Annual Report for Eidesvik Offshore ASA

Transcription

1 Annual Report for 2010 Eidesvik Offshore ASA

2 Contents New strategic goals achieved in 2010 page 3 HSE report page 4 Corporate governance page 7 Report of the Board of Directors for 2010 page 12 Annual consolidated accounts page 19 Notes on the consolidated accounts page 24 Annual accounts - parent company page 60 Notes - parent company page 64 Auditor s report page 71 Page 2

3 New strategic goals achieved in 2010 The four-year contracts with Petrobras in Brazil for Viking Thaumas and Viking Surf, respectively, that took effect in the second half of 2010 represent for Eidesvik an important entry into the rapidly growing Brazilian market. The 5-year prolongation of the contract for Viking Vanquish beginning in 2015 represents further fortification of Eidesvik s position as a world leader in marine operation of seismic ships. All three ships were taken out of operation for an extended time period for upgrading and renovation. Naturally, this affected operating results, but was an important positioning for new markets and contracts. In addition, we accepted delivery of the seismic ship Oceanic Vega together with CGGVeritas, and the ship has had an excellent operating profile since delivery. We have taken over responsibility for operation of the seismic ships Oceanic Endeavour, Geowave Champion and Geowave Voyager, which are on contract to CGGVeritas. Over the year, we have increased the number of employees from 641 to 738. We have ordered two large LNG-driven supply ships for delivery in 2012 and thereby strengthened our position as world leader in the operation of environmentally friendly supply ships. Another important milestone was when, at the start of the New Year, we ordered a new subsea ship for delivery at the end of The ship is scheduled to be part of an eight-year contract with the new Subsea7. This must surely be confirmation of the fact that Eidesvik is in an elite division in this segment, as well. Additionally, we have the seismic ship Oceanic Sirius under construction, and this will be delivered in the 3rd quarter of We experienced only one injury resulting in absence in It was limited in scope, but even with a low number of injuries, Eidesvik must always have as its highest priority the continual improvement of its safety culture. The FellowShip project was successfully completed in 2010, and new projects are underway to further fortify the opportunities for the use of alternative technology for environmentally friendly production of energy on board ships. At the end of 2010, our market outlooks are significantly better than the previous year, and Eidesvik is well equipped to meet any future opportunities that the markets may bring. To conclude, I would like to thank all staff for their good work, once again, in It is their years of efforts that have made Eidesvik the outstanding shipping company it is today. Thank you and all the best in 2011 and in the future. Jan Fredrik Meling Managing Director Page 3

4 HSE Report for 2010 Introduction The quality and safety system in Eidesvik Management System is certified by DNV to satisfy the requirements in ISM / ISO 9001:2000/ ISO 14001: Health, safety and environment reporting. In 2010, the company had one absence injury. The statistics show injuries that have led to absence in recent years. To prevent and counter injuries, focus has been placed on the following measures: Sharp focus on the safety observations reporting form. This has contributed to increased reporting. The reports are reviewed at safety meetings on board. In 2010, 3,217 safety observations were reported, which comprises a large part of the total number of reports in the area of HSE. Extensive use of risk analyses. This allows the company to avoid accidents and injury by having the jobs reviewed step by step and thereby exposing any dangers. In 2010, 373 risk analyses were conducted. Holding more Toolbox meetings. This contributes to avoiding accidents and injuries in that those participating directly in the work are informed of any job-related danger. Work aboard is conducted according to a Work permit system. This contributes to prevention of accidents and injuries in that authorisation must be obtained from the ship s management for jobs that can present a risk to the crew, the environment or the vessel. Page 3

5 Work environment measures In 2010 the work continued on follow up of sick leave and further development of Eidesvik as an Inclusive Working Life company. Feedback from this work has shown to be very positive. Improvements in the psychosocial work environment have been emphasised, particularly preventive measures on board. Some examples of the latter would be preventing and hindering bullying at the workplace, as well as drawing attention to overexertion and stress on board. Rederihelsetjenesten (the Norwegian ship worker s occupational health service) has conducted internal health inspections on several of our vessels. Eidesvik is moreover the only shipping company in the country with its own Health Service that can be used free of charge by all employees and their families. Several first-aid classes have been organised, with an emphasis on heart ailments, as well as a course in the use of a defibrillator. All vessels in the fleet are now equipped with defibrillators. Sick leave Absence due to illness in 2010 was 5.3%. This is somewhat higher than the average in To reduce sick leave and help as many as possible back to work, sick employees receive follow up in order to find the cause and a diagnosis. This work is done in collaboration with the Health Service. Environment The following is a summary of our environmental accounts for 2010: RAW MATERIAL VOLUME CONSUMED ENVIRONMENTAL IMPACT Marine Diesel M3 CO2, NOX, and SO2 Natural gas M3 CO2, NOX Lubricant 670 M3 CO2, NOX, and SO2 Chemical agent 1715 M3 Minimal Cooling agent 1283 kg Freon Separated bilge water 581 Ltr None Food waste 222 M3 None TYPE VOLUME DELIVERED LAND TREATMENT/EFFECT Waste 2254 M3 None Paper and cardboard 200 M3 Recirculated Wood 88 M3 Recirculated Metal 25 tonnes Recirculated Plastic 2229 M3 Recirculated Glass 7.5 tonnes Recirculated Sludge 1563 M3 Recirculated Batteries 1.4 tonnes Recirculated Oil drum 769 pce Recirculated Paint tins 654 Kg Recirculated Special waste 6.2 tonnes Special treatment Incinerator ash 14.4 tonnes Special treatment Steel scrap 7.7 tonnes Recirculated Paint 0.6 M3 Special treatment First aid 66 kg Special treatment Page 4

6 TYPE VOLUME BURNT ON BOARD EFFECT Residual waste 2243 M3 CO2, NOX Sludge 349 M3 CO2, NOX, SO2 Office type Volume Electrical power kw Diesel oil vehicles 9623 litres CO2, NOX, SO2 Petrol 266 litres CO2, NOX, SO2 Photocopier paper pcs Residual waste kg Small amounts have been reported discharged by accident: Slop oil 611 litres Environmental impact is negligible. Liquid Mud 310 litres Environmental impact is negligible. Water based mud 595 litres Environmental impact is negligible. Our most important environmental improvement measures: : TYPE ENVIRONMENTAL IMPACT MEASURE Exhaust Air pollution Install gas machinery on our ship ships. Install exhaust catalyser Conversion of machinery Speed optimisation Optimise use of motor Improve maintenance Introduce fuel cell technology Incinerator Air pollution Increase delivery to land Improve maintenance Improve design Boiler Air pollution Improve maintenance Replacement with better type Oil and chemicals Water pollution Install oil boom equipment Exercises in SOPEP equipment. Our efforts for more environmentally-compatible emissions will also be carried over to our new ships. Page 5

7 Eidesvik Offshore ASA Report on corporate governance for 2010 PRINCIPLES AND CORE VALUES FOR CORPORATE GOVERNANCE OF EIDESVIK OFFSHORE ASA The board of directors at Eidesvik Offshore ASA(the Company) must ensure that the Company observes the "Norwegian Code of Practice for Corporate Governance" of 7 December 2004, last revised The management shall comment upon the group s observance and any departure from the recommendations, in relation to each item in the Norwegian Code of Practice for Corporate Governance and be made available to company stakeholders in connection with the Company s annual report. The aim of the guidelines for corporate governance in Eidesvik Offshore ASA is to clarify the distribution of roles between shareholders, the general assembly, board and management beyond what is provided for by law. The principles and core values for corporate governance in Eidesvik Offshore ASA are stated in the following documents (the complete documents are available on the company s website ): The board of director s annual report for the Company s corporate governance. Articles of association for Eidesvik Offshore ASA of 14 April Instructions for the Board of Directors. Instructions for the Managing Director. Guidelines for planning and budgeting. Company s core values and ethical guidelines. Guidelines for handling price sensitive information and insider trading. Guidelines for establishment of pay and other remuneration to management. Guidelines for access to using an auditor as a Company advisor. Guidelines for information from the Company. The company shall be based on open interaction and a sense of affiliation among the company s shareholders, board and management, as well as other interested parties such as employees, customers, suppliers, creditors, public authorities and society in general. Eidesvik Offshore ASA s basic values and ethical guidelines are stated in Etiske retningslinjer og verdigrunnlag for Eidesvik Offshore ASA (Ethical guidelines and core values for Eidesvik Offshore ASA). COMMENTS 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Activities The company s activities are specified in article 3 of the company s articles of association, and the board establishes the group s overall goals and strategy. The strategic plan is revised annually. The articles of association s objects clause and the Company s goals and main strategies are stated in the company s Annual Report, which also has been published on the company s website, COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Share capital and yield The board shall ensure that the company, at all times, has sufficient share capital, based on the risk involved in and scope of the Company s activities, cf. Instructions for the Board of Directors. Page 6

8 Authorisation of the Board to make capital increases and purchase company shares must be restricted to defined objectives and shall normally not be given for a period longer than to the next ordinary general assembly. The board establishes the Company s dividend policy and presents the policy and dividend proposals to the Company s general assembly. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Equal treatment of shareholders and transactions involving close associates Eidesvik Offshore ASA has only one class of shares. In case of capital increase, the principle of equal rights for all shareholders to subscribe for shares applies. Purchases of company shares shall be made on the stock exchange at the market rate. In connection with transactions between companies in the group, guidelines have been provided for in Styreinstruks for Eidesvik Offshore ASA (board instructions). For larger transactions between the company and shareholders, board members, management or persons close to them, there must be an independent valuation. This does not apply when the general assembly is to address the matter according to the provisions in the Norwegian Public Limited Companies Act. The same applies to transactions between companies in the group, where there are minority shareholders. The board instructions, Managing Director instructions and ethical guidelines have rules for legal competence. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Free transferability Shares in the Company are listed on the stock exchange and may be freely traded. There are no restrictions on the transfer of shares in the articles of association. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. General assembly Convening and implementation of the company s general assembly follow the rules provided in the Public Limited Companies Act for content and deadlines. The registration deadline is set as close to the meeting as possible in practical terms. Shareholders who are unable to attend may vote by proxy. The meeting invitation, proposals for adoption, proposed agenda items, proxy form, other related documents and information about shareholders rights to have issues addressed at the general assembly are made available on the company s website as soon as they are available. The board and the person chairing the meeting shall ensure that the general assembly is able to vote for each of the candidates running for a seat in the company s bodies. The minutes of the general assembly are made available on the Company s website as soon as possible. COMMENT 2010: Departs from the Norwegian Code of Practice for Corporate Governance in that the chairman of the board and auditor are present at the general assembly, but not the whole board. The general assembly follows the meeting rules provided in the Public Limited Companies Act, and the board has not established its own procedures for chairing the general assembly. Page 7

9 Election Committee COMMENTS 2010: Departs from the Norwegian code of practice for corporate governance in that Eidesvik Offshore ASA does not have an election committee. This is explained by the current shareholder structure, where the main owner holds over 50% of shares. Corporate assembly and the board of directors, composition and independence The board of Eidesvik Offshore ASA is composed such that it can protect the interests of the shareholder community and the company s needs for competency, capacity and diversity. The board should function well as a collegial body, and this must therefore be taken into account. The board is composed such that it can act independently of special interests. The majority of the shareholder-elected members are independent of the company s daily management and major business connections. At least two of the shareholder-elected members are independent of the company s principal shareholders. Representatives of management are not members of the board of directors. The board s chairperson is designated by the board, as the result of an agreement that the company is not to have a corporate assembly. Board members are elected for two year terms. In the annual report, the board provides information that can shed light on the board members skills and capacity and which board members are deemed independent. The provisions of the Companies Act concerning employees right to representation on the board of directors and corporate assembly do not apply to companies operating foreign shipping, cf. Directive no of : on employees right to representation on the board and corporate assembly, etc. of limited companies and public limited companies (representation directive), section 3(3)(3). Against this background, the company has no employee representatives on the board of directors. Board members are encouraged to own shares in the company. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Work of the board of directors Special board instructions exist for Eidesvik Offshore ASA. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Risk management and internal inspection In accordance with the Board Instructions for Eidesvik Offshore ASA, the board ensures that the company has good internal inspection schemes and appropriate systems for risk management. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Remuneration to the board Remuneration for board members is not result-based and is determined by the general assembly. Information about remuneration is provided in the annual report. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Page 8

10 Remuneration to key employees The board has established guidelines for remuneration for key employees, which provide the main principles for the company s executive salary policy. This is presented annually at the general assembly. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Information and communication The board has established guidelines for the company s contact with shareholders outside of the general assembly. These are explained in the director s report. The company publishes its financial calendar annually, and all interim reports and income presentations are made available on the company website and the Oslo stock exchange. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Corporate takeover The board has not established guiding principles for how to react in the event of a takeover bid. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Auditor The board of directors has an annual plan for auditing and the auditor s participation in board meetings, to give the board good insight into the auditor s work and to draw on the knowledge and skill the auditor has to offer in connection with the board s work on the annual accounts. COMMENT 2010: No departure from the Norwegian Code of Practice for Corporate Governance. Page 9

11 Board members Kolbein Rege (Chairman) is the managing director of Eidesvik Invest AS, which owns 67% of the shares in Eidesvik Offshore ASA. He holds a degree in law and has many years of experience in banking and from his private practice as a lawyer. Rege is affiliated with the principal shareholder. Borgny Eidesvik (Board Member) is the owner and managing director of Bømmelfjord AS, which owns 55% of Eidesvik Invest AS. Eidesvik Invest AS owns 67% of Eidesvik Offshore ASA. Borgny Eidesvik is affiliated with the principal shareholder in the company. Lars Eidesvik (Board Member) is owner and chairman of the board of Evik AS, which owns 45% of Eidesvik Invest AS. Eidesvik Invest AS owns 67% of Eidesvik Offshore ASA. Lars Eidesvik is affiliated with the principal shareholders in the company. Kjell E. Jacobsen (Board Member) is a Partner at Energy Ventures an investment company working in oil and gas technology. He is a board member at Seadrill Ltd and Seawell Ltd. He graduated from the Norwegian naval college and holds a Bachelor of Commerce from the Norwegian School of Commerce and Business Administration (NHH). He was formerly the managing director of Seadrill Management AS, and before that he worked at Smedvig ASA, Statoil and Citibank. Jacobsen is independent in relation to majority shareholder Eidesvik Invest AS. Monica Havskjold (Board Member) is joint owner and board chair at Xrgia AS analysis and consultancy. She has previous board experience from Enova SF. She is a civil engineer from the Norwegian Institute of Technology (NTH) mechanical (1986). Dr.Eng. (1992) NTH Institute for Refrigeration Technology. She received an MBA from NHH in Monica Havskjold has extensive experience with energy-related projects, including natural gas. Havskjold is independent in relation to majority shareholder Eidesvik Invest AS. Kolbein Rege Borgny Eidesvik Lars Eidesvik Kjell E Jakobsen Monika Havskjold Page 11

12 2010 ANNUAL REPORT Eidesvik Offshore ASA is an innovative company that provides good shipping personnel. We shall be a power centre for future-oriented and environmentally friendly shipping and operational solutions. Our goal is to increase and safeguard the company s long-term value generation to ensure growth, good workplaces for our staff and good returns for our owners. This is achieved by ensuring the ships a large degree of long-term employment with solid customers and thereby predictable, long-term income in a traditionally volatile market. The group s results for 2010 show losses of NOK 56 million, compared to a profit of NOK 1,091 million in The board believes that these two years were, operationally speaking, similar for the most part. There are, in particular, 3 things that are not directly linked to ship operation that have a significant influence on the balance in the posted earnings and which are therefore important in understanding the relationship between the annual accounts for 2009 and These are: 2. Accounting profit from sales of ships. 4. Changes in value of loans and derivatives as a result of changes in the exchange rate of USD and interest rates. 6. Changes in the rules for the interim arrangement tied to shipping taxes established by the authorities Profit posted in accounts -56 1,091 (-)Sales earnings on ships in (-)Earnings/(+)losses on changes in value for currency and interest items (-)Income/(+)Tax cost of the interim arrangement in connection with shipping taxes Profit corrected for these items Furthermore, 3 ships were taken out of operation in 2010 and renovated for new contracts, with lost earnings which will be recovered over the term of the contracts, and the operating profit in 2010 fell as a result of a weaker dollar exchange rate. OPERATIONS Eidesvik Offshore ASA is the parent company in the Eidesvik group. The objective of the company, according to its articles of association, is to operate shipping activities and all related activities, including owning stock and shares in companies operating the same or related activities. This objective has been met throughout 2010 through the operation of 25 ships, 19 of which are fully or partly owned by Eidesvik. In addition, one of the company s ships has been chartered through a bareboat agreement. The ships were primarily chartered through long-term contracts in the Supply, Seismic and Subsea segments. In 2010 the Eidesvik group still has focus on the expansion and renewal of the fleet. In July the seismic ship Oceanic Vega was delivered. Another such ship will be delivered in These ships are owned jointly with CGGVeritas, which is also the charterer of the ships. In 2010 the company contracted 2 supply ships with LNG-drive, and 1 subsea ship was contracted in Eidesvik s activities are run from headquarters in Langevåg on Bømlo. The shipping company s activities are organised in accordance with the special tax regulations for shipping companies. Various ship-owning companies own interests in the vessels, and Eidesvik AS is responsible for the business operation and management, including hiring out crews to the ship-owning companies. All staff is employed by Eidesvik Offshore ASA, Eidesvik AS or Eidesvik Shipping Ltd. Page 12

13 At the beginning of the year, the group had 624 employees in permanent positions. In addition, there were 114 contracted employees. Diversity is stressed, and the company wishes to have more women on board its ships. Efforts are made to accommodate the needs of employees from other cultures in the shipping company. HEALTH, SAFETY AND ENVIRONMENT In 2010 the company focused on furthering its work with Health, Safety and Environment. The quality and safety system Eidesvik Management System has been certified by DNV to satisfy the requirements in ISM / ISO 9001/ ISO The management is involved in continuous educational work in the field of HSE and puts a particular emphasis on sharing experience that lays the groundwork for continuous improvement. Sick leave in 2010 was 5.4%. This is an increase from 4.5% in Eidesvik had one injury-related absence in The company is continuing the agreement with the national insurance service on inclusive working life that ensures close follow-up of employees on sick leave. The Fatigue project, which aims to optimise sleep quality for the crew on board Eidesvik s ships, was continued in Research results from the US Coast Guard show that this gives greater alertness and better quality of life for our staff. To prevent and counter injuries, a special emphasis has also in 2010 been placed on: Increase in incident reporting. Safe job analyses. Toolbox meetings. Work aboard is conducted according to a work permit system. Health inspections on the vessels. All vessels in the fleet are now equipped with defibrillators. Environment Eidesvik pursues a deliberate and targeted environmental policy. Eidesvik has continued to work on developing environmentally friendly and energy-saving ships. On board in the supply ship Viking Lady, the pilot project involving testing of fuel cells was completed. The project met all expectations to the fuel cell technology, and another milestone was reached for the shipping company in a global perspective. Eidesvik will continue the development of hybrid solutions for energy production on offshore vessels. The operations at sea are conducted in compliance with international and national laws and regulations. To reduce the risk of accidents, there is a great emphasis on preventive maintenance and on the ships being manned by highly qualified staff. Eidesvik is continuously working on reducing the total emissions balance tied to the operation of the ships. Eidesvik s land-based activities do not pollute the environment beyond normal levels for similar activities. An HSE report has been prepared and is included in Eidesvik s annual report. SHAREHOLDERS AND CORPORATE GOVERNANCE At the start of the year, there were a total of 30,150,000 shares in the company. The total number of options issued to the executive group in the company is 205,000. In 2010, 75,000 new options were issued. At the start of the year, there were a total of 758 shareholders in the company. At the end of 2010, foreign investors had an owner s share of 1.6%. The share was last traded at NOK in Page 13

14 The board has been given the authority to buy back its own shares at a total of NOK 150,000, however, such that the total value of own shares cannot exceed 10% of the registered share capital at any given time. The authority applies until the ordinary general assembly in The board will propose that this authority be renewed for one year by the company s general assembly. At , the company did not own any of its own shares. All information must be given in such a way that all shareholders are treated equally. The information will be provided through stock exchange reports, press releases and open presentations and will be available on Eidesvik s website. The Norwegian Code of Practice for Corporate Governance has been used as the basis for the group s governance and management. Minor company-specific changes and adaptations have been made to the Code. These are described in the annual report and on Eidesvik s website. RESULTS, BALANCE SHEET AND FINANCIAL RISK The consolidated accounts are reported in compliance with IFRS, as approved by the EU. The company accounts are reported in compliance with good accounting practice. Results Consolidated operating revenue for Eidesvik in 2010 was NOK million (NOK 1,234.3 million in 2009, including a profit of NOK million for the sale of Viking Nereus). The reduction in freight income is due primarily to the planned renovation of 3 ships during the year. All renovations are being made in the light of long-term freight agreements. The operating profit before depreciation (EBITDA) for 2010 is NOK million (NOK million, including profit of NOK million). The operating profit for the year has been affected somewhat by the poorer market conditions in 2010, but because most ships are on fixed long-term contracts, the market fluctuations have had only little impact. Depreciation of NOK million (NOK million) was posted as an expense in Overall, this leaves an operating profit after depreciation of NOK million (399.6 million). The net financial items for the year of NOK million (NOK million) were influenced by a relatively low interest rate. The positive figures for financial items in 2009 were due to unrealised currency gains as a result of a weaker US dollar in relation to NOK. In 2010 there were less significant currency losses. The annual profit before tax is NOK 3.7 million (NOK million). In 2010 the group has a tax expense of NOK 59.6 million. This consists primarily of an appropriation in connection with new interim rules for the shipping tax scheme that applied until 2007, where the group chose the voluntary settlement arrangement. After this, the consolidated profit after tax was NOK million (NOK 1,091.4). The total earnings per share were NOK 1.65 (NOK 36.20). For the parent company Eidesvik Offshore ASA, the profit for the year after tax was NOK million (NOK million). Balance sheet Posted equity for the group is NOK 1,853.7 million (NOK 1,901.5 million in 2009). This represents 36.6% of the group s total capital. For the parent company, Eidesvik Offshore ASA, equity is NOK million (NOK million). Ships and Ships under construction fell marginally during the year by NOK 22.0 million, while current assets fell by NOK million. Total assets were NOK 5,067.5 million (NOK 5,267.0 million), a reduction of NOK million. Market valuations for the ships have been collected Page 14

15 from 3 independent brokers. They concluded that the total added value in relation to the book value of the vessels, if they had been contract-free, is NOK 1,747 million. Because many longterm contracts have rates that are lower than what can be obtained on the short-term market, the actual added value of the ships is lower than the broker estimates. Nonetheless, the board believes that there is substantial surplus value in the ships compared to the book value. The group s current liabilities decreased over the year by NOK 9.6 million to a total of NOK million (NOK million). This includes long-term bank debt that will mature within 12 months by NOK million. Long-term liabilities were NOK 2,753.9 million (NOK 2,896.0 million), which represents a reduction of NOK million. Cash flow Cash and cash equivalents fell from NOK million at the end of 2009 to NOK million at Net cash flow from operating activities for 2010 was NOK million (NOK million). Net negative cash flow of NOK million (NOK -1,010.6 million) from investment activities is mainly the result of delivery of the newly constructed Oceanic Vega, payments in connection with renovations and payments on newbuilds to be delivered in The net negative cash flow of NOK million (NOK million) from financing activities is due mainly to ordinary payments of interest and instalments on debt. Allocation of profit The board proposes that the profit of NOK million for the year for Eidesvik Offshore ASA be transferred to Other equity. The board will further propose to the company s general assembly of 23 May 2011 that a dividend of NOK 1.00 per share be paid, in all NOK 30.2 million. The amount will be taken from the part of the company s distributable equity that was previously paid as a share premium. For tax purposes, the dividend will therefore be considered repayment of paid-up capital. Payment to shareholders will be made to those who own shares at the close of the day that the dividend is approved. Payment will take place approx. 14 days after that date. The company s distributable equity is NOK million. Going concern The board finds the company s and group s financial standing to be strong. The prerequisites for continued operations have been met by the company, and the annual accounts have been prepared accordingly. There were no post-balance sheet events that are likely to significantly affect the company s financial position and results beyond those reflected in the annual accounts. Financial risk Currency risk In 2010 Eidesvik s income was in NOK (54%) and USD (46%). Operating costs are mainly in NOK, while a significant portion of the debt is in USD. Eidesvik is thus exposed to changes in exchange rates between NOK and USD. In order to reduce the risk, cash flow hedging has been put in place by establishing portions of the company s long-term financing in USD. Furthermore, forward contracts have been formed for parts of the operating revenues in USD. Interest rate hedging or fixed interest loan contracts have been entered into for a significant portion of Eidesvik s long-term debt. Page 15

16 Credit risk Eidesvik s customers are generally solid companies with good solvency. The risk of contracting parties not having the financial capacity to meet their obligations is deemed to be low. Liquidity risk The group had a satisfactory level of liquidity reserves at the end of the year. To further strengthen the company s liquidity, a credit facility of NOK 200 million will be established in There is a pledge from Eksportfinans and an accepted guarantee from a commercial bank and GEIK for new vessels to be delivered in For other newbuilds, there is a pledge from Eksportfinans. Guarantee deposits from commercial banks and possibly GIEK are expected to be in place in due time before delivery in Against this background, the board deems the liquidity in the group to be satisfactory. REGULATORY FRAMEWORK It is our experience that Norwegian maritime crews enable us to deliver an optimal product that helps our customers achieve a better overall result. Therefore, Eidesvik uses to a large degree Norwegian seamen and hopes to be able to do so also in the future. The use of a Norwegian maritime crew in the future depends on access to stable general terms. The entire petromaritime cluster, including oil companies, shipping companies, shipyards and other oil service companies will also rely in the future on having maritime know-how in its land organisation. It seems now that there is a political majority for pursuing the net wages and shipping company tax scheme in their current form. This will hopefully translate into stable framework conditions henceforth. As regards the new wages scheme, it is Eidesvik s view that it should be improved if it is to help Norwegian seamen be competitive in the long term. The shipping company tax scheme is, in its current form, well suited to ensure continued Norwegian ownership and operation of ships. Eidesvik works actively to market careers in the maritime trade. In this connection, we have put together a scholarship programme for young people who choose to pursue maritime studies. Furthermore, Eidesvik has together with other shipping companies and the maritime training office established a guarantee program for new engineer and navigator graduates. Upon meeting the established prerequisites, these candidates are ensured an internship on a ship after completion of their studies, in order to obtain the necessary licenses. The NOX fund has been established to promote environmental investments in the shipping industry. After the changes made in January 2011 in the fund s profile to support such investments, the fund now stands as an excellent tool for reaching the goals we have set for ourselves. BUSINESS AREAS AND OUTLOOK Eidesvik owns and operates ships in the following 3 segments: Supply and anchor handling Eidesvik operates 8 supply ships and 1 anchor handling ship. Most of the ships have long-term contracts; only Viking Athene is spot-exposed for parts of Page 16

17 North Sea: The spot market had only a few periods of high activity in Most of the year there were too many vessels available, both PSVs and AHTSs. We experienced daily rates for large AHTS of NOK 1.25 million per day, while, at the other end of the scale, there were cases where this figure was NOK 30,000 per day for the same type of vessel. For modern PSVs, similar agreements were for NOK 395,000 and NOK 30,000 per day. Many of the vessels operating in the spot market in 2010 barely earned enough to cover the operating expenses. Charterers had an increased focus on quality and competence of the crew aboard the ships and on the robustness of the shipping organisation. The board at Viking Troll AS decided to sell Viking Troll owing to the reigning market conditions. The ship received new owners in the beginning of September, after Eidesvik had operated Viking Troll on the spot market for a short period. Environmentally friendly and reliable ships will always be attractive for the operators, and in 2010 Eidesvik ordered 2 fully modernised PSVs with LNG-drive. When these are delivered, Eidesvik will have 5 LNG-driven ships in operation. It is further worth noting that several of our competitors have ordered PSVs with LNG-drive in 2010, which we find confirms the belief in LNG as a fuel for offshore ships. We believe that the market in the North Sea in the medium term will generate satisfactory earnings for quality ships with competent crews. Brazil: Brazil has been a highly active market in 2010, where many contracts, both national and international, have been awarded from Petrobras. This appears to be the case in 2011 as well. Eidesvik has been awarded 2 long-term contracts with Petrobras over the course of the year. We will be evaluating new opportunities in Brazil in the future, as we view this geographic area as very interesting from a long perspective. Seismic The market for marine seismic has continued to be challenging in 2010 in terms of the imbalance that exists between supply and demand. In addition, all seismic activities in the Mexican Gulf were halted after the Deepwater Horizon accident. Eidesvik operates 10 seismic ships. Three of these are on management from CGGVeritas. Six ships are fully or partly owned by Eidesvik and are on long-term contracts with CGGVeritas. Another ship is under construction for delivery in September This is owned in a joint venture with CGGVeritas. The ship will be part of a 12-year contract with CGGVeritas upon delivery. With the operation of 10 large 3-D ships from autumn 2011, Eidesvik is one of the largest operators in marine operation of modern 3-D seismic ships worldwide. Eidesvik believes that there will still be a need for efforts to find new oil and gas reserves, and seismic is an important part of this work. Therefore, we have a positive view of the seismic market in the short and long term. Subsea Eidesvik currently has five ships in the subsea segment. We anticipate long-term growth in this segment, based on the activity in pipe-laying and installation of subsea equipment. These new projects are in addition to a large amount of IMR (Inspection, Maintenance & Repair) work on already existing infrastructure. Page 17

18 The oil companies have decided on a number of quick expansions on the Norwegian shelf. This will increase the demand for subsea vessels in the medium term. Many contracts have also been awarded to the oil service companies at the end of 2010 and the beginning of At the beginning of 2011, the company entered into a new long-term contract with Subsea 7 for the construction of a new IMR ship. The ship will be delivered in November We plan on further growth in this segment. General The activity in those segments where Eidesvik operates is impacted by the development in oil prices and the oil companies exploration and development budgets. Sustained high oil prices, increased activity in most large offshore regions and increases in exploration and production budgets in the years to come mean that we have a positive market perspective. The many contractings of rigs in recent years will lead to a greater need for ships, and therefore we are more positive about the supply ship segment today than we once were. The announcement that Statoil has found oil in the Barents Sea is also good news in a more longterm perspective. We have ships in the fleet and under construction that are adapted to operations in challenging areas. With Eidesvik s long-term contract profile, our exposure to short-term fluctuations on the market is limited. Our goal is to have a clear majority of long-term contracts, to ensure long-term added value and growth for Eidesvik. DECLARATION FROM BOARD AND CHIEF EXECUTIVE Today the board and chief executive have examined and approved the annual report and the consolidated accounts with notes for Eidesvik Offshore ASA as per 31 December 2010 and for the year 2010, including consolidated comparative figures as per 31 December 2009 and for the year The annual accounts have been prepared according to IFRS requirements as adopted in the EU and Norwegian supplemental requirements in the Norwegian Securities Trading Act. To the best of the knowledge of the chief executive and board of directors, the 2010 annual accounts have been prepared in accordance with applicable accounting standards, and the information in the accounts accurately reflect the group s assets, liabilities and financial position and overall results as per 31 December 2010 and 31 December The board of directors and chief executive firmly believe the annual report to provide an accurate summary of important events in the accounting period and their influence on the annual accounts. It is furthermore their conviction that the description of the key risk and uncertainty factors the company faces in the next accounting period and the description of related companies major transactions are accurate. Bømlo, 11/04/2011 Page 18

19 CONSOLIDATED PROFIT AND LOSS ACCOUNT (NOK 1,000) The notes on pages are in integral part of the consolidated accounts 1/1-31/12 1/1-31/12 Note Freight income 4 1,057,973 1,105,393 Other income 5-3, ,892 Total operating revenues 1,054,705 1,234,285 Payroll and other staff expenses , ,431 Depreciation , ,645 Other operating expenses 6 151, ,119 Charter of ships 23 46,934 66,539 Total operating expenses 844, ,735 Operating profit 210, ,550 Financial income 8 13,461 7,401 Financial expenses 8-128, ,528 Change in value of derivatives 8-19,304 46,817 Net foreign exchange gains 8-17, ,790 Net financial items -151, ,480 Profit from affiliated companies 7-13,872-21,227 Profit from joint ventures 7-41,127-11,017 Profit before tax 3, ,786 Tax 9-59, ,566 Profit for the year -55,970 1,091,352 Translation differences joint ventures 7 6,240 0 Total profit for the year -49,730 1,091,352 Allocated to: Shareholders -49,730 1,091,352 Minority interests 0 0 Profit per share for the portion of the profit that is allocated to the company shareholders: -49,730 1,091,352 Profit per share/ diluted profit per share Total profit for the year per share Page 19

20 CONSOLIDATED BALANCE SHEET (NOK 1,000) The notes on pages are an integral part of the consolidated accounts Note 31/12/ /12/2009 ASSETS Fixed assets Ships 12 4,288,180 4,354,625 Ships under construction 12 44,439 0 Buildings, land and other fixed assets 12 40,288 42,203 Investments in associated companies 7 3,692 10,284 Investments in joint ventures 7 186, ,151 Derivatives ,795 Other long-term receivables 13 1,353 1,224 Total fixed assets 4,564,643 4,617,282 Current assets Receivables from customers , ,372 Derivatives 24 14,548 24,604 Other current assets 15 93, ,459 Cash and cash equivalents , ,295 Total current assets 502, ,730 Total assets 5,067,460 5,267,012 Page 20

21 CONSOLIDATED BALANCE SHEET (NOK 1,000) The notes on pages are in integral part of the consolidated accounts Note 31/12/ /12/2009 EQUITY AND LIABILITIES Equity Share capital 17 1,508 1,508 Other equity 17, 18 1,838,629 1,899,960 Total equity majority shareholders 1,840,136 1,901,468 Minority interests 13, Total equity 1,853,662 1,901,514 Liabilities Long-term liabilities Loans 21 2,626,309 2,839,198 Derivatives 24 72,216 54,680 Tax payable 9 45,585 0 Pension obligations 19 9,614 2,126 Deferred taxes Total long-term liabilities 2,753,894 2,896,004 Current liabilities Loans , ,097 Derivatives 24 2,138 1,019 Payables to suppliers 22 37,922 29,486 Tax payable 9 23,550 8,518 Other current liabilities ,232 74,374 Total current liabilities 459, ,494 Total liabilities 3,213,798 3,365,498 Total equity and liabilities 5,067,460 5,267,012 Bømlo 11/04/2011 Page 21

22 CONSOLIDATED CASH FLOW STATEMENT (NOK 1,000) The notes on pages are in integral part of the consolidated accounts Note 1/1-31/12 1/1-31/ Cash flows from operations Payments from customers 1,141,497 1,123,788 Payments to suppliers and employees -549, ,991 Interest income received 11,319 6,629 Net paid and refunded taxes 36,265-62,289 Net cash flows from operations 639, ,137 Cash flows from investment activities Sales of fixed assets ,784 Purchases of fixed assets ,089-1,213,623 Purchases of other investments -22,586-8,782 Net cash flows used for investment activities -278,675-1,010,621 Cash flows from financing activities Issuance of share capital 17 Payments from minority interests Equity 13,526 0 New debt 0 1,108,092 Repayment of debt -309, ,121 Interest expenses paid -121, ,730 Dividends paid to company shareholders 18-15,075-15,075 Net cash flows from financing activities -431, ,166 Net effect of currency translation differences on cash and cash equivalents -5,015-6,578 Net increase (reduction) in cash and cash equivalents -76,380 95,104 Cash and cash equivalents at the start of the year , ,190 Cash and cash equivalents at the end of the year , ,294 Page 22

23 CONSOLIDATED EQUITY STATEMENT (NOK 1,000) The notes on pages are in integral part of the consolidated accounts Andre inntekter og Aksjonærene Annen innskutt egenkapital Minoritets interesse Sum egenkaptial Omregndiff Aksjekapital kostnader egenkapital Sum Egenkapital per : Årets resultat Andre inntekter og kostnader direkte innregnet i egenkapitalen Totalresultat Utbytte fra Opsjoner Sum andre egenkapitaljusteringer Egenkapital pr Årets resultat Omregningsdifferanser valuta Totalresultat Utbytte fra Andre inntekter og kostnader direkte innregnet i egenkapitalen Etableringskostnader datterselskap Innbetalt ny egenkapital Utløsning av minoritetsaksjonærer Opsjoner Sum andre egenkapitaljusteringer Egenkapital pr Annen Page 23

24 NOTES TO THE CONSOLIDATED ACCOUNTS NOTE 1 General Information Eidesvik Offshore ASA (the Company) and its subsidiaries (the entire Group) offer services in the maritime sector and have operations in a number of segments. The principal segments are seismic, subsea and platform vessel services. The Group s vessels are located in many parts of the world. Eidesvik Offshore ASA is a public limited company registered in Norway, and its head office is located in Langevag in the municipality of Bømlo. Eidesvik Offshore ASA is listed on the Oslo Stock Exchange and subject to the provisions of the Norwegian Public Limited Companies Act relating to the limitation of the shareholders liability to the Company s creditors. The annual accounts were approved for publication by the Board of Directors on 11 April The General Assembly adopts the final annual accounts and has the authority to demand changes to the accounts before they are approved. Information regarding the ultimate parent company is presented in Note 25. Summary of group companies: Company Business Office Eidesvik Shipping AS Bømlo 100% Eidesvik AS Bømlo 100% Eidesvik Shipping Ltd England 100% Eidesvik MPSVAS Bømlo 100% Eidesvik Subsea AS Bømlo 100% Viking Troll AS Bømlo 100% Viking Surf AS Bømlo 100% Eidesvik Shipping International AS Bømlo 100% Eidesvik Subsea Vessels AS Bømlo 100% Eidesvik Management AS Bømlo 100% Langevåg Senter AS Bømlo 100% Eidesvik OCV AS Bømlo 100% Eidesvik OCV KS Bømlo 100% Eidesvik Maritime AS Bømlo 100% Oceanic Maritime AS Bømlo 100% Eidesvik Supply AS Bømlo 80% Eidesvik Supply II AS Bømlo 80% Ef Tech AS Bømlo 100% Norsk Rederihelsetjeneste AS Bømlo 100% Viking Innovation Partner AS Bømlo 100% Ownership Interest Note 2 Accounting Principles The most important accounting principles used for preparation of the consolidated accounts are described below. These principles have been applied identically to all the periods that are presented, unless otherwise stated in the description. 2.1 Main principles The consolidated accounts for the Eidesvik Offshore Group were produced in accordance with the Norwegian Accounting Act and International Financial Reporting Standards (IFRS) as adopted by the EU and interpretations established by the International Accounting Standards Board (IASB). The consolidated accounts have been prepared in accordance with the historical cost principle with modifications for the following: financial derivatives and financial assets measured at fair value. An asset is classified as a current asset if it is expected to be realised within twelve months from the balance sheet date as part of the ordinary operations, if purchase or sale is the primary objective of the asset, or if the asset represents cash or a cash equivalent. Debts are classified as current liabilities if there is no unconditional right to postpone payment for at least twelve months from the balance sheet date, or if purchase or sale is the primary objective of the liability. Long-term liabilities that will not fall due for twelve months will be reclassified as current liabilities. The same applies to the first year's instalments on long-term liabilities that will mature within twelve months of the balance sheet date. Page 24

25 Preparation of the accounts is done in accordance with IFRS. This means that Management has used estimates and assumptions that have affected the assets, liabilities, revenues and expenses and information regarding potential obligations. The cash flow statement has been prepared in accordance with the direct method. All amounts are presented in Norwegian kroner (NOK) and rounded off to whole thousands unless otherwise stated. 2.2 Consolidation Principles The consolidated accounts consist of the accounts for Eidesvik Offshore ASA and its subsidiaries as at 31 December each year. Interests in joint ventures and associated companies are recognised in the accounts in accordance with the equity method of accounting. a) Subsidiaries Subsidiaries are all the units in which the Group has a controlling influence over the unit s financial and operational strategy, normally through ownership of more than half of the voting capital. In determining whether a controlling influence exists, the effect of potential voting rights that can be exercised or converted on the balance sheet date is included. Subsidiaries are consolidated from the point in time when control is transferred to the Group and eliminated from consolidation when such control ends The purchase method of accounting is used for the acquisition of subsidiaries. The acquisition cost is measured as the fair value of assets that are contributed as consideration for the acquisition, equity capital instruments that are issued, liabilities that are assumed upon the transfer of control. Identifiable assets acquired and liabilities assumed are recognised in the accounts at fair value at the time of the acquisition, regardless of any minority interests. The portion of the acquisition cost that exceeds the fair value of identifiable net assets in the subsidiary is recognised on the balance sheet as goodwill. If the acquisition cost is lower than the fair value of the net assets in the subsidiary, the difference is recognised in the profit and loss account at the time of the acquisition. Companies where the Group has control are consolidated 100% line for line in the consolidated accounts. All intercompany transactions, outstanding accounts and unrealised earnings between Group companies are eliminated. Unrealised losses are eliminated, but they are considered as an indicator of impairment in value in relation to the write-down of the asset transferred. The consolidated accounts are prepared using uniform accounting principles for similar transactions and other events occurring in similar circumstances. The classification of items in the income statement and balance sheet is carried out according to uniform definitions. b) Joint Ventures Joint ventures are defined as companies where the Group has joint control with another party. Joint ventures exist if the ownership is split equally two ways (50/50) or if it is otherwise regulated that the parties have joint control. Investments in joint ventures are accounted for by using the equity method. The Group s share of the profits or losses in a joint venture is recognised and added to the carrying value of the investments along with a share of unrecognised equity changes. The Group does not record the proportion of loss if this means that the investment s carrying value becomes negative (including any unsecured receivables), unless the Group has incurred obligations or made payments on behalf of the obligations of the joint venture. c) Associated Companies Associated companies are defined as entities in which the Group has a significant influence, but not control. Significant influence is usually present when the Group has between 20 and 50% of the voting rights. Investments in affiliated companies are recorded in the accounts using the equity method. The principle for classification of the Group s share of the profit in associated companies has changed. The proportion was previously classified as an operating record, but as of 2010 it is classified as a financial item. The comparable figures have been adjusted accordingly. The Group s share of the profits or losses in associated companies is recognised and added to the carrying value of the investments along with a share of unrecognised equity changes. The Group does not record the proportion of loss if this means that the investment s carrying value becomes Page 25

26 negative (including any unsecured receivables), unless the Group has incurred obligations or made payments on behalf of the obligations of the associated company. The Group s share of unrealised gains on transactions between the Group and its affiliated companies is eliminated. The same applies to unrealised losses unless the transaction indicates a depreciation of the transferred asset. Accounting principles in the affiliated companies have been altered where necessary to achieve consistency with the Group s accounting principles. d) Minority Interests The minority share of the equity is shown on a separate line under Group equity. The minority interest includes subsidiaries minority shares of the carrying value, including a share of the identifiable added values at the time of the acquisition of a subsidiary. 2.3 Segment Information Reportable segments are aggregated from underlying operating segments. An operating segment is a part of the company delivering products or services that are subject to risks and returns that are different from those of other operating areas. The Group s main reporting format is business areas. The business areas are divided into Platform Supply Vessels (PSV), Subsea and Seismic Vessels, in addition to the item Other, which includes ships under construction, amongst other things. 2.4 Conversion of Foreign Currency a) Functional and Presentation Currencies The accounts of the individual units in the group are measured in the currency that is primarily used in the economic area where the unit operates (functional currency). The consolidated accounts are presented in Norwegian kroner (NOK), which is both the functional and presentation currency of the parent company. To calculate the profit share stemming from joint ventures, numbers on the balance sheet expressed in a different currency are converted to the closing rate, whereas income statement items are converted to the average exchange rate each quarter. Translation differences are recognised directly under equity as other income or expenses. b) Transactions and Items on the Balance Sheet Transactions in foreign currencies are converted to the functional currency by using the transaction price. Foreign exchange gains and losses resulting from the settlement of such transactions and the conversion of monetary items (assets and liabilities) to foreign currency at the closing rates in effect at year-end is recorded on the income statement. Monetary items and liabilities in other currencies are converted at closing rate. Foreign exchange gains and losses are included in the profit and loss statement as Net foreign exchange gains/losses. 2.5 Tangible Fixed Assets Vessels, property and other assets are recorded at historical cost less accumulated depreciation and write-offs. Each part of the fixed asset that has a substantial value of the total cost is depreciated separately and in a linear fashion over the fixed asset s useful life. Components with the same life span are amortised as one component. The depreciation period and method are reviewed on each balance sheet date to ensure that the method and period used coincide with the economic realities of the asset. The same applies to residual value, which is subject to an annual review. When new ships are delivered, an amount is earmarked that corresponds to the expected cost of the first regular periodic maintenance, which is amortised over the entire period until the next time the ships is docked. The costs associated with the following periodic maintenance are activated and depreciated until the next scheduled maintenance, usually over a period of months. The listed value of tangible fixed assets is assessed for depreciation when events or changes in circumstances indicate that the listed value is not recoverable. Such indicators may for example be noticeable drops in market value such as a change in day rates, brokers, negative developments in technological, commercial, financial or legal framework conditions, an increased discount rate as a result of higher market interest rates, the company having a market value lower than noted equity, Page 26

27 physical injury, significant changes that have negative consequences, including restructuring or liquidation plans, internal reports that indicate poorer earnings. The test is done at the lowest possible level of assets. The write-down amount is the difference between the recoverable amount and the recognised value. The recoverable amount is the higher of the asset s sales value (less sales costs) and the value of the asset in use. The value of the asset in use is the present value of the asset s future cash flow. A depreciation can be reversed in subsequent periods if the recoverable amount is higher than it was at the time of the depreciation. Estimated exploitable lifetime: Ships years Real Estate/fixtures 5-20 years Equipment 3-5 years Profits and losses at the time of transfer of property are recorded, and constitute the difference between the sales price and the book value. Expenditures for ongoing maintenance and minor repairs as expensed as incurred. Ships under construction are activated with paid construction schedules, as well as costs that are directly related to the construction, such as building inspections, other construction costs and interest on foreign financing during the construction period. The balance sheet value is reclassified to ships when the vessel is delivered from the shipyard and the ship is ready for use. The depreciation of ships starts at the same time. Financial Lease Agreements Financial leases are agreements that transfer most of the financial risks and rewards to the lessee. The Group presents financial leases in the accounts as assets and liabilities equal to fair value of the asset or, if lower, the current value of the lease agreement s cash flow. In calculating the present value of the lease contract, the implicit interest cost is used when this can be determined. If this cannot be determined, the company s marginal borrowing rate on the market is used. Direct costs linked to the lease contract are included in the cost of the asset. Monthly lease payments are separated in an interest element and a repayment element. The interest expense is allocated to different periods so that the effective interest for the remaining debt is the same in different periods. Assets that are part of a financial lease agreement are depreciated. The depreciation period is consistent for equivalent assets owned by the Group. If there is no guarantee that the Company will take over the asset upon the expiration of the lease agreement, the asset will be depreciated over the shorter of the terms of the lease agreement or the depreciation period for corresponding assets owned by the Group. If a sale-and-leaseback transaction results in a financial lease agreement, any gain will be deferred and recognised over the lease period. Operational Lease Agreements Leases that do not transfer most of the risk onto the lessee, are classified as operational leases. Lease payments are classified as operating expenses and are recorded over the entire term of the contract. If a sale-and-leaseback transaction results in an operational lease, and it is clear that the transaction is carried out at fair value, any gain or loss will be recognised when the transaction takes place. If the sale price is below fair value, any gain or loss will be recorded immediately, except when this leads to future lease payments that are below market price. In such cases, the profit/loss over the lease period is amortised. If the sale price is above the actual market price, the surcharges are amortised over the asset s estimated period of use. 2.6 Financial Assets Page 27

28 The Group classifies its financial assets in the following categories: Financial assets at fair value with fluctuations in value through the profit and loss account, loans and receivables. The classification depends on the purpose of the asset. The Group uses exchange rates on the date of the initial recognition of financial instruments. The Group uses derivative instruments such as foreign currency contracts and interest swap rates (swap) to reduce risks related to currency and interest rate fluctuations. The derivatives are presented as an asset with a positive value and as a debt with a negative value. For derivatives that do not qualify for hedge accounting, profits and losses are recorded in the profit and loss account as a financial item resulting from fluctuations in value. a) Financial Assets at Fair Value through Profits This category has two subcategories: financial assets held for trading and financial assets that the Management initially has chosen to classify as at fair value through the profit and loss account. A financial asset is classified in this category if acquired principally for the purpose of selling at a profit from short-term price fluctuations, or if Management chooses to classify it in this category. Derivatives are also classified as being held for trading purposes unless they are part of a hedge. Assets in this category are classified as current assets if they are kept for trading purposes or if they are expected to be realised within 12 months after the balance sheet date. Profits or losses from changes in the fair value of assets classified as financial assets at fair value through the profit and loss account including interest income and dividends are included in the profit and loss account under the item Change in Value of Derivatives for the period in which they arise. b) Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not traded in an active market. They are classified as current assets unless they mature more than 12 months after the balance sheet date. These are classified as fixed assets. Loans and receivables are classified as Trade and Other Receivables on the balance sheet. Regular purchases and sales of investments are listed at the time of the transaction. All financial assets that are not listed at fair value through income are initially listed at fair value plus transaction costs. Financial assets listed at fair value through the profit and loss account are initially recognised at fair value at the time of acquisition and transaction costs are expensed. Investments are removed from the balance when the rights to receive cash flows from the investment have expired, or when these rights have been transferred and the Group has to a great extent transferred all risks and rewards of ownership. Financial assets available for sale and financial assets at fair value through the profit and loss account are measured at fair value after initial recognition. Loans and receivables are listed at amortised cost using the effective interest rate method. The listed value of financial assets at amortised cost is assessed for depreciation when events or changes in circumstances indicate that the listed value is not recoverable. This could for instance be in the event of an observable drop in market values on an active market, or in the form of requests from a debtor with payment difficulties, the declaration of bankruptcy, or because the debtor fails to make the required payment before the due date. 2.7 Derivatives and Hedging Derivatives are initially listed at fair value at the time a derivative contract is signed, and subsequently the post is regularly adjusted to reflect fair value. The Group has no derivatives that satisfy the documentation requirements for hedge accounting. In the balance sheet, the fair value of derivatives is classified as current assets / liabilities or assets / liabilities depending on the term of the contract. In the profit and loss statement, unrealised changes in the value of the derivative are classified under financial items. Cash flow hedging Until 31 December 2005, portions of the Group s debt in foreign currencies were defined as hedging instruments for probable receipts in the same currency (freight income). The group no longer satisfies the criteria for hedge accounting. The total gains or losses entered directly against equity when the hedging ends remain in the equity, and in future are recognised in the profit and loss account when the transaction that was originally hedged is recognised in the profit and loss account. If the Page 28

29 transaction that was originally hedged is no longer expected to occur, any accumulated gains or losses previously entered directly against equity will be recognised in the profit and loss account immediately. 2.8 Receivables from customers Receivables from customers are recognised initially at fair value on the balance sheet. For subsequent measurements, receivables from customers are assessed at their amortised cost by means of the effective interest method, less provisions for losses that were incurred. Provisions for losses are recognised when there are objective indicators that the Group will not receive settlement in accordance with the original terms. Significant financial problems facing the customer, probability that the customer will go bankrupt or undergo financial restructuring, postponements and non-payment are regarded as indicators that the receivables from customers must be written down. The provisions represent the difference between the nominal value and the recoverable amount, which is the net present value of the expected cash flows, discounted by the effective interest rate. Changes in the provisions are recognised in the profit and loss account as other operating expenses. 2.9 Cash and cash equivalents Cash and cash equivalents consist of cash, bank deposits, other short-term, readily negotiable investments with an original maturity of less than three months and drawn down on bank overdraft facilities. Bank overdrafts are included in loans under current liabilities on the balance sheet Share capital Ordinary shares are classified as equity. Expenses that are directly attributable to the issue of new shares or options less taxes are entered against the equity as a reduction in the proceeds (share premium) Payables to suppliers Payables to suppliers are measured initially at fair value on the balance sheet. Payables to suppliers are subsequently recognised at their amortised cost, as calculated by means of the effective interest rate method Loans Loans are recognised at the amount drawn when they are disbursed, less any transaction costs. In subsequent periods, loans are recognised at their amortised cost, as calculated by means of the effective interest rate. The difference between the loan amount disbursed (less transaction costs) and the redemption value are recognised in the profit and loss account over the term of the loan Pension obligations, bonus schemes and other compensation schemes for employees a) Pension Obligations The companies in the Group have different pension schemes. The pension schemes are financed primarily through contributions to insurance companies or pension funds. The group s pension schemes are defined benefit plans. A defined benefit plan is typically a pension scheme that defines the pension payments employees will receive when they retire. Pension payments are normally dependent on one or more factors such as age, years of service for the company and salary level. The liability recognised on the balance sheet relating to defined benefit plans is the net present value of the defined benefits on the balance sheet date less the fair value of the pension fund assets (in the cases where the scheme is insured), adjusted for unrecognised estimate deviations and costs relating to pension benefits earned from prior periods. The pension obligations are calculated annually by an independent actuary on the basis of a linear model. The net present value of the defined benefits is determined by discounting the estimated future payments based on the interest rate for Norwegian government bonds. Since Norwegian government bonds are not issued for terms exceeding 10 years, a supplement to this bond rate is calculated by means of estimation techniques to establish a discount rate that is approximately the same as the term of the pension obligation. Estimate deviations due to new information or changes in the actuarial assumptions in excess of 10% of the value of the pension fund assets or 10% of the pension obligations will be recognised in the Page 29

30 profit and loss account over a period that corresponds to the employees' expected average remaining service time. Changes to the pension plan benefits are recognised as they arise as income or expenses in the profit and loss account, unless the rights in accordance with the new pension plan are contingent on the employee remaining in service for a specified period of time (accrual period). In this case the cost related to the change in benefits is amortised in a linear fashion over the accrual period. b) Bonus Agreements and Severance Pay In some cases, employment contracts are entered into that give entitlement to a bonus in relation to the fulfilment of defined financial and non-financial criteria, as well as contracts that give entitlement to severance pay upon the employer s termination of the employment. The Group recognises provisions in the accounts in cases where there is a formal or informal obligation to make payments. Share-based Compensation The Group has a share-based reward system with settlement in shares. The value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount that is to be charged as an expense over the contribution period will be based on the fair value of the options allotted. Contribution terms that are not market-based affect the assumptions through the number of options that can be expected to be exercised. At each balance sheet date, the company revises its estimates of the number of options that are expected to become exercisable. The company accounts for any effect of the change in the original estimates in the profit and loss account with a corresponding adjustment against equity. The payments received in connection with the exercise of options, less directly attributable transaction expenses, are credited to the share capital (nominal value) and the share premium when the options are exercised Provisions The Group recognises provisions for any environmental improvements and legal requirements when: there is a legal or self- imposed obligation to do so as a result of earlier events, there is a preponderance of evidence that the obligation will be settled by a transfer of economic resources, and the size of the obligation can be estimated with an adequate degree of reliability. In cases where there are additional obligations of the same nature, the probability that the obligation will be settled will be assessed for the Group as a whole. Provisions for the group are recognised even if the probability for settlement related to the Group s individual elements may be low. Provisions are measured as the net present value of the expected payments to redeem the obligation. A pre-tax discount rate is used that reflects the current market situation and risk specific to the obligation. An increase in the obligation as the result of a change in the time value is recognised as an interest cost Revenue Recognition Revenue from the sale of goods and services is assessed at the net fair value after the deduction of commissions, discounts and rebates. Intercompany sales are eliminated. Revenue is recognised in the profit and loss account as follows: a) Sale of Services With the exception of two vessels, all of the group s vessels are chartered out on time charters (TC). This means that the freight is agreed as the rent for vessels with a crew. The charterer decides (within agreed limitations) how the vessel will be used. Time charters lapse during periods when the vessel is no longer operational (off hire), e.g. during repairs. The shipping company pays for the crew, supplies, insurance, repairs, administration, etc., while the charterer pays for the "travel- related" expenses such as bunkers and port fees, as well as expenses for loading and unloading. In addition to chartering out vessels, there are in some instances agreements for additional services such as the hire of extra crew, sale of supplies and coverage of other operating expenses. Page 30

31 The rental income from chartering out vessels is recognised linearly over the period of the charter. The charter period begins from the point in time when the vessel is made available to the charterer and expires upon the agreed return of the vessel. Crewing and payment for covering other operating expenses are recognised as income linearly over the contract period. The IFRIC interpretation "IFRIC interpretation 4: Determination whether an arrangement contains a lease" was published in This interpretation provides guidelines as to how lease agreements can be identified and how payment flows in combined agreements should be separated to isolate the actual lease agreement. The Group has found that all of the company s TC agreements (see discussion above) represent in their entirety the leasing out of assets, and are thus categorised under IAS 17 Lease Agreements. b) Interest Income Interest income is recognised in the profit and loss account proportionally over time in accordance with the effective interest method. If receivables are written down, the carrying value of the receivables is reduced to the recoverable amount. The recoverable amount is the estimated future cash flow discounted by the original effective interest rate. After a write-down, interest income is recognised based on the original effective interest rate. 36 c) Dividend Income Dividend income is recognised in the profit and loss account when the right to receive payment arises Public Subsidies Subsidies concerning the net wage scheme and refund scheme for seamen are accounted for as a cost reduction ("payroll and other staff expenses") Dividends Dividend payments to the company s shareholders are classified as liabilities from the point in time when the dividend is approved by the General Assembly Events after the Balance Sheet Date New information after the balance sheet date regarding the company s financial position on the balance sheet date has been incorporated into the annual accounts. Events after the balance sheet date that do not affect the company s financial position on the balance sheet date, but will affect the company s financial position in the future have been disclosed if they are material Earnings per share The calculation of earnings per share is based on the profit attributable to the majority share by means of a weighted average number of outstanding shares throughout the year. The diluted earnings per share is based on the profit attributable to the majority share by means of a weighted average number of outstanding shares and options Taxes Taxes are charged as an expense when they are incurred. The tax charge consists of the tax payable and change in deferred taxes. Deferred tax liabilities/assets are calculated based on the liability method. Deferred tax liabilities/assets are determined based on the tax rates and tax laws that have been adopted or essentially adopted on the balance sheet date, which are assumed to apply when the deferred tax is settled. The deferred tax assets/liabilities are calculated for each tax area and the gross amount is presented on the balance sheet. Deferred tax assets are recognised on the balance sheet provided that future taxable income is probable and that the temporary differences can be offset against this income. For investments in associated companies that are independent taxpayers, the share of the profit/loss after tax has been included. Most of the group s operations are organised within a special tax regime for the taxation of shipping companies (shipping company taxation) in Norway. Under the aforementioned rules, only a tonnage Page 31

32 tax is paid, regardless of the result. The net financial income is included in the current tax basis. The net financial income includes interest income, realised gains/losses on financial derivatives, foreign exchange gains on current assets and liabilities, and realised foreign exchange gains on long-term monetary items (based on the share of finance capital for debt assumed prior to 1 January 2005 and the foreign exchange gain amount for debt assumed after this same date). The companies under the shipping company taxation scheme are entitled to a deduction in the net financial income for interest expenses based on the share of finance capital (current assets/assets). The shipping company taxation was revised and introduced in The former scheme was a socalled withdrawal model in which funds were taxed when dividends were withdrawn from the taxed shipping company. From 2007 and onwards, a new shipping company taxation scheme was introduced, whereby the use of assets, including dividends, is tax exempt, with the exception of taxes on net financial income. In connection with the discontinuation of the "old" scheme, a transitional scheme was established and subsequently deemed unconstitutional by the Supreme Court in Assets paid under these rules were therefore returned to the companies in the course of To replace this, new rules were adopted in 2010 whereby the companies can choose between a clearing system and a modified continuation of the rules in place before Eidesvik has chosen to make use of the "Settlement scheme". This entails that one is taxed at 6.7% of the estimated gains from the liquidation of the "old" scheme. 1/3 of this tax is payable respectively in 2011, 2012 and Taxes due for 2011 are listed as current liabilities, while the remainder is listed as long-term debt with a discounted value. Tonnage tax is classified as an operating expense. The parent company and certain other companies in the group are subject to ordinary taxation. Tax abroad is listed in the periods in which it is incurred. To the extent that the tax is calculated on the basis of revenue, it is classified as an income reduction and presented along with the operating income. Taxes abroad that are calculated based on the results are classified as taxes Newly Adopted Accounting Standards The annual accounts have been prepared in accordance with IFRS standards and interpretations that are mandatory for annual accounts presented on Amendments to IFRS 7 Financial instruments - information The amendment concerns note requirements in connection with the transfer of financial assets in which the company still has an involvement. The changes aim to give the users a better idea of the exposure of the company that transfers the financial assets. IFRS 7 is set to enter into force on 1 July 2011, but the standard is not yet approved by the EU. The Group expects to apply the revised standard from 1 January IAS 24 (revised) Related Party Disclosures In relation to the current IAS 24, the revised standard contains a clarification and simplification of the definition of related parties. The revised standard also provides some easing of the requirements for disclosure for public companies. The effective date is set to 1 January The Group expects to apply the revised IAS 24 from 1 January Amendment to IFRIC 14 IAS IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Prepayments of a Minimum Funding Requirement The amendment means that undertakings having a minimum requirement for the funding of a pension scheme will have the opportunity to consider handling advance payment of the premium requirements of a defined benefit plan as an economic advantage. After the amendment, such advance payments will qualify for balance sheet recognition. The amendment to IFRIC 14 is effective on 1 January The Group expects to apply the revised standard from 1 January IASB's Annual Improvement Project 2010 Through the annual improvement project, IASB has adopted amendments to a number of standards. Page 32

33 These amendments come into force with effect on 1 July 2010 and later. The amendments have still not been approved by the EU. The Group expects to apply the amendments from 1 January IFRS 3 Business Combinations. A clarification has been including whereby the amendments to IFRS 7, IAS 32 and IAS 39, which remove the exemption for contingent consideration, do not apply to contingent consideration in connection with business combinations where the acquisition date is before the application of IFRS 3 (revised in 2008). Furthermore, a limitation of the scope of the measurement options for components of the noncontrolling interests (minority interests) is introduced. Amendments were also made to IFRS 3 to clarify the accounting rules for share-based payment schemes in the acquired company that the acquiring company will replace with a new scheme. Option schemes are accounted for at fair value on acquisition and equity elements associated with the new option schemes are classified as non-controlling owner interests. IFRS 7 Financial instruments - information: Amendments have been made to the standard that emphasise the interplay between quantitative and qualitative information and the nature and scope of the game of risk associated with financial instruments. Amendments have also been made to the disclosure requirements related to the quantitative data and information on credit risk. The Group expects to apply the amendments from 1 January IAS 27 Consolidated and Financial Statements: A clarification has been included whereby the amendments to IAS 21, IAS 28 and IAS 31 resulting from changes in IAS 27 should be applied prospectively for accounting periods beginning on or after 1 July 2009, or earlier if IAS 27 is applied early. IAS 1 Presentation of Financial Accounts: A clarification has been included regarding the fact that an analysis of each individual component of other incomes and expenses for each component of the equity will be presented, either in the statement of changes in equity or in the notes to the financial statement. IAS 34 Interim Report: Guidance is provided on the application of disclosure requirements in IAS 34, and additional requirements have been set for information related to the circumstances that will affect the fair value of financial instruments and their classification, transfers between different categories of financial instruments in the fair value hierarchy, changes in the classification of financial assets and changes in contingent liabilities and assets Changes in Accounting Principles The Group has made changes to the accounting principles employed in the periods that are presented. IAS 23 (amended) "Borrowing costs": The Group has employed IAS 23 (amended) for balance sheet recognition of interest charges for qualifying assets since 01 January Significant Accounting Estimates and Important Conditions Relating to the Uncertainty of Estimates The preparation of accounts in accordance with applicable standards and practices requires that the management prepares estimates and make assessments that affect the recognised assets and liabilities, as well as information on contingent assets and latent obligations on the reporting date, including income and expenses for the reported period. The final outcomes may deviate from the estimates. Certain amounts included in or that have an effect on the accounts and the associated notes require estimation, which in turn entails that the group must make assessments related to values and circumstances that are not known at the point in time when the accounts are prepared. A significant accounting estimate can be defined as an estimate that is important to provide a correct picture of the group s financial position, which is at the same time the result of difficult, subjective and complex assessments performed by the management. Such estimates are often uncertain by nature. The management evaluates such estimates continuously, based on historical data and experience, and by consultation with experts, trend analyses and other methods that are considered relevant for the individual estimate. Estimates and assessments that can have a significant impact on the accounts are listed below. Page 33

34 a) Vessels - Economic Life The level of depreciation is dependent on the estimated economic life of the vessels. The estimate is based on historical data and experience related to the vessels that are included in the Group. The estimate is reassessed annually. A change in the estimate will affect depreciation in future periods. - Residual Value at the End of the Economic Life The level of depreciation is dependent on the estimated residual value on the balance sheet date. The anticipated residual value is based on knowledge of the scrap value of vessels. The scrap value is dependent on the price of steel. The scrap value estimate is subject to an annual reassessment. - Write-downs On the balance sheet date, the Group has assessed whether there are any indications that it may be necessary to write down a vessel. When such indications exist, the recoverable value of the vessel is estimated, and the vessel s value is written down to the recoverable amount. The recoverable amount for vessels is estimated by means of broker estimates from a third party or, if a vessel is fixed on a long-term contract, by calculating the discounted value of the vessel s cash flows based on an estimated discount rate. b) Lease Agreements When a lease agreement is entered into, the agreement is classified either as an operating or financial lease. This classification is based on the following prerequisites: The lease period is defined as the non- cancellable period when the lessee is obligated to lease the asset, with the possible addition of an extended leasing period (option), if, when the contract is entered into, it is already reasonably certain that the lessee will exercise this option. Whether or not the lessee has an option to purchase the asset is also taken into account when the lease agreements are to be classified. If it is considered to be reasonably certain that the option will be exercised, then the contract will be classified as financial. If a purchase option exists when the contract is entered into and the option price is expected to be considerably lower than the market value at the time it may be exercised, it will be considered as reasonably certain that the option will be exercised. For calculation of the net present value of the minimum lease payment to assess the relationship between the net present value of lease payments and the market value of the asset, the group uses the implicit interest rate in the lease contract. The use of other interest rates could produce other conclusions for the classification of the lease agreement. The assessment of reasonably certain requires the use of judgement and estimates. The estimated economic life and residual values for assets, as described above, are also relevant to the classification of lease agreements c) Market Value of Derivatives and Financial Assets Available for Sale All derivatives, including financial assets available for sale, are recognised on the balance sheet at market value. The market value of derivatives is typically based on an expected future performance (for example interest rate curves or forward curves for foreign currencies) and is calculated by means of complicated valuation models. The estimates are based on the information available on the balance sheet date and will be influenced by changes in the interest rates, foreign currency exchange rates and other input for the calculations. d) Pension Obligations The accounting of defined benefit plans is a complex area since it requires the preparation of estimates for both actuarial and economic assumptions. In addition, the liabilities are measured based on the present value since the benefits are paid out many years after the employees have made their contributions and earned their pension rights. The group uses the guidelines published in a discussion memo from the Norwegian Accounting Standards Board, November The calculation of pension obligations is mainly influenced by the discount rate assumed. The discount rate is based on a ten-year government bond in Norway and is adjusted for the length of the pension obligation. A Page 34

35 1% increase/reduction in the discount rate may entail a reduction/ increase in the present value of the obligation by around 20-25%. This will not entail an immediate change in the pension costs since the actuarial gains or losses (estimate deviations) are recognised in the profit and loss account over the remaining contribution period and only when the accumulated changes exceed 10% of the higher of the pension obligations or the pension fund assets at the beginning of the year. e) Acquisition of Assets When multiple assets are acquired as a whole, their individual cost prices must be stipulated. The Group uses valuation methods and third party valuations to determine the fair value of the individual identified assets, and it allocates the total cost price in accordance with the individual values. f) Recognition of Purchase Cost for Newbuilds on the Balance Sheet Only purchase costs that are directly related to the asset under construction may be recognised on the balance sheet. The term "directly related to" requires the use of judgement for several costs that are relevant to construction to determine whether costs shall be recognised on the balance sheet or as an expense. g) Consolidated Accounts All significant investments in shares and units must be classified as a subsidiary, joint venture or associated company in order to prepare the consolidated accounts. This classification is linked to the degree of control that the group has over the individual company. An evaluation of the degree of control requires the use of judgement for a number of parameters. h) Disputes, Requirements and Regulatory Aspects The Group is a party to or affected by disputes, claims and regulatory matters where the outcome is essentially unknown. The management assesses issues such as the probability of an unfavourable outcome and the potential to estimate any losses. Unexpected events or changes in the assessed factors may entail an increase or reduction in provisions. Correspondingly, it may be relevant to set aside provisions for situations that provisions were not set aside for previously, when it was not assessed as a probable outcome or where it was not possible to obtain reliable estimates. i) Income Tax The Group is taxed on income in many countries. Determining income tax for all the countries under one in the consolidated accounts requires substantial use of discretion and judgement. For many of the transactions and calculations there will be a level of uncertainty associated with the final tax liability. The group recognises the tax liability associated with future decisions in tax/dispute cases based on estimates on whether additional income tax will accrue. If a considerable outcome in a case differs from the originally allocated amount, the variance will affect the tax expenses and deferred tax provisions recognised in the accounts during the period in which the variance is determined. Note 3: Financial risk management Financial risk The group s activities entail different types of financial risk: market risk (including currency risk, price risk and interest rate risk), credit risk and liquidity risk. The group s overall risk management plan focuses on the unpredictability of the capital markets and attempts to minimise the potential negative effects of the group s financial results. Elements that are included in the management of financial risk are the length of contracts for charter parties, use of foreign currency and interest rate instruments, and accrual of debt in the same currencies as the expected foreign currency receipts. The main focus for managing interest and foreign currency risk is to secure future cash flow. The hedging positions for cash flow are recorded in the accounts at market value on the balance sheet date, which exposes the accounts to fluctuations in the value of the hedging instruments. At Eidesvik Offshore ASA, risk management of reported accounting profit is subordinated to considerations of cash flow risk management. Page 35

36 Risk management for the group is the responsibility of the administration and based on guidelines from the board of directors. a) Market risk (i) Foreign currency risk (see also Note 24) The group operates internationally and is exposed to a foreign currency risk in several currencies. This risk is particularly relevant with respect to USD. The currency risk is related to future transactions, in addition to assets and liabilities recognised on the balance sheet. To manage the currency risk associated with future trade transactions and assets and liabilities recognised on the balance sheet, the group uses foreign currency derivatives and accrues debt in the same currency as future foreign currency receipts. USD is the currency that the group is most exposed to. The group has high freight income, but low operating expenses in this currency. Fluctuations in this currency thus have an impact on the financial results, and an attempt is therefore made to reduce the fluctuations by loans and forward contracts in this currency. If USD/NOK had been NOK 0.50 higher/lower in 2010 and similarly higher/lower on the balance sheet date, and all else the same, the profit before tax would have been NOK 72 million lower/higher. An increase of NOK 0.50 in the exchange rate throughout the year would increase income on operating profit items by NOK 33 million and decrease income from financial items by NOK 4 million. An increase in the exchange rate on the balance sheet date in isolation would result in an income that was NOK 101 million lower related to balance sheet items. The contribution from operating profit items is primarily from freight income in USD. The contribution from financial items is primarily from interest on debts paid in USD. The contribution from balance sheet items is primarily from loans in USD and USD sold forward, as well as shares in joint ventures that are posted in USD. (ii) Price risk The group is exposed to a price risk in that the spot rates have historically been volatile. The group seeks predictability, and its strategy is therefore to have a contract portfolio consisting of long contracts with a practically fixed price. The group has very low exposure to price risk for equity invested in other companies and commodities such as bunkers. (iii) Interest risk (see also Note 24) The group s interest risk is associated with long-term loans and deposits of surplus liquidity. Loans with floating interest rates entail a risk to the group s cash flow. Fixed interest loans expose the group to a fair value interest rate risk. The interest rate risk is managed by the use of interest rate derivatives (swaps and options) within the limits established by the board of directors. Interest rate fixing options (CIRR) are routinely sought from Eksportfinans in connection with the contracting of newbuilds in Norway. Interest fixing options that are granted, but not exercised, are not recognised on the balance sheet. The effect of a change in the interest rate level is simulated to support decisions associated with entering into fixed interest rate contracts. The simulation illustrates the cash effect of interest rate fluctuations given the size of the loan and level of the existing interest rate hedging. A 1 percent change in interest rate, all else being equal, would have reduced profit before tax by NOK 12 million. The group s loans are recognised at the carrying value and will thus have no effect in terms of change in value in the event of interest rate fluctuations. The change in the fair value of interest rate derivatives in the event of a change in the interest rate level is not currently simulated. (b) Credit risk Page 36

37 The group has a concentration risk in that charter agreements are entered into with relatively few customers. The customers, however, are international operators with high solidity and good liquidity, so the risk of credit loss is low. The following table categorises the group's accounts receivable according to the risk of failure to collect outstanding debts: Receivables from customers Group 1 125, ,406 Group 2 35,487 15,259 Group 3 3,383 31,707 Total 164, ,372 Group 1: Established customer relationship, good payment ability/will Group 2: New customers, possibly slow recovery Group 3: Established customer relationship, weaker payment ability/will Most of group 2 relates to receivables from new customers such as Petrobras and Sound Oceanics. Most of group 3 relates to receivables from Sonangol. The table shows the balance after the loss is recognised. The group is unaware of any conditions tied to investments in associated companies. Maximum risk exposure is represented in the value of the financial assets, including derivatives, recorded on the balance sheet. As the opposite parties in the derivative transaction are banks, the credit risk tied to derivatives is considered to be very small. The tables below show the parties' (financial institutions) credit rating. Foreign currency derivatives Moody's rating Aa1 0 0 Aa2 7,282 0 Aa3 4, A Total 12,019 24,604 Interest derivatives Moody's rating Aa1 0 0 Aa Aa3 2, A Total 2, Cash and cash equivalents Moody's rating Aa1 0 0 Aa Aa3 178, ,555 A1 49, ,445 Cash 1,412 1,157 Total 229, ,295 Page 37

38 (c) Liquidity risk Management of liquidity risk entails maintaining sufficient reserves of liquid assets and credit facilities to fulfil obligations and to take advantage of market opportunities. The group's goal is to achieve flexibility in its financing through established credit rights and to manage cash flow from operations through focus on long charter agreements with little price volatility. Surplus liquidity is primarily invested in bank deposits and fixed interest deposits. A liquidity budget is regularly prepared for the next year, as is a monthly 12-month liquidity prognosis. Longer liquidity prognoses for up to 5 years are prepared once a year and on entering into newbuild contracts. See also note 21 for note information about repayment profile/refinancing needs for long-term debt. The following table summarises the maturity profile for the group's obligations based on contractual, non-discounted cash flows. Estimated interest is based on interest and exchange rates per 31/12/2010. Maturity table for obligations recognised on th Later Loans Accrued interest Payables to suppliers Tax payable (discounted) Interest discounted for tax payable Other current liabilities Pension obligations (estimated maturity) Deferred taxes 169 Partial sum debt ex. market value derivatives Estimated interest Interest payments loan Difference payment interest derivatives Adjustment accrued 31/12/ Partial sum estimated interest Lease agreements Lease agreements (note 23) Newbuilding contracts Instalments newbuildings contracted 31/12/10 (note 26) Total contractual obligations due for payment Risk management of capital The group s goal regarding risk management of capital is to ensure long-term financing based on longterm contracts. This should reduce the frequency and thereby the risk related to refinancing of the loans. The long charter agreements allow for higher borrowing, as the income is considered stable over a long period. The group s strategy is to follow a moderate dividend policy in order to maintain a relatively strong degree of equity in relation to other companies in the industry, to facilitate raising capital for identified market opportunities. Assessment of fair value Effective 1 January 2009, the group implemented amendments to IFRS 7 relating to financial instruments measured at fair value on the balance sheet date. The amendments require the Page 37

39 presentation of fair value measurements per level with the following distribution of levels for measuring fair value: 1) Listed price in an active market for an identical asset or liability level (level 1) 2) Valuation based on other observable factors, either direct (price) or indirect (derived from prices) than the listed price (used in level 1) for the asset or liability (level 2) 3) Valuation based on factors not obtained from observable markets (non-observable assumptions) (level 3) The following table presents the group s assets and liabilities measured at fair value per 31/12/2010: Level 1 Level 2 Level 3 Total Assets Financial assets at fair value over the profit and loss account - Derivatives held for trading purposes Securities held for trading purposes Receivables from customers Cash and cash equivalents Total assets Liabilities Financial liabilities at fair value over the profit and loss account - Derivatives held for trading purposes Loans Total liabilities The following table presents the group s assets and liabilities measured at fair value per 31/12/2009: Level 1: Level 2: Level 3: Total Assets Financial assets at fair value over the profit and loss account - Derivatives held for trading purposes Securities held for trading purposes Receivables from customers Cash and cash equivalents Total assets Liabilities Financial liabilities at fair value over the profit and loss account - Derivatives held for trading purposes Loans Total liabilities Fair value of financial instruments that are traded on active markets is based on market price on the balance sheet date. A market is considered active if the market rates are readily and regularly available from a stock exchange, trader, broker, industry grouping, pricing service or regulatory authority, and these prices represent actual and regularly occurring market transactions at an arms distance. The market price used for financial assets is the current purchase price; for financial Page 38

40 obligations, the current sales rate is used. These instruments are included in level 1. Instruments included in level 1 include shares classified as held for trading purposes. Fair value of financial instruments not traded in an active market (for example certain OTC derivatives) is decided using valuation methods. These valuation methods maximise the use of observable data, where available, and base themselves as little as possible on the group s own estimates. If all the essential data required for determining fair value of an instrument is observable, the instrument is included in level 2. If one or more of the essential data is not based on observable market data, the instrument is included in level 3. Debt to credit institutions with floating interest is recognised on the balance sheet at the nominal value, and this is considered to approximate the fair value. Fixed interest loans (CIRR) are recognised on the balance sheet at the nominal value, and estimated fair values are reported in note 24. The fair value of fixed interest loans is calculated by discounting the difference between the fixed interest and the market rate as of 31/12/2010 with a duration equal to the loan s duration. To calculate the value of options granted to the management for the purchase of shares in EIOF, the Black-Scholes option pricing model is used. NOTE 4: Segment Information The Group s operations are divided into strategic business units in accordance with the nature of the vessels activities. The various business segments offer different vessel services aimed at different customer groups with different risk profiles. The Group is divided into the following business segments: a. Seismic b. Subsea c. Platform supply/anchor handling d. Other The seismic segment provides vessel services to customers who produce seismic data. This market is characterised by relatively long contracts. The vessels belonging to this segment are not tied to any specific geographic areas and operate throughout the world according to the needs of the customers. The subsea segment provides vessel services for subsea work for the oil industry. The vessels are custom designed for underwater tasks such as inspection, maintenance and construction. The platform supply/anchor handling segment provides services for the oil industry offshore. The vessels deliver supplies to rigs, function as part of the rig's preparedness, and can perform towing and anchor handling jobs. Transactions between segments are eliminated. Mainly administrative expenses are charged to the individual segment. Long-term financial items have not been allocated, because a major portion of the company's debt is fleet financing. Current liabilities are allocated to the segments whenever possible. If they do not fall naturally under any of the segments, they are allocated to the "other" segment. Page 39

41 Data Business Segment: (In NOK '000) Seismic Subsea PSV/AHTS Other Consolidated Operation segment Income Freight income Sales earnings/other income Total income Operating expenses Depreciation Operating profit Net financial expenses Share of profit from associated companies Share of profit from joint ventures Tax expenses Profit for the year Segment assets Investments in associated Investments in joint ventures Non-allocated assets (cash) Total assets (Operation segment cont.) Segment liabilities (current Non-allocated liabilities (long-term liabilities) Total liabilities Secondary segments are not reported. The business segments seismic, subsea and PSV/AHTS are the only Group divisions reported internally. The vessels operate in various parts of the world, but mainly as a consequence of the customers' required area of operation, not necessarily based on a predetermined geographical target area. As a result there is no secondary division. Note 5: Other Revenues Effect of cash flow hedging -3,268-5,990 Gain on sale of vessels 0 134,882 Other revenues -3, ,892 Note 6: Other operating expenses Technical operation of vessels 71,918 70,488 Insurance 23,034 23,230 Communication expenses 10,905 12,702 Administrative costs 41,253 44,839 Research and development 2,828 2,503 Other expenses 1,908 3,357 Other operating expenses 151, ,119 The periodic maintenance of the Group s vessels is included in technical operation. Page 40

42 Administrative costs consist primarily of travel, consulting, attorney, auditor, rental and other office expenses. Other expenses consist of costs associated with the purchase of bunkers, lubricating oils and port fees. Note 7: Investments in Joint Ventures and Associated Companies The Group Eidesvik Offshore ASA has the following investments in joint ventures: Unit Country Industry Owner/vo Book Profit/sha Profit/share ting share value 31/12/08 re * Tran. Repaid Diff. Cap. contr. Additions/ disposals Book value 31/12/2009 Shipping Eidesvik Seismic Vessels AS Norway company 51,0 % Total Unit Country Industry Owner/vo Book Profit/sha Profit/share ting share value 31/12/20 09 re * Norway Shipping 51,0 % Eidesvik Seismic Vessels AS company Norway Shipping 51,0 % Oceanic Seismic Vessels AS company Tran. Repaid Diff. Cap. contr. Additions/ disposals Book value 31/12/ Total Eidesvik Seismic Vessels AS and Oceanic Seismic Vessels AS are classified as joint venture companies due to the share agreement that gives equal control to the company. Condensed financial information on the individual joint venture companies: Unit Assets Liabilities Equity Turnover Profit for the year Eidesvik Seismic Vessels AS Oceanic Seismic Vessels AS Eidesvik Offshore ASA has the following investments in associated companies: Unit Country Industry Owner/vo ting share Book Profit/sha Profit/share value 31/12/08 re * Repaid Cap. contr. Additions/ Book value disposals 31/12/2009 Omak Maritime Nigeria Agent and ship operator 40,0 % Norway Medical 30,0 % Norsk Rederihelsetjeneste AS services Norway Maritime 30,0 % Viking Innovation Partner AS 0 Norway Shipping 25,0 % Viking Troll DIS company Norway Shipping 25,0 % Skrog Invest AS company 0 Norway Rate 22,3 % Resq AS Total Unit Country Industry Owner/vo ting share Book Profit/sha Profit/share value 31/12/20 re * Page 41 Repaid Cap. contr. Additions/ Book value disposals 31/12/2010 Omak Maritime Nigeria Agent and ship operator 40,0 % Norway Medical 30,0 % Norsk Rederihelsetjeneste AS services Norway Maritime 30,0 % Viking Innovation Partner AS 0 Norway Shipping 25,0 % Viking Troll DIS company Norway Shipping 25,0 % Skrog Invest AS company 0 Norway Rate 22,3 % Resq AS Total

43 None of the investments in associated companies have a functioning market for assessment of a fair value. Assessment of fair value is therefore based on a valuation of the assets in companies where this has been possible. This applies to shipping companies that have a valuation of vessels obtained from three independent brokers. Condensed financial information on the individual associated companies: Unit Assets Liabilities Equity Turnover Profit for the year Omak Maritime (1) Skrog Invest AS Viking Troll DIS Resq AS Total *) Refers to figures as at for which revised figures do not exist as at The investment in the company has been written down to zero based on an overall assessment. Note 8: Net Financial Expenses Interest income 13,461 7,401 Total financial income 13,461 7,401 Interest expense from loan -84, ,374 Cost of interest derivative -36,575-20,153 Other interest expenses -4,528-1,897 Interest related to taxes Loss on sale of shares 0-42,621 Other financial expenses Total financial expenses -128, ,528 Change in value of interest rate derivatives (see also Note 24) -19,304 46,817 Realised foreign exchange gains (losses) 29,714-71,423 Unrealised foreign exchange gains (losses) -34, ,504 Unrealised foreign exchange gains (losses) associated with forward 12, ,710 exchange contracts Total foreign exchange gains -17, ,790 Net financial expenses -151, ,480 Page 42

44 Note 9: Tax Tax payable in Norway and abroad Over-/under-allocation of tax from previous year Tax related to withdrawal from the old shipping taxation scheme Change in deferred tax / tax assets Tax expense Capital reserve Share investments Capital gain and loss account Receivables from customers Pension obligations Losses carried forward Total temporary differences Deferred tax assets - net 0 0 Applied tax rate 28 % 28 % Deferred taxes Taxable foreign exchange gains from realisation of debt Deferred taxes Applied tax rate 28 % 28 % Tax payable Tax related to withdrawal from the old shipping taxation scheme, long-term portion Tax related to withdrawal from the old shipping taxation scheme, short-term portion Other corporate tax payable in Norway and abroad Total tax payable Description of taxes in profit and loss account: Profit before tax % tax Tax effect of: Permanent differences/profit subject to shipping company taxation/difference foreign tax Tax related to withdrawal from the old shipping company taxation scheme Over-/under-allocation of tax from previous year Estimated taxes for the year Group's effective tax rate 1630 % -16 % The Norwegian shipping company taxation scheme was amended as of 1 January Settlement of tax payable from the previous shipping company taxation scheme was declared invalid by the Supreme Court in February Eidesvik has chosen to go along with the "settlement scheme". This means that the Group is taxed at 6.7% of estimated gains from the liquidation of the "old" scheme. This tax is payable by 1/3 respectively in 2011, 2012 and Taxes due for 2011 are recorded as current liabilities, while the remainder is recorded as long-term debt with the discounted value. Page 43

45 Note 10: Earnings Per Share Profit for the year attributable to holders of ordinary/diluted shares Profit for the year -55,970 1,091,352 Total profit -49,730 1,091,352 Profit for the year attributable to holders of ordinary shares 49, ,352 Average weighted number of outstanding shares as of 31 Dec Average weighted number of issued ordinary shares 30,150 30,150 Average weighted number of issued stock options Average weighted number of outstanding shares 31/12 30,304 30,280 Non-diluted profit/loss per share Diluted profit/loss per share Expanded profit/loss per share The average number of outstanding shares is weighted based on the number of days. See Note 17 for changes in number of shares. Dividends of NOK 15,075,000 were paid in 2010, NOK 0.50 per share 75,000 stock options were allotted to the senior management in Stock options were not allotted in Note 11: Payroll Expenses and Number of Employees Salary after net wage refund 342, ,164 Cost of option programme (see note 25 for further information) Employer s National Insurance contributions outside the new 4,867 5,443 wage scheme Pension cost of defined benefit plans (see also Note 19) 15,574 14,266 Other social expenses 2,907 2,147 Total payroll expenses 365, ,431 Wages and employer s National Insurance contributions are presented after the deduction of the refund scheme for Norwegian seamen. Average number of man-years: The number of employees as of 31/ was 624 (571 as of 31/12/2009). In 2010, NOK 76,062 (77,668 in 2009) was received in connection with the refund scheme for Norwegian seamen. In 2010, net NOK 3,750 (3,441 in 2009) were received fromstiftelsen Norsk Maritim Kompetanse. Page 44

46 Note 12: Tangible Fixed Assets Property Port facilities Operating equipment Total other fx. assets Ships Periodic maintenance Total ships Newbuild contracts 2009 total Property Port facilities Operating equipment Total other fx. assets Ships Periodic maintenance Total ships Newbuild contracts 2010 total NOK 1.7 million was activated for the delivery of newbuildings in 2009 Disposal for new construction contracts is due to the transfer to joint venture business. Viking Nereus was sold on with an accounting profit of NOK 135 million in the first quarter. See Note 26 for new construction contracts. For information on mortgaged assets see Note 21. Note 13: Other Long-Term Receivables Loans to employees Loans to associated companies Other loans Total other long-term assets More details concerning loans to employees are provided in Note 25. Loans to associated companies fall due on demand. Other loans are related to the Bømlo Sports Club. The loan is not interest-bearing and falls due at the same time as the payment of municipal funds and funds from Norsk Tipping. Based on a summary of outgoing payments from funds from Norsk Tipping administered by Bømlo Municipality the loan is written down by NOK 186 in NOK 400 was received in January 2010; these funds are allocated as short-term items. See Note 15. Page 45

47 Note 14: Customer Receivables Customer receivables 165, ,525 Receivables from related parties/ts 20 2,163 Provisions for losses Customer receivables 164, ,372 For outstanding receivables due from customers other than related parties the distribution is as follows: 3-6 months 2,077 7,087 6 months 0 8,460 Recognised value of the Group's customer receivables by foreign currency: USD 75,628 87,405 NOK 89,123 77,967 Total 164, ,372 Movement in provisions for the write-down of receivables from customers: As of 1 January 317 1,406 Provisions for write-down of receivables 62-1,089 As of 31/ Note 15 Other Current Assets Inventory 4,962 2,919 Other shares Outstanding value added tax 11 1,647 Short-term loans - associated companies 4,907 6,119 Short-term loans - close associates 682 1,212 Short-term loans - joint ventures 9,200 3,187 Payment of shipping taxation owed according to the transfer 0 41,195 scheme as of 01 January 2007 Credit insurance settlements 33,143 60,919 Prepaid expenses 39,857 35,420 Total other current assets 93, ,459 Page 46

48 Interest on loans: Loans to associated companies No interest is calculated on the receivables based on the associated company's financial situation. Loans to close associates Interest is calculated on receivables at NIBOR plus a 1% margin based on the three-month NIBOR at the end of each quarter Interest rates have been in the range of % % Prepaid expenses include outlays for prepaid insurances, provisions for refund of crew expenses and other subsidies, un-invoiced outlays for customers and also loans to employees (see Note 25). Note 16: Cash and Cash Equivalents Of the total cash and cash equivalents, restricted tax withholding deposits accounted for NOK 6,546 (5,269). Note 17: Share Capital and Share Premium No. of shares Share capital Premium Ordinary shares In-going balance 30,150 30,150 1,508 1, As of 31/12. 30,150 30,150 1,508 1, Nominal value per share in Eidesvik Offshore ASA is NOK The Board of Directors has the authority to buy back up to 3,000,000 of the company s own shares. This authority is limited, however, to a maximum of 10% of the total number of outstanding shares. The company has not exercised this authority and holds none of its own shares as of 31 December Page 47

49 Eidesvik Offshore ASA's 20 largest shareholders as of 31/12/10 Aksjonær Land Antall aksjer Eierandel EIDESVIK INVEST AS Norge ,9 % SKAGEN VEKST Norge ,6 % PARETO AKSJE NORGE Norge ,4 % PARETO AKTIV Norge ,4 % ODIN OFFSHORE Norge ,3 % KOMMUNAL LANDSPENSJONSKASSE Norge ,0 % KLP AKSJE NORGE VPF Norge ,9 % TVEITÅ EINAR KRISTIAN Norge ,8 % PARETO VERDI VPF Norge ,0 % JIMBA INVEST AS Norge ,6 % HUSTADLITT AS Norge ,6 % TVEITÅ OLAV MAGNE Norge ,5 % BANK OF NEW YORK MELLON SA/NV Belgia ,5 % LØREN HOLDING AS Norge ,4 % SKANDINAVISKA ENSKILDA BANKEN Sverige ,4 % SPAREBANKEN VEST Norge ,4 % MUSTAD INDUSTRIER AS Norge ,3 % SKAGEN VEKST III Norge ,3 % RBC DEXIA INVESTOR SERVICES TRUST Storbritannia ,2 % MELING JAN FREDRIK Norge ,2 % Øvrige ,1 % Sum ,0 % The company had 755 shareholders as of 31/12/10, and a foreign ownership of 1.6%. Note 18: Equity Changes in reserves Cash flow hedging Translation differences Total Balance sheet 01/01/ Cash flow hedging recognised in the profit and loss account (against hedged item) Other reserves 31/12/ Cash flow hedging recognised in the profit and loss account (against hedged item) Other reserves 31/12/ Dividends Dividends paid: For payment in 2011, the Board of Directors proposed a dividend of NOK 1.00 per share. Page 48

50 Note 19: Pensions and Other Long-Term Employee Benefits Defined benefit pension scheme: All the employees in the Group companies participate in a defined benefit pension scheme. The Group has several agreements, and these agreements differ primarily according to whether the employee is employed on board a vessel (seaman) or in onshore operations. The main terms in all the agreements are a pension of approximately 60% of final salary and a contribution period of 30 years. The agreement that applies to maritime employees gives entitlement to an old-age pension from the age of 60. Other group schemes give entitlement to a pension from the age of 67. This scheme also includes a survivor's, disability and child's pension. The schemes had 652 (569) members as of 31 December The obligation has been calculated by means of a linear accrual formula. Unrealised gains and losses due to changes in the actuarial assumptions are accrued over the expected remaining average contribution period. The carrying value of an obligation is determined as follows: Present value of accrued pension obligations for benefit plans in fund-based schem Fair value of pension fund assets Employers' contribution Unrecognised costs related to pension benefits earned in prior periods Net pension obligations on the balance sheet as of 31/ Changes in the defined benefit pension obligations during the year: Pension obligations as of 1 January Present value of current year's pension benefits earned Interest expenses National insurance contributions on employer contributions Actuarial losses/(gains) Benefits paid Pension obligations as of 31 December Changes in the fair value of pension fund assets: Pension fund assets as of 1 January Expected return on pension fund assets Administration costs Actuarial (gains)/losses Contributions from employer Benefits paid Pension fund assets as of 31 December Page 49

51 Total cost recognised in the profit and loss account: Cost of pension benefits earned in current period Interest expenses Expected return on pension fund assets Administration costs National insurance contribution of pension costs Amortisation actuarial (gains)/losses Loss from reduction 0 0 Total, incl. payroll expenses (note 11) Pension funds are placed in various investments through external insurance companies. They administrate all transactions relating to pension schemes. The distribution of the investment categories as per 31/12/10: Shares 15% Bonds 49% Real Estate 17% Money market 17% Other 2% The following assumptions have been used for calculation of the pension costs and net pension obligations: Discount interest 4.00% 4.50% Return on pension funds 5.40% 5.70% Wage inflation 4.00% 4.50% Pension adjustment 1.30% 1.50% G-adjustment 3.75% 4.25% Mortality assumptions are based on published statistics. The Group does not have any defined contribution pension schemes. One employee has entered into an agreement where the individual pension is financed through operations. The expected premium payment for 2011 is 9,894. Note 20: Other Current Liabilities Public taxes and fees 30,172 23,411 Salaries and holiday pay 43,442 20,054 Accrued expenses 37,618 30,909 Total other current liabilities 111,232 74,374 Accrued expenses refer primarily to provisions for accrued operating expenses and shipyard repairs Page 50

52 Note 21: Long-term Liabilities Carrying value Maturity Secured Mortgage loan (NOK) NIBOR loan October Mortgage loan (NOK) NIBOR loan June Mortgage loan (NOK) CIRR loan February Mortgage loan (NOK) NIBOR loan April Mortgage loan (NOK) NIBOR loan December Mortgage loan (NOK) NIBOR loan January Mortgage loan (NOK) CIRR loan January Mortgage loan (NOK) Debt certificate loan December Mortgage loan (NOK) NIBOR loan December Mortgage loan (NOK) Debt certificate loan June Mortgage loan (USD) LIBOR loan April Mortgage loan (USD) LIBOR loan December Mortgage loan (USD) LIBOR loan December Mortgage loan (USD) LIBOR loan April Mortgage loan (USD) LIBOR loan June Mortgage loan (USD) LIBOR loan July Mortgage loan (USD) LIBOR loan June Mortgage loan (USD) LIBOR loan December Mortgage loan (USD) LIBOR loan June Loan from parent company Amortised charge Total interest-bearing long-term liabilities Total long-term liabilities st year instalment on long-term liabilities Total long-term liabilities, excl. first year's instalment Loan short-term 1st year instalment on long-term liabilities Accrued interest Total Carrying value of debt in foreign currency NOK USD Total Instalment profile for long-term liabilities , , , , ,268 Thereafter 1,458,029 Total instalments 2,885,331 Of the total long-term liabilities, NOK 2,849 million is secured by a mortgage on vessels with a carrying value of NOK 4,182 million. The following vessels are not mortgaged: Oceanic Viking and Geo Searcher. For assessment of fair value on long-term liabilities see Note 3. Page 51

53 Covenants Most of the company s fleet is financed through mortgage loans, primarily a fleet loan. The most important financial covenants associated with this financing are: - Eidesvik Offshore ASA shall be listed on Oslo Stock Exchange. - The Group's book equity shall be at least 25%, or the company shall have a cash flow from operation that exceeds the first year's instalments of long-term loans by 125% - The Group's working capital shall be positive. None of the companies in the Eidesvik Offshore Group were in breach of the loan covenants as of 31/12/2010 or in the course of Note 22: Payables to Suppliers Payables to Suppliers 37,922 29,486 TOTAL 37,922 29,486 Note 23: Lease Agreements The Group as a lessee financial lease agreements The Group has currently no financial lease agreements. The Group as a lessee Operational lease agreements The Group has lease agreements for 1 vessel, a lease agreement for offices and motor vehicle leasing. These lease agreements are not recognised on the balance sheet, but the rental expenses are recognised as they are incurred. Lease of vessels: Annual rent Start End Lease period Options Northern Crusader 3 x 24 17, months months Northern Crusader is in its third option period which runs until November This is the last option period. Other lease agreements Type Annual rent Start Lease period Options Langevåg Bygdatun Offices years x 5 years Stock years 10 x 5 years Motor vehicles months Lease agreements for offices and quays are regulated in accordance with the consumer price index. The leasing of motor vehicles is based on the development of interest rates and use beyond the agreement. They are normally entered into for a term of 36 months and are continuously renewed with new vehicles based on the current needs at any given time. Page 52

54 Future minimum rent related to non-cancellable lease agreements falls due as follows: Next 1 year 17,292 1 to 5 years 4,174 After 5 years 1,238 Future minimum rent 22,704 The Group as a lessor The main business area of the Group is the leasing of offshore ship tonnage. The vessels are mainly leased on long-term contracts. Contract expiration, Skips, consolidated Contract type Customer Contract expiration, fixed charterer's option Viking Lady Time charter Total Q Q Viking Queen Time charter Statoil Q Q Viking Athene Spot Statoil Q Q Viking Avant Time charter Statoil Q Viking Energy Time charter Statoil Q Viking Thaumas Time charter Petrobras Q Q Viking Surf Time charter Petrobras Q Q Northern Crusader Time charter ConocoPhillips Q Viking Poseidon Time charter Veolia Q Q Acergy Viking Time charter Acergy Q Q Subsea Viking Time charter Subsea 7 Q Q Viking Forcados Bareboat RUE Q Oceanic Viking Bareboat P&O Maritime Q Q Viking Vanquish Time charter CGGVeritas Q Q Viking Vision Time charter CGGVeritas Q Q Veritas Viking Time charter CGGVeritas Q Q Veritas Vantage Time charter CGGVeritas Q Q Viking II Time charter CGGVeritas Q Geo Searcher Time charter S. Oceanics Q Ships in joint ventures Contract expiration, Contract type Customer Contract expiration, fixed charterer's option Oceanic Vega Time charter CGGVeritas Q Q TBN - Oceanic Sirius Time charter CGGVeritas Q Q Vessels with contracts of less than one year are classified as spot tonnage. Future minimum lease payments related to non-cancellable lease agreements fall due as follows: Within 1 year 883,256 1 to 5 years 1,990,323 After 5 years 534,430 Future minimum lease 3,408,009 payments Page 53

55 Note 24: Financial Instruments Recognised financial assets and liabilities Recognised value corresponds to the actual value. The Group does not practice hedge accounting, but keeps financial derivatives for financial hedging which is carried at fair value. The table below shows the Group's intention with regard to the derivatives. Assets Market-based shares, trading Currency derivatives, cash flow hedges 12,019 24,604 Interest rate derivatives, cash flow hedges 2,529 3,795 Accounts receivable 164, ,372 Cash and cash equivalents 229, ,295 Total 409, ,083 Obligations Interest rate derivatives, cash flow hedges 74,354 55,699 Loans 2,885,829 3,168,024 Total 2,960,183 3,223,723 As of , the Group had entered into forward contracts as part of the management of the Group's foreign currency exposure. The terms of the contracts are as follows: Forward contracts Currency sold Amount Maturity date Exchange rate (average) Fair value (MTM) Total forward contracts for cash flow hedging USD 24, ,019 24,000 12,019 As of 31/12/09: Forward contracts Currencies sold Amount Maturity date Exchange rate (average) Fair value (MTM) Total forward contracts for cash flow hedging USD 37, ,604 37,999 24,604 All the forward exchange rate contracts are recognised at fair value. Up until 31 December 2005 the Group practiced hedge accounting for very probable future receipts in USD. The company s debt in USD was designated as a hedging instrument for very probable future receipts. The instalment structure for the debt was adapted to the expected payment profile. Unrealised foreign exchange gains on the debt were entered directly against the equity (other unrecognised equity) on an ongoing basis until the very probable future cash flow was entered in the accounts. The effective portion of the hedging was entered in the accounts together with the transaction that it was supposed to hedge (income), while any ineffective portion of the hedging was accounted for as financial expenses. After the Group discontinued hedge accounting the unrealised currency gain from previous periods is still presented as other unrecognised equity. This will be reduced gradually as the initial hedged cash flows are accounted for. Page 54

56 Hedge accounting USD DEBT Maturity Less than 1 year 7, years 7, years 7, years 1,481 More than 5 years 0 Interest The Group makes use of several types of interest rate derivatives to hedge against profit fluctuations due to changes in the interest rate level. The Group has the following interest swap agreements: As of 31/12/2010 Type Foreign currenc Floor Cap/Swap Maturity NOK principal Fair value (excl. accrued interest) reduction prior to maturity Swap USD 4,87 % None Cap NOK 5,00 % Swap NOK 4,01 % None Swap USD 2,29 % Swap USD 2,27 % Swap USD 2,41 % Swap* USD 4,50 % None Swap* USD 4,51 % None Swap* USD 4,40 % None Fixed interest loans NOK 4,09 % Fixed interest loans NOK 4,90 % Unhedged Total hedged and unhedged debt *) Another contracting party has an option to extend the term of the contract by three (3) years from maturity. As of 31/12/2009 Type Foreign currenc Floor Cap/Swap Maturity NOK principal Fair value (excl. accrued interest) Annual reduction prior to maturity Swap USD 4,87 % None Collar USD 3,75 % 5,00 % None Cap NOK 5,00 % Swap NOK 4,01 % None Swap USD 2,29 % Swap USD 2,27 % Swap USD 2,41 % Swap* USD 4,50 % None Swap* USD 4,51 % None Swap* USD 4,40 % None Fixed interest loans NOK 4,09 % Fixed interest loans NOK 4,90 % Unhedged Total hedged and unhedged debt *) Another contracting party has an option to extend the term of the contract by three (3) years from maturity. Page 55

57 As of 31 December 2010, 65% (64%) of the Group s loans had fixed interest rates (see Note 21). Only one derivate (with a principal of NOK 242 million) for interest rate hedging as of 31/12/2009 had an amortisation profile matching the instalments for long-term liabilities. See the column for annual reduction. The company has the following unrecognised CIRR (interest rate options) from Exportfinans: GBP interest rate USD interest rate EUR interest rate NOK interest Principal rate NOK 380 million* 3.36% 4.14% 3.86% 3.54% <12 NOK 380 million* 3.41% 3.39% 2.85% 3.25% <12 *) There are also offers for terms of 5 and 8.5 years with other interest rates Term (years) The Group had two fixed interest loans, originally with a 12-year term (CIRR), which are recorded at amortised cost in the balance sheet. The remaining term as of was 9.1 years for the first loan. The instalment profile of the loan results in a calculated weighted duration of 3.08 years. This gives a calculated fair value of 203,924 (including accrued interest), against the carrying value of 197,917. The other loan had a remaining term of 10.0 years and a calculated weighted duration of 3.37 years. This gives an estimated fair value of 284,765 (including accrued interest), against the carrying value of 266,000. See Note 21 for information on long-term loans and Note 20 for information on commitments in connection with financial lease agreements. Other note information No financial assets have been reclassified so that the valuation method has been changed from the amortised cost to fair value or vice versa. For assessment of fair value (MTM) see note 3. Note 25: Transactions with Close Associates Transactions with associated companies The Group has some transactions with close associates. This applies to crewing services and management services for the operation of vessels, in addition to business and accounting services. All transactions are based on the arm's length principle Sale of crewing and management services to Viking Troll AS 0 28,482 Chartering of vessels to Omak Maritime 0 11,081 Sale of services to Eidesvik Invest AS The balance sheet includes the following amounts as a result of transactions with a joint ventures: Customer receivables 0 2,254 Other current assets (see also note 15) 14,107 10,518 Total 14,107 12,772 Page 56

58 Shares owned/controlled by board members/key personnel: Eidesvik Invest AS (1) 20,180,000 20,180,000 Kolbein Rege 15,450 15,450 Jan Fredrik Meling 70,000 65,000 Jan Lodden and next of kin 9,842 9,842 Svein Ove Enerstvedt and next of kin 1,442 1,442 (1) Controlled by Borgny Eidesvik, board member, with a 55% stake via a 100% interest in Bømmelfjord AS. The remaining 45% is owned by Lars Eidesvik, board member, via a 100% interest in Evik AS. The Group Eidesvik Offshore ASA is one of the subsidiaries of Eidesvik Invest AS which, in turn, is a subsidiary in the ultimate parent company Bømmelfjord AS. Remuneration to key employees Number of allocated options Salary Benefits in kind Pension costs , , Remuneration of Board members Kolbein Rege Borgny Eidesvik Lars Eidesvik Kjell Jacobsen Monica Havskjold Jakob Bleie (Deputy Board member) Remuneration of auditor Statutory auditing 300 An additional NOK 1,189 has been recognised for the former auditor. Note 26: Purchase Commitments The Group has the following commitments as a result of contracts for the purchase of vessels: ,005 0 Total 834,005 0 Page 57

59 As of 31/12/10 there are 2 vessels on order: two PSVs with delivery in Q and Q respectively. The contract price including exercised options and less the paid instalments. Note 27: Foreign Exchange Rates Average exchange rate Exchange rate Average exchange rate 2010 Exchange rate /12/ /12/2010 Euro British Pounds US Dollar Brazilian Real Nigerian Naira The average exchange rate is taken from the accounts where the rate is updated on a weekly basis. Note 28: Events after the Balance Sheet Date An agreement has been signed with Subsea7 for an 8 year contract for a new subsea IMR vessel. The contract has a value in excess of one billion Norwegian kroner. In connection with this contract Eidesvik Offshore ASA signed a contract with Ulstein Verft AS for the construction of a subsea IMR vessel with a contract value in excess of NOK 800 million with delivery in Q4, Page 58

60 ANNUAL ACCOUNTS 2010 PARENT COMPANY PROFIT AND LOSS ACCOUNT 01/01 31/12 Note Payroll expenses 12, 13 4,100 3,753 Depreciation Other operating expenses 5,011 4,226 Total operating expenses 9,326 8,180 Operating profit -9,326-8,180 Income from investment in subsidiaries 400,000 0 Interest income from group companies 8, 9 15,227 6,074 Other interest income Revaluation of financial fixed assets 2, ,951 Interest cost to group companies 8, 10-1, Other interest costs -1,485-1,891 Other financial costs 0-14 Net financial items 412,104-34,323 Profit before tax 402,778-42,503 Tax expense Profit for the year 402,778-42,503 Transfers and allocations: Carried over to other equity 402,778 0 Carried over from other equity 0-42,503 Total transfers/allocations 402,778-42,503 Profit per share 13,36-1,41 Watered profit/loss per share 13,29-1,40 60

61 BALANCE SHEET AT PARENT COMPANY ASSETS Tangible fixed assets Note 31/12/10 31/12/09 Land, buildings and other real estate 8,921 8,921 Plants and machinery Operating equipment, inventory, tools, office machines Total fixed assets 5 10,023 10,238 Financial fixed assets Investments in subsidiaries 2 208, ,539 Loans to group companies 9 557, ,842 Investments in affiliated companies Loans to affiliated companies and joint ventures Investments in stock and shares Total financial fixed assets 767, ,996 Total fixed assets 777, ,234 Current assets Receivables Receivables group companies Other receivables 12 1,730 2,178 Total receivables 2,664 2,804 Bank deposits 1 2,341 7,144 Total current assets 5,005 9,948 Total assets 782, ,182 Page 61

62 BALANCE SHEET AT PARENT COMPANY Note 31/12/10 31/12/09 EQUITY AND LIABILITIES Equity Paid-in equity Share capital 11 1,508 1,508 Other paid-in equity Total paid-in equity 2,057 1,999 Accrued equity Other equity 734, ,112 Total accrued equity 734, ,112 Total equity 7 736, ,111 Other long-term liabilities Pension obligations Debt to credit institutions 14 12,000 45,000 Debt to group companies 10 32,264 31,782 Total other long-term liabilities 44,521 76,848 Current liabilities Payables to suppliers Public taxes and fees Other current liabilities Total current liabilities 954 1,224 Total equity and liabilities 782, ,182 Bømlo, 11/04/2011 Page 62

63 CASH FLOW STATEMENT 1/1 31/12PARENT COMPANY Note 1/1-31/12 1/1-31/ Cash flows from operations Payments to suppliers and employees -8, Interest income received Net cash flows from operations -8,583-7,373 Cash flows from investment activities Purchase of shares ,601 Sale of shares 0 63,072 Net cash flows used for investment activities ,471 Cash flows from financing activities Repayment of debt 10,14-32,518-5,000 Interest expenses paid -1,485-1,891 Loans to subsidiaries/affiliated companies 8,9-346,893-83,093 Group contributions from subsidiaries 400,000 0 Dividends paid to company shareholders 7-15,075-15,075 Net cash flows from financing activities 4, ,059 Net increase (reduction) in cash and cash equivalents Cash and cash equivalents at the start of the year Cash and cash equivalents at the end of the year 1-4,803-50, ,144 58,105 2,341 7,144 Page 63

64 NOTES TO ANNUAL ACCOUNTS 2010 PARENT COMPANY Accounting principles The annual accounts have been prepared in accordance with the Norwegian Accounting Act of 1998 and the generally accepted accounting principles. Classification and valuation of balance sheet items Current assets and short-term liabilities include items that fall due for payment no later than one year after the balance sheet date. Other items are classified as fixed assets or long-term liabilities. Current assets are valued at the lesser of historical cost or fair value. Current liabilities are recognised in the balance sheet based on the nominal amount of the liability at the time it is established. Fixed assets are valued at cost, but are written down to the fair value if the impairment in value is not expected to be of a temporary nature. Long-term liabilities are recognised in the balance sheet based at the nominal amount of the liability at the time it is established. Receivables from customers Receivables from customers and other receivables are recognised on the balance sheet at the nominal value, less a provision for estimated losses. Provisions for losses are made on the basis of an assessment of the individual receivables. In addition, unspecified provisions are made for other receivables from customers to cover any estimated losses. Foreign currency Foreign currency items are valued at the exchange rate in effect on the balance sheet date. Subsidiaries/associated companies Subsidiaries and associated companies are valued in the company's accounts based on the cost method of accounting. The investment is valued at the historical cost of the shares, unless a write-down of the shares has been necessary. Group contributions to subsidiaries, less a deduction for taxes, are entered as an increased cost price for the shares. Dividends/group contributions are recognised as income the same year provisions are made in the subsidiary or associated company. When the dividends or group contributions significantly exceed the share of the retained earnings after the acquisition, the excess amount is regarded as repayment of invested capital and is deducted from the value of the investment on the balance sheet. Tangible fixed assets Tangible fixed assets are recognised on the balance sheet and depreciated over the economic life of the asset. Maintenance of fixed assets is charged against income on a current basis under operating expenses, while enhancements and improvements are added to the cost price of the fixed asset and depreciated in step with the fixed asset. The distinction between maintenance/improvements is based on the condition of the asset when it is acquired. Taxes Tax expenses in the profit and loss account encompass both the tax payable for the period and the change in deferred taxes. Deferred tax assets are calculated at the rate of 28 % on the basis of the temporary differences that exist between the financial accounting and taxrelated values, in addition to the tax loss carryforward at the end of the financial year. Negative and positive temporary differences that reverse or which may reverse during the Page 64

65 same period are offset, and the net amount is entered. Deferred tax assets are not recognised on the balance sheet. Pension obligations The company finances its pension obligations to employees through a group pension scheme. The accounting is performed in accordance with NRS 6, the accounting standard for pension costs. The pension obligations are calculated as the net present value of future pension benefits that are assumed to have been incurred on the balance sheet date, based on the employees earning pension rights gradually over the period they are employed. The pension fund assets are valued at fair value and are offset against the pension obligations for each pension scheme. The net pension fund assets are presented as long-term receivables under fixed asset investments. Net pension costs for the period are included in the wages and social benefits and consist of the period's pension benefits earned, interest cost of the estimated pension obligations, expected return on the pension fund assets, effect of changes in the estimates and pension schemes recognised in the profit and loss account, deviation between the actual and estimated return recognised in the profit and loss account, as well as the accrued National Insurance contributions. The effect of changes in pension schemes are amortised over the average remaining contribution period. Estimate deviations that exceed the higher of 10% of the pension obligations or pension fund assets are distributed evenly over the average remaining contribution period for active members. Cash flow statement The cash flow statement has been prepared according to the direct method. Cash and cash equivalents include cash, bank deposits and other short-term liquid investments that can be converted immediately, without any significant exchange rate risk for a known cash amount, and the maturity date must be less than three months from the purchase date.. Note 1 Bank deposits Of bank deposits of NOK 2,341 (7,144), the restricted tax withholding deposits totalled NOK 239 (295). Note 2 Investments in subsidiaries Company Company's Registered o share capital Interest/voting share Number Nominal value Posted Eidesvik Shipping AS Bømlo, % NOK Eidesvik AS Bømlo % NOK 1, Eidesvik Subsea AS Bømlo % NOK 1, Eidesvik Shipping Ltd Hook 200, % Eidesvik Shipping Int. AS Bømlo % Eidesvik Subsea Vessels AS Bømlo % AS Langevåg Senter Bømlo % Ef Tech AS Bømlo % Eidesvik Management AS Bømlo % Norsk Rederihelsetjeneste AS Bømlo % Viking Innovation Partner AS Bømlo % Eidesvik Maritime AS Bømlo % Oceanic Maritime AS Bømlo % Total Page 65

66 Note 3 Investments in associated companies Company's Company Registered o share capital Interest/voting share Number Cost price / Nominal value carrying value Skrog Invest AS Bømlo % 100 NOK 1, Total 105 Note 4 Investments in stock and shares Company Company's Registered o share capital Interest/voting share Number Nominal value Cost price / carrying value Haugaland Kunnskapspark AS Haugesund % 800 NOK 1, Note 5 Summary of tangible fixed assets Transport- Residential Inventory and Non-depreciable equipment property equipment fixed assets Total Acquisition cost 01/ Additions Disposals Acquisition cost 31/ Accum. depreciation 01/ Depreciation for the year Accum. depreciation 31/ Carrying value at 31/ Depreciation rates 20 % 0 % 10 % 0 % Depreciation method Linear Linear Page 66

67 Note 6 Taxes Tax charge for the year Tax payable: Profit before tax Permanent differences Recognised group contributions from subsidiaries Change in temporary differences (A) Deficit carried forward Taxable income Of which tax payable 0 0 Change in deferred tax Tax charge for the year Description of taxes in profit and loss account: Profit before tax % tax Tax effect of: Permanent differences Unrecognised change in deferred tax assets Estimated taxes for the year 0 0 Temporary differences Deferred taxes: Change Fixed assets Pension funds Receivables Total temporary differences (A) Basis for unused allowance Tax loss carried forward Basis for deferred tax assets Total deferred tax assets, 28% Deferred tax assets are not recognised on the balance sheet. Page 67

68 Note 7 Equity Share capital Other paid-in equity Other equity Total Equity per 01/ Distribution to shareholders Profit for the year Distributed share options Equity 31/ Non-watered profit/loss per share 13,36 Watered profit/loss per share 13,29 Note 8 Short term intercompany balances Oseanic Seismic Vessels AS Eidesvik MPSV AS Ef Tech AS Total For outstanding accounts that are not ordinary trading accounts, interest will be charged quarterly at 3 months NIBOR + 1% The company only has interest and guarantee income outstanding with the group company. Note 9 Long term loans to subsidiaries Eidesvik AS Eidesvik Shipping AS Total Note 10 Long term intercompany balances Eidesvik Invest AS Total Page 68

69 Note 11 Share capital and shareholder information The company's share capital consists of 30,150,000 shares at NOK Eidesvik Offshore ASA's 20 largest shareholders as of : Shareholder Country No. shares Ownership interest EIDESVIK INVEST AS Norway 20,180, % SKAGEN VEKST Norway 1,700, % PARETO AKSJE NORGE Norway 1,615, % PARETO AKTIV Norway 726, % ODIN OFFSHORE Norway 700, % KOMMUNAL LANDSPENSJONSKASSE Norway ,08 % KLP AKSJE NORGE VPF Norway 587, % TVEITÅ EINAR KRISTIAN Norway 538, % PARETO VERDI VPF Norway 305, % JIMBA INVEST AS Norway 171, % HUSTADLITT AS Norway 168, % TVEITÅ OLAV MAGNE Norway 151, % BANK OF NEW YORK MELLON SA/NV Belgium ,44 % LØREN HOLDING AS Norway 132, % SKANDINAVISKA ENSKILDA BANKEN Sweden ,35 % SPAREBANKEN VEST Norway 114, % MUSTAD INDUSTRIER AS Norway 105, % SKAGEN VEKST III Norway 90, % RBC DEXIA INVESTOR SERVICES TRUST Great Britain ,22 % MELING JAN FREDRIK Norway 70, % Others 1,835, % 30,150, % Shares owned/controlled by board members and the managing director: 2010 Eidesvik Invest AS (1) 20,180,000 Kolbein Rege (2) 15,450 Jakob Bleie (Deputy member) 450 Jan Fredrik Meling (3) 70,000 (1)Controlled by Borgny Eidesvik, Board Member, with 55% via 100% ownership of Bømmelfjord AS. The remaining 45% is owned by Lars Eidesvik, Board Member, via 100% ownership of Evik AS. (2) Of which 15,000 shares through Notebook Invest AS. (3) The Managing Director also has an option for 60,000 shares, which had a higher exercise price than the market price as of 31/12/10. Page 69

70 Note 12 Wages and salaries, number of employees, remunerations, loans to employees Payroll expenses Salary 2,189 2,155 Employers' contribution Pension costs Directors' fees 1,300 1,180 Other benefits 25 8 Total 4,100 3,753 Average number of man years: 1 1 An individual pension agreement has been set up for the managing director; see note 13. Remuneration to key employees: No. issued options Salary Benefits in kind Pension expenses Jan Fredrik Meling CEO 20 2, Jan Lodden COO* 20 1, Svein Ove Enerstvedt CFO* *Employee of Eidesvik AS. Remuneration to the board: Kolbein Rege Borgny Eidesvik Lars Eidesvik Kjell Jacobsen Monica Havskjold Jakob Bleie (Deputy member) ,300 1,180 Remuneration to auditor: Recognised remuneration to the auditor is categorised as follows: - auditing required by law other services outside auditing 0 91 Total remuneration to auditor, excl. VAT All amounts are exclusive of VAT. In addition to the amounts in the above table concerning 2010, as of 31/12/10, NOK 368,000 has been recognized in the accounts as fees to the previous auditor. Page 70

71 Note 13 Pension costs and obligations The company has pension schemes that cover the company's only employee. The schemes give entitlement to defined future benefits. These benefits are dependent on the number of years of service, salary level when reaching retirement age and the size of the National Insurance benefits. The obligations are covered through an insurance company Estimated obligations Value of pension fund assets Unrecognised change Under-funding Reconciliation of pension costs for the year Present value of year's pension benefits earned Interest expense from the pension obligation Expected return on pension fund assets Recognised estimate deviations 0 2 Administration costs Net pension costs The following financial and actualarial assumption have been made in the calculations: Discount interest 4.00 % 4.50 % Expected return on pension fund assets 5.40 % 5.70 % Annual estimated wage inflation and basic amount (G) adjustment 4.00 %/3.75 % 4.50%/ 4.25% Adjustment of pension during payment 1.30 % 1.50 % Mortality table K2005 K2005 Note 14 Long term liabilities to credit institutions Long-term liabilities - DnB NOR 12,000 15,000 Long-term liabilities - Fokus Bank 0 30,000 Total long-term liabilities to credit institutions 12,000 15,000 The loan is a debt instrument loan and is not secured. It has a duration of 4 years and is repaid in instalments of NOK 3,000 per year, interest per 31/12/10 was 4.75 % (on 31/12/09, interest was 4.45%). Covenants The loan agreements contain covenants whereby the company agrees to achieve certain financial target figures. These target figures are as follows: - Eidesvik Offshore ASA shall be listed on the Oslo Stock Exchange - Posted equity in the group must be at least 25%, or the group must have cash flow from operations that exceeds the first year's instalment on the long-term loan by 125% - The group's working capital must be positive The company was not in breach of loan terms in 2010 or as of 31/12/2010. Financial market risk The company's credit risk is considered very low, as the debt is low. The company has no foreign currency risks. Page 71

72 Page 72