Philly Shipyard Posts Increased Net Income During Nine-month Period

Philly Shipyard announced its nine month results during the week.

Highlights
Philly Shipyard entered into a Letter of Intent with TOTE Maritime for the construction and sale of up to four new, cost-efficient and environmentally friendly containerships for the Hawaii trade Philly Shipyard is continuing with construction activities on these vessels; design, planning and procurement work is progressing, with orders placed for all major long-lead items for the first pair to support their delivery in 2020
Philly Shipyard delivered the third vessel (Hull 027) of a series of four product tankers to Kinder Morgan, as assignee of Philly Tankers, two days before its contract delivery date

As of 30 September 2017, the four product tanker order for Kinder Morgan was approximately 99% complete and the two-containership order for Matson was approximately 38% complete

Third quarter and first nine months 2017 net income of USD 17.1 million and USD 36.5 million, respectively, compared to USD 12.0 million and 19.3 million in the same periods in 2016
Total cash and cash equivalents of USD 134.8 million at 30 September 2017, excluding USD 18.1 million of restricted cash securing certain shipbuilding contracts and loans
Order backlog of USD 383.6 million on 30 September 2017
Operations and Shipping Investments

Vessel Construction
On 26 July 2017, Philly Shipyard delivered Hull 027, the third vessel in the four-ship order for Philly Tankers, a Jones Act shipping company that is majority-owned (but not controlled) by Philly Shipyard. This vessel was delivered to Kinder Morgan, as assignee of Philly Tankers, two days before its contract delivery date. At the end of the third quarter of 2017, Philly Shipyard was building one product tanker under contract with Philly Tankers (Hull 028) and two containerships under contract with Matson (Hulls 029-030). Hull 028 is on schedule for delivery to Kinder Morgan, as assignee of Philly Tankers, in Q4 2017. During Q3 2017, the aft part of Hull 029, the first of two new containerships to be delivered to Matson, was skidded into its final position in the dry dock. For Hull 030, the second of the two new containerships for Matson, the first Grand Block was completed during Q3 2017. In addition, Philly Shipyard is continuing design, planning and procurement activities related to the construction of up to four new, state-of-the-art, cost-effective and environment-friendly vessels for the Hawaii containership trade.

Philly Shipyard plans to deliver the first pair in 2020 and the second pair in 2021. Philly Shipyard has ordered a vast majority of all long-lead items, including the main engines and other high priority items, for the first pair to support their planned delivery dates. Shipping Investments In 2015, Philly Shipyard entered into definitive agreements to sell its future interests in the four-ship PHLYCrowley joint venture (Hulls 021-024) to a subsidiary of Marathon Petroleum Corporation (Marathon). The closing of the sale of Philly Shipyard’s interest with respect to each of Hulls 021-024 occurred at its delivery. As of the delivery of Hull 024 in Q3 2016, Philly Shipyard had sold all of these joint venture interests to Marathon and recognized all of the income from these sales. Additionally, in 2015, Philly Tankers entered into definitive agreements to sell its four shipbuilding contracts with Philly Shipyard (Hulls 025-028) and related assets to Kinder Morgan. With the deliveries of Hull 025 in Q4 2016, Hull 026 in Q1 2017 and Hull 027 in Q3 2017, Philly Tankers has sold its shipping assets with respect to those vessels. The closing of the sale of Philly Tankers’ shipping assets with respect to Hull 028 will occur at its delivery.

To date, the dividends paid by Philly Tankers to its shareholders total USD 74.2 million and Philly Shipyard’s share of those dividends total USD 39.9 million. On 19 October 2017, Philly Tankers announced that it will not make any further dividend payments before liquidation other than any dividends necessary to cover U.S. tax withholding payments on behalf of its non-U.S. shareholders due at an earlier time. In this announcement, Philly Tankers confirmed its intention to initiate a liquidation process promptly following the delivery of Hull 028, which is scheduled to occur in Q4 2017. In addition, Philly Tankers stated its belief that this is the most cost and tax efficient manner to distribute its capital to its shareholders. Health, Safety, Security and Environment (HSSE) Philly Shipyard’s 12-month trailing average for its Lost Time Incident Frequency Rate (LTIFR), as defined by the Occupational Safety and Health Administration (OSHA), at the end of Q3 2017 was 1.08 compared to 0.89 at the end of Q3 2016. Philly Shipyard’s 12-month trailing average for its other Recordable Incident Frequency Rate, based on recordable incidents (other than lost time incidents) per 200,000 hours, at the end of Q3 2017 was 4.81 compared to 3.09 at the end of Q3 2016. Philly Shipyard continues to work proactively to further improve safety and reduce the number of incidents at the shipyard.