months

1-2years

2-5years

More than5 years

Non-derivative financial liabilitiesWelcome Fund loan 60 000 (63 522) (792) (805) (1 597) (60 328) -Trade payables 6 496 (6 496) (6 496) - - - -Finance lease 268 (276) (128) (128) (20) - -

Total 66 764 (70 294) (7 416) (933) (1 617) (60 328) -

31 December 2016

Amounts in USD thousandsBookvalue

Contractualcash flow

Less than6 months

6-12months

1-2years

2-5years

More than5 years

Non-derivative financial liabilitiesConstruction loans 98 000 (98 463) (65 412) (33 051) - - -Welcome Fund loan 60 000 (65 119) (792) (805) (1 597) (61 925) -Trade payables 9 863 (9 863) (9 863) - - - -Deferred real estate tax liability 7 819 (8 000) (8 000) - - - -Finance lease 503 (532) (128) (128) (256) (20) -

Total 176 185 (181 977) (84 195) (33 984) (1 853) (61 945) -


Performance 2017


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

Currency riskThe Company incurs foreign currency risk on purchases that are denominated in a currency other than USD. The currencies giving rise to this risk are pri-marily EUR (Euro), KRW (Korean Won) and NOK (Norwegian Kroner).

Changes in the fair value of forward exchange contracts that economically hedge highly probable forecasted transactions (consisting of the unpaid portionof purchase commitments made by PSI) in foreign currencies and for which hedge accounting is not applied are recognized in the income statement. Boththe changes in fair value of the forward contracts and the foreign exchange gains and losses relating to the monetary items are recognized as part of netfinancial items (see note 6). The fair value of exchange contracts used as economic hedges of highly probable forecasted transactions in foreign currenciesat 31 December 2017 was USD 162 thousand recognized in current assets.

Exposure to currency riskThe Company’s exposure to currency risk at 31 December 2017 and 2016 was as follows based on the following notional amounts:

2017 2016

Amounts in USD thousands EUR KRW NOK EUR KRW NOK

Gross balance sheet exposureTrade payables (-) (75) (42) (2) (478) (1 766) (45)Cash - - 253 - - 6

Gross balance sheet exposure (75) (42) 251 (478) (1 766) (39)Estimated forecast expenses (-) (615) (3 049) (95) (5 428) (16 045) (281)

Gross exposure (615) (3 049) (95) (5 428) (16 045) (281)Forward exchange contracts 598 3 648 72 1 899 20 589 284

Net exposure (92) 557 228 (4 007) 2 778 (36)

Sensitivity analysisIn managing interest rate and currency risks, the Company aims to reduce the impact of short-term fluctuations on its earnings. Over the longer term,however, permanent changes in interest and foreign exchange rates would have an impact on consolidated earnings.

At 31 December 2017 it is estimated that a 10% strengthening of the USD against other foreign currencies would have increased the Company’s incomebefore tax by approximately USD 1.3 million. At 31 December 2016 it is estimated that a 10% strengthening of the USD against other foreign currencieswould have increased the Company’s income before tax by approximately USD 420 thousand.

Exposure to interest rate riskIt is estimated that a general increase of one percentage point in interest rates would not impact the Company’s income before tax for 2017 and would nothave impacted the Company’s income before tax for 2016.

Fair valuesThe following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Itdoes not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approx-imation of fair value.

Amounts in USD thousands

Carryingamount

2017

Fairvalue2017

FVhierarchy

level2017

Carryingamount

2016Fair

value 2016

FVhierarchy

level2016

Welcome Fund loan (60 000) (57 592) 2 (60 000) (56 810) 2Finance lease (268) (257) 2 (503) (473) 2Forward exchange contracts 162 162 2 (1 597) (1 597) 2Construction loans - - - (98 000) (98 000) 2

The fair value of the Welcome Fund loan is calculated by using the difference between a 4.0% market rate and the actual 2.625% loan rate.

The fair value of fixed-interest long-term debt (i.e. finance lease liabilities) is calculated based on the present value of future principal and interest cash flowsdiscounted at a market rate of 4.0% for 2017 and 4.0% for 2016.

Except for forward exchange contracts, none of the Company’s financial assets and liabilities are measured at fair value.

The fair value of the construction loans is calculated by using the existing three-month LIBOR rate plus an applicable market-based margin of 3.0%.


Performance 2017


Financial instruments measured at fair value:

The following table shows the valuation techniques used in measuring Level 2 and Level 3 fair values, as well as the significant unobservable inputs used:

Type Valuation technique Significant unobservable inputs

Inter-relationship betweensignificant unobservable inputs andfair value measurement

Forward exchange contracts Market comparison technique:The fair values are based on bankerquotes. Similar contracts are traded inan active market and the quotes reflectthe actual transactions in similarinstruments.

Not applicable. Not applicable.

In accordance with its treasury policy, the Company does not hold or issue derivative financial instruments for trading purposes. However, derivatives thatdo not qualify for hedge accounting are accounted for as trading instruments.

The Company has categorized its assets and liabilities that are recorded at fair value, based on the priority of the input to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and thelowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets and liabilities fall within different levels of the hierarchy, the catego-rization is based on the lowest level input that is significant to the fair value measurement of the instrument. The categories are described below:

Level 1. Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have theability to access.

Level 2. Assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly orindirectly for substantially the full term of the asset or liability. Examples of Level 2 inputs include quoted prices for identical or similar assets or liabilities innon-active markets and pricing models whose inputs are observable for substantially the full term of the asset or liability.

Level 3. Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to theoverall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing theasset or liability.

� Note 23: 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 2017 and 31 December 2016

Name Position

2017Number of

shares held

2016Number of

shares held

Elin Karfjell Board Member 1 200 1 200Steinar Nerbovik 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 2017 and 31 December 2016

2017Remuneration

2016Remuneration

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

James H. Miller (Feb. 2016-Dec. 2017) Board Chairman 327 500 39 545 293 333 34 915Elin Karfjell Board Member 218 750 26 447 215 000 25 591Amy Humphreys Board Member 218 750 26 447 215 000 25 591Audun Stensvold Deputy Board Chairman 218 750 26 447 215 000 25 591Kristian Rokke (Jan. 2016) Board Chairman - - 26 667 3 174

Sum Directors’ fees 983 750 118 886 965 000 114 862

No Board members received any remuneration other than Directors’ fees, except James H. Miller who received USD 33,750 for the period of Jan.-Sept.2017 related to consulting services provided by Mr. Miller to PSI on behalf of his former employer, Kvaerner Inc. For the period of Oct.-Dec. 2017, Mr. Millerreceived USD 22,500 related to consulting services provided by Mr. Miller to PSI on behalf of his consulting company, SeaJay Consulting LLC. The Boardremuneration for Audun Stensvold is paid to Aker ASA.

Remuneration to the audit committeeThe audit committee of PHLY is comprised of Elin Karfjell (Chairperson) and Audun Stensvold. Remuneration for the Chairperson is NOK 46,000 (USD5,561) and for each member is NOK 36,000 (USD 4,352). The audit committee remuneration for Audun Stensvold is paid to Aker ASA.

Remuneration to the nomination committeeThe nomination committee of Philly Shipyard ASA has the following members: Leif Arne Langoy (Chairman), Arild Storen Frick and Gerhard Heiberg. Remu-neration earned by each member of the committee in 2017 was NOK 34,000 (USD 4,110). The nomination committee remuneration for Arild Storen Frick ispaid to Aker ASA.


Performance 2017


Guidelines for remuneration to the President and CEO and members of the Executive TeamThe basis of the remuneration of the President and CEO and members of the Executive Team has been developed in order to create a performance-basedsystem. This system of reward is designed to contribute to the achievement of good financial results and increase shareholder value.

The President and CEO and members of the Executive Team receive a base salary. In addition, a variable pay may be awarded in accordance with a varia-ble pay program which was implemented in 2007. This variable pay program is based on the achievement of financial and personal performance targetsand leadership performance in accordance with the Company’s values.

The variable pay program for the President and CEO represents a potential for an additional variable pay up to 70% of base salary depending on the ach-ievement of defined short-term and long-term results such as financial targets (profit and working capital) and personal targets (project targets, develop-ment of commercial solutions, alignment with values and improvement of HSE).

The variable pay program for other members of the Executive Team represents a potential for an additional variable pay in the range of 20% to 60% ofbase salary depending on the achievement of the same factors described for the President and CEO.

As of 2017, the variable pay program for some members of the Executive Team includes two payments, i.e., a base award (calculated as provided above)and a deferred payment. The deferred payments are designed to incentivize and retain key personnel. The deferred payments are equal to 50% of the baseawards and are payable 12 months after the base awards. In addition, commencing in 2017, the variable pay program for some members of the ExecutiveTeam includes an additional payment for the achievement of specific project targets. This payment is equal to 25% of the maximum base award.

The President and CEO and Executive Team participate in the standard pension and insurance schemes, applicable to all employees.

The Company practices standard employment contracts and standard terms and conditions regarding notice period and severance pay for the Presidentand CEO and members of the Executive Team.

The Company does not offer share option programs to the Executive Team.

Remuneration paid to Senior Management for 2017

Amounts in USDBase

salaryVariable

payPension

contributionOther

benefitsTotal

remunerationSeverance

pay

Steinar Nerbovik President and CEO Jan-Dec 435 999 200 974 32 000 73 342 742 315 12 monthsJan Ivar Nielsen CFO Jan-Dec 267 040 105 020 15 000 19 574 406 634 12 months

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

Remuneration paid to Senior Management for 2016

Amounts in USDBase

salaryVariable

payPension

contributionOther

benefitsTotal

remunerationSeverance

pay

Steinar Nerbovik President and CEO Jan-Dec 426 971 79 575 32 000 72 760 611 306 12 monthsJan Ivar Nielsen CFO Jan-Dec 260 000 18 850 15 000 46 286 340 136 12 months

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

� Note 24: Joint venture and equity-accounted investments

Equity-accounted investments with Philly TankersIn July 2014, Philly Tankers completed a USD 65.025 million private placement with a subsequent registration in the Norwegian OTC.

Prior to the Philly Tankers private placement, in return for 62,475 shares in Philly Tankers, the Company contributed a promissory note with a face value ofUSD 58.0 million to the equity capital of Philly Tankers. This note was reduced dollar-for-dollar as PSI invested its own funds into the construction of Hulls025 and 026. As this note was issued as an interest-free instrument, the Company discounted its value and imputed interest expense on the discountedamount at a rate of 3.49% per annum. The dollar-for-dollar reductions commenced in the third quarter of 2015 with a total reduction of the fullUSD 58.0 million through the second quarter of 2016.

In addition, as part of the Philly Tankers private placement, the Company invested USD 6.025 million in cash in exchange for an additional 6,025 shares inPhilly Tankers. As the initial shareholder of Philly Tankers, the Company was paid a cash distribution of USD 5.525 million out of the proceeds of the PhillyTankers private placement.

On 10 August 2015, Philly Tankers executed definitive agreements with a third party for the assignment of its existing contracts and related assets for fourproduct tankers (Hulls 025-028). Per the agreements, each of the contracts and related assets were assigned by Philly Tankers to the third party immedi-ately prior to the delivery of the relevant vessel.


Performance 2017


In accordance with IFRS, upon each delivery, Philly Tankers recognized a gain-on-sale and Philly Shipyard, in turn, recognized a portion of the gain as profitin equity-accounted investments recorded as other income on the income statement. Upon deliveries of Hull 026 in Q1 2017, Hull 027 in Q3 2017 and Hull028 in Q4 2017, Philly Tankers recognized a combined gain-on-sale of approximately USD 37.2 million and Philly Shipyard recognized USD 19.6 million asprofit in equity-accounted investments recorded as other income on the income statement. Upon delivery of Hull 025 in Q4 2016, Philly Tankers recognizeda gain-on-sale of approximately USD 12.0 million and Philly Shipyard recognized USD 6.2 million as profit in equity-accounted investments recorded asother income on the income statement.

To date, the dividends paid by Philly Tankers to its shareholders total USD 76.7 million, and Philly Shipyard’s share of those dividends totals USD 41.2 mil-lion, of which USD 39.9 million was received by end of 2017 and USD 1.3 million was received in the beginning of 2018. On 19 October 2017, Philly Tankersannounced that it will not make any further dividend payments before liquidation other than any dividends necessary to cover U.S. tax withholding pay-ments on behalf of its non-U.S. shareholders due at an earlier time. In this announcement, Philly Tankers stated its belief that this is the most cost-efficientand tax-efficient manner to distribute its capital to its shareholders. Philly Tankers has initiated a liquidation process with a target of distributing a majorityof its cash to its shareholders in 2018.

As of 31 December 2017, the Company owns 53.7% of the outstanding shares of Philly Tankers. The Company has performed an analysis of its ownershipinterests and voting rights in the articles of association in Philly Tankers and concluded that it does not control the relevant activities of Philly Tankers. Whilethe Company may vote up to 50.1% of the shares of Philly Tankers, the Company cannot elect a majority of the board of directors of Philly Tankers andcannot control the vote on actions that require the approval of a “super-majority” of the shares of Philly Tankers. The Company does not have the currentability to direct the activities that significantly affect Philly Tankers’ returns. Therefore, the Company accounts for the investment using the equity methodand does not consolidate Philly Tankers.


Percentage ownership interest 53.7% 53.7%

Non-current assets - 68 590Current assets 85 771 57 863Current liabilities (272) (690)

Net assets (100%) 85 499 125 763

Company’s share of net assets (53.7%) 45 934 67 564

Adjustments tor carrying value of investment:Dividend owed but not received 1 376 -Company’s share of transaction costs - 1 157Deferred gain on equity-accounted investments - (4 386)

Carrying amount of equity-accounted investments 47 310 64 335

Income from operations (100%) 36 532 11 595Other comprehensive income (100%) - -

Total comprehensive income (100%) 36 532 11 595

Company’s share of total comprehensive income (53.7%) 19 618 6 227

The recognition of deferred gain on equity-accounted investments represents the Company’s USD 5.848 million gain that was deferred on the issuance ofPhilly Tankers shares in July 2014 to external parties at a price exceeding the Company’s cost basis, before deduction of a deferred transaction cost ofUSD 1.153 million. The net gain at 31 December 2017 and 31 December 2016 amounted to USD 3.233 million and USD 1.462 million, respectively.

Joint venture with CrowleyOn 6 November 2013, Philly Shipyard executed definitive agreements for a joint venture with Crowley Maritime Corporation and certain of its affiliates(Crowley) related to the ownership, operation and chartering of four product tankers (Hulls 021-024). The agreements provided that Crowley would maintaincontrol over the ownership, technical operation and commercial management of the vessels. The first two vessels were delivered in 2015 and the remainingtwo vessels were delivered in 2016.

On 21 September 2015, Philly Shipyard entered into definitive agreements with a third party for the buy-out of its interest in the joint venture with Crowley.The buy-out of Philly Shipyard’s interest occurred on the delivery of each vessel.

Due to the nature of the transactions, approximately 49.9% of the gross margin on each of the Crowley vessels (Hulls 021-024) was deferred and the totalestimated deferred margin for all four vessels was recognized pro rata (25% per ship) upon delivery of each vessel. Upon delivery of the last two Crowleyvessels (Hulls 023-024) in 2016, USD 14.4 million of deferred profit was recognized as an increase to revenue during the year ended 31 December 2016.

In addition, upon delivery of the last two Crowley vessels in 2016, USD 20.7 million was recognized as a gain-on-sale on the buy-out in Philly Shipyard’sinterest in the joint venture with Crowley which was calculated based on the estimated total investment in the joint venture of approximately USD518 million and recorded as other income in the income statement for the year ended 31 December 2016. The actual amount of investment depended uponthe total capital cost of the vessels to the joint venture.


Performance 2017


� Note 25: PHLY companies

Incorporation OwnershipCompany name State Country %

Philly Shipyard, Inc. Pennsylvania USA 100.0%APSI Shipholding 017, Inc. Delaware USA 100.0%APSI Shipholding 018, Inc. Delaware USA 100.0%APSI Tanker Holdings, Inc. Delaware USA 100.0%APSI Member 021, Inc. Delaware USA 100.0%APSI Member 022, Inc. Delaware USA 100.0%APSI Member 023, Inc. Delaware USA 100.0%APSI Member 024, Inc. Delaware USA 100.0%APSI Tanker Holdings II, LLC Delaware USA 100.0%PSI Containership Holdings, Inc. Delaware USA 100.0%

� Note 26: Government grants, other commitments and contingencies and legal matters

Government grantsFor the year ended 31 December 2017, the Shipyard received USD 102 thousand as reimbursement of employee training costs from various governmentalagencies (USD 146 thousand as reimbursement in 2016).

Other commitments and contingenciesPSI is required to pay a common area maintenance charge each month of approximately USD 55 thousand, subject to escalation, through the term of itsshipyard lease.

On 13 September 2002, the Shipyard finalized an agreement with the City of Philadelphia (and others), whereby the parties agreed to the Real Estate andUse and Occupancy Tax for the years 2001 through 2017. The Shipyard is committed to a fixed assessment of approximately USD 3.3 million to USD3.6 million per year, commencing in 2003. In connection with the closing of certain other transactions with PSDC in March 2011, the City of Philadelphiaagreed to temporarily defer USD 8.0 million in tax payments due from PSI over three years (2011-2013). The full deferred amount was paid in June 2017(see note 20).

On 29 November 2017, PSI finalized a new long-term agreement with the City of Philadelphia (and others), whereby the parties agreed to the Real Estateand Use and Occupancy Tax for the years 2018 through 2025. PSI is committed to a fixed payment-in-lieu-of-taxes (PILOT) of approximately USD 863thousand per year, commencing in 2018.

As part of the transactions contemplated by the Authorization Agreement executed by PSI and Philadelphia Shipyard Development Corporation (PSDC) in2011, PSI agreed to a new termination event under its shipyard lease, pursuant to which PSDC has the right to recapture the shipyard if PSI fails to main-tain an average of at least 200 full-time employees at the shipyard for 90 consecutive days, subject to the right of PSI to complete work-in-process projectsand a one-time, limited cure right which allows PSI to restore the lease to a five-year term under certain circumstances. Based on its current constructionschedule and order backlog, Philly Shipyard expects that PSI will have at least 200 full-time employees on staff so long as there is ongoing shipbuildingactivity at the Shipyard. If PSI fails to obtain new orders or financing for vessels before the Matson project is substantially complete, then it would be chal-lenging for PSI to continue shipbuilding operations after delivery of the last vessel in its order backlog (Hull 030), which is scheduled in Q1 2019.

Legal mattersThe Company is involved in various legal disputes in the ordinary course of business related primarily to personal injury matters, employment matters andcommercial matters. Provisions have been made to cover the expected outcomes when it is probable that a liability has been incurred and the amount isreasonably estimable. Although the final outcome of these matters is subject to uncertainty, in the Company’s opinion the ultimate resolution of such legalmatters will not have a material adverse effect on the Company’s financial position or results of operations.

� Note 27: Transactions, guarantees and agreements with related parties and concentration of business

Aker Capital AS, a wholly-owned subsidiary of Aker ASA, is the majority shareholder in PHLY, owning 57.6% of the total outstanding shares of PHLY as of31 December 2017. The Company believes that related party transactions are made on terms equivalent to those that prevail in arm’s length transactions.

TransactionsPhilly Shipyard has service agreements with Aker ASA and certain of its affiliates which provide specified consulting, tax, financial and administrative serv-ices. All payables under these agreements are paid within the normal course of business. Related administrative costs and financial statement amounts areas follows:

Amounts in USD thousandsExpenses

2017Expenses

2016

Aker U.S. Services LLC 120 120Aker ASA 8 54

PSI has entered into an administrative services agreement with Philly Tankers LLC (PTLLC) whereby PSI will supply certain administrative services toPTLLC. Related revenues for the year ending 31 December 2017 were USD 120 thousand (USD 120 thousand for the year ending 31 December 2016) andcorresponding receivables for the year ending 31 December 2017 were USD 120 thousand (USD 120 thousand for the year ending 31 December 2016).


Performance 2017


On 13 July 2017, PSI made an advance of USD 130 thousand to Jari Anttila, PSI’s Senior Vice President Operations. The advance is made on market termsand secured by future bonus that Mr. Anttila is eligible to receive under the variable pay program for the Executive Team.

ConcentrationsOperating revenues are detailed below:

Amounts in USD thousandsRevenue

2017Revenue

2016

Philly Tankers 383 022 127 834Matson 208 762 12 982Crowley - 64 433

� Note 28: Events after 31 December 2017

Until January 2018, PSI had been working on a long-term project that contemplated the construction and sale of up to four state-of-the-art containerships(CV3700 vessels) for delivery to TOTE in 2020 and 2021. The parties signed a Letter of Intent (LOI) for this project in July 2017. However, in January 2018,TOTE announced that its plans to enter the U.S. mainland to Hawai’i containership service are on hold and the LOI was allowed to expire in accordancewith its terms on 31 January 2018. Based on these developments, PSI’s project to build Hulls 031-034 as containerships was put on hold. PSI has sus-pended substantially all construction-related activities on these vessels. As previously disclosed, PSI has placed orders for all major long-lead items for thefirst pair, enabling a rapid start-up if conditions permit. If these orders were to be cancelled, then the cancellation costs would be substantially lower thanthe value of the orders placed. In case of a cancellation of the CV3700 project, the total cost is estimated to be less than USD 20.0 million, of which amajority of the cash impact has already been included in the financial statements for year-end 2017.


Performance 2017

Parent company accounts

Philly Shipyard ASA

Income Statement


Operating revenues - 20Operating expenses 2 (296) (472)

Operating loss (296) (452)Interest income from subsidiaries 1 313 1 157Interest expense to subsidiaries (2 213) (1 295)Other interest income and financial income 3 2 995 46 646Other interest expense and financial expense (63) (4)

Income before tax 1 736 46 052Income tax expense 5 (640) (6 443)

Net income for the year 1 096 39 609

Allocation of net income:Net income for the year 1 096 39 609Other equity 6 (1 096) (39 609)

Total - -


Performance 2017


Philly Shipyard ASA

Statement of Financial Positionas of 31 December


ASSETSShares in subsidiary 4 67 000 67 000Loan to subsidiary 9 31 000 31 000

Total non-current assets 98 000 98 000

Prepayments and other receivables 603 29Cash and cash equivalents 7 1 840 973

Total current assets 2 443 1 002

Total assets 100 443 99 002

EQUITY AND LIABILITIESShare capital 22 664 22 664Share premium reserve 12 542 12 542

Total paid in capital 35 206 35 206Other equity 8 424 10 355

Total equity 6 43 630 45 561

Deferred tax liability 5 704 1 031Other non-current liabilities - 3Loan from subsidiary 9 55 000 -

Total non-current liabilities 55 704 1 034

Trade payables and accrued liabilities 144 199Income tax payable 5 965 208Loan from subsidiary 9 - 52 000

Total current liabilities 1 109 52 407

Total liabilities 56 813 53 441

Total equity and liabilities 100 443 99 002




Audun Stensvold Steinar NerbovikDeputy Board Chairman President and CEO


Performance 2017


Philly Shipyard ASA

Cash Flow Statement


Income before tax 1 736 46 052Change in other current assets (574) 198Change in other current and other non-current liabilities (57) (32)Income taxes paid (211) (6 833)

Net cash flow from operating activities 894 39 385

Dividend paid (3 027) (90 705)Loan proceeds from subsidiary 3 000 52 000

Net cash flow used in financing activities (27) (38 705)

Net change in cash and cash equivalents 867 680Cash and cash equivalents at beginning of period 973 293

Cash and cash equivalents as of 31 December 1 840 973


Performance 2017


� Note 1: Basis for preparation

The accounts of Philly Shipyard ASA (referred toherein as PHLY) are presented in conformity withNorwegian legislation and generally acceptedaccounting principles in Norway. PHLY’s functionaland reporting currency is the U.S. dollar (USD),except when indicated otherwise.

SubsidiariesSubsidiaries are presented on a historical costbasis in the parent company accounts. Theinvestment is valued at historical cost for the sharesunless impairment write-downs have been deemednecessary. The shares are written down to fairvalue if the impairment is not of a temporary natureand is necessitated by generally acceptedaccounting principles. Write-downs are reversedwhen the basis for the write-down no longer exists.

Dividends and other payments are taken toincome in the year they are accrued in the sub-sidiary. If dividends exceed retained earningsafter the purchase, the excess representsrepayment of invested capital and the paymentsare deducted from the invested value in PHLY’sstatement of financial position.

Classification and valuation of statement offinancial position itemsCurrent assets and current liabilities includeitems that have less than one year to maturity,

and other items that are deemed operationalworking capital. Other items are classified asnon-current assets/non-current liabilities.

Current assets are valued at the lower ofhistorical cost and fair value. Current liabilitiesare valued at their nominal historical value at thetime the liability arises.

Non-current assets are valued at historicalcost, but are written down to fair value if impair-ment is deemed to be of a permanent nature.Non-current liabilities are valued at nominalhistorical values.

TaxTax expense in the income statement comprisesboth current payable taxes and the change indeferred tax. Payable tax is calculated on thebasis of the profit for the period in NorwegianKroner (NOK). Deferred tax at 31 December 2017is calculated using a 23% income tax rate utilizingthe difference that exists between book valuesand tax values and the net operating losses thatcan be carried forward at the statement of finan-cial position date. Tax-increasing andtax-reducing temporary differences that arereversing or can reverse in the same period areoffset against each other. Net tax assets areshown in the statement of financial position to the

extent it is probable that these assets can be uti-lized.

To the extent a group contribution is notshown in the income statement, the tax effect istaken directly against the investment item in thestatement of financial position.

Cash flow statementThe cash flow statement is shown using theindirect method. Cash and cash equivalentscomprises cash, bank deposits and other short-term liquid placements.

Use of estimatesPreparation of financial statements in conformitywith generally accepted accounting principles inNorway requires management to make estimatesand assumptions that affect the income state-ment, the reported amounts of assets andliabilities and also the disclosure of contingentassets and liabilities on the statement of financialposition date.

Contingent losses that are probable andquantifiable are expensed when they are identi-fied.

� Note 2: Other operating expenses

Fees to the auditors for ordinary audit and other audit and attestation fees have been expensed in 2017 and 2016. Fees to the auditors are as follows:


Audit fees 31 31Other audit and attestation fees - 31Tax non-attest fees - 6

Total 31 68

PHLY has no employees. The Senior Management is employed in the operating company. Fees to the Board of Directors of USD 118,886 and USD 114,862were expensed in 2017 and 2016, respectively.

� Note 3: Other interest income and financial income


Guarantee provisions 2 916 3 339Gain on foreign currency forward contracts 70 345Interest income external 9 14Foreign exchange gain - 48Dividend received - 42 900

Total 2 995 46 646

2016 dividend received of USD 42.9 million includes USD 6.4 million in U.S. withholding tax.


Performance 2017


� Note 4: Shares in subsidiary

This item comprises the following as of 31 December 2017:

Amounts in USD thousandsOwnership and

voting rights (%)Businessaddress

Historicalcost

Bookvalue

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

Total shares in subsidiary 67 000 67 000

PSI’s results after-tax in 2017 and equity at the end of 2017 are:

Results after-tax 2017 66 126Equity at 31 December 2017 178 947

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 hasoccurred to the investment in subsidiary at 31 December 2017.

� Note 5: Taxes

The table below shows the difference between book and tax values by the end of 2017 and 2016 and the amounts of deferred taxes at these dates and thechange in deferred taxes.


Losses carried forward - -Other temporary differences (3 409) (4 410)

Total differences (3 409) (4 410)

Net deferred tax asset/(liability), 23%/24% (784) (1 058)Foreign currency impact 80 27

Deferred tax asset/(liability) in the statement of financial position (704) (1 031)

Estimated result for tax purposes:


Income before tax measured in NOK for taxation purposes 2 810 40 838

Change in temporary differences 1 224 621Permanent differences - (40 629)

Estimated income for tax purposes 4 034 830

Income tax payable 965 208

Income tax expense in the income statement:


Income tax payable (965) (208)Change in deferred tax in the statement of financial position 325 20015% withholding tax dividend payment - (6 435)

Income tax expense (640) (6 443)


Performance 2017


� Note 6: Total equity

Changes in equity are:

Amounts in USD thousandsShare

capitalShare

premiumTreasury

sharesTotal paid in

capitalOtherequity

Totalequity

Equity as of 1 January 2017 22 664 56 797 (9 969) 35 206 10 355 45 561Dividend paid - - - - (3 027) (3 027)Net income for the year 2017 - - - - 1 096 1 096

Equity as of 31 December 2017 22 664 56 797 (9 969) 35 206 8 424 43 630

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 December2017.

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

Twenty largest shareholders(as of 31 December 2017)

ShareholdersNumber ofshares held

Ownership(in %)

Aker Capital AS 7 237 631 57.6%Goldman Sachs & Co. LLC 2 570 479 20.4%Philly Shipyard ASA 466 865 3.7%J.P. Morgan Securities LLC 367 735 2.9%Citibank, N.A. S/A National Financial Services 201 995 1.6%Pershing LLC 196 052 1.6%Interactive Brokers LLC 91 071 0.7%Citibank, N.A. S/A Charles Schwab FBO Customers 89 893 0.7%Ramadan Kovaci 61 765 0.5%Merrill Lynch, Pierce, Fenner & SM, Inc. 60 675 0.5%Avanza Bank AB 44 363 0.4%Ole Johnny Wilson 40 297 0.3%Lars Ro 40 000 0.3%Citibank, N.A. S/A Morgan Stanley 38 758 0.3%Citibank, N.A. S/A UBS Financial Securities, Inc. 34 188 0.3%Nordnet Livsforsikring AS 32 266 0.3%State Street Bank and Trust Company 28 050 0.2%J.P. Morgan Chase Bank, N.A., London 27 875 0.2%Heggum Holding AS 25 674 0.2%Per Asgeir Bodin 23 175 0.2%

Total, 20 largest shareholders 11 678 807 92.9%

Other shareholders 895 959 7.1%

Total 12 574 766 100.0%

� Note 7: Cash and cash equivalents

There is no restricted cash.

� Note 8: 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, see note 23 to the consolidated accounts.


Performance 2017


� Note 9: Related party transactions and guarantees

PHLY has made the following guarantees:

Description BeneficiaryAmount

(USD thousands) Borrower

Welcome Fund loan PIDC Regional Center, LP XXXI 60 000 PSI

Working capital facility TD Bank, N.A. 10 000 PSI

For additional information regarding the above loan facilities, see note 15 to the consolidated accounts.

PHLY has supplied a parent guarantee for the obligations of PSI under the two construction contracts with Matson Navigation Company, Inc. (Hulls029-030).

PHLY has service agreements with Aker ASA and certain of its affiliates which provide administrative services. All payables under these agreements arepaid within the normal course of business. Total expenses incurred under these agreements in 2017 and 2016 were USD 8 thousand and USD 54 thousand,respectively.

On 29 April 2008, PSI, as borrower, entered into a loan agreement with PHLY, as lender. The facility is for up to USD 50.0 million and interest is at a floatingrate of three-month LIBOR plus 3.00% per annum. The loan is payable on demand with advance notice of 30 days. As of 31 December 2017, USD31.0 million is outstanding under the facility and PHLY does not intend to call the loan for repayment in 2018.

On 18 July 2013, PSI, as lender, entered into a loan agreement with PHLY, as borrower. This facility is for up to USD 60.0 million and interest is at a fixedrate of 4.00% per annum. The loan is payable on demand with advance notice of 90 days. As of 31 December 2017, USD 55.0 million is outstanding underthe facility.

PSI and PHLY are parties to certain guaranty fee agreements related to the above-referenced loan and performance guarantees by PHLY. Total revenues ofPHLY from PSI under these guaranty fee agreements in 2017 and 2016 were USD 2.9 million and USD 3.3 million, respectively, with fees ranging from0.15% to 0.30 % for performance guarantees, and 0.75% for loan guarantees.


Performance 2017

Auditor’s report


Performance 2017

Shares and shareholder matters

Good dialoguePhilly Shipyard ASA (referenced to herein as “PHLY”) is committed to maintaining an open and direct dia-logue with its shareholders, potential investors, analysts, brokers and the financial community in general.

The timely release of information to themarket that could affect PHLY’s share pricehelps ensure that Philly Shipyard ASA’sshare price reflects its underlying value.

Philly Shipyard’s goal is that PHLY’sshareholders will, over time, receive com-petitive returns on their investmentsthrough a combination of dividends andshare price growth. On 26 February 2014,the Company’s Board of Directors adoptedthe following dividend policy:

“The Company’s objective is to provideits shareholders with a competitive returnon its shares over time based on theCompany’s earnings. The Company aims topay a quarterly dividend of USD 0.25 pershare, beginning with the second quarter of2014, with intentions of increasing theamount over time. Any payment of divi-dends will be considered in conjunctionwith the Company’s financial position, debtcovenants, capital requirements, marketprospects and potential strengthening ofthe Company’s financial structure.”

PHLY’s Board of Directors uses thisdividend policy as a guideline to determinehow much of PHLY’s earnings it will pay toshareholders.

In 2017, PHLY paid ordinary dividendstotaling NOK 25.2 million (USD 3.0 million).

The Norwegian Public Limited LiabilityCompanies Act allows for the Board ofDirectors to pay dividends on the basis of anauthorization from the general meeting. TheBoard of Directors will therefore propose tothe annual general meeting in 2018 that theBoard of Directors is granted an author-ization to pay dividends based on PHLY’sannual accounts for 2017, valid up to PHLY’sannual general meeting in 2019. Suchauthorization will facilitate potential paymentsof dividends by the Board of Directors inaccordance with PHLY’s dividend policy.

Due to the delay in securing neworders beyond Hull 030, at this time, PHLYdoes not plan to pay any further ordinary orextraordinary dividends in 2018. The Boardof Directors will revisit PHLY’s dividendpolicy and dividend plan when it has moreclarity about the Company’s new ordersituation and related capital requirements.

Shares and share capitalAs of 31 December 2017, Philly ShipyardASA has 12,574,766 ordinary shares; eachshare has a par value of NOK 10 (seenote 6 to the parent company’s 2017accounts). As of 31 December 2017, PHLYhad 710 shareholders, of whom 31.7%were non-Norwegian shareholders.

PHLY has a single share class. Eachshare is entitled to one vote. PHLY holds466,865 of its own (treasury) shares, con-stituting approximately 3.71% of the sharesoutstanding, as of 31 December 2017.

Stock exchange listingPhilly Shipyard ASA was listed on OsloAxess on 17 December 2007 (ticker:PHLY). PHLY’s shares are registered in theNorwegian Central Securities Depository;the shares have the securities registrationnumber ISIN NO 0010395577. DNB BankASA is PHLY’s registrar.

Majority shareholderPhilly Shipyard ASA’s majority shareholderis Aker Capital AS, a wholly-owned sub-sidiary of Aker ASA. Companies that arepart of Aker are legally and financiallyindependent units. Aker Capital ASexercises active ownership as part of sys-tematic efforts to create value for all PHLYshareholders.

From time to time, agreements areentered into between the Company andone or more Aker companies. The Boardsof Directors and other parties involved inthe decision-making processes related tosuch agreements are all critically aware of

the need to handle such matters in the bestinterests of the involved companies,in accordance with good corporategovernance practice. If needed, external,independent opinions are sought.

Current Board authorizationsAs of 31 December 2017, the Board ofDirectors of Philly Shipyard ASA has anauthorization to pay dividends, an author-ization to increase the share capital andtwo separate authorizations to purchaseown shares. All of these current Boardauthorizations are valid up until the nextannual general meeting in 2018. For moredetails, please see “Board authorizations”on pages 60-61.

Stock option plansAs of 31 December 2017, Philly ShipyardASA has no stock option program.

Investor relationsPhilly Shipyard ASA seeks to maintain anopen and direct dialogue with share-holders, financial analysts and the financialmarket in general.

All Philly Shipyard press releases andinvestor relations publications, includingarchived material, are available at theCompany’s website: www.phillyshipyard.com.This online resource includes PHLY’s quarterlyand annual reports, prospectuses, articles ofassociation, financial calendar and its InvestorRelations and Corporate Governance policies,along with other information.

Shareholders can contact the Com-pany at [email protected].

Electronic interim and annual reportsPhilly Shipyard ASA encourages its share-holders to subscribe to the electronic versionof PHLY’s annual reports. Annual reports arepublished on the Company’s website at thesame time as they are made available viawebsite release by the Oslo Stock Exchange/Oslo Axess: www.newsweb.no (ticker: PHLY).Subscribers to this service receive annualreports in PDF format by email.

Share capital development over the past three years

Date

Change inshare capital

(in NOK)Share capital

(in NOK)Number of

sharesPar value(in NOK)

Change in 2015 - - - -31 December 2015 - 125 747 660 12 574 766 10.00Change in 2016 - - - -31 December 2016 - 125 747 660 12 574 766 10.00Change in 2017 - - - -31 December 2017 - 125 747 660 12 574 766 10.00


Performance 2017

Shares and shareholder matters

Quarterly reports, which are generallyonly distributed electronically, are availablefrom the Company’s website and othersources. Shareholders who are unable toreceive the electronic version of interim andannual reports, may subscribe to the printedversion by contacting Philly Shipyard’sinvestor relations staff.

Nomination committeePHLY’s nomination committee has the fol-lowing members: Leif Arne Langoy, Ger-hard Heiberg and Arild Støren Frick.

Shareholders who wish to contactPhilly Shipyard’s nomination committeemay do so using the following address:

Nomination Committee ofPhilly Shipyard ASAVika AtriumMunkedamsveien 45NO-0250 Oslo, Norway

Annual shareholders’ meetingPhilly Shipyard ASA’s annual shareholders’meeting is normally held in March or earlyApril. Written notification is sent to allshareholders individually or to shareholders’

nominees. To vote at shareholders’ meet-ings, shareholders (or their duly authorizedrepresentatives) must either be physicallypresent or vote by proxy.

2017 share dataPHLY’s total market capitalization as of31 December 2017 was NOK 855 million.During 2017, a total of 4,130,455 PhillyShipyard ASA shares traded, correspond-ing to 0.328 times PHLY’s freely tradablestock. The shares traded on 251 tradingdays in 2017.

Twenty largest shareholders(as of 31 December 2017)

ShareholdersNumber ofshares held

Ownership(in %)

Aker Capital AS 7 237 631 57.6%Goldman Sachs & Co. LLC 2 570 479 20.4%Philly Shipyard ASA 466 865 3.7%J.P. Morgan Securities LLC 367 735 2.9%Citibank, N.A. S/A National Financial Services 201 995 1.6%Pershing LLC 196 052 1.6%Interactive Brokers LLC 91 071 0.7%Citibank, N.A. S/A Charles Schwab FBO Customers 89 893 0.7%Ramadan Kovaci 61 765 0.5%Merrill Lynch, Pierce, Fenner & SM, Inc. 60 675 0.5%Avanza Bank AB 44 363 0.4%Ole Johnny Wilson 40 297 0.3%Lars Ro 40 000 0.3%Citibank, N.A. S/A Morgan Stanley 38 758 0.3%Citibank, N.A. S/A UBS Financial Securities, Inc. 34 188 0.3%Nordnet Livsforsikring AS 32 266 0.3%State Street Bank and Trust Company 28 050 0.2%J.P. Morgan Chase Bank, N.A., London 27 875 0.2%Heggum Holding AS 25 674 0.2%Per Asgeir Bodin 23 175 0.2%

Total, 20 largest shareholders 11 678 807 92.9%

Other shareholders 895 959 7.1%

Total 12 574 766 100.0%

Geographic distribution of shareholders(as of 31 December 2017)

NationalityNumber of

shares heldOwnership

(in %)

Norwegian shareholders 8 584 676 68.3%Non-Norwegian shareholders 3 990 090 31.7%

Total 12 574 766 100.0%

Ownership structure by number of shares held(as of 31 December 2017)

Shares ownedNumber of

shareholdersPercent of

share capital

1 – 100 225 0.1%101 – 1 000 300 1.0%1 001 – 10 000 146 3.6%10 001 – 100 000 33 7.5%100 001 – 500 000 4 9.8%Over 500 000 2 78.0%

Total 710 100.0%

Share price development in 2017(2017 share data)

Highest traded NOK 100.00Lowest traded NOK 49.50Share price as of 31 Dec. NOK 68.00Shares issued as of 31 Dec. 12 574 766Own (treasury) shares as of 31 Dec. 466 865Shares issued and outstanding as of 31 Dec. 12 574 766Market capitalization as of 31 Dec. NOK million 855Proposed share dividend NOK per share -

Share price development *

NOK/share

(2015-2017)

0

50

100

150

200

1 Jan2015

31 Dec2017

* For 2015-2017, PHLY paid dividends of approximately 71 NOK per share(8 NOK/share in 2015, 61 NOK/share in 2016 and 2 NOK/share in 2017).



Corporate governance

Corporate governancePhilly Shipyard ASA (referenced to herein as “PHLY”) aims to create maximum value for its shareholders overtime. Good corporate governance will help to reduce risk and ensure sustainable value creation.

The Board has reviewed and updatedPHLY’s principles for corporate gover-nance. The principles are based on theNorwegian Code of Practice for CorporateGovernance, dated 30 October 2014 (the“Code of Practice”), the principles set outin the Continuing Obligations of stockexchange listed companies from the OsloStock Exchange, and the relevant Norwe-gian background law such as the Norwe-gian Accounting Act and the NorwegianPublic Limited Liability Companies Act. TheCode of Practice is available atwww.nues.no and the Continuing Obliga-tions of stock exchange listed companiesmay be found at www.oslobors.no. Theprinciples also apply to PHLY’s sub-sidiaries when relevant. The Board’sstatement of corporate governance isincluded in the annual report. The followingpresents the current practice of PHLYregarding each of the recommendationscontained in the Code of Practice. Anydeviations from the recommendations areexplained under the item in question.

PurposePHLY’s Corporate Governance principlesensure an appropriate division of roles andresponsibilities among PHLY’s owners, itsBoard of Directors, and its ExecutiveManagement, and that business activitiesare subject to satisfactory control. Theappropriate division of roles and sat-isfactory control contribute to the greatestpossible value creation over time, to thebenefit of owners and other stakeholders.

Values and ethical guidelinesThe Board has adopted corporate valuesand ethical guidelines. The Company’scorporate values are presented on page 6of this annual report. These values consistof the following four “CORE” principles:Caring, One shipyard, Responsible andEfficient. Philly Shipyard has zero toler-ance for corruption and, in 2015, theBoard approved an Anti-Corruption Policythat is in-line with the anti-corruption poli-cies in place at other Aker ASA-relatedcompanies. Philly Shipyard works topromote a sustainable and responsible

company that is driven by good resultsand the demands for social responsibility.

BusinessPHLY’s business purpose clause in thearticles of association is as follows:

“The Company’s business is to ownand manage industry and other relatedbusiness related to building of ships, capitalmanagement and other operations for thegroup, including participating in or acquir-ing other business.”

The function of the business purposeclause is to ensure that shareholders havecontrol of the business and its risk profile,without limiting the Board or manage-ment’s ability to carry out strategic andfinancially viable decisions within thedefined purpose. PHLY’s goals and mainstrategies are presented in the Board ofDirectors’ report. PHLY’s vision is for PhillyShipyard “to be – and be recognized as –America’s leading commercial shipyardthat delivers on its commitments, everytime,” and its supporting strategies for2018 are delivering Hulls 029 and 030 toMatson according to plan, securing neworders beyond Hull 030, expanding intonon-commercial work and communicatingopenly with the workforce.

Equity and dividendsEquityPHLY’s equity as of 31 December 2017amounted to USD 155.6 million, whichcorresponds to an equity ratio (total equitydivided by total assets) of approximately61%. PHLY regards its current equitystructure as appropriate and adapted to itsobjectives, strategy, and risk profile.DividendsPHLY’s dividend policy is included in thesection “Shares and shareholder matters”(see page 58). As stated in that policy:

“The Company’s objective is to provideits shareholders with a competitive returnon its shares over time based on theCompany’s earnings. The Company aims topay a quarterly dividend of USD 0.25 pershare, beginning with the second quarter of2014, with intentions of increasing theamount over time. Any payment of divi-

dends will be considered in conjunctionwith the Company’s financial position, debtcovenants, capital requirements, marketprospects and potential strengthening ofthe Company’s financial structure.”

PHLY’s Board of Directors uses thisdividend policy as a guideline to determinehow much of the Company’s earnings it willpay to shareholders.

Due to the delay in securing neworders beyond Hull 030, at this time, PHLYdoes not plan to pay any further ordinary orextraordinary dividends in 2018. The PHLYBoard will revisit PHLY’s dividend policyand dividend plan when it has more clarityabout the Company’s new order situationand related capital requirements.

Board authorizations

It is the intention that the Board’s pro-posals for future Board authorizations toissue shares and to undertake share buy-backs are to be limited to defined purposesand to be valid only until the next annualshareholders’ meeting.

To facilitate the payment of dividendson an on-going basis in accordance withPHLY’s dividend policy, the Board ofDirectors has an authorization to pay divi-dends based on PHLY’s annual accountsfor 2016.

The Board of Directors has an author-ization to increase the share capital by upto NOK 12,574,766, which can only beused to raise equity capital for new ship-building projects or other future invest-ments within the Company’s scope ofoperations.

The Board of Directors has an author-ization to purchase own shares with a totalnominal value of NOK 12,574,766 whichcan only be used for the purpose of utiliz-ing PHLY’s shares as transaction currencyin acquisitions, mergers, de-mergers orother transactions.

The Board of Directors has an author-ization to purchase own shares with a totalnominal value of NOK 12,574,766 whichcan only be used for the purpose ofinvestment or subsequent sale or deletionof such shares.




All of these Board authorizations arevalid up to the annual shareholders’ meet-ing in 2018.

The Board currently has no otherauthorizations to issue shares or undertakeshare buybacks. The Board will propose tothe annual shareholders’ meeting in 2018that the Board is granted an authorizationfor payment of dividends, an authorizationto increase the share capital and twoauthorizations to purchase own sharessimilar to the authorizations describedabove.

Equal treatment of shareholders andtransactions with close associatesPHLY has a single class of shares, and allshares carry the same rights in PHLY.Equal treatment of all shareholders is cru-cial. If existing shareholders’ pre-emptiverights are proposed waived upon anincrease in share capital, the Board willjustify the waiver. The Board will also pub-licly disclose such justification in a stockexchange announcement issued in con-nection with such increase in share capital.Transactions in own (treasury) shares areexecuted on the Oslo Stock Exchange orby other means at the listed price.

If there are material transactionsbetween the Company and a shareholder,Board member, member of ExecutiveManagement, or a party closely related toany of the aforementioned, the Board shallensure that independent valuations areavailable.

PHLY has prepared guidelinesdesigned to ensure that members of theBoard of Directors and ExecutiveManagement notify the Board of any director indirect stake they may have in agree-ments entered into by the Company.

See additional information on trans-actions with related parties in note 27 tothe consolidated accounts. As of31 December 2017, 57.6% of the shares inPHLY are owned by Aker Capital AS, awholly-owned subsidiary of Aker ASA. Forfurther details on the relationship betweenPhilly Shipyard and Aker ASA, see note 27to the consolidated accounts.

Freely negotiable sharesPHLY’s shares are freely negotiable. Norestrictions on transferability are found inPHLY’s articles of association.

Annual shareholders’ meetingsThe Board of Directors encourages share-holders to participate in shareholders’ meet-

ings. It is PHLY’s priority to hold the annualshareholders’ meeting as early as possibleafter the year-end. Notices of shareholders’meetings are sent physically by post andcomprehensive supporting information,including the recommendations of the nomi-nation committee, are made available for theshareholders on the Company’s home page,in each case not later than 21 days prior tothe annual shareholders’ meeting. The Boardseeks to ensure that the resolutions andsupporting information are sufficientlydetailed and comprehensive to enable theshareholders to form a view on all matters tobe considered at the meeting. The deadlinefor shareholders to register to the share-holders’ meetings is set as close to the dateof the meeting as possible and the deadlinefor registration may not expire earlier thanfive days prior to the date of the share-holders’ meeting. Shareholders who areunable to attend the meeting in person mayvote by proxy, and normally the proxy maybe given to the chairman of the meeting orany other person appointed by the chairman.Both on the attendance and proxy form andthe notice of meeting, all procedures forregistration are thoroughly explained. Inaddition, information on how to propose aresolution to the items on the agenda at theannual shareholders’ meeting will beincluded in the notice.

Pursuant to PHLY’s articles of associa-tion, the Chairman of the Board, or anyother person appointed by the Chairman,chairs the shareholders’ meetings. Althoughthe Code of Practice recommends anindependent chair for annual general meet-ings, it is the view of PHLY that the proce-dure followed by PHLY provides efficientand well prepared general meetings and isin the interests of the shareholders. Theshareholders are invited to make a jointvoting on the composition of the Board ofDirectors as proposed by the nominationcommittee and not on each board memberseparately. Hence, PHLY deviates from theCode of Practice in this regard as thenomination committee emphasizes that theBoard’s composition shall reflect a varietyof experience, knowledge and qual-ifications.

To the extent possible, the CEO/General Manager, nomination committeeleader and auditor attend annual share-holders’ meetings.

Minutes of shareholders’ meetings arepublished as soon as practically possible onthe Oslo Stock Exchange, www.newsweb.no(ticker: PHLY) and on the Company’s homepage www.phillyshipyard.com, under theheading “Media Center”.

Nomination committeePHLY has a nomination committee, as setforth in Section 7 of PHLY’s articles ofassociation. Pursuant to the articles ofassociation, the nomination committee is tocomprise no fewer than three members.Each member is normally elected for atwo-year period. The composition of thenomination committee reflects the interestsof the shareholders, and its members areindependent from the Board and ExecutiveManagement. The members and Chairmanof the nomination committee are elected byPHLY’s annual shareholders’ meeting,which also approves the remunerationpayable to committee members.

Pursuant to PHLY’s articles of associa-tion, the nomination committee recom-mends candidates for members of theBoard of Directors. The nominationcommittee also makes recommendationsas to remuneration of the members of theBoard and the nomination committee. Thenomination committee will justify itsrecommendation and such justification willaddress the criteria specified in Section 8of the Code of Practice on the compositionof the Board of Directors.

The nomination committee comprisesthe following members:

– Leif Arne Langoy, Chairman (2017-2019)– Gerhard Heiberg (2017-2019)– Arild Støren Frick (2017-2019)

None of the members of the nomi-nation committee is a member of the Boardof Directors. Neither the CEO/GeneralManager nor any other senior executive is amember of the nomination committee.

The shareholders’ meeting has stipu-lated guidelines for the duties of the nomi-nation committee.

PHLY provides the shareholders withinformation on how to submit proposals tothe nomination committee for candidatesfor election to the Board of Directors on theCompany’s website.

Board composition and independencePHLY does not have a corporate assemblybecause PHLY has no employees.

Pursuant to Section 4 of PHLY’sarticles of association, the Board com-prises between three and seven members.The Board is currently comprised of a totalof four members. PHLY’s shareholderselect the Chairman of the Board at theannual share-holders’ meeting. The Boardmay elect its own Deputy Board Chairman.Board members are elected for a period oftwo years.




The composition of the Board of Direc-tors is designed to ensure that it can oper-ate independently of any special interestsand function effectively as a collegiatebody. A majority of the shareholder-electedBoard members are independent ofPHLY’s Executive Management and itssignificant business associates. The Boardof Directors does not include any executivepersonnel. Further, three of the fourshareholder-elected Board members areindependent of PHLY’s main shareholder,Aker ASA. Audun Stensvold, the DeputyChairman of the Board of Directors ofPHLY, is Investment Director of Aker ASA.

The current composition of the Board,as well as the Board members’ expertise,capabilities, and experience, are presentedon pages 64-65 of this annual report. Theshareholder-elected Board membersrepresent a combination of expertise,capabilities, and experience from variousbusinesses and industries.

The Board members’ shareholdingsare presented in note 23 to the con-solidated accounts. PHLY encourages theBoard members to invest in PHLY’s shares.

Three of the shareholder-electedBoard members are up for election. PHLYwill provide the relevant information regard-ing such Board members in accordancewith the Code of Practice guidelines inadvance of the annual general meeting.

The work of the Board of DirectorsThe Board of PHLY annually adopts a planfor its work, emphasizing goals, strategies,and implementation. The plan also recog-nizes the Company’s corporate socialresponsibility. Also, the Board has adoptedinstructions that regulate areas ofresponsibility, tasks, and division of roles ofthe Board, Board Chairman, and the CEO/General Manager. These instructions fea-ture rules governing Board schedules, rulesfor notice and chairing of Board meetings,decision-making rules, the CEO’s/GeneralManager’s duty and right to discloseinformation to the Board, professionalsecrecy, impartiality, and other issues.

In order to ensure a more independentconsideration of matters of a materialcharacter in which the Board Chairman is,or has been, personally involved, theBoard’s consideration of such matters arechaired by the Deputy Board Chairman, ifthere is one serving at the time, or someother member of the Board in the absenceof a Deputy Board Chairman.

The Board of PHLY established anaudit committee in 2010. The audit

committee consists of two members, ElinKarfjell (Chairperson) and Audun Stensvold.Both members are independent from oper-ations of the Company. As discussedabove, Mr. Stensvold is linked to PHLY’smain shareholder.

The Board of PHLY established a tender-ing committee in 2012 to review tenders fornew business. The tendering committeeconsists of two members, James H. Miller(Chairman) and Amy Humphreys. Bothmembers are independent from operationsof the Company and neither member islinked to PHLY’s main shareholder.

PHLY does not have any other activeBoard committees at this time. In partic-ular, PHLY does not have a remunerationcommittee because all members of theBoard are independent of PHLY’s execu-tive personnel.

The Board evaluates its own perform-ance and expertise once a year.

Risk management and internal controlThe Board is to ensure that the Companymaintains solid in-house control practicesand protocols and appropriate riskmanagement systems tailored to theCompany’s business activities. These prac-tices and systems encompass the Compa-ny’s corporate values, ethical guidelinesand guidelines for corporate social respon-sibility. The Company’s policy regardingcorporate social responsibility is set forthon pages 14-16 of this annual report. TheBoard annually reviews the Company’smost important risk areas and internal con-trol systems and procedures, and theserisk areas are mentioned in the Board ofDirectors’ report. Through the use of a riskmatrix and log, the Board also monitors thekey risks related to the Company’s busi-ness goals and assesses those risks, takinginto account mitigating actions, on a quar-terly basis. The issue is further described innotes 1 and 22 to the consolidatedaccounts.

Audit committeeThe audit committee has reviewed theCompany’s internal reporting systems,internal control and risk management andhad dialogue with the Company’s auditor.The audit committee has also consideredthe auditor’s independence.

PHLY’s financial policies ensurefollow-up of financial risk. Key targets areidentified by the Board and management toensure timely follow-up of currencyexposure, interest rate exposure and com-pliance with covenants.

PHLY has prepared an authorizationmatrix and approval procedures for costsincluded in the Company’s governingdocuments.

Financial statement close processThe Company has implemented AkerASA’s accounting and reporting guidelineswhich contains requirements and proce-dures for the preparation of both quarterlyand annual reporting. The reporting is donequarterly through PHLY’s reporting andconsolidation system. Consolidation andcontrol over the financial statement closeprocess is the CFO’s responsibility. Finan-cial results and cash development areanalyzed and compared to the budget bythe CEO/General Manager and CFO andreported to the Board monthly.

Remuneration of the Board ofDirectorsBoard remuneration reflects the Board’sresponsibility, expertise, time spent, and thecomplexity of the business. Remunerationdoes not depend on PHLY’s financial per-formance and PHLY does not grant shareoptions to members of its Board. Boardmembers and companies with whom theyare associated are not to take on specialtasks for the Company beyond their Boardappointments unless such assignments aredisclosed to the full Board and the remuner-ation for such additional duties is approvedby the Board. In this respect, PHLY’s BoardChairman, James H. Miller, provides consult-ing services to Philly Shipyard, Inc. (PSI) onbehalf of Mr. Miller’s consulting companyagainst a monthly fee. Prior to October 2017,Mr. Miller provided these services to PSI onbehalf of Mr. Miller’s former employer,Kvaerner Inc. Approval of this assignmenthas been handled by the Board of Directorsin accordance with the said procedure.

Additional information on remunerationpaid to Board members for 2017 is pre-sented in note 23 to the consolidatedaccounts.

Remuneration of ExecutiveManagementThe Board has adopted guidelines forremuneration of Executive Management inaccordance with Section 6-16a of theNorwegian Public Limited Company Act.Salary and other remuneration of the CEO/General Manager of PHLY are determinedin a Board of Directors’ meeting. The basisof remuneration of Executive Managementhas been developed in order to create aperformance-based system. The system ofreward is designed to contribute to the




achievement of good financial results andincrease in shareholder value.

PHLY does not have stock optionplans or other such share award programsfor employees. Further information onremuneration for 2017 for members of theCompany’s Executive Management ispresented in note 23 to the consolidatedaccounts. PHLY’s guidelines for remuner-ation to Executive Management are dis-cussed on pages 40-41 of this annualreport and will be presented to the share-holders at the annual shareholders’ meet-ing. The maximum size of any paymentunder the existing performance-relatedremuneration program to any executive islinked to the size of the executive’s basesalary.

The Board’s guidelines for remuner-ation of Executive Management will bemade available as a separate appendix tothe agenda for the annual shareholders’meeting. The statement will includeinformation on which aspects of the guide-lines are advisory, and which, if any, arebinding. The Company currently does notgrant remuneration to Executive Manage-ment being subject to binding guidelines.

Information and communicationsPHLY’s reporting of financial and otherinformation is based on openness and onequal treatment of shareholders, the finan-cial community, and other interested par-ties.

The long-term purpose of PHLY’sinvestor relations activities is to ensure theCompany’s access to capital at com-petitive terms and to ensure shareholders’correct pricing of shares. These goals areto be accomplished through correct andtimely distribution of information that canaffect PHLY’s share price; PHLY is also tocomply with current rules and marketpractices, including the requirement ofequal treatment.

All stock exchange notifications andpress releases are made availableon the Company’s home pagewww.phillyshipyard.com; stock exchangenotices are also available fromwww.newsweb.no. All information that isdistributed to shareholders is simulta-neously published on the Company’s homepage.

PHLY’s financial calendar is found onthe inside front cover of this annual report.

PHLY’s investor relations staff isresponsible for maintaining regular contactwith PHLY’s shareholders, potentialinvestors, analysts and other financial

market stakeholders. The Board is regularlyinformed about PHLY’s investor relationsactivities. For more information regardingPHLY’s guidelines for reporting of financialand other information, see pages 58-59.

TakeoversPHLY has not produced special principlesfor how it will act in the event of a takeoverbid. However, if a takeover bid occurredthe Board would follow the overridingprinciple of equal treatment for all share-holders. Unless the Board has particularreasons for so doing, the Board will nottake steps to prevent or obstruct a take-over bid for the Company’s business orshares, nor use share issue authorizationsor other measures to hinder the progress ofthe bid, without such actions beingapproved by a shareholders’ meeting afterthe take-over offer has become publicknowledge.

The Company will not enter into anyagreement with a bidder that acts to limitthe Company’s ability to arrange other bidsfor the Company’s business or sharesunless it is self-evident that such anagreement is in the common interest ofPHLY and its shareholders. This provisionshall also apply to any agreement on thepayment of financial compensation to thebidder if the bid does not proceed. Anyfinancial compensation will be limited tothe costs the bidder has incurred in makingthe bid.

Agreements entered into betweenPHLY and a bidder that are material to themarket’s evaluation of the bid will beannounced to the public no later than atthe same time as the disclosure that thebid has been made is published.

Upon the issuance of an offer forPHLY’s shares, the Board will make astatement to the shareholders that providesan assessment of the bid, the Board’srecommendations and reasons for theserecommendations. If the Board cannotrecommend to the shareholders whetherthey should or should not accept the bid,the Board will explain the reasons for this.The Board’s statement on the offer willmake it clear whether the views expressedare unanimous, and if this is not the case, itwill explain the basis on which specificmembers of the Board have excludedthemselves from the Board’s statement.

For each instance, an assessment willbe made as to the necessity of bringing inindependent expertise and obtaining a thirdparty valuation. If a third party valuation isobtained, such valuation will include an

explanation, and the Board will aim atrecording such valuation in its statement. Itmay be necessary to obtain a valuationfrom an independent expert where acompeting bid is made and the biddereither is the main shareholder or has aconnection to the Board members orexecutive personnel.

Transactions that have the effect ofsale of the Company or a major componentof it are to be decided on by shareholdersat a shareholders’ meeting.

AuditorThe auditor makes an annual presentationto the Board of a plan for the auditing workfor the year. Further, the auditor has pro-vided the Board with a written confirmationthat the requirement of independence ismet.

The auditor participates in the Boardmeeting that deals with the annualaccounts, and the auditor has reviewed thecompanies’ internal control with the Board.At these meetings, the auditor reviews anymaterial changes to PHLY’s accountingprinciples, comments on any materialestimated accounting figures and reportsall matters on which there have been dis-agreement between the auditor andPHLY’s executive personnel. Once a year ameeting is held between the auditor andthe Board, at which no representatives ofExecutive Management are present. Inaddition to the presentations to the fullBoard, the auditor is present at all auditcommittee meetings which occur through-out the year and presents both its prelimi-nary and final audit findings to thecommittee during such meetings.

Guidelines have been established forExecutive Management’s use of auditorsfor services other than auditing. Auditorsare to provide the Board with an annualoverview of services other than auditingthat have been supplied to the Company.

Remuneration for auditors is presentedin note 5 to the consolidated accounts andnote 2 to the parent company accounts,detailed in auditing and other services. Inaddition, these details are presented at theannual general meeting.



Presentation of the Board of Directors

Presentation of the Board of DirectorsJames H. MillerBoard Chairman

James H. Miller (b. 1955) is currently providing consulting services to the shipbuilding and constructionindustries. During the period of mid-2011 through September 2017, Mr. Miller served as Executive VicePresident – Americas at Kvaerner. Prior to that Mr. Miller served as President and CEO of Philly Shipyard fromJune 2008 to April 2011. Before coming to the shipyard, Mr. Miller was President of Aker Solutions Processand Construction (P&C) Americas, where he was responsible for the operations of seven business units. Duringhis tenure, Aker Solutions P&C Americas became a leading provider of global engineering and constructionsolutions with 7,500 employees, including 4,500 construction trades personnel. Prior to joining Aker SolutionsP&C Americas, Mr. Miller held the position of President of Aker Construction, Inc., which was one of the largestunion construction companies in North America. Mr. Miller is a Director and for all remaining Kvaerner U.S.-based legal and operating entities. Mr. Miller currently serves as Board Director of Matrix Services Inc. basedin Tulsa, Oklahoma which is a public company listed on the Nasdaq Exchange. Mr. Miller also serves on theBoD’s of San Juan Construction, an ESOP company based in Montrose, Colorado. Mr. Miller previously servedas Chairman of the Board for Philly Shipyard ASA from June 2011 to April 2014. Mr. Miller graduated from theUniversity of Edinboro in Pennsylvania with a BA. Mr. Miller is a U.S. citizen. Mr. Miller holds zero shares in thecompany and has no stock options. He has been elected for the period 2016-2018.

Amy HumphreysBoard Member

Amy Humphreys (b. 1966) is Chief Financial Officer of Darigold, one of the largest dairy cooperatives in theUnited States. Darigold produces and markets a full line of quality dairy products through multiple marketchannels worldwide. Prior to her current role, Ms. Humphreys was President and CEO of Icicle Seafoods, Inc.Icicle’s core business is the processing and marketing of seafood in fisheries throughout Alaska, with both on-shore and floating processing facilities. Icicle also owns the largest U.S. salmon farming company located inthe Pacific Northwest. Prior to joining Icicle Seafoods, Ms. Humphreys served as CFO of North Star PetroleumGroup, the Petroleum Division of Saltchuk Resources including five fuel distribution operating companies. Priorto her current role, Ms. Humphreys was President of Delta Western, Inc., a leading petroleum marketing anddistribution company in Alaska and a subsidiary of Saltchuk Resources. From 1996 to 2006, Ms. Humphreysheld various leading positions in her 10 year tenure with American Seafoods Group, including VP CorporateDevelopment and Treasurer. For the past 15 years, Ms. Humphreys has worked within companies operatingunder the Jones Act and, for the past several years, has managed companies in the oil industry within anenvironment subject to OPA 90 regulation. Ms. Humphreys holds a Master of Business Administration (MBA),with honors, from University of Washington, is a Certified Public Accountant (CPA) and holds a Bachelor ofArts (BA) in Accounting and Finance, magna cum laude, from University of Puget Sound. Ms. Humphreys is aU.S. citizen. Ms. Humphreys holds zero shares in the company and has no stock options. She has beenelected for the period 2016-2018.



Presentation of the Board of Directors

Elin KarfjellBoard Member

Elin Karfjell (b. 1965) is Managing Partner of Atelika AS. Prior to that, she was CEO of Fabi Group and Directorof Finance and Administration of Atea AS. She is former partner of Ernst & Young AS. Ms. Karfjell joined Ernst& Young AS in 2002. Prior to this, Ms. Karfjell held various positions including partner at Arthur Andersen. AtErnst & Young/Arthur Andersen, she held various leading positions, both within advisory and audit, and shehas experience from a broad specter of industries. Ms. Karfjell is also a Board member of North Energy ASA,DNO ASA, Hent ASA, Sevan Drilling Ltd. and Contesto AS. Previously, she has been a Board member of NorseEnergy Corporation ASA, Aktiv Kapital ASA and Aker Floating Production ASA. Ms. Karfjell is a stateauthorized public accountant. She has a bachelor accountant’s degree from Okonomisk College (Hoyskolen iOslo) and a master of accounting and auditing from the Norwegian School of Economics and BusinessAdministration. Ms. Karfjell is a Norwegian citizen. Ms. Karfjell holds 1,200 shares in the company and has nostock options. She has been elected for the period 2017-2019.

Audun StensvoldDeputy Board Chairman

Audun Stensvold (b. 1972) holds the position of Investment Director for Aker ASA. Previously, he was CFO andInvestment Director for Converto Capital Management. Prior to joining Converto Capital Management in 2009,Mr. Stensvold worked for Aker ASA as Vice President of the M&A and Business Development team, and wasinvolved in the initial stock exchange listing of Philly Shipyard (then named Aker American Shipping ASA) andlater follow-up of Aker’s ownership in the yard. Before joining Aker, Mr. Stensvold worked as a strategy andfinance consultant for Selmer, and as a financial analyst for DnB NOR. Mr. Stensvold holds an MSc inBusiness and Economics from the Norwegian School of Economics and Business Administration (NHH).Mr. Stensvold is a Norwegian citizen. Mr. Stensvold holds zero shares in the company and has no stockoptions. He has been elected for the period 2016-2018.



Presentation of the Management Team

Presentation of the Management TeamSteinar NerbøvikPresident and CEO

Steinar Nerbøvik (b. 1961) was appointed President and Chief Executive Officer of Philly Shipyard ASA andPhilly Shipyard, Inc. in November 2014 after serving as Managing Director since April 2014. Previously, Mr.Nerbovik served as SVP Operations from October 2013. Prior to that, Mr. Nerbøvik served as SVP YardDirector for Norwegian Shipyard VARD Langsten (former Aker Yards and STX OSV Langsten), a leadingprovider of sophisticated offshore support vessels. Mr. Nerbøvik first joined Philly Shipyard in 2003 as VicePresident Projects. Mr. Nerbøvik has held other management positions as combined Design Manager andProject Manager at Aker Langsten from 1991-2003. Mr. Nerbøvik holds a Master of Science in Ship NavalEngineering from the Norwegian Institute of Technology (NTNU) in Trondheim. Mr. Nerbøvik lives inWilmington, DE, USA. Mr. Nerbøvik is a Norwegian citizen. As of 1 February 2018, Mr. Nerbøvik holds 1,000shares in the company and has no stock options.

Jan Ivar NielsenChief Financial Officer

Jan Ivar Nielsen (b. 1962) was appointed Chief Financial Officer of Philly Shipyard ASA and Philly Shipyard, Inc.in October 2015. Previously, Mr. Nielsen was EVP and CFO for VARD after serving as the VP of Finance forVARD’s operations in Brazil from 2007. Prior to working at VARD, Mr. Nielsen was CFO and Head of InvestorRelations for Aker American Shipping from its formation in 2005-2007, and its predecessor Aker PhiladelphiaShipyard from 2002-2005. From 1998-2002 he was CFO for Kvaerner Shipbuilding in London and had CFOassignments for Kvaerner Masa Yards in Finland and Warnow Werft in Germany. Mr. Nielsen had variousfinance positions in the process industry from 1990-1997. Mr. Nielsen holds a Master of Science in Businessdegree from Bodo Graduate School of Business and an Executive MBA degree from Temple University inPhiladelphia, PA, USA. Mr. Nielsen lives in Philadelphia, PA, USA. Mr. Nielsen is a Norwegian citizen. As of1 February 2018, Mr. Nielsen holds zero shares in the company and has no stock options.

Jari AnttilaSenior Vice President Operations

Jari Anttila (b. 1966) joined Philly Shipyard, Inc. in 2015 as Senior Vice President Operations after serving asDirector of Operations for Meyer Turku in Finland. Mr. Anttila has over 20 years of shipbuilding experiencewithin Turku Meyer including serving as the shipyard’s Executive Vice President, Chief Operating Officer andSenior Vice President. Mr. Anttila holds a Master of Science in Mechanical Engineering, Production Technologyand Steel Structures from Lappeenranta University of Technology in Finland. Mr. Anttila lives in Penn Valley,PA, USA. Mr. Antilla is a Finnish citizen. As of 1 February 2018, Mr. Anttila holds zero shares in the companyand has no stock options.

Dean GrabelleSenior 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. Grabelle was employed with the law firm Drinker Biddle & Reath LLP in Philadelphia, PA, USA where heestablished a legal career spanning 12 years. Past experience includes mergers and acquisitions, businesscounseling, lending, private equity and corporate finance. Mr. Grabelle graduated from Duke University with aBachelor of Arts in Economics and Public Policy Studies. He also holds a Juris Doctor from the University ofPennsylvania Law School. Mr. Grabelle lives in Voorhees, NJ, USA. Mr. Grabelle is a U.S. citizen. As of1 February 2018, Mr. Grabelle holds zero shares in the company and has no stock options.



Presentation of the Management Team

Michael GiantomasoVice President Human Resources

Michael Giantomaso (b. 1966) joined Philly Shipyard, Inc. as Human Resources Manager in May 1998 and wasthe shipyard’s first locally hired manager. Mr. Giantomaso was promoted to Vice President Human Resourcesin August 2001. He has over 25 years of human resources experience in the manufacturing and health carefields. Mr. Giantomaso holds a Bachelor of Arts in Business Administration and Human Resources fromTemple University. Mr. Giantomaso lives in Huntingdon Valley, PA, USA. Mr. Giantomaso is a U.S. citizen. Asof 1 February 2018, Mr. Giantomaso holds zero shares in the company and has no stock options.

Jeffrey GreenwellVice President Procurement

Jeffrey Greenwell (b. 1966) joined Philly Shipyard, Inc. in 2015 as Vice President Procurement. Mr. Greenwellpreviously served as Vice President, Operations from 2008-2014 and as Director of Engineering from 2007-2008 at GEA Heat Exchangers in Lakewood, CO. Mr. Greenwell began his career with U.S. Steel at GaryWorks, amassing 16 years of experience, with roles ranging from Project Engineer/Manager and Area ManagerGary Works, Chief Engineer Granite City Works and Vice President – Technology Kosice, Slovakia.Mr. Greenwell holds a Bachelor of Science in Mechanical Engineering Technology from Purdue University.Mr. Greenwell lives in Mickleton, NJ, USA. Mr. Greenwell is a U.S. citizen. As of 1 February 2018,Mr. Greenwell holds zero shares in the company and has no stock options.

Robert FitzpatrickVice President Production

Robert Fitzpatrick (b. 1964) joined Philly Shipyard, Inc. in 2001 and had held numerous key positions includingPrefabrication Manager and Senior Production Manager before being promoted to Vice President Productionin January 2007. Prior to coming to the shipyard, Mr. Fitzpatrick amassed 20 years of experience in industrialmanufacturing including 12 years as a production manager responsible for the fabrication of naval circuitbreakers and switchgear at L-3 Communications. Mr. Fitzpatrick holds a Bachelor of Science in MechanicalEngineering from Spring Garden College in Philadelphia, PA, USA. Mr. Fitzpatrick lives in Burlington, NJ, USA.Mr. Fitzpatrick is a U.S. citizen. As of 1 February 2018, Mr. Fitzpatrick holds zero shares in the company andhas no stock options.

Stian MyhreVice President

Stian Myhre (b. 1984) is Vice President of Philly Shipyard ASA. In addition to this responsibility he serves asController for Aker ASA. Prior to joining Aker ASA in 2014, Mr. Myhre worked 7 years as an auditor in PwC’sOslo office, primarily serving shipping and energy related clients. Mr. Myhre holds a MSc from the NorwegianSchool of Economics and Business Administration (NHH) and is a State Authorized Public Accountant(Norway). Mr. Myhre lives in Oslo, Norway. Mr. Mhyre is a Norwegian citizen. As of 1 February 2018, Mr. Mhyreholds zero shares in the company and has no stock options.



Company information

DisclaimerThis annual report includes and is based, inter alia, on forward-looking information and statements that are subject to risks anduncertainties that could cause actual results to differ. Such forward-looking information and statements are based on current expect-ations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are majormarkets 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 containing words such as “expects”, “believes”, “estimates” or similarexpressions. Important factors that could cause actual results to differ materially from those expectations include, among others, eco-nomic and market conditions in the geographic areas and industries that are or will be major markets for the Philly Shipyard Group’sbusinesses, oil prices, market acceptance of new products and services, changes in governmental regulations, interest rates, fluctuationsin currency exchange rates and such other factors as may be discussed from time to time. Although Philly Shipyard ASA believes that itsexpectations and the information in this annual report were based upon reasonable assumptions at the time when they were made, it cangive no assurance that those expectations will be achieved or that the actual results will be as set out in this annual report. NeitherPhilly Shipyard ASA nor any other company within the Philly Shipyard Group is making any representation or warranty, expressed orimplied, as to the accuracy, reliability or completeness of the information in the annual report, and neither Philly Shipyard ASA, any othercompany within the Philly Shipyard Group nor any of their directors, officers or employees will have any liability to you or any other per-sons resulting from your use of the information in the annual report.

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

The Philly Shipyard Group consists of various legally independent entities, constituting their own separate identities. Philly Shipyard isused as the common brand or trade mark for most of these entities. In this annual report we may sometimes use “Company”, “PhillyShipyard”, “Group”, “we” or “us” when we refer to Philly Shipyard companies in general or where no useful purpose is served by identify-ing any particular Philly Shipyard company.

Philly Shipyard ASAVika Atrium, Munkedamsveien 45,NO-0250 Oslo, NorwayTel: + 47 23 11 91 00, Fax: + 47 23 11 91 01

Philly Shipyard, Inc.2100 Kitty Hawk AvenuePhiladelphia, PA 19112 USATel: +1 (215) 875 2600, Fax: +1 (215) 875 2700

website: www.phillyshipyard.comemail: [email protected]


Save the environment —read reports online

The annual reports of Philly ShipyardASA are available via the Internet:www.phillyshipyard.com. Alternatively,Philly Shipyard ASA encourages itsshareholders to subscribe to thecompany’s annual reports via theelectronic delivery system of theNorwegian Central SecuritiesDepository (VPS). Please note thatVPS services (VPS lnvestortjenester)are designed primarily for Norwegianshareholders. Subscribers to thisservice receive annual reports in PDFformat by email. VPS distributiontakes place at the same time asdistribution of the printed version ofPhilly Shipyard’s annual report toshareholders who have requested it.

Electronic distribution is the fastestchannel for accessing companyinformation; it is also cost-effectiveand environmentally friendly.

Photos/illustrations:All photos courtesy ofPhilly Shipyard, Inc. andCharles Cerrone Photography

Layout/production:Donnelley Financial Solutions

Philly Shipyard ASA

Annual report 2017

© 2017 Philly ShipyardAll rights reservedwww.phillyshipyard.com

Philly Shipyard ASA

Annual report 2017

© 2018 Philly ShipyardAll rights reservedwww.phillyshipyard.com

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Transcript of printmgr file - Zetta ASfiles.zetta.no/...Contents In review 1 Company overview 2 History 4 Key...