Key Figures 3. Highlights New vessels Delivered in Newbuildings 8. Fleet List March

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1 Annual Report Siem Offshore Inc., Annual Report 2013

2 Contents Key Figures 3 Highlights New vessels Delivered in Newbuildings 8 Fleet List March Local presence in key markets This is Siem Offshore Inc. 14 Board of Director s Report 16 Corporate Governance 22 Income Statements 26 Statements of Cash Flows 27 Statements of Financial Position Assets 28 Statements of Financial Position Equity and Liabilities 29 Statements of Changes In Equity 30 Notes to the Accounts 32 Corporate Social Responsibility 98 Auditor s Report 100 Responsibility Statement 102 Board of Directors 103 Financial Calendar 104 Siem Offshore Inc., Annual Report

3 KEY FIGURES (Amounts in USD 1,000) CONSOLIDATED Income Statements Ref Operating revenue 363, ,213 Operating margin (1) 122, ,597 Operating margin, % 34% 30% Operating profit (2) 69,261 54,386 Operating profit margin, % 19% 15% Net profit/(loss) attributable to shareholders 22,000 16,576 Net profit margin, % 6% 5% Statements of Financial Position 12/31/13 12/31/12 Working capital (3) 21,112 43,611 Total assets 1,902,702 1,739,086 Shareholders' equity 774, ,423 Non-current liabilities 935, ,949 Statements of Cash Flows Net cash flow from operations (4) 58,986 70,688 Net cash flow (4) -5,862-29,567 Key Figures Weighted average no. of outstanding shares (1,000) 389, ,665 Weighted average no. of diluted outstanding shares (1,000) 389, ,665 Earnings per share (USD) Diluted earnings per share USD Cash flow per share in USD (5) Share price per year end (USD) Share price per year end (NOK) Price/earnings per share (P/E) (6) Price/cash flow per share (P/CF) (7) Book shareholders' equity per share (USD) (8) Operating margin share (9) Book equity ratio (10) Liquidity ratio (11) (1) earnings before interests, tax, depreciation and amortization (EBITDA) (2) earnings before interests and taxes (EBIT) (3) total current assets less total current liabilities (4) See Statements of Cash Flows for details (5) net cash flow from operation divided on weighted average number of shares outstanding (6) Stock Exchange price on December 31 divided on earnings per share (7) Stock Exchange price on December 31 divided on cash flow per share (8) Shareholders equity divided on number of outstanding shares (9) Operating margin divided on weighted average number of outstanding shares (10) Book equity divided on total assets (11) current assets divided on current liabilities

4 Vessels 31/12/ total 31/12/ total 31/12/ /12/ /12/ /12/ /12/ /12/ /12/ total 42 total 44 total 40 total 32 total 34 total 27 total Newbuildings Vessels in operation Ownership 31/12/ total 31/12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ total 45 total 42 total 44 total 40 total 32 total 34 total 27 total 0-51% 100%

5 Highlights 2013 Revenue USD 1, Profit before tax USD 1, Employees Vessels in operation 42 Contracts: Nov. 13: Agreed a 5-year firm contract, with three annual options, for the third of the four Offshore Subsea Construction Vessels ( OSCVs ) under construction. Nov. 13: Agreed a contract for the PSV Siem Sasha for a firm period of 1 year, with option for 1 year, for operations offshore Nigeria. Nov. 13: Agreed contracts for firm periods of 5 months for two AHTS vessels and one PSV for operations in the Kara Sea during 2014 and 2015, with options to extend the contracts for similar periods in 2016 and Oct. 13: Agreed a Letter of Award for the PSV Siem Louisa for a firm period of 3 year, with 2 annual options, for operations offshore Angola. Oct. 13: Agreed a contract for the PSV Siem Hanne for a firm period of 1 year, with option for 1 year, for operations offshore Equatorial Guinea. Oct. 13: Extended the contract for the MRSV Siem Marlin by 1 year with commencement in April 2014 for operations offshore Nigeria. Oct. 13: Option to charter the large-size PSV Siem Sailor for one additional year declared, commencing in February Sep. 13: Siem WIS entered into additional contract with M-I Swaco for the supply of its pressure control device ( PCD ) services to be used during operations for Statoil on the Romeo and Julius project in the North Sea. Sep. 13: Agreed a contract for the AHTS vessel Siem Aquamarine for a firm period of 4 wells with option for four additional wells for operations offshore Morocco. Sep. 13: Agreed a contract for the PSV Sophie Siem for a firm period of 18 months with options for 2 x 3 months for operation offshore Equatorial Guinea. Sep. 13: Agreed a 5-year firm contract with two yearly options for the second of the four Offshore Subsea Construction Vessels ( OSCVs ) under construction. Sep. 13: Acquired 50% of the shares in Secunda Canada LP, owner and operator of six offshore support vessels on Canada s East Coast. Jul. 13: Siem WIS entered into a contract with M-I Swaco for the supply of its pressure control device ( PCD ) services. Jun. 13: Extended firm contract for the scientific core-drilling vessel Joides Resolution by one year following the charterer s exercise of the first of ten annual options. Jun. 13: Awarded a charter contract for a new dual fuel PSV to AS Norske Shell, for a firm period of three years, with charterer s options for additional 2x1 year periods. May 13: Awarded a contract for one PSV, the Siem Carrier, for a firm period of four years to Petrobras in Brazil, with charterer s options for additional 4x1 year periods. Apr. 13: Extended the firm contract for the MRSV Siem Marlin by one year. Feb. 13: Awarded a contract by EnBW to the wholly owned subsidiary Siem Offshore Contractors for the installation of the 33kV inner array grid cables for the Baltic 2 Offshore Wind Farm. Vessels: Dec. 13: Ordered four dual fuel largesize PSVs scheduled for delivery in second half of 2015 and first half of Dec. 13: Received delivery of the second of four OSCVs ordered at a Norwegian yard in Aug. 13: Received delivery of the first of four OSCVs ordered at a Norwegian yard in Jul. 13: Ordered a dual fuel large-size PSV scheduled for delivery in 2015 to support the charter contract awarded by AS Norske Shell. May 13: Received delivery of one large-size PSV built in Brazil. Apr. 13: Ordered a Cable Lay Vessel ( CLV ) scheduled for delivery in Jan. 13: Completed the sale and delivery of the MRSV Seven Sisters. Siem Offshore Inc., Annual Report

6 New vessels Delivered in 2013 built by VARD Brattvaag, Norway, delivered 30 Aug 2013 built by VARD Brattvaag, Norway, delivered 13 Dec Siem Offshore Inc., Annual Report 2013

7 built by VARD Niterói, Brazil delivered 17 May 2013 Siem Offshore Inc., Annual Report

8 Newbuildings An extensive newbuilding program Siem Helix 1 delivery 2016 Siem Helix 2 delivery 2016 SALT 307 WIV WIV Siem Moxie delivery 2014 Design: SX 163 X-bow Type: ISV Siem Spearfish delivery 2014 Siem Stingray delivery 2014 Design: STX 03 Type: OSCV Siem Symphony delivery 2014 Siem Pride delivery 2015 Siem TBN delivery 2015 Siem TBN delivery 2015 Siem TBN delivery 2016 Siem TBN delivery 2016 Design: VS 4411 DF Type: PSV 8 Siem Offshore Inc., Annual Report 2013

9 Siem Maragogi delivery 2014 Siem Marataizes delivery 2014 Design: ULSTEIN P801 Type: OSRV Siem Giant delivery 2014 Design: STX 09CD Type: PSV Siem Aimery delivery 2015 Design: VARD CLV 01 Type: CLV Siem Offshore Inc., Annual Report

10 vessels in operation march 2014 Platform Support Vessels (PSV) Mid-size PSVs Siem Atlas Siem Hanne Siem Louisa Sophie Siem Siem Sasha Built: Design: STX PSV 4700 VS 470 MK II VS 470 MK II VS 470 MK II VS 470 MK II Dp Class: LOA: m m m m m Breadth: m m m m m Draught: 6.60m 6.42 m 6.42 m 6.42 m 6.42 m Dwt: 4700 T 3570 T 3570 T 3570 T 3570 T Accommodation: Cargo Deck Area: 1000 m 2 usable 680 m 2 usable 680 m 2 usable 680 m 2 usable 680 m 2 usable Ownership: 100% 100% 100% 100% 100% Anchor Handling Tug Supply Vessels (AHTS) Siem Amethyst Siem Opal Siem Garnet Siem Sapphire Siem Aquamarine Built: Design: VS 491 CD VS 491 CD VS 491 CD VS 491 CD VS 491 CD Dp Class: LOA: m m m m m Breadth: m m m m m Draught: 7.95 m 7.95 m 7.95 m 7.95 m 7.95 m Dwt: 3800 T 3800 T 3800 T 3800 T 3800 T Accommodation: Cargo Deck Area: 800 m m m m m 2 BHP: Bollard Pull: 297 Te 297 Te 282 Te 301 Te 284 Te Ownership: 100% 0% 0% 100% 100% Offshore Subsea Construction Vessel (OSCV) & Multipurpose field & ROV Support Vessel (MRSV) Siem Marlin Siem Stork Siem Daya 1 Siem Daya 2 Built: Design: MT 6017 MK II MT 6017 MK II STX OSCV 11L STX OSCV 11L Dp Class: LOA: m m m m Breadth: m m m m Draught: 6.30 m 6.30 m 6.60 m 6.60 m Dwt: 4500 T 4500 T 5000 T 5000 T Accommodation: Cargo Deck Area: 1046 m m m m 2 Crane: 100 t Offshore/Subsea crane 100 t Offshore/Subsea crane 250 t Offshore/Subsea crane 250 t Offshore/Subsea crane Ownership: 100% 100% 100% 100% 10 Siem Offshore Inc., Annual Report 2013

11 Large-size PSVs Siddis Mariner Siem Pilot Siem Sailor Hugin Explorer Siem Supplier Siem Carrier VS 485 VS 485 VS 485 CD MT 6000 MK II MT 6000 VS m 88.3 m m m m m 20 m 20 m m m m m approx 7.0 m approx 7.0 m 7.00 m 6.18 m 6.10 m 6.30 m 4500 T 4500 T 5000 T 3236 T 4250 T 4679 T m m m m m m 2 51% 51% 51% 100% 100% 100% Siem Topaz Siem Ruby Siem Diamond Siem Pearl Siem Emerald VS 491 CD VS 490 CD VS 491 CD VS 491 CD VS 491 CD m m m m m m m m m m 7.95 m 7.95 m 7.95 m 7.95 m 7.95 m 3800 T 3800 T 3800 T 3800 T 3800 T m m m m m Te 310 Te 284 Te 285 Te 281 Te 100% 100% 100% 100% 100% Other Brazil Fleet of 9 vessels Canada Fleet of 6 vessels JOIDES RESOLUTION BIG ORANGE XVIII OSRV/FCS/FSV AHTS/PSV/Field support Scientific Core Drilling Vessel (SCDV) Well Stimulation Vessel (WSV) 100% owned 50% owned 100% owned 41.3% owned Siem Offshore Inc., Annual Report

12 Local presence in key markets Geographical footprint Kristiansand (HQ) Groningen Leer Halifax Houston St. John s Siem Offshore Offices: Kristiansand (Norway) Rio de Janeiro, Macaé, Natal, Aracaju (Brazil) Leer (Germany) Groningen, (The Netherlands) Houston (USA) Accra (Ghana) Mumbai (India) Perth (Australia) Rio de Janeiro Macaé Natal Aracaju Accra Secunda Canada LP offices (associated company): -St John s, Halifax (Canada) 12 Siem Offshore Inc., Annual Report 2013

13 TOTAL EMPLOYEES 1110 TOTAL NUMBER OF VESSeLS 56 VESSELS IN OPERATION 41 PSVs: 11 AHTS: 10 OSCVs: 4 Canadian fleet: 6 Other: 10 Mumbai VESSELS UNDER CONSTRUCTION 15 PSVs: 7 OSCVs: 2 WIVs: 2 Other: 4 Perth Siem Offshore Inc., Annual Report

14 This is Siem Offshore Inc. Siem Offshore owns and operates one of the world s most modern fleet of offshore support vessels, equipped to meet the increased requirements from clients and demands from operation in the most harsh environments. 14 Siem Offshore Inc., Annual Report 2013

15 Siem Offshore had 42 vessels in operation and 13 vessels under construction by year-end Vessels in operation included two anchor handling, tug, supply vessels operated on behalf of a pool partner. By end March 2014, the total fleet comprised of 56 owned vessels, including, among others, eighteen Platform Supply Vessels (PSVs), six Offshore Subsea Construction Vessels (OSCVs), eight Anchor Handling, Tug, Supply vessels (AHTS vessels), two Well-Intervention Vessels (WIVs) and six Canadian flagged vessels comprising of both AHTS vessels and PSVs. During first quarter 2014, one PSV was sold. The fleet provides a broad spectrum of services offered by a highly experienced and competent crew with a strong focus on Health, Safety, Environment and Quality. The Company s vision is to become the leading provider and the most attractive employer offering marine services to the offshore energy service industry. The Company shall deliver quality and reliable contracted services in a timely manner by executing cost-efficient solutions developed in active collaboration and cooperation with our customers. REVENUE Amounts in USD 1,000 Operating Margin Amounts in USD 1,000 Siem Offshore commenced operations with effect from 1 July The Company is registered in the Cayman Islands and is listed on the Oslo Stock Exchange (OSE Symbol: SIOFF). The Company s headquarters is located in Kristiansand, Norway and additional subsidiary offices are located in Brazil, Germany, the Netherlands, Ghana, USA, India, Poland and Australia. The Company is tax resident in Norway. employees Siem Offshore Inc., Annual Report

16 Board of Directors Report The Board of Directors of Siem Offshore Inc. (the Board ) presents its report for the year ended 31 December 2013 together with the audited consolidated financial statements and the audited financial statements for the parent company. The financial statements and related notes were authorised for issue by the Board on 10 April 2014 and will be presented to the shareholders for approval at the Annual General Meeting (the AGM ) to be held 2 May The Company All references to Siem Offshore and the Company shall mean Siem Offshore Inc. and its subsidiaries and associates unless the context indicates otherwise. All references to Parent shall mean Siem Offshore Inc. as the parent company only. Siem Offshore commenced operations with effect from 1 July The company is registered in the Cayman Islands and is listed on the Oslo Stock Exchange (OSE Symbol: SIOFF). The Company s headquarters are located in Kristiansand, Norway and additional subsidiary offices are located in Brazil, Germany, the Netherlands, Ghana, United States, India, Canada, Poland and Australia. The Parent company is registered at the Cayman Islands and is tax resident in Norway. The Company s primary activity is to own and operate offshore support vessels ( OSVs ) for the offshore energy service industry. The OSV fleet comprises platform supply vessels ( PSVs ), anchorhandling, tug, supply vessels ( AHTS vessels ), offshore subsea construction vessels ( OSCVs ) and a variety of other service vessels. The Company had a fleet of 42 vessels in operation at year-end 2013, including partly owned vessels and two AHTS vessels operated on behalf of a pool partner. These two AHTS vessels are sister vessels to eight similar vessels owned by the Company and all ten vessels are operated in a pool. Further, the Company had placed orders for 13 vessels under construction at year-end The vessels under construction include, among others, five additional dualfuel PSVs and one cable-laying vessel ( CLV ) ordered in During 2013, the Company sold two PSVs and one OSCV and received delivery of two new OSCVs. Both of the new OSCVs have commenced long term contracts upon delivery. During 2013, the total fleet of OSVs conducted operations in the North Sea, West Africa, Middle East, India, the U.S. Gulf, Canada and Brazil. The majority of the OSV fleet is employed on long-term contracts. The Company holds 100% ownership in the subsidiary Siem Offshore contractors ( SOC ). SOC performs contracting business within the submarine power cable installation, repair and maintenance segment and has successfully entered this market and been awarded three engineering, procurement, installation and commissioning ( EPIC ) contracts at an accumulated contract value of USD180 million. The Company holds 60% ownership in the subsidiary Siem WIS AS. Siem WIS has developed a pressure control device ( Siem WIS PCD ) that enables new, innovative and safe operations for managed pressure drilling ( MPD ) and under-balanced drilling ( UBD ) and it represents an additional barrier above the rig blowout preventer ( BOP ). The Siem WIS PCD is based on a unique and patented sealing technology. The Company holds 100% ownership in the subsidiary Overseas Drilling Limited ( ODL ), which owns the ocean drilling research vessel JOIDES Resolution. The JOIDES Resolution is one of the primary research vessels used to drill core samples in the ocean floor for an international research program. In addition to the activities described above, the Company s Brazilian sub sidiary provides specialized engineering services to develop and implement combat management systems for vessels in the Brazilian navy. The activities and the relationship with the Brazilian Navy dates back to more than 20 years. The Company acquired 50% of the ownership in Secunda Holdings limited Partnership ( Secunda ) in the third quarter Secunda owns and operates a fleet of six OSVs offshore the coast of Eastern Canada. Financial Results, Position and Risks IFRS The financial statements for the company and the Parent are prepared in accordance with the International Financial Reporting Standards ( IFRS ) as adopted by the European Union. Going Concern The financial statements have been prepared under the assumption that the Company and the Parent are going-concerns. This assumption is based on the Company s level of cash and cash equivalents at year-end, forecasted cashflows, available credit facilities and the market value of its assets. 16 Siem Offshore Inc., Annual Report 2013

17 Income Statement In 2013, the Company recorded operating revenue of USD million (2012: USD million). The operating margin for 2013 was USD million (2012: USD million). Net operating margin as a percentage of operating revenue was 34% in 2013 (2012: 30%). The Company s operating profit for 2013 was USD 69.3 million (2012: USD 54.4 million) and includes depreciation and amortisation of USD 75.8 million (2012: USD 82.8 million). Net currency exchange gains (losses) of USD (7.8) million (2012: USD 12.5 million) were recorded on forward contracts, of which USD 12.2 million was unrealised. The net gain on sale of assets was USD 29.8 million (2012: USD 13.7 million). The Company s net financial items were net expenses of USD (53.4) million (2012: USD (35.2) million) and includes a revaluation gain (loss) of non-usd currency items of USD (22.7) million (2012: USD 2.9 million) due to stronger USD during the period. non-usd currency items are held to match short- and long-term liabilities, including off- balance sheet liabilities, in similar currency. The Company s net profit attributable to shareholders was USD 22.0 million, or USD 0.06 per share (2012: USD 16.6 million, or 0.04 per share). The Board has decided to propose to the AGM to be held 2 May 2014 that the Company pay a dividend of NOK 0.10 per share for the Fiscal year The net result after dividend is proposed to be allocated to retained earnings. As of 31 December 2013, the Parent s retained earnings were USD million. Financial Position and Cash-Flows Total equity for the Company was USD 794 million at year-end 2013 (2012: USD 787 million), and the equity ratio was 42% (2012: 45%). Shareholders equity was USD 757 million (2012: USD 749 million), equivalent to USD 1.95 per share (2012: USD 1.90 per share). The Company acquired 1,799,897 of its own shares under the second share buyback programme in market transactions during The second share buy-back programme commenced following the AGM held in May The total number of Company shares issued and outstanding at year-end was 387,591,530. The current share buy-back programme expires on the date of the AGM in May All shares purchased under the buy-back programme will be cancelled. The cash position at year-end was USD 101 million (2012: USD 107 million) and the working capital was USD 21 million (2012: USD 44 million). Net cash flow from operations was USD 59 million during 2013 (2012: USD 71 million). The Company recorded USD million as gross capital expenditures in fixed assets during 2013, of which USD 302 million relates to new vessels delivered from yards or vessels under construction, and USD 27.4 million relates to project specific investments in vessels and capitalised drydocking costs. The Company has secured debt- financing for 9 of the 13 vessels ordered and under construction at year-end. The debtfinancing for the last four vessels will be negotiated and concluded prior to the vessel deliveries in The gross interest-bearing debt and net interest-bearing debt at year-end were equivalent to USD 961 million and USD 860 million, respectively. The Company made total drawings in the equivalent of USD 320 million under credit facilities during the year. The weighted average cost of debt for the Company was approximately 4.5% p.a. at year-end. The Company paid debt instalments in the equivalent of USD million during the year, of which USD 41 million represents extraordinary repayments due to sale of vessels. The future yard instalments for the 13 vessels under construction at year-end 2013 were USD 701 million. Such future yard instalments are scheduled for payment with USD 394 million during 2014, USD 220 million during 2015 and USD 86 million during The Company s cash-flows are primarily denominated in USD and NOK, EUR and BRL. During 2013, the USD strengthened by 9.3% to the NOK, 15.4% to the BRL and weakened 4.5% to EUR. The average recorded exchange rates were NOK/ USD , EUR/USD 1.33 and BRL/USD The Company is exposed to changes in interest rates as approximately 35% of the interest-bearing debt is based on floating interest rates. The interest-bearing debt is primarily denominated in USD and NOK. The average 3-month LIBOR was % p.a. during 2013 (0.43% p.a. in 2012) and the average 3-month NIBOR was 1.75% p.a. during 2013 (2.24% p.a. in 2012). The Company held USD 288 million in interest rate swap ( IRS ) agreements at year-end. Financial Risks Interest risk The Company is exposed to changes in interest rates as a portion of the longterm interest-bearing debt was subject to floating interest rates with the remaining amount subject to fixed interest rates. Siem Offshore Inc., Annual Report

18 Board of Directors Report Currency risk The Company is exposed to currency risk as revenue and costs are denominated in various currencies. The Company is also exposed to currency risk due to future yard instalments in relation to shipbuilding contracts and long-term debt in various currencies. Forward exchange contracts are entered into in order to reduce the currency risk related to future cash flows. Liquidity risk The Company is financed by debt and equity. If the Company fails to repay or refinance its credit facilities, additional equity financing may be required. There can be no assurance that the Company will be able to repay its debts or extend the debt repayment schedule through re-financing of credit facilities. There is no assurance that the Company will not experience cash flow shortfalls exceeding the Company s available funding sources or to remain in compliance with minimum cash requirements. Further, there is no assurance that the Company will be able to raise new equity or arrange new credit facilities on favourable terms and in amounts necessary to conduct its ongoing and future operations should this be required. Yard risk The process for construction of new vessels is associated with numerous risks. Among the most critical risk factors in relations to such construction is the risk of not receiving the vessels on time, at budget and with agreed specifications. In addition, there is the risk of yards experiencing financial or operational difficulties resulting in bankruptcy or otherwise adversely affecting the construction process. The Company has obtained certain guarantees of financial compensation including refund guarantees in case of delays and non-delivery. Further, the Company has the right to cancel contracts if delivery of vessels is significantly delayed. However, no assurance can be given that all risks have been fully covered. Operations Fleet, Performance and Employment The Company had a fleet of 42 vessels in operation at year-end 2013, including partly owned vessels and two AHTS vessels operated on behalf of a pool partner. The fleet in operation included twelve PSVs, four OSCVs, ten AHTS vessels, six OSVs in Canada, eight crew/ supply boats operated in Brazil, one wellstimulation vessel and one ocean drilling research vessel. The majority of the vessels are on long-term contracts. The PSVs, consolidated on a 100% basis, earned operating revenues of USD 94.6 million and had 83% utilisation (2012: USD 91.4 million and 91%). The operating margin for the PSV fleet was USD 42.9 million (2012: USD 38.0 million) and the operating margin as a percentage of revenue was 45% (2012: 42%). The contract backlog at 31 December 2013 for the PSV fleet was 82% for 2014, 52% for 2015 and 30% for The OSCVs earned operating revenues of USD 41.4 million and had 100% utilisation (2012: USD 49.8 million and 100%). The operating margin for the OSCV fleet was USD 26.9 million (2012: USD 28.5 million) and the operating margin as a percentage of revenue was 65% (2012: 54%). The contract backlog for the OSCV fleet was 100% for 2014, 68% for 2015 and 50% for The Company s relative portion of the AHTS pool earned operating revenues of USD million and had 86% utilisation (2012: USD and 77% utilization). The operating margin was USD 67.9 million (2012: USD 48.3 million) and the operating margin as a percentage of revenue was 51% (2012: 42%). The contract backlog for the AHTS vessel fleet was 57% for 2014, 18% for 2015 and 5% for The fleet of smaller Brazilian-flagged vessels earned operating revenue of USD 24.1 million and had 92% utilisation (2012: USD 29.1 million and 81%). The operating margin for the fleet was USD 6.7 million (2012: USD 5.7 million) and the operating margin as a percentage of revenue was 28% (2012: 20%). The contract backlog for the fleet of smaller Brazilianflagged vessels was 75% for 2014, 50% for 2015 and 50% for The Joides Resolution recorded operating revenues of USD 36.9 million (2012: USD 59.1 million) with an operating margin of USD 20.4 million (2012: USD 30.4 million) and the operating margin as a percentage of revenue was 55% (2012: 51%). The total contract backlog of firm contracts for all vessels at year-end 2013 was USD 1.15 billion, including the oneyear option for the Joides resolution, the 41%-ownership in the Big Orange XVIII, the 50% ownership in Secunda Canada LP and vessels under construction. The total contract backlog is allocated with USD 363 million in 2014, USD 246 million in 2015 and USD 541 million in 2016 and thereafter. The total contract backlog of firm contracts within the submarine power cable segment at 31 December 2013 was USD 173 million. The contract backlog was allocated with USD 147 million in 2014 and USD 26 million in Newbuilding Program The Company had ten vessels under construction in Norway and Poland at the end of 2013, which includes two OSCVs, one Installation Support Vessel ( ISV ), 18 Siem Offshore Inc., Annual Report 2013

19 six dual-fuel PSVs and one Cable Lay Vessel ( CLV ). The Company has secured long-term employment for one OSCV and for two dual-fuel PSVs under construction. The CLV and ISV will be utilised by the Company s wholly-owned subsidiary, Siem Offshore Contractors, for project work within the submarine power cable installation, repair and maintenance segment. The Company is in discussions for long-term contracts for the OSCV and for the four dual-fuel PSVs. The Company had three vessels under construction in Brazil at the end of 2013, which includes two Oil Spill Recovery Vessels ( OSRVs ) and one large-size PSV. The two OSRVs have been significantly delayed and are currently scheduled for delivery in second quarter 2014 and fourth quarter Both vessels will commence eight-year firm contracts for Petrobras with options for additional eight-year periods. The large-size PSV is scheduled for delivery in second quarter of The Company is in discussions for long-term contracts for the PSV. During first quarter 2014, the Company entered into agreements with Helix energy Solutions Group, Inc. to provide two new well-intervention vessels. The two vessels shall be owned by the Company and chartered by Helix for an initial period of 7 years, with options that can extend the charter periods up to 22 years. The two vessels will be constructed at the Flensburger shipyard in Germany and will be based on a design developed by Salt Ship Design. The two vessels will be financed with a combination of bank and bond debt. Delivery of the two vessels is scheduled for the first and second quarter of QHSE The Company s target includes zero personal injuries, no damage to the environment and no damage to or loss of equipment and property. The good QHSE performance continued in 2013 with no serious incidents throughout the fleet. The safety records for the full year report no serious injury to personnel or discharges to the environment. Siem WIS Siem WIS has designed and developed a pressure control device ( PCD ) which can improve managed pressure drilling ( MPD ) operations. Global energy demand growth, combined with the need for increased oil recovery and increased number of deep sea and high pressure high temperature ( HPHT ) reservoirs, and greater emphasis on safety management will lead to increased demand for MPD services. The market for the Siem WIS technology is developing positively and several operations is under preparation. Two units have been ordered by M-I Swaco for the Romeo and Julius wells currently planned to commence in June Planning and preparation work is ongoing for the Gudrun and Valemon fields with estimated start up in fourth quarter One unit has been transferred to the US and a contract negotiation for the first operation in the Gulf of Mexico is ongoing. Siem WIS has two new PCDs under construction with delivery in June 2014 and will then have in total 5 PCD units available. The main focus in 2014 is to perform safe and efficient operations, this will strengthen the Company`s position and create new opportunities and potentially open the market for the technology. Siem Offshore s accumulated investment in Siem WIS totals USD 20.2 million, whereof USD 7.6 million is recorded as intangible assets in the consolidated accounts. Siem Offshore Contractors Following the successful awards of three submarine cable installation contracts within the offshore renewable energy market in 2012 and 2013, SOC has continued to increase its workforce and resources during the year with a significant increase in onshore-based personnel. Furthermore and during 4Q 2013 and into Q1 2014, the company has expanded its recruitment program in order to fill vacancies in the offshore-based teams to enable execution of projects scheduled simultaneously for 2014 and onwards. In mid-2013, SOC successfully performed preparatory works as a part of the scope of contract for the Baltic 2 Offshore Wind Farm project. Pre-lay trenching works were performed utilizing the in-house AHTS vessel Siem Topaz along with in-house personnel and subcontracted ploughing services. The scope of work included the pre-lay trenching of 86 submarine cable routes in challenging soil conditions. In 2013, SOC started its capital investment plan to acquire and prepare the necessary equipment, material and tools to be available in time for completion of current and expected future projects. SOC constructed a new 750t Modular Onshore Storage Turntable ( MOST ) for submarine cables during the year, which is currently rented to one of SOC s clients in order to temporarily store submarine cables for the Amrumbank West Offshore Wind Farm project to be executed in In first quarter 2014, SOC received delivery of a 750t Mobile Offshore Turntable Unit ( MOTU ) based on a similar DNV-GL-approved and certified design. This turntable will initially be mobilized into the vessel Siddis Mariner in 2014 to support the submarine cable installation works on the Amrumbank West Offshore Wind farm project. Client-induced delays to the start-up installation works on the Baltic 2 Offshore Wind Farm project impacted SOC s Siem Offshore Inc., Annual Report

20 Board of Directors Report financial results in 2013 as all previously scheduled cable installation works for fourth quarter 2013 had to be shifted to The contract variation has been mutually agreed and settled between SOC and its client without negative impact on SOC s overall margin on the works. Furthermore, SOC has been advised by one of its clients that the installation of the export cable system, which is undertaken on a consortium basis with J-Power Systems, is awaiting final investment decision from the project developer of the Nordsee One OWF and might be delayed. The duration of the expected delay is currently unknown and, in order to maximise flexibility for SOC and its client, all manufactured components will be transported to a North European port for intermediate storage. All three currently executed contracts in the offshore renewable energy sector show less than 25% completion status at year end 2013 and, therefore, no margin has been recorded in the income statement for 2013 on any of these contracts. Operating revenues on the projects are adjusted to reflect currently incurred operating expenses. With respect to future project prospects, SOC continued to tender for several target offshore energy projects with a focus on both inner array grid as well as export cable system installations scheduled for the period from 2015 through to 2018, including final tender negotiations for certain projects. SOC also tendered other prospects in the offshore oil and gas industry as well as energy transmission sector for both medium and high voltage transmission systems. Shareholders and corporate covernance Shareholder Information The Company s authorised share capital is USD 5,500, divided into 550,000,000 ordinary shares of a nominal value of USD 0.01 each. The issued share capital at 10 April 2014, based on the 387,591,380 Company shares issued and outstanding, is USD 3,875,913. The Company had purchased a total of 6,333,456 of its own shares in 2013 of which 1,799,897 shares were purchased through 10 April 2014 in accordance with the second share buy-back programme which commenced in May The Company s shares are listed on the Oslo Stock Exchange with the ticker symbol SIOFF. The largest shareholder of the Company is Siem Industries Inc. with 34.2% of the shares at 10 April During 2013, the closing share price reached a high of NOK 10.00, a low of NOK 7.20, and closed at NOK 9.73 at year-end. Corporate Governance The Company has implemented guidelines for corporate governance based on the recommendations and guidelines given by the Oslo Stock Exchange. The purpose of these guidelines is to clarify the division of roles between shareholders, the General Meeting, Board of Directors and day-today Management beyond what follows from the legislation. A detailed summary of our corporate governance principles may be found in a separate section of the annual report. The Working Environment And The Employees The Company seeks to provide a workplace with equal opportunities, and to treat current and prospective employees fairly with respect to salaries, promotions and recruitment. The Company offers its employees a sound working environment. We also give possibilities for professional development where men and women are treated equally and where there is no discrimination. The sick leave for the onshore and offshore employees was 3.1% and 4.6%, respectively. No incidents or work-related accidents resulting in significant material damage or personal injury occurred during the year. The development of the onshore and offshore organizations continues in order to prepare for increased future activities. The knowledge of the crew is vital for a safe and secure operation of any vessel. Such knowledge includes good seamanship and understanding of the demanding assignments to be executed. This knowledge of capabilities and limitations of the vessels and equipment, and respect of circumstances that may affect a safe execution is vital. Outlook The overall market for OSVs improved during 2013 compared to the year before. The North Sea spot market for both PSVs and AHTS vessels was very volatile and especially for the AHTS vessel segment where rig moves had a tendency to pile up leading to periods where the market was sold out. During 2013, the market for PSVs and AHTS vessels where nearly in balance (supply and demand) and we have seen healthy signs for the first quarter of 2014, although with high volatility. The tender 20 Siem Offshore Inc., Annual Report 2013

21 activity in Africa remained high while the tender activity in Brazil was somewhat calm. We expect the tender activity in Brazil to increase and that some OSVs will leave the North Sea for operations in Brazil as a consequence. The number of new buildings entering the market was less than expected mainly due to delays at yards. Going forward into 2014, it seems like oil companies will put more focus on cost cutting which might have implications for the OSV market. However, we expect oil prices to be the main driver, and we expect high activity if oil prices remain stable. We have registered increased demand for OSVs in all geographic areas where we have operations. The global demand for OSCVs is expected to increase based on favourable market drivers such as strong growth in christmas tree awards and number of new and existing subsea projects. however there is also an increase in vessel supply which can put pressure on the vessel day rates going forward. The market for PSVs and AHTS is expected to be healthy in 2014 as a result of seasonal projects in the Northern regions (harsh and remote areas) and expected high level of activity in the North Sea and Africa. However, vessels currently operating or being under construction, in other regions may have a negative impact to the market balance in the North Sea if they are relocated to the North Sea. 10 April 2014 Eystein Eriksrud Kristian Siem Michael Delouche Chairman Director Director (Sign.) (Sign.) (Sign.) John C. Wallace Director (Sign.) David Mullen Director (Sign.) Terje Sørensen Chief Executive Officer (Sign.) Siem Offshore Inc., Annual Report

22 corporate governance Statement of Policy on Corporate Governance The principles for corporate governance adopted by the Company are based on the Norwegian Recommendation for Corporate Governance issued on the 23rd October The Norwegian Recommendation for Corporate Governance remain unchanged for Financial year As a company incorporated in the Cayman Islands, Siem Offshore Inc. is an exempted company duly incorporated under the laws of the Cayman Islands and subject to Cayman Island laws and regulations with respect to corporate governance. Cayman Islands corporate law is to a great extent based on English Law. In addition, due to the Company s listing on the Oslo Stock Exchange, certain aspects of Norwegian Securities law apply to the Company and there is a requirement to adhere to the Norwegian Code of Practice for Corporate Governance. The Norwegian Code of Practice for Corporate Governance is publicly available at in both Norwegian and English languages. Due to new provisions implemented in the Norwegian Accounting Act, compliance with the regulations for Corporate Governance reporting is now a legal requirement provided that it does not conflict with the Cayman Islands laws and regulations. The Company endeavours to maintain high standards of corporate governance and is committed to ensuring that all shareholders of the Company are treated equally and the same information is communicated to all shareholders at the same time. Corporate Governance is subject to annual assessment and review by the Board of Directors. The Board of Directors has reviewed this statement. It is the opinion of the Board of Directors that the Company complies with the Norwegian Code of Practice for Corporate Governance. This statement is structured in accordance with The Norwegian Code of Practice for Corporate Governance. Business Cayman Islands laws and regulation do not require the objects clause of the Companies Memorandum and Articles of Association to be clearly defined. The Company has however adopted clear objectives and strategies for its business. Siem Offshore aims to grow the company within offshore support vessels, both organically and through combination with other operators, in order to achieve economies of scale and stronger presence in the market. Siem Offshore aims to become a preferred supplier of marine services to the energy industry based on quality and reliability and to provide cost-efficient solutions to its customers by understanding their operation and applying technology and experience. The Company builds its business around a motivated workforce with the appropriate technical solutions. This creates sustainable value for all shareholders. Reference is made to the Board of Directors report for detailed information. Equity and Dividends The priorities for the use of Company funds are determined by the Board of Directors and recommendations of Management influenced by existing conditions. At present, priorities for use of funds in order of importance are investment opportunities in the business, repayment of debt and the return of capital to the shareholders in form of share buy-back or dividends. The Board s mandate to increase the Company s share capital is limited only to the extent of the authorized share capital of the Company with certain pre-emption rights for shareholders and in accordance with the Company s Memorandum and Articles of Association which comply with Cayman Island law. Under the Articles of Association, the Board can issue new shares, convertible bonds or warrants at any time within the limits of the authorized capital without the consent of the general meeting but with pre-emption rights for shareholders. A General Meeting has further authorized the Board to issue new shares without pre-emption rights to all shareholders up to a limit of 50% of Siem Offshore shares at the time the authorization was given. The Board holds authorization from the Annual General Meeting held on 10 May 2010 to issue 154,248,360 new shares. 22 Siem Offshore Inc., Annual Report 2013

23 The authority gives the Board flexibility to finance investments, acquisitions and other business combinations on short notice through the issue of shares or certain other equity instruments in the Company. Furthermore, the Board considers the granting of a new standing authority at the time of holding an Annual General Meeting rather than convening an Extraordinary General Meeting at some future time to be in the best interests of the Company, as this will result in cost savings and more effective time management for both the Company s senior management and its Shareholders. Equal Treatment of Shareholders, Freely Tradable Shares and Transactions with Related Parties The Company is committed to ensuring that all shareholders of the Company are treated equally and all the issued shares in Siem Offshore, at nominal value US$ 0.01 each, are freely tradable and carry equal rights with no restrictions on voting. Siem Industries Inc, which owns 34,4% of the Company, is represented by its Chairman, Kristian Siem, Deputy CEO, Eystein Eriksrud and President, Michael Delouche, on the Board of Directors. The Company pays an annual fee to Siem Industries as compensation for directorships, provision of an office and presence in the Cayman Islands, and other services. The fee is adopted by the annual general meeting based on a recommendation from the independent Board Members. Related party transactions are disclosed in the notes to the accounts. Freely Negotiable Shares All of the shares in the Company carry equal rights and are freely negotiable. The shares are traded according to normal market practice and no special limitations on transactions have been laid down in the Articles of Association. General Meetings The Annual General Meeting of the Company will be held at the registered office of the Company on the Cayman Islands, 2 May 2014, at 9:30am Cayman Islands local time and Shareholders can be represented by proxy. Notices of general meetings and related documents are made available to shareholders at the latest 17 days prior to meeting date. Notice of attendance by proxy is to be provided to either (1) the offices of Siem Offshore AS at Sjølystveien 3, P.O. Box 425, Kristiansand 4664, Norway, telefax no or (2) the Company s office at P.O. Box 10597, George Town, Grand Cayman KY1-1005, CAYMAN ISLANDS, telefax no , no less than 24 hours prior to the stated time of the annual general meeting. Shareholders are given the opportunity to vote on the election of board members. Nomination Committee The appointment of a nomination committee is not a requirement under Cayman Islands Law. Corporate Assembly and Board of Directors; Composition and Independence In the nominations to the Board of Directors, the Board consults with the Company s major shareholders and ensures that the Board is constituted by Directors with the necessary expertise and capacity. There is no requirement under Cayman Islands Law for the Company to establish a corporate assembly. Each Board member is elected for a term of 2 years or such shorter term as shall be specified in the ordinary resolution pursuant to which the Director shall be appointed. Representatives of the Executive Management are not presently members of the Company s Board of Directors. The Board of Directors as a group has extensive experience in areas which are important to Siem Offshore, including offshore services, international shipping, ship broking, finance and corporate governance and restructuring. Work of the Board of Directors The Board monitors the performance of management through regular meetings and reporting. The Company has a Compensation Committee and an Audit Committee. The Compensation Committee consists of two Directors. The mandate of the committee is to review and approve the compensation of the CEO and any bonuses to all executive personnel. Reference is also made to section 12, Remuneration of the Executive Management. The Audit Committee consists of two Directors. The composition of the committee meets the requirements of the Norwegian Code of Practice for Corporate Governance as regards independence. The committee s mandate can be summarized as follows: Ascertain that the internal and external accounting reporting process are organized appropriately and carried out efficiently, and are of high professional quality. Monitor and assess the quality of the statutory audit of the Company s financial statements. Ensure the independence of the external auditor, including any additional services provided by the external auditor. Siem Offshore Inc., Annual Report

24 corporate governance Risk Management and Internal Control Internal control A prerequisite for the Company s system of decentralized responsibility is that the activities in every part of the Company meet general financial and non-financial requirements, and are carried out in accordance with the Company s common norms and values. The executive management of each subsidiary is responsible for risk management and internal control in the subsidiary with a view to ensuring 1) optimalisation of business opportunities, 2) targeted, safe, high-quality and costeffective operations, 3) reliable financial reporting, 4) compliance with current legislation and regulations and 5) operations in accordance with the Company s governing documents, including ethical and social responsibility standards. The Company s risk management system is fundamental to the achievement of these goals. Financial reporting process The Company prepares and presents its financial statements in accordance with current IAS/IFRS rules. Financial information from subsidiaries is received each month in a reporting package in a standard format accommodated necessary information for preparing the consolidated financial statement for the Company. The reporting from the subsidiaries is extended in the year-end reporting process to meet various requirements for supplementary information. There are established routines to check the financial data in the received reporting packages to ensure the best quality for the consolidated figures for the Company. Training and further development of accounting experience within the Company is provided locally by participating on various external courses on a regular basis. Remuneration of the Board of Directors The remuneration of the Board members reflect their experience and responsibilities, and is adopted by the annual general meeting based on the recommendation from the Board. The Board members do not have share options or profit-based remuneration. The responsibility statement of the Board of Directors in this report and the notes to the accounts include information about the remuneration of the Board of Directors. Remuneration of the Executive Management The Company has a Compensation Committee which reviews and approves the compensation of the CEO and the bonuses to all executive personnel. The Articles of Association of the Company permit the Board to approve the granting of share options to employees. A long-term share option program for 8 key employees of the company was introduced in Q The remuneration of the CEO and the share option scheme are disclosed in the notes to the accounts. Information and Communications The Company has a policy of treating all its shareholders and other market participants equally, and communicates relevant and objective information on significant developments which impact the Company in a timely manner. The Company also seeks to ensure that its accounting and financial reporting are to the standards of our investors, and the Company presents its financial statements in accordance with the International Financial Reporting Standards (IFRS). The Audit Committee of the Board of Directors monitors the company s reporting on behalf of the Board. Notices to the Oslo Stock Exchange and placements of notices and other information, including quarterly and annual reports, may be found on the Company s website ( The financial calendar for 2014 may be found on the Company s website under Investor Relations. Take-overs The shares in the Company are freely tradable and the Articles of Association of the Company does not hold specific defence mechanisms against take-over situations. In a take-over situation, the Board of Directors will comply with relevant legislation. Auditor The Auditor of the Company is elected at the Annual General Meeting which also approves its remuneration. Details of the Company s remuneration of the external auditor are given in the notes to the accounts. The auditor reports to the Audit Committee twice a year at a minimum, but more often if necessary. During the latter half of the year, the external auditor presents to the Audit Committee his assessment of risks, internal controls, risk areas and improvement potential in control systems and his audit plan for the following year. The second report to the Audit Committee is the presentation of Year-End Audit. The external auditor presents a summary of the audit process, including comments on audited internal control procedures and key issue in the financial reporting. 24 Siem Offshore Inc., Annual Report 2013

25 The Audit Committee also receives an annual independence reporting from the external auditor, confirming the external auditor s independence with respect to the Company, within the meaning of the Norwegian Act on Auditing and Auditors. The confirmation also includes services delivered to the Company other than mandatory audit. Chartering Department, Kristiansand, Norway Photo: Jan Petter Lehne Siem Offshore Inc., Annual Report

26 INCOME STATEMENTS PARENT COMPANY CONSOLIDATED (Amounts in USD 1,000) Note Restated 10,953 13,583 Operating revenue 4,23 363, ,213-18,774-25,128 Operating expenses 8,18,19,20,23-241, ,615-7,821-11,545 Operating margin 122, , ,024 Depreciation and amortization 4,5-75,841-82, Gain/(loss) on sales of assets 25 29,827 13, Gain on sale of interest rate derivatives (CIRR) Gain/(loss) on currency exchange forward contracts 28-7,756 12,479-7,584-12,190 Operating profit 4 69,261 54,387 Financial income and expenses 9,586 8,752 Financial income 3,21 5,434 4,161-7,804-1,456 Financial expenses 3,21-36,132-42,302 1,219 1,283 Net currency gain/(loss) 21-22,651 2,916 3,001 8,579 Net financial items -53,349-35, Result from associated companies 7 2, ,584-3,611 Profit /(loss) before taxes 17,959 19, Tax benefit/(expense) 11 3,585-4,949-4,845-3,725 Net profit/(loss) 21,544 14, Attributable to non-controlling interest ,900-4,845-3,725 Attributable to shareholders of the Company 22,000 16,576 Weighted average number of outstanding shares (1,000) 389, ,665 Earnings per share: Basic and Diluted PARENT COMPANY COMPREHENSIVE INCOME STATEMENT CONSOLIDATED (Amounts in USD 1,000) Note Restated -4,845-3,725 Net profit/(loss) 21,544 14,676 Other Comprehensive income Items that will not be reclassified to profit or loss - - Pension remeasurement gain (loss) 1,155 4,589 Other Comprehensive income Items that will not be reclassified to profit or loss - - Currency translation differences -8, ,725 Total comprehensive income for the year 14,378 19, Attributable to non controlling-interest , ,725 Attributable to shareholders of the Company 14,751 21, Siem Offshore Inc., Annual Report 2013

27 STATEMENTS OF CASH FLOWS PARENT COMPANY CONSOLIDATED (Amounts in USD 1,000) Note Restated CASH FLOW FROM OPERATIONS -3,367-5,990 Profit/(loss) before taxes, excluding interest 30 49,205 48,192-5,865-1,430 Interest paid -32,325-36,653-2,404-5,416 Taxes paid -9,832-13,871-3,777 - Result from subsidiaries Result from associated companies 7-2, Gain/(loss) on sale of assets 25-29,827-13, ,024 Depreciation and amortization 5 75,841 82,749 3,125 - Value of employee services Effect of unreal. currency exchange forward contracts 28 12,200-6,864 1,103 72,372 Changes in short-term receivables and payables -17,536 22, CIRR Other changes 10,549-11,031-11,125 60,324 Net cash flow from operations 58,986 70,688 CASH FLOW FROM INVESTMENT ACTIVITIES 5, Interest received 5,339 4, Investment in fixed assets 4,5-329,413-53, Proceeds from sale of fixed assets 25 85,998 87,618-6,429 Received from long-term loan ,000-11,500 Investments in subsidiaries Dividend from associated companies Investments in associated companies 7-14, ,367 Net cash flow from investment activities -252,392 39,386 CASH FLOW FROM FINANCING ACTIVITIES - - Proceeds from share issue in partly owned subsidiaries 657 3,456-8,728-2,699 Buyback of shares -8,728-2, Proceeds from bankoverdraft 962 2, ,277 - Proceeds from new long-term borrowing ,319 8, Repayment of long-term borrowing , , ,549-2,699 Net cash flow from financing activities 184, ,753-14,150 1,510 Effect of exchange rate differences 3,166 10,111 74,798 53,768 Net change in cash -5,862-29,567 57,270 3,502 Cash at bank as of 1 January 107, , ,068 57,270 Cash at bank as of 31 December 101, ,068 Siem Offshore Inc., Annual Report

28 Statements of Financial Position Assets PARENT COMPANY 12/31/ /31/2012 (Amounts in USD 1,000) Non-current intangible assets Note CONSOLIDATED 12/31/ /31/2012 Restated - - Deferred tax asset 11 11,770 6, Intangible assets 5 29,737 30, Total non-current intangible assets 41,507 36,904 Non-current tangible assets - - Vessels under construction 5,17 127, ,430-1,050 Vessels and equipment 5 1,440,332 1,260, Capitalized project costs 5 11,027 12,153-1,050 Total non-current tangible assets 1,579,071 1,380,700 Non-current financial assets 752, ,684 Investment in subsidiaries Investment in associated companies 7 20,951 4,222 41,718 53,194 CIRR Loan deposit 12 41,718 53,194 47,094 90,043 Long-term receivables 9,14,29 6,639 7, , ,921 Total non-current financial assets 69,308 64, , ,971 Total non-current assets 1,689,886 1,482,131 Current assets 3,447 6,739 Accounts receivable 2,29 53,198 44,221 7,340 4,030 Other short-term receivables 9,14, 23,29 32,737 38, Inventories 7,555 7, Derivative financial instruments 15,28,29-5, ,068 57,270 Cash 2,10,29 101, , ,540 Total current assets 194, , Asset held for sale 24,25,29 18,121 53, ,511 Total assets 1,902,702 1,739, Siem Offshore Inc., Annual Report 2013

29 Statements of Financial Position Equity and Liabilities PARENT COMPANY CONSOLIDATED 12/31/ /31/2012 (Amounts in USD 1,000) Note 12/31/ /31/2012 Restated Equity 526, ,964 Paid-in capital 526, ,964-22,302-22,302 Other reserves -19,769-11, , ,809 Retained earnings 250, , ,471 Shareholders' equity , , Non-controlling interest 37,260 36, ,471 Total equity 793, ,397 LIABILITIES Non-current liabilities 98,624 - Borrowings 2,12,14 863, ,699 41,718 53,194 CIRR Loan 12,29 41,718 53,194 4,885 4,885 Tax liabilities 11 6,679 6,799 2,155 2,523 Deferred CIRR 12 2,155 2, Pension liabilities 8 2, Other non-current liabilities 14 18,826 14, ,381 60,601 Total non-current liabilities 935, ,949 Current liabilities Accounts payable 2,29 16,253 5, Borrowings 2,12,14,29 98,426 82, Derivative financial instruments 15,28,29 11,085 12, ,552 Taxes payable 11 3,759 8,856 8,170 8,256 Other current liabilities 13,14,23 44,061 50,882 7,894 10,439 Total current liabilities 173, , ,275 71,040 Total liabilities 14 1,108, , ,511 Total equity and liabilities 1,902,702 1,739, Secured debt , , Guarantees ,317 51,390 Siem Offshore Inc., Annual Report

30 Statements of changes in equity Consolidated (Amounts in USD 1,000) Total no. of shares Share capital Share premium reserves Exchange rate differences Equity as of December 31, ,951,640 3, ,704 17,147 Implementation of revised IAS19, restatement effect 2012 Equity on 1 January 2012 Restated 395,951,640 3, ,704 17,147 Implementation of revised IAS19, restatement effect 2012 Net profit to shareholders Comprehensive income 261 Share issues in partially owned subsidiaries Buy-back of shares -2,026, ,679 Equity as of December 31, 2012 Restated 393,924,836 3, ,025 17,409 Change previous periods Net profit to shareholders Value of employee services Comprehensive income -8,403 Share issues in partially owned subsidiaries Buy-back of shares -6,333, ,664 Equity as of December 31, ,591,380 3, ,361 9,005 Share issues in partially owned subsidiaries Minority share of new equity Siem WIS AS Total PARENT COMPANY Equity as of December 31, ,951,640 3, , Other items Net profit Buy-back of shares -2,026, ,679 Equity as of December 31, ,924,836 3, , Other items Net profit Buy-back of shares -6,333, ,664 Equity as of December 31, ,591,380 3, , Siem Offshore Inc., Annual Report 2013

31 Other reserves Retained earnings Shareholders' equity Non-controlling interest Total equity -28, , ,714 35, ,751-4,018-4,018-4,018-28, , ,696 35, ,733 4,589 4,589 4,589 16,576 16,576-1,900 14, ,456 3,456-2,700-2,700-28, , ,423 36, ,397-1,943-1,943-1,943 22,000 22, ,544 3,125 3,125 3,125 1,155-7, , ,728-8,728-28, , ,629 37, , , , , , ,695 2,201 2,201-3,725-3,725-2,700-22, , , ,728-22, Siem Offshore Inc., Annual Report

32 Notes to the accounts Note 1 - Accounting Principles 1.1 General Siem Offshore Inc. was established on July 1, 2005 as an exempted company under the laws of the Cayman Islands and is listed on the Oslo Stock Exchange. All references to Siem Offshore Inc. and the Company shall mean Siem Offshore Inc. and its subsidiaries and associates unless the context indicates otherwise. All references to Parent shall mean Siem Offshore Inc. as a parent company only. 32 Siem Offshore Inc., Annual Report 2013

33 1.2 Basis of preparation The consolidated and parent company financial statements were prepared in accordance with International Financial Reporting Standards ( IFRS ) and IFRS Interpretations Committee ( IFRIC ) interpretations endorsed by the European Union and the regulations of the Oslo Stock Exchange. As of December 31, 2013, there were no differences relevant to the Company between these standards and International Financial Reporting Standards, as issued by the International Accounting Standards Board, and the policies adopted by the Company. The consolidated financial statements have been prepared under the historical cost convention, as modified by fair value of non-current assets held for sale, and financial assets, including derivative instruments at fair value through profit or loss. The financial statements have been prepared under the assumption that the Company is a going-concern. A summary of the principal accounting policies applied in the preparation of these financial statements are set out below. The financial statements are presented at and for the year ended December 31, All figures are in USD thousands unless otherwise clearly stated. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company s accounting policies. The areas involving a higher degree of judgment or complexity or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed under Critical accounting estimates and judgments presented below. 1.3 Accounting policies (a) New and amended standards adopted by the Company The following standards have been adopted by the group for the first time for the financial year beginning on or after 1 January 2013 and have a material impact on the group: Amendment to IAS 1, Financial statement presentation regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). IAS 19, Employee benefits was revised in June The changes on the group s accounting policies has been as follows: to immediately recognise all past service costs; and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). See note 43 for the impact on the financial statements. Amendment to IFRS 7, Financial instruments: Disclosures, on asset and liability offsetting. This amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS financial statements to those that prepare financial statements in accordance with US GAAP. IFRS 11, Joint arrangements focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement. A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint ventures arise where the investors have rights to the net assets of the arrangement; joint ventures are accounted for under the equity method. Proportional consolidation of joint arrangements is no longer permitted. See note 43 for the impact of adoption on the financial statements. IFRS 12, Disclosures of interests in other entities includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles. IFRS 13, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. Amendments to IAS 36, Impairment of assets, on the recoverable amount disclosures for non-financial assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. The amendment is not mandatory for the group until 1 January 2014, however the group has decided to early adopt the amendment as of 1 January (b) New standards and interpretations not yet adopted A number of new standards and amendments to standards and interpretations Siem Offshore Inc., Annual Report

34 NOTES TO THE ACCOUNTS are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these consolidated financial statement. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below: IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The group is yet to assess IFRS 9 s full impact. The Group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board. IFRIC 21, Levies, sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation addresses what the obligating event is that gives rise to pay a levy and when should a liability be recognised. The Group is not currently subjected to significant levies so the impact on the Group is not material. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. 1.4 Consolidation (a) Subsidiaries Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies by controlling more than one half of the voting rights in the relevant entity. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. The Company also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Company s voting rights relative to the size and dispersion of holdings of other shareholders give the Company the power to govern the financial and operating policies, etc. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. The Company applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred and the liabilities assumed from to the former owners of the acquirer and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Company recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest s proportionate share of the recognised amounts of acquiree s identifiable net assets. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, fair value of the acquirer s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the Company is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. Intercompany transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting 34 Siem Offshore Inc., Annual Report 2013

35 policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company. (b) Associated companies Associates are all entities over which the Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The Company s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The share of earnings recorded in the consolidated financial statements are based on the after-tax earnings of the associates. In the income statement, the share of earnings from associates is shown as a financial item. The Company s share of its associates post-acquisition profits or losses is recognized in the income statement and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Company s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognize further losses unless it has incurred obligations or made payments on behalf of the associate. associates have been reconciled where necessary to ensure consistency with the policies adopted by the Company. 1.5 Classification of items in the financial statements Assets designated for long-term ownership or use and receivables due later than one year after drawdown have been recorded as non-current assets. Other assets are classified as current assets. Receivables are stated at par value less provision for doubtful accounts. Liabilities due later than one year after the end of the accounting year are posted as non-current liabilities. Other liabilities are classified as current liabilities. 1.6 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions. The Company is organized into eight different segments, platform supply vessels ( PSVs ), offshore subsea construction Vessel ( OSCVs ) anchor-handling tug supply vessels ( AHTS vessels ), Brazilian vessels (consisting of fast crew vessels ( FCVs ), fast supply vessels ( FSVs ) and oil spill recovery vessels ( OSRVs )), combat management systems ( CMS ), Cable installation, Scientific core-drilling and Other, in which the Company operates. 1.7 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Company s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The consolidated financial statements are presented in USD, which is the Company s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. (c) Group companies The results and financial position of all the group companies (none of which have the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of The following exchange rates are used in 2013: Average NOK (Norwegian kroner) EUR (Euros) GBP (Pound Sterling) REAS (Brazilian Reals) Siem Offshore Inc., Annual Report

36 NOTES TO THE ACCOUNTS (i) assets and liabilities for each reporting presented are translated at the closing rate at the date of that statement of financial position; (ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences are recognized as a separate component of equity. In consolidation, exchange differences arising from the translation of the net investment in foreign operations is recorded over Other Comprehensive Income (OCI) and taken into shareholders equity. When a foreign operation is sold, exchange differences that were recorded over OCI are recognized in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 1.8 Fixed assets and maintenance costs Vessels are measured in the consolidated statement of financial position at cost less accumulated depreciation and impairment loss. Depreciation is on a straight-line basis and determined by an estimate of the remaining useful economic life of the asset. Estimated residual value is determined as the estimated sales price for steel less the costs associated with scrapping a vessel. The estimate is reassessed at each balance sheet date. The vessels presently owned by the Company are considered to have an economic life of 30 years. Some components of the vessels have a shorter economic life than 30 years. The vessels are decomposed into different components and amortized over estimated economic life time. For further information, see Note 5. Other fixed assets are depreciated on a straight-line basis over the anticipated useful life. Each part of a fixed asset that is significant to the total cost of the asset is separately identified and depreciated over that component s useful lifetime. Components with similar useful lives will be included in one component. The Company has identified 7 significant components relating to its different types of vessels. In accordance with IAS 16 and the cost model, dry-dock costs are considered a separate component of the ship s cost at purchase with a different pattern of benefits and, therefore, need to be amortized separately. Day-to-day maintenance costs are charged to the income statement during the financial period in which they are incurred. The cost of major renovations and periodic maintenance of vessels is capitalized as dry-docking costs and depreciated over the useful lifetime of the parts replaced. The useful life of the regular vessels dry-docking costs will be the period until the next docking, normally from 2 to 3 years. The residual value and expected useful lifetime assumptions of fixed assets are reviewed at each reporting date and, where they differ significantly from previous estimates, the rate of depreciation charges are changed accordingly. Certain vessel contracts require an investment prior to commencing the contract to fulfil requirements set by the charterer. These investments are capitalized as project costs and are amortized over the term of the specific charter contracts. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in operating profit. 1.9 Newbuild contracts Instalments on newbuild contracts are recorded as non-current assets. Costs related to the on-site supervision and other pre-delivery construction costs are capitalized per vessel. Borrowing costs related to newbuilding contracts commenced before December 31, 2009 are recognized as an expense immediately. For newbuilding contracts where the commencement date for capitalization is on or after January 1, 2010, the Company capitalizes borrowing costs directly attributable to the construction as a part of the cost of the asset Impairment of fixed assets Non-current assets are reviewed for potential impairment at each reporting date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The asset s cash generating ability either through use or sale is reviewed and compared to the asset s carrying amount in the statement of financial position. If the carrying amount is higher, the difference must be written off as an impairment loss. Fair value reduced by estimated sales costs is the amount achievable on sale to an independent third party. The recoverable amount is established individually for all assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current 36 Siem Offshore Inc., Annual Report 2013

37 market assessments of the time and the risk specific to the asset that is considered impaired. A previously recognized impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Reversal of previously recognized impairment is limited to the amount that the carrying value of the asset would have been had the initial impairment charge not taken place Intangible assets Intangible assets that are acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is recognized at fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internallygenerated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is charged against profits in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or infinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as a change in accounting estimate. The amortization expense on intangible assets with finite lives is recognized in the income statement in the expense category consistent with the function of the intangible asset. Intangible assets with infinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortized. The useful life of an intangible asset with an infinite life is reviewed annually to determine whether the infinite life assessment continues to be supportable. If not, the change in the useful life assessment from infinite to finite is made on a prospective basis. Goodwill arises on the acquisition of subsidiaries, associates and joint ventures and represents the excess of the consideration transferred over Company s interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the noncontrolling interest in the acquiree. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs, or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed Financial assets The Company classifies its financial assets in the following categories: Financial assets at fair value through profit or loss, Loans and receivables, and Available for sale Financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date. (a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those which maturities greater than 12 months after the reporting date. These are classified as non-current assets Inventories Lubricating oil and bunkers inventories are valued at the lower of historical cost and market value applying the FIFO (first-in, first-out) principle. The Company makes inventory provisions based on an assessment of excess and obsolete inventories Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. Siem Offshore Inc., Annual Report

38 NOTES TO THE ACCOUNTS 1.15 Accounts receivable Accounts receivable are reported at amortized cost. The interest factor is ignored as it is considered as insignificant. In the case of objective evidence of a fall in value, the difference between reported value and the present value of the future cash flow is discounted with the original effective interest rate for the receivable and reported as a loss. Provisions for losses are recognized when there are objective indicators that the Company 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 nonpayment are regarded as indicators that the receivables from customers must be written-down Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. When the Company purchases its own shares, the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted as appropriate from share capital and share premium reserve and the shares are cancelled Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred and are subsequently stated at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date Commercial Interest Reference Rate (CIRR) loan The Company has applied for three Commercial Interest Reference Rate (CIRR) loans from the Norwegian Export Credit Agency. The duration of the loans is 12 years and the cash proceeds from the loans have been deposited in fixed deposit account with a Norwegian bank at the same interest rate as the loans. The agreed periods of the deposits are identical with the periods of the loans Taxation Tax expense/benefit includes current taxes and the change in deferred taxes. Deferred income tax is provided for all temporary differences between the book value and the tax basis of assets and liabilities and for tax losses carried forward. Deferred tax assets made probable through prospective earnings that can be utilized against the tax reducing temporary differences are recognized as intangible assets. Deferred tax assets and deferred tax liabilities are recognized independently of when the differences will be reversed and, as a rule, at nominal value. Deferred tax assets and tax liabilities are measured on the basis of estimated future tax rate. Part of the Company s activities under the Norwegian subsidiaries are structured to be in compliance with the regulations for the Norwegian Tonnage Tax Regime. The Company has estimated a tax rate of 0% for the companies subject to Norwegian Tonnage Tax Regime. Financial income within the regime is taxable at a rate of 28%. For companies not included in the tonnage tax regime, the Company applies a tax rate of 28%. The tax expense consists of tax payable and changes in deferred tax assets/liabilities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax assets are recognized to the extent it is probable that future taxable profits will be generated to utilize the temporary differences forming basis for the deferred tax assets Pension costs and obligations The Company has a defined benefit plan for its employees in Norway. The pension scheme is financed through contributions to insurance companies or pension funds. A defined benefit plan defines the amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized on the statement of financial position relating to defined benefit plans is the net present value for the defined benefits on the reporting date less the fair value of the pension fund assets adjusted for unrecognized 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 38 Siem Offshore Inc., Annual Report 2013

39 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 Contingent liabilities and provisions The Company recognizes 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 litigation will be settled will be assessed for the Company as a whole. Provisions for the Company are recognized even if the probability for settlement related to the Company 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 recognized as an interest cost. At year-end 2013, no contingent liabilities are recognized in the Statements of Financial Position Financial derivatives The Company enters into derivative instruments, primarily foreign currency contracts, and interest rate derivatives, to hedge the foreign currency rates and interest rate fluctuations. The criteria for qualifying as a hedge under IFRS are strict. The Company s foreign currency contracts do not qualify as hedging. The fair market value of these contracts is recorded as a receivable or liability and any change in the valuation is recognized in the profit and loss as operating expenses Revenue recognition The Company s activity is to employ different types of offshore support vessels, including PSVs, OSCVs, AHTS vessels, OSRVs, standby vessels and crew-boats and one scientific core-drilling vessel. In addition, the Company holds interest in one limited liability partnership with ownership in one well-stimulation vessel. In one of the subsidiaries of the Company, revenues are partly generated from income from construction contracts. Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Company s activities. Revenue is shown net of value-added tax, withholding tax, returns, rebates and discounts and after elimination of sales within the Company. Revenue is recognized as follows: Charter rate contracts Charter contracts are classified as operating leases under IAS 17. Revenue derived from charter contracts is recognized in the period over the lease term on a straight line basis. Related services are recognized as revenue in accordance with the services being rendered. Revenues from time charters and bareboat charters accounted for as operating leases are recognized over the rental periods of such charters, as service is performed on a straight line basis. Certain contracts include mobilization fees payable at the start of the contract, and are recognized as revenue in the mobilization period until contract commencement. In cases where the fee covers specific upgrades or equipment specific to the contract, the mobilization fees are recognized as revenue over the estimated contract period. The related investment is depreciated over the estimated contract period. In cases where the fee covers specific operating expenses at the start of the contract, the fees are recognized in the same period as the expenses. Vessels without signed contracts in place at discharge have no revenue before a new contract is signed. Charter-related expenses incurred for vessels in the idle time are expensed. Construction contracts The Company accounts for long-term construction, engineering and project management contracts on the percentageof-completion basis as costs are incurred. Under this method, when the outcome of a construction contract can be estimated reliably and it is probably that the contract will be profitable, contract revenue is recognized over the period of the contract by reference to the stage of completion. It is determined that profit on a contract is not able to be estimated reliably until progress has reached at least 25% completion. Contract costs are recognized as expenses by reference to the stage of completion of the contract activity at the end of the reporting period. For projects that are expected to result in a loss, the total estimated loss is recognized immediately. Interest income Interest income is recognized using the effective interest method. When a receivable is impaired, the company reduces the carrying amount to its recoverable amount, which is determined as the estimated future cash flow discounted at original effective interest rate of the instrument and continues unwinding the discount as interest income. Siem Offshore Inc., Annual Report

40 NOTES TO THE ACCOUNTS Interest income on impaired loans is recognized using the original effective interest rate. Dividend income Dividend income is recognized when the right to receive payment is established. Rendering of services Service revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the service has been provided, the fee is fixed or determinable and collection of resulting receivables is reasonably assured. Other services are recognized on percentage-of-completion basis Use of estimates Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities. Further information is set out in Note Earnings per share Earnings per share are calculated by dividing the net profit/loss for shareholders of the Company by the weighted average number of outstanding shares over the period in question. Diluted earnings per share include the effect of the assumed conversion of potentially dilutive instruments such as stock options. The impact of share equivalents is computed using the treasury stock method for share options Statements of Cash Flows The Statements of Cash Flows are prepared in accordance with the indirect method Related party transactions All transactions, agreements and business activities with related parties are determined on an arm s length basis in a manner similar to transactions with third parties Events after reporting date New information regarding the Company s financial position on the reporting date is included in the accounts. Events occurring after the reporting date which do not impact the Company s standing on the reporting date, but which have a significant impact on future periods, are presented in the notes to the accounts Government grants Grants relating to net wages arrangement in Norway are recognized as a reduction of wage cost Exchange gain/ loss related to account receivables and account payable All foreign exchange gains and losses related to account receivables and account payable are recognized in the income statement under net currency items Operating leases Leases for which most of the risk and return associated with the ownership of the asset have not been transferred to the Company are classified as operating leases. Lease payments are classified as operating costs and recognized in the income statement in a straight line during the contract period Share-based payments The group operates an equity-settled, share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted: - including any market performance conditions (for example, an entity s share price); - excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and - including the impact of any non-vesting conditions (for example, the requirement for employees to save). Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognizing the expense during the period between service commencement period and grant date. At the end of each reporting period, the group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognizes the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. Each option gives the holder the right, but not the obligation, to acquire one share at the exercise price on the terms and subject to the conditions set out in the Stock Option Plan. When the options are exercised, the company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium. 40 Siem Offshore Inc., Annual Report 2013

41 The grant by the company of options over its equity instruments to the employees of subsidiary undertakings in the group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognized over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts. The social security contributions payable in connection with the grant of the share options is considered an integral part of the grant itself, and the charge will be treated as a cash-settled transaction. Siem Daya 2 Photo: Harald M Valderhaug Siem Offshore Inc., Annual Report

42 NOTES TO THE ACCOUNTS Note 2 - Financial Risk Management 2.1 Financial risk factors The Company is exposed to a variety of financial risks through its ordinary operations and debt financing. Such risks include foreign exchange risk, interest rate risk, credit risk and liquidity risk. To manage these risks, management reviews and assesses its primary financial and market risks. Once risks are identified, appropriate action is taken to mitigate the identified risk. The Company s risk management is exercised in line with guidelines approved by the Board. 2.2 Foreign exchange risks USD is the reporting currency for the Company. Functional currency for the parent company and vessel-operating subsidiaries is USD, except for the Brazilian subsidiary where BRL is the functional currency. Remaining subsidiaries use NOK and EUR as functional currency.the Company operates internationally and is exposed to foreign exchange risks arising from various currency exposures primary with respect to NOK, GBP, EUR and BRL. CONSOLIDATED Foreign exchange risk rate 10% (Amounts in USD 1,000) +10% movements -10% movements December 31, 2013 Financial assets Carrying amount Profit/(loss) Equity Profit/(loss) Equity Cash and cash equivalent 101,206 2,473 2,473-2,473-2,473 Derivatives Accounts receivable 53,198 2,653 2,653-2,653-2,653 Impact on financial assets before tax 154,404 5,126 5,126-5,126-5,126 Financial liabilities Accounts payable 16,253-1,966-1,966 1,966 1,966 Derivatives 11,085-33,797-33,797 29,343 29,343 Borrowings 961,500-36,253-36,253 36,253 36,253 Impact on financial liabilities before tax 988,838-72,016-72,016 67,562 67,562 Income statement Operating revenue 363,955 16,834 16,834-16,834-16,834 Operating expenses 241,291-19,235-19,235 19,235 19,235 Impact on operating result before tax 122,663-2,401-2,401 2,401 2,401 Total increase/decrease before tax -69,290-69,290 64,836 64,836 Allocation per currency NOK -60,250-60,250 55,797 55,797 EUR 2,079 2,079-2,079-2,079 GBP BRL -11,569-11,569 11,570 11,570 Total increase/ decrease before tax -69,290-69,290 64,836 64,836 Financial assets in 2013 include derivatives related to hedging of foreign exchange risks. The derivatives in the sensitivity table include pathdependent options in which the value of the derivatives is influenced when the underlying reaches or fluctuates within, below or above specific barrier levels. The change in value of these derivatives will impact the profit of the Company. Financial liabilities in 2013 consist of interest rate derivatives and are not influenced by movements in foreign exchange rates. 42 Siem Offshore Inc., Annual Report 2013

43 Foreign exchange risks can be divided into transaction risk from paying and receiving foreign currency and translation risk due to recognizing assets and liabilities in USD. The Company had in 2013 and 2012 mainly USD, NOK, GBP and BRL revenues, and mainly USD, NOK, EUR and BRL expenses. At year end, the Company had shipbuilding contracts with Brazilian yards for the construction of two OSRVs and one large-size PSV, shipbuilding contracts with Norwegian yards for the construction of two OSCV s, one PSV and one ISV and shipbuilding contracts with a Polish yard for the construction of five PSVs and one CLV. The contracts with Brazilian yards are in USD, BRL and NOK, the contracts with Norwegian yards are in NOK and the contracts with the Polish yard are in EUR. Further information regarding these contracts is set out in Note 2.5 and Note 17. The Company is exposed to foreign exchange risk of its subsidiaries, including the development of the Brazilian Real. The following sensitivity table demonstrates the impact on the Company s profit and equity before tax from potential changes to the exchange rates, all other variables held constant. CONSOLIDATED Foreign exchange risk rate 10% (Amounts in USD 1,000) +10% movements -10% movements December 31, 2012 Financial assets Carrying amount Profit/(loss) Equity Profit/(loss) Equity Cash and cash equivalent 107,068 6,247 6,247-6,247-6,247 Derivatives 5,829-2,853-2,853-8,211-8,211 Accounts receivable 44,221 1,399 1,399-1,399-1,399 Impact on financial assets before tax 157,118 4,793 4,793-15,857-15,857 Financial liabilities Accounts payable 5, Derivatives 12, Borrowings 796,986-20,182-20,182 20,182 20,182 Impact on financial liabilities before tax 814,701-20,677-20,677 20,677 20,677 Income statement Operating revenue 368,213 14,437 14,437-14,437-14,437 Operating expenses 257,615-19,860-19,860 19,860 19,860 Impact on operating result before tax 625,828-5,423-5,423 5,423 5,423 Total increase/decrease before tax -21,307-21,307 10,243 10,243 Allocation per currency NOK -15,937-15,937 4,873 4,873 EUR -1,196-1,196 1,196 1,196 GBP 2,846 2,846-2,846-2,846 BRL -7,019-7,019 7,019 7,019 Total increase/ decrease before tax -21,307-21,307 10,243 10,243 Siem Offshore Inc., Annual Report

44 NOTES TO THE ACCOUNTS Parent company Foreign exchange risk rate 10% (Amounts in USD 1,000) +10% movements -10% movements December 31, 2013 Financial assets Carrying amount Profit/(loss) Equity Profit/(loss) Equity Cash and cash equivalent 132,068 7,946 7,946-7,946-7,946 Accounts receivable 3, Impact on financial assets before tax 135,514 7,946 7,946-7,946-7,946 Financial liabilities Accounts payable Derivatives Borrowings 98,624-14,034-14,034 14,034 14,034 Impact on financial liabilities before tax 99,021-14,053-14,053 14,053 14,053 Income statement Operating revenue 10, Operating expenses 18,774-1,189-1,189 1,189 1,189 Impact on operating result before tax -7,821-1,191-1,191 1,191 1,191 Total increase/decrease before tax -7,298-7,298 7,298 7,298 Allocation per currency NOK -7,324-7,324 7,324 7,324 EUR GBP Total increase/ decrease before tax -7,298-7,298 7,298 7, Siem Offshore Inc., Annual Report 2013

45 Parent company Foreign exchange risk rate 10% (Amounts in USD 1,000) +10% movements -10% movements December 31, 2012 Financial assets Carrying amount Profit/(loss) Equity Profit/(loss) Equity Cash and cash equivalent 57, Accounts receivable 6, Impact on financial assets before tax 64, Financial liabilities Accounts payable Derivatives Borrowings Impact on financial liabilities before tax Income statement Operating revenue 13, Operating expenses 25,128-1,697-1,697 1,697 1,697 Impact on operating result before tax -11,545-1,687-1,687 1,687 1,687 Total increase/decrease before tax -1,832-1,832 1,832 1,832 Allocation per currency NOK -1,869-1,869 1,869 1,869 EUR GBP Total increase/ decrease before tax -1,832-1,832 1,832 1,832 Siem Offshore Inc., Annual Report

46 NOTES TO THE ACCOUNTS 2.3 Credit risks Concentration risks The Company s credit risk is primarily attributable to its trade and other shortterm receivables. The exposure to credit risk is measured on an ongoing basis and credit evaluations are performed for customers identified to be risky. The Company s debtors are mainly major oil companies and offshore service companies, which are considered to be creditworthy third parties. Historically, the loss percentage has been low. Ongoing provisions are made and, on December 31, 2013, the provision for certain accounts receivables which may not be paid in full was USD 7.0 million for the Company (2012: USD 7.8 million) and USD 0K for the Parent (2012: USD 31K). The table below presents the concentration risks for 2013 and PARENT COMPANY CONSOLIDATED USD % of total (Amounts in USD 1.000) USD % of total Receivables on December 31, , % 1 to 5 largest 32, % - 0.0% 6 to 10 largest 17, % - 0.0% Others 2, % 3, % Total accounts receivables 53, % USD % of total (Amounts in USD 1,000) USD % of total Receivables on December 31, , % 1 to 5 largest 27, % - 0.0% 6 to 10 largest 9, % - 0.0% Others 7, % 6, % Total accounts receivables 44, % Trade and receivables The table below presents an aging analysis of the outstanding receivables at year end 2013 and Overdue receivables are followed up continually by Management. The Management considers the outstanding amounts to be recoverable. 46 Siem Offshore Inc., Annual Report 2013

47 PARENT COMPANY CONSOLIDATED USD % of total (Amounts in USD 1.000) USD % of total Aging on December 31, % Not due 27, % - 0.0% Due up to 1 month 16, % - 0.0% Due 1-4 months 3, % 3, % Due more than 4 months 6, % 3, % Total accounts receivables 53, % USD % of total (Amounts in USD 1,000) USD % of total Aging on December 31, , % Not due 17, % 1, % Due up to 1 month 13, % 4, % Due 1-4 months 8, % - 0.0% Due more than 4 months 4, % 6, % Total accounts receivables 44, % The carrying amounts of the Company s and Parent s accounts receivables are denominated in the following currencies: PARENT COMPANY CONSOLIDATED (Amounts in USD 1.000) Currency 3,447 6,739 USD 26,670 30, NOK 10,123 6, EUR 10, GBP 2,015 1, BRL 3,391 5,482 3,447 6,739 Total accounts receivables 53,198 44,221 The maximum exposure to credit risk at the reporting date is the carrying value of each class of accounts receivables mentioned above. Siem Offshore Inc., Annual Report

48 NOTES TO THE ACCOUNTS 2.4 Cash flow, interest risk and fair value The Company is financed by debt and equity. If the Company fails to repay or refinance its loan facilities, additional equity financing may be required. There can be no assurance that the Company will be able to repay its debts or extend re-payment schedules through refinancing of its loan agreements or avoid net cash flow shortfalls exceeding the Company s available funding sources or comply with minimum cash requirements. Further, there can be no assurance that the Company will be able to raise new equity, or arrange new borrowing facilities, on favourable terms and in amounts necessary to conduct its ongoing and future operations, should this be required. In the event of insolvency, liquidation or similar event relating to a subsidiary of the Company, all creditors of such subsidiary would be entitled to payment in full out of the assets of such subsidiary before the Company, as a shareholder, would be entitled to any payments. Defaults by, or the insolvency of, a subsidiary of the Company could result in the obligation of the Company Consolidated Interest rate risk (IR) (Amounts in USD 1,000) -1% movements +1% movements December 31, 2013 Financial assets Carrying amount Profit/(loss) Equity Profit/(loss) Equity Cash and cash equivalent 101,206-1,012-1,012 1,012 1,012 Impact on financial assets before tax 101,206-1,012-1,012 1,012 1,012 Financial liabilities Borrowings 629,221-3,886-3,886 3,350 3,350 Impact on financial liabilities before tax 629,221-3,886-3,886 3,350 3,350 Total increase/decrease before tax -4,898-4,898 4,362 4,362 Consolidated Interest rate risk (IR) (Amounts in USD 1,000) -1% movements +1% movements December 31, 2012 Financial assets Carrying amount Profit/(loss) Equity Profit/(loss) Equity Cash and cash equivalent 107,068-1,071-1,071 1,071 1,071 Impact on financial assets before tax 107,068-1,071-1,071 1,071 1,071 Financial liabilities Borrowings 653,039-15,057-15,057 6,377 6,377 Impact on financial liabilities before tax 653,039-15,057-15,057 6,377 6,377 Total increase/decrease before tax -16,128-16,128 7,447 7, Siem Offshore Inc., Annual Report 2013

49 to make payments under parent company guarantees issued in favour of such subsidiary. The Company is moreover exposed to changes in interest rates, which may affect the Company s financial results. These risks are mainly related to the Company s long term borrowings with floating interest rates. Further details of the Company s borrowings are set out in Note 12. The Company has no significant interestbearing assets other than cash and cash equivalents and therefore the Company s income and operating cash flows are substantially independent of changes in market interest rates. Cash and cash equivalents are invested for short maturity periods, generally from 1 day to 3 months, which mitigates the potential interest rate risk. The following sensitivity tables demonstrate the impact on the Company s profit before tax and equity from a potential shift in interest rates, all other variables held constant. PARENT COMPANY Interest rate risk (IR) (Amounts in USD 1,000) -1% movements +1% movements December 31, 2013 Financial assets Carrying amount Profit/(loss) Equity Profit/(loss) Equity Cash and cash equivalent 132,068-1,321-1,321 1,321 1,321 Impact on financial assets before tax 132,068-1,321-1,321 1,321 1,321 Financial liabilities Borrowings 98, Impact on financial liabilities before tax 98, Total increase/decrease before tax PARENT COMPANY Interest rate risk (IR) (Amounts in USD 1,000) -1% movements +1% movements December 31, 2012 Financial assets Carrying amount Profit/(loss) Equity Profit/(loss) Equity Cash and cash equivalent 57, Impact on financial assets before tax 57, Financial liabilities Borrowings Impact on financial liabilities before tax Total increase/decrease before tax Siem Offshore Inc., Annual Report

50 NOTES TO THE ACCOUNTS The Company s financial assets are classified into the categories: assets at fair value through the profit and loss, loans and receivables, and available for sale. Financial liabilities are classified as liabilities at fair value through the profit and loss, and other financial liabilities. For further information about comparison by category, see Note 29. The value of forward exchange contracts is set by comparing forward exchange rate and the rate on the reporting date. The Company s following financial instruments are not evaluated at fair value: accounts receivable, cash and cash equivalents, other short -term receivables, accounts payable and longterm liabilities with floating interest. Because of the short term to maturity, the value of cash and cash equivalents entered into the Statements of Financial Position is almost the same as the fair value of these. Accordingly, the values of accounts receivables and accounts payables are almost the same as their fair values since they are entered on normal conditions. The fair value of the Company s noncurrent liabilities subjected to fixed interest rates is calculated by comparing the Company s terms and market terms for liabilities with the same terms to maturity and credit risk. The following tables display the booked value and the fair value of financial assets and obligations. CONSOLIDATED (Amounts in USD 1,000) 12/31/ /31/2012 Book value Fair value Book value Fair value Financial assets CIRR loan deposit 41,718 42,580 53,194 54,522 Long-term receivables 6,639 6,639 7,111 7,111 Accounts receivables 53,198 53,198 44,221 44,221 Other short-term receivables 32,737 32,737 38,461 38,461 Derivative financial instruments - - 5,829 5,829 Cash and cash equivalents 101, , , ,068 Total 235, , , ,212 Financial liabilities Borrowings 961, , , ,565 CIRR loan 41,718 42,580 53,194 54,522 Other non-current liabilities 18,826 18,826 14,992 14,992 Accounts payable 16,253 16,253 5,377 5,377 Derivative financial instruments 11,085 11,085 12,339 12,339 Other current liabilities 44,061 44,061 50,882 50,882 Total 1,093,443 1,103, , , Siem Offshore Inc., Annual Report 2013

51 Parent company (Amounts in USD 1,000) 12/31/ /31/2012 Book value Fair value Book value Fair value Financial assets CIRR loan deposit 41,718 42,580 53,194 54,522 Long-term loan 47,094 47,094 90,043 90,043 Accounts receivable 3,447 3,447 6,739 6,739 Other short-term receivables 5,207 5,207 4,030 4,030 Cash and cash equivalents 132, ,068 57,270 57,270 Total 229, , , ,604 Financial liabilities CIRR loan 41,718 42,580 53,194 54,522 Accounts payable ,409 Other current liabilities 8,170 8,170 8,256 - Total 50,285 51,147 62, ,931 Siem Offshore Inc., Annual Report

52 NOTES TO THE ACCOUNTS 2.5 Liquidity risk The Company monitors its cash flow from operations closely and optimizes the working capital level of the individual companies and the Company as a whole. The Company funds are used for investment opportunities in the business, yard instalments, scheduled repayments and repayments of debt and to general working capital purposes. The Company seeks to fix the majority of its fleet on long-term contracts. Vessels not fixed on long-term contracts are exposed to the volatility in the North Sea spot market. The Company will from time to time require additional capital to take advantage of business opportunities. Historically the Company has managed to obtain necessary financing in a timely manner on acceptable terms when needed. The tables below summarize the maturity profile of the Company s financial liabilities, and future commitments to the newbuilding program. CONSOLIDATED December 31, 2013 Less than 3 months 3 to 12 months 1 to 5 years Thereafter Interest-bearing loans and borrowings 31,414 76, , ,247 1,010,586 Trade and other payables 16, ,253 Total 47,667 76, , ,247 1,026,839 December 31, 2012 Interest-bearing loans and borrowings 21,290 77, , , ,945 Trade and other payables 5, ,377 Total 26,667 77, , , ,322 Total CONSOLIDATED December 31, 2013 Less than 3 months 3 to 12 months 1 to 5 years Thereafter Yard instalments falling due 71, , , ,969 December 31, 2012 Yard instalments falling due 20, , , ,702 Total PARENT COMPANY December 31, 2013 Less than 3 months 3 to 12 months 1 to 5 years Thereafter Interest-bearing loans and borrowings - 6, ,436 6, ,342 Trade and other payables Total 397 6, ,436 6, ,739 December 31, 2012 Interest-bearing loans and borrowings - 7,599 30,397 15,198 53,194 Trade and other payables Total 631 7,599 30,397 15,198 53,825 Total No yard instalments falling due for the parent company as there were no vessels under construction year-end 2013 and Siem Offshore Inc., Annual Report 2013

53 2.6 Capital risk management The Company seeks to obtain longterm financing supported by longterm contracts, in order to reduce the frequency and risk associated with the refinancing of loans. Long-term charter parties will also enable a higher degree of debt-financing. The wholly-owned Norwegian company, Siem Offshore Rederi AS, has 10 vessels under construction in Norway and Poland at year end, which includes two OSCV s, one ISV, six dual-fuel PSVs and one CLV. First 10% to 20% of contract price is or will be paid in accordance with agreed payment schedules and the remaining 80% to 90% will be paid at delivery. The Company has secured long-term employment for one OSCV and for two dual fuelled PSVs under construction. The CLV and ISV will be utilised by the Company s wholly-owned subsidiary, Siem Offshore Contractors, for project work within the submarine power cable installation, repair and maintenance segment. The Company is in discussions for long-term contracts for the OSCV and for the four dual fuelled PSVs. The wholly-owned Brazilian subsidiary, Siem Offshore do Brasil SA, has three vessels under construction in Brazil at year-end, which includes two OSRV s and one large-size PSV. The two OSRV s are scheduled for delivery in second- and fourth quarter Both vessels shall commence eight-year firm contracts for Petrobras with options for additional eight-year periods. The large-size PSV is scheduled for delivery in second quarter The Company is in discussions for long-term contracts for the PSV. Siem Offshore do Brasil SA has paid 20% of the cost price for the PSV under construction, 10% at contract signing and further 10% during The remaining 80% will be paid at delivery of the vessel, scheduled in The company has secured debt-financing for nine of the thirteen vessels under construction at year-end. 2.7 Risks related to loan agreements, restrictions on dividends and distribution The Company s loan agreements include terms, conditions and covenants which impose restrictions on the operations of the Company. These restrictions may negatively affect the Company s operations including, but not limited to, the Company s ability to meet the fierce competition in the market in which it operates. 2.8 Risks related to possible tax liabilities The Company seeks to optimize its tax structure to minimize withholding taxes when operating vessels abroad, avoiding double taxation, and minimizing corporate tax paid by making optimal use of the shipping taxation rules that apply. It is, however, a challenging task to optimize taxation, and there is always a risk that the Company may end up paying more taxes than the theoretical minimum, which may in turn affect the financial results negatively. What will the future bring? A/B Trainee Julie Haaversen Girl power at work Ch. Off. Merete Borgundvag Pettersen A/B Trainee Julie Haaversen Siem Offshore Inc., Annual Report

54 NOTES TO THE ACCOUNTS Note 3 - Critical Accounting Estimates and Judgements IFRS requires Management to make estimates and assumptions that affect the reported amounts of 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 Company 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 Company s financial position, which at the same time is the result of difficult, subjective and complex assessments performed by the management. Such estimates are often uncertain by nature. Management evaluates such estimates continuously based on historical data and experience, consultation with experts, trend analysis 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. Siem Topaz winter towing. Photo: Steffen Voldsund 54 Siem Offshore Inc., Annual Report 2013

55 Vessels Economic life The level of depreciation is dependent upon 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 Company. The estimate is reassessed annually. A change in the estimates 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 reporting date. The anticipated residual value is based on knowledge of the scrap value of vessels. The scrap value estimates are dependent on the price of steel. The scrap value estimates is subject to an annual reassessment. Write-downs On the reporting date, the Company 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. If a vessel is fixed on a long contract, the broker also estimates an excess value of the charter party and this value is discounted based on an estimated discount rate. For vessels fixed on long contract, the recoverable amount constitutes of brokers estimates and discounted excess value. Estimated impairment of goodwill and intangible assets The Company tests whether goodwill and intangible assets have suffered any impairment in accordance with the accounting policy stated in note The recoverable amounts of cash-generating unit have been determined based on valuein-use calculation. This calculation require the use of estimates (Note 5). Market value of derivatives All derivatives, are recognized in the statement of financial position at market value. The market value of derivatives is typically based on an expected future performance and is calculated by means of complicated valuation models. The estimates are based on the information available on the reporting date and will be influenced by changes in the interest rates, foreign currency exchange rates and other input for the calculations. Recognition of purchase cost for new buildings in the statement of financial position Only purchase costs that are directly related to the asset under construction may be recognized in the statement of financial position. The term directly related to requires the use of judgement for several costs that are relevant to construction to determine whether costs shall be recognized in the statement of financial position or as an expense. 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 Company has over the individual company. An evaluation of the degree of control requires the use of judgment for a number of parameters. Tax legislation Tax legislation is subject to varying interpretations. Further information is set out in Note 11. Siem Offshore Inc., Annual Report

56 Notes to the accounts Note 4 - Segment Reporting For reporting purposes, the Company is organised into seven segments, which are representative of its principal activities. (Amounts in USD 1,000) CONSOLIDATED Operating revenue by business area PSV 94,630 91,433 OSCV 41,407 49,758 AHTS Vessels 131, ,978 Other Vessels in Brazil 24,103 29,084 Combat Management Systems 7,987 8,321 Submarine Power Cable Installation 23,151 7,818 Scientific Core-Drilling 36,898 59,070 Other 3,884 7,751 Total 363, ,213 Depreciation and amortisation by business area PSV 21,288 21,713 OSCV 7,072 8,648 AHTS Vessels 38,883 41,795 Other Vessels in Brazil 2,989 3,896 Submarine Power Cable Installation 440 2,231 Scientific Core-Drilling 3,264 3,086 Other 1,904 1,381 Total 75,841 82,749 Operating profit/(loss) by business area PSV 21,640 16,270 OSCV 19,782 18,148 AHTS Vessels 29,023 6,544 Other Vessels in Brazil 3,750 1,838 Combat Management Systems 1,360 2,222 Submarine Power Cable Installation 3,425-3,990 Scientific Core-Drilling 17,139 27,318 Other -26,857-13,964 Total 69,261 54, Siem Offshore Inc., Annual Report 2013

57 Other operating profit/(loss) includes, among others, gain of sale of interest rate derivatives (CIRR), gain/(loss) on currency exchange forward contracts and general andadministration expenses. Capital expenditures by business area PSV (1) 41,252 10,110 OSCV (1) 204,786 18,001 AHTS Vessels 3, Other Vessels in Brazil (1) 65,237 24,017 Combat Management Systems - - Submarine Power Cable Installation 4, Scientific Core-Drilling 2, Other 7, Total 329,413 53,367 (1) Includes newbuilding program, in total: 301,520 Coffee break and discussions at Kristiansand Office, Norway Photo: Jan Peter Lehne Siem Offshore Inc., Annual Report

58 Notes to the accounts Note 5 - Vessels, Equipment, Project Cost and Intangible Assets PARENT COMPANY Siem Opal in rough seas. Photo: Kristian Rønning, Chief Eng., Siem Topaz. Vessels under construction Vessels and equipment Drydocking - - 2, , , , , , , , , , Siem Offshore Inc., Annual Report 2013

59 CONSOLIDATED (Amounts in USD 1,000) Land and buildings Vessels under construction Vessels and equipment Drydocking Capitalised project cost Purchase cost on January 1, , ,199 1,585,828 34,782 21,504 Capital expenditure ,397 1,797 4,872 3,652 Additons from acquisition of companies Movements between groups Vessels delivered in ,014 33, The year's disposal at cost ,578-5, Effect of exchange rate differences 341-6,152 11, Purchase cost on December 31, , ,430 1,492,084 34,121 24,433 Accumulated depreciation on January 1, ,230-22,162-7,934 The year's depreciation ,787-8,950-5,070 Movements between groups The year's disposal of acc. depreciation ,922 3, Effect of exchange rate differences , Acc. depreciation on December 31, ,278-27,552-12,280 Net book value on December 31, , ,430 1,248,806 6,569 12,153 Purchase cost on January 1, , ,430 1,492,084 34,121 24,433 Capital expenditure ,731 60,620 9,951 3,679 Movements between groups , Vessels delivered in , , The year's disposal at cost ,331-4,779-3,348 Effect of exchange rate differences ,124-29, Purchase cost on December 31, , ,711 1,725,682 38,445 24,764 Accumulated depreciation on January 1, ,278-27,552-12,280 The year's depreciation ,406-6,467-4,804 Movements between groups The year's disposal of acc. depreciation - - 3,253 4,549 3,348 Effect of exchange rate differences 32-4, Acc. depreciation on December 31, ,405-28,831-13,736 Net book value on December 31, , ,711 1,426,277 9,615 11,027 The balance of capitalized project costs relate to specific contracts. The costs are amortized over the term of the specific charter contracts. Siem Offshore Inc., Annual Report

60 Notes to the accounts The vessels are divided into the following components and economical lives: Component: Percentage of total Economic life Hull 27.00% 30 years Cargo equipment 17.00% 30 years Marine equipment 10.00% 15 years Crew equipment 9.00% 15 years Engine 18.00% 30 years Engine system 6.00% 30 years Combined sewerage system 13.00% 30 years Docking Equipment 2.5 years 3 years On December 31, 2013, the Company assessed, by means of broker estimates, the recoverable vessel values compared to the carrying amounts in the statement of financial position. The assessment provide support that there is no impairment loss for the vessels. Intangible assets (Amounts in USD 1,000) Goodwill Research and development Trademarks and licences Total Balance on January 1, ,433 2,363 9,728 30,524 Moved from Vessel and equipment Investments Effect of exchange rate differences Purchase cost on December 31, ,788 3,354 9,864 32,006 Accumulated depreciation on January 1, ,083 Moved from Vessel and equipment The year's ordinary depreciation Effect of exchange rate differences Accumulated depreciation on December 31, ,103-1,986 Net book value on December 31, ,788 2,471 8,761 30, Siem Offshore Inc., Annual Report 2013

61 Intangible assets (Amounts in USD 1,000) Goodwill Research and development Trademarks and licences Total Balance on January 1, ,788 3,354 9,864 32,006 Moved from Vessel and equipment Investments Effect of exchange rate differences Purchase cost on December 31, ,629 3,279 9,781 32,689 Accumulated depreciation on January 1, ,103-1,986 Moved from Vessel and equipment The year's ordinary depreciation ,047 Effect of exchange rate differences Accumulated depreciation on December 31, ,774-1,177-2,951 Net book value on December 31, ,629 1,505 8,604 29,737 Goodwill was recorded following Siem Offshore s purchase of Siem Offshore Contractors GmbH in Trademarks and licences refer to Siem WIS AS patented technology for the drilling industry. The figures include assets under development and developed assets, and the depreciation refers to developed assets that are not yet commercialized. Share issue in Siem WIS completed in 2013 appreciate the Company s 60% owner share to USD 18,381. This value indicates that there is no impairment loss for the capitalized trademarks and licences. Impairment tests for goodwill Management reviews the business performance based on type of business and the segments are presented in Note 4. Goodwill is monitored by the Management at the operating segment level. All goodwill on 31 December is related to Siem Offshore Contractors, the submarine power cable installation segment. The recoverable amount of Siem Offshore Contractors (the cash generating unit) has been based on value-in use calculation. The calculation is based on a 5-year budget period, approved by Management, which includes the units projected operating cash flows after tax. Cash flows beyond the budget period are included in a terminal value calculation based on a perpetuity growth model where a growth rate of 1% is applied. The projected cash flows are discounted with a discount rate of 11%. Budgeted margin in the budget period is determined by Management based on their experience and expectations on market development, particularly in the renewables market. If the discount rate is increase with 2% from 11% to 13% the calculated recoverable amount would decrease by USD 36,378. Calculated recoverable amount will still exceed carrying value. The recoverable amount from Siem Offshore Contractors performed by Management supports no impairment loss on the goodwill. Siem Offshore Inc., Annual Report

62 Notes to the accounts Note 6 - Investment in Subsidiaries Company Registered office Ownership and voting share Revenue Siem Offshore AS Kristiansand, Norway 100% 10,091 Siem Offshore Invest AS Kristiansand, Norway 100% 13,107 Siem Offshore Rederi AS Kristiansand, Norway 100% 129,944 Siem Offshore do Brasil SA Rio de Janeiro, Brazil 100% 54,707 Siem Offshore US Inc Delaware, USA 100% - Siem AHTS Pool AS Kristiansand, Norway 100% 110,619 DSND Subsea Ltd London, UK 100% - Siem Offshore Services AS Kristiansand, Norway 100% 5,933 Siem Offshore Management AS Kristiansand, Norway 100% 11,712 Siem Offshore Management (US) Inc Texas, USA 100% 522 Siem Offshore Crewing (CI) Inc Cayman Islands 100% 342 Total value recorded in the statement of financial position of the parent company The book value in Siem Offshore do Brasil SA is increased with USD 6.0 million during The book value of Siem Offshore Invest AS is increased with USD 43.8 during 2013, as a result of converting long term debt into equity. The above companies are owned by the Parent. In addition, the subsidiaries own the following companies: Company Registered office Share and voting rights Consub Delaware LLC Delaware, USA 100% Aracaju Serviços Auxiliares Ltda Rio de Janeiro, Brazil 100% Siem Offshore Crewing AS Kristiansand, Norway 100% Siem Meling Offshore DA Stavanger, Norway 51% Næringsbygg Indrettsveien 13 DA Fjell, Norway 95% Siem WIS AS Bergen, Norway 60% Siem Offshore Maritime Personnel AS Kristiansand, Norway 100% Siem Offshore Contractors GmbH Leer, Germany 100% Siem Offshore Contractors EPS BV Glimmen, The Netherlands 100% AHMTEC GmbH Leer, Germany 100% Overseas Drilling Ltd Groningen, The Netherlands 100% Siem Offshore Canada Inc Halifax, Canada 100% Siem Offshore Poland Sp.z.O.O Gdynia, Poland 100% Siem Offshore Australia Perth, Australia 100% 62 Siem Offshore Inc., Annual Report 2013

63 Net profit Share capital Book equity Cost price Book value 12/31/ ,924 1,022 1,022 40, ,927 96,733 96,733 37,010 6, , , ,396-17,262 72,124 14,873 68,164 68, , , , , ,511 Anchor handling in fair weather. Siem Offshore Inc., Annual Report

64 Notes to the accounts Note 7 - Investment in Associated Companies Figures for associated companies included in the consolidated accounts based on the equity accounting. December 31, 2013 (Amounts in USD 1,000) Company name PR Tracer Offshore ANS KS Big Orange XVIII Rovde Ind.park AS Sentosa Offshore DIS Secunda Holdingas LP Total Profit and loss account The year's net profit after tax 3, ,850 10,939 Siem Offshore s share of net profit 1, ,425 5,058 Share of net result not included -2,564-2,564 Adjustments consolidated accounts This year`s share of net profit after tax 1, ,043 Statement of financial position Total assets 2,931 2,249 2,441 30,921 70, ,623 Equity 3,146 2, ,779 32,253 45,333 Total liabilities ,534 24,142 37,828 63,290 Total equity and liabilities 2,931 2,249 2,441 30,921 70, ,623 Siem Offshore's share of booked equity 1, ,127 19,148 Added/reduced in the period Change of ownership% or sale Adjustments IFRS and fair value in excess of book value for vessel and goodwill as of December ,797 Net book value in Siem Offshore as of December 31 1, ,009 20,946 Ownership interest 41.33% 41.33% 50% 5.00% 50% 64 Siem Offshore Inc., Annual Report 2013

65 December 31, 2013 (Amounts in USD 1,000) Company name PR Tracer Offshore ANS KS Big Orange XVIII Rovde Ind.park AS Sentosa Offshore DIS Secunda Holdingas LP Total Specification of changes net book value in Siem Offshore's accounts Net book value as of January 1 1,615 1, ,222 Investment in associated companies -1, ,519 14,406 This year's share of net profit 1, ,501 Adjustments consolidated accounts Change of ownership% or sale Dividends Effect of exchange rate differences Net book value as of December 31 1,378 1, ,009 20,946 Of which: Adjustments IFRS and fair value in excess of book value for vessel and goodwill as of January ,350 Excess value Adjustment for depreciation IFRS Amortisation of fair value in excess of book value for vessels and goodwill Effect of exchange rate differences Fair value in excess of book value for vessels and goodwill as of December ,797 Company name Registered office Consolidated as Owner interest Voting rights Paid in capital Issued, not paid in capital PR Tracer Offshore ANS Lysaker, Norway Equity accounting 41.33% 41.33% 1,633 - KS Big Orange XVIII Lysaker, Norway Equity accounting 41.33% 41.33% 8 5 Rovde Industripark AS Vanylven, Norway Equity accounting 50.00% 50.00% Sentosa Offshore DIS Oslo, Norway Equity accounting 5.00% 5.00% 7,514 - Secunda Holdings LP Halifax, Canada Equity accounting 50.00% 50.00% 15,519 Total 24,895 5 Siem Offshore Inc., Annual Report

66 NOTES TO THE ACCOUNTS December 31, 2012 (Amounts in USD 1,000) Company name PR Tracer Offshore ANS KS Big Orange XVIII Rovde Ind.park AS Sentosa Offshore DIS Total Profit and loss account The year's net profit after tax 2, ,325 7,217 Siem Offshore s share of net profit ,410 Share of net result not included Adjustments consolidated accounts This year`s share of net profit after tax Booked Equity 2,891 1, ,152 14,794 Siem Offshore's share of booked equity 1, ,872 Added/reduced in the period Adjustments IFRS and fair value in excess of book value for vessel and goodwill as of December ,349 Net book value in Siem Offshore as of December 31 1,615 1, ,222 Ownership interest 41.33% 41.33% 50% 5.00% Specification of changes net book value in Siem Offshore's accounts Net book value as of January 1 2, ,218 Investment in associated companies This year's share of net profit Adjustments consolidated accounts Dividends Effect of exchange rate differences Net book value as of December 31 1,615 1, , Siem Offshore Inc., Annual Report 2013

67 Anchor handling in Brazil Photo: João Paulo Wanderley Vidal, Siem Diamond Working late nights Photo: João Paulo Wanderley Vidal, Siem Diamond Siem Offshore Inc., Annual Report

68 NOTES TO THE ACCOUNTS Note 8 - Pension Costs and Obligations CONSOLIDATED (Amounts in USD 1,000) The amount recognized in the income statement is as follows: Present value of current years benefit earned 2,688 3,457 Interest expense Expected return on plan assets Administration cost Social contribution Impact of curtailment/settlement -1,232 0 Net periodic pension cost (see Note 19) 1,887 4,024 The development in the defined benefit obligation is as follows: Beginning of year 12,853 8,389 Present value of current years benefits earned 2,688 3,457 Interest expense Aquisition (disposal) -2,350 - Payroll tax of employer contribution, assets Benefits paid Remeasurements loss/(gain) 840 Exchange differences End of year 12,911 12,853 The development in the fair value of plan assets is as follows: Beginning of year 12,251 7,706 Expected return on plan assets Acquisition (disposal) -3,933 - Administration cost Employer contribution 3,536 2,703 Payroll tax of employer contribution, assets Benefits paid Remeasurements loss/(gain) ,233 Exchange differences End of year 10,133 12, Siem Offshore Inc., Annual Report 2013

69 CONSOLIDATED (Amounts in USD 1,000) Present value of defined obligation 12,911 12,853 Fair value of plan assets -10,133-9,954 Present value of funded obligations 2, Present value of unfunded obligations Liability in the statement of financial position 2, Financial assumptions: Discount rate 4.00% 2.60% Expected return on funds 4.00% 4.10% Expected wage adjustment 3.75% 3.50% Adjustm. of the basic National Insur. amount 3.50% 3.25% Expected pension increase 0.60% 0.10% Siem Offshore Inc., Annual Report

70 NOTES TO THE ACCOUNTS Note 9 - Receivables PARENT COMPANY CONSOLIDATED 12/31/ /31/2012 (Amounts in USD 1,000) 12/31/ /31/2012 LONG-TERM RECEIVABLES 5,354 5,813 Employee loans, see Note 19 5,683 6,172 41,740 84,229 Intercompany receivables Other long term receivables ,094 90,043 Total long-term receivables 6,639 7,111 OTHER SHORT-TERM RECEIVABLES Prepaid expenses 9,253 7, Unbilled revenue 11,719 16, Outstanding insurance claims (1) 4,898 2, Prepaid income taxes and other taxes 4,264 5, VAT 84 1,081 5,098 3,789 Intercompany receivables Other short-term receivables 2,519 5,358 5,207 4,030 Total other short-term receivables 32,737 38,461 (1) Outstanding insurance claims refer to breakdown expenses qualifying for insurance cover. The amount is less own deduction. Note 10 - Restricted Cash USD 32,297 of the Company s cash balance was restricted funds of which USD 2,300 was for tax withholdings and USD 29,997 represented security for bank guarantees and loans. 70 Siem Offshore Inc., Annual Report 2013

71 Note 11 - Taxes CONSOLIDATED (Amounts in USD 1,000) Temporary differences Deferred tax Time frame Participation in limited liability companies Long - - Operating assets Long -39, Special tax account Long - - Pension funds/obligations Long -2, Other short-term differences Short - - Other long-term differences Long -3,745 - Net temporary differences as of December 31-46, Tax loss carried forward -21,851-21,832 Basis for deferred tax (tax asset) -68,298-22,342 Deferred tax (tax asset) Norway -1,758-6,256 Deferred tax (tax asset) Holland -3,994 Deferred tax (tax asset) Germany -6,019 - Deferred tax (tax asset) -11,770-6,256 Deferred tax asset recognized in statement of financial position as of December 31-11,770-6,256 There are no tax assets in the parent company. Deferred tax assets are recognized as intangible assets as it is probable through prospective earnings that it can be utilized. The Company is subject to taxes in several jurisdictions, where significant judgment is required in calculating the tax provision for the Company. There are several transactions for which the ultimate tax cost is uncertain and for which the Company makes provisions based on an assessment of internal estimates, tax treaties and tax regulations in countries of operation, and appropriate external advice. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the tax charge in the period in which the outcome is determined. Siem Offshore Inc., Annual Report

72 NOTES TO THE ACCOUNTS Tonnage tax regime in subsidiaries, as of January ,760 Tax charge Paid Effect of exchange rate differences Total tonnage tax in subsidiaries, as of December Total tax consolidated 12/31/2013 (Amounts in USD 1,000) Tonnage tax regime Other tax regime Total tax liabilities Long term tax liabilities falling due after 1 year - 6,679 6,679 Payable taxes falling due within 1 year 39 3,721 3,759 Tax liabilities 39 10,400 10,439 Tax expense 2013 (Amounts in USD 1,000) Tonnage tax regime Other tax regime Total tax expense Taxes payable 39 3,364 3,403 Change in deferred tax/deferred tax asset - -5,650-5,650 Over/under provisions in previous year - -1,337-1,337 Total 39-3,624-3,585 Overprovision in previous year relates to activity on Greenland for the subsidiary Overseas Drilling Limited. Actual tax liability was decreased compared to budget taking into consideration local tax legislation. Total tax consolidated 12/31/2012 (Amounts in USD 1,000) Tonnage tax regime Other tax regime Total tax liabilities Long term tax liabilities falling due after 1 year - 6,799 6,799 Payable taxes falling due within 1 year 964 7,892 8,856 Tax liabilities ,691 15,655 Tax expense 2012 (Amounts in USD 1,000) Tonnage tax regime Other tax regime Total tax expense Taxes payable 32 4,678 4,710 Change in deferred tax/deferred tax asset Over/under provisions in previous year Total 32 3,984 4, Siem Offshore Inc., Annual Report 2013

73 Total tax parent company 12/31/ /31/2012 (Amounts in USD 1,000) Other tax regime Other tax regime Long term tax liabilities falling due after 1 year 4,885 4,885 Payable taxes falling due within 1 year ,552 Tax liabilities 4,212 6,437 Tax expense Taxes payable Total Happy team on deck, Siem Opal Siem Offshore Inc., Annual Report

74 NOTES TO THE ACCOUNTS Note 12 - Borrowings PARENT COMPANY (Amounts in USD 1,000) December 31, 2013 CONSOLIDATED 2013 (USD) Currency Committed Facility amount Draw amount currency Drawn amount USD - USD 90,437 90,437 90,437 - USD 72,124 (1) 72,124 72,124 - NOK 1 609, ,511 - NOK 296,402-48,721 - USD 21,000 21,000 21,000 - USD 23,162 18,173 18,173 - USD 116,107 57,432 57,432 - USD 58,879 47,990 47,990 - NOK 625,746 (1) 625, ,856 - NOK 5,250 5, ,624 NOK 600, ,000 98,624 - NOK 1,657, , ,136 - NOK 240, ,624 Total secured debt 968,868 - Fees and expenses -7,368 98,624 Total 961,500 41,718 (CIRR loan) NOK 253, ,800 41, ,342 Total long-term debt including fees and expenses 1,003,218 (1) Under the USD 72.1 million facility, part of the loan (USD 34.9 million) is fixed for a 8-year term to average interest rate of 7.58%. Under the NOK 625.7millon facility, part of the loan (equivalent to USD 34.2 million) is fixed for an approximately 10-year term to average interest rate of 5.36%. The Company has a portfolio of bank loans secured with mortgage in vessels. The creditor and guarantors are in general first class commercial banks and state owned financial institutions with ratings on or above BBB+ and AAA. As of year end, the Company had issued one high yield unsecured bond of NOK 600 million which is listed on Oslo Stock Exchange. The bond has no amortization and matures in Siem Offshore Inc., Annual Report 2013

75 Fair value Interest rate Duration Instalments 90,437 Floating 2017 Quarterly 77,797 Fixed and floating 2021 Semi annually 264,511 Floating 2015 Semi annually 48,721 Floating 2022 Quarterly 21,000 Floating 2019 Semi annually 16,925 Fixed 2027 Monthly 54,890 Fixed 2027 Monthly 47,543 Fixed 2030 Monthly 104,340 Fixed and floating 2022 Semi annually 928 Fixed 2017 Quarterly 98,624 Floating 2018 Bullet 144,868 Fixed 2018 Semi annually - Fixed or floating 2019 Semi annually 970,585-7, ,217 42,580 Fixed 2019 Semi annually 1,005,797 Siem Offshore Inc., Annual Report

76 NOTES TO THE ACCOUNTS PARENT COMPANY (Amounts in USD 1,000) December 31, 2012 CONSOLIDATED 2012 (USD) Currency Committed Facility amount Drawn amount currency Drawn amount USD - USD 143, , ,480 - USD 81,458 (1) 81,458 81,458 - NOK 1 641, ,904 - NOK 302,193-54,289 - GBP 6,010 6,010 9,713 - USD 23,800 23,800 23,800 - USD 23,162 21,204 21,204 - USD 58,879 46,487 46,487 - NOK 688,221 (1) 688, ,638 - NOK 6,750 6,750 1,213 - BRL 2,566 - Total secured debt 802,751 - Fees and expenses -5,765 - Total 796,986 53,194 (CIRR loan) NOK 296, ,100 53,194 53,194 Total long-term debt including fees and expenses 850,180 (1) Under the USD 81.5 million facility, part of the loan (USD 39.5 million) is fixed for a 9-year term to average interest rate of 7.58%. Under the NOK millon facility, part of the loan (equivalent to USD 41.3 million) is fixed for an approximately 11-year term to average interest rate of 5.36%. Coffee break and discussions at Kristiansand Office, Norway Photo: Jan Petter Lehne 76 Siem Offshore Inc., Annual Report 2013

77 Fair value Interest rate Duration Instalments 143,480 Floating 2017 Quarterly 89,775 Fixed and floating 2021 Semi annually 294,904 Floating 2015 Semi annually 54,289 Floating 2022 Quarterly 9,713 Floating 2013 Semi annually 23,800 Floating 2019 Semi annually 21,200 Fixed 2027 Monthly 49,157 Fixed 2031 Monthly 125,928 Fixed and floating 2022 Semi annually 1,319 Fixed 2017 Quarterly 813,565-5, ,800 54,522 Fixed 2019 Semi annually 862,322 Siem Offshore Inc., Annual Report

78 NOTES TO THE ACCOUNTS PARENT COMPANY CONSOLIDATED Instalments per December 31, 2013 Mortgage Other interest USD falling due over the next 5 years debt bearing debt Total , , , , ,027-57, , , ,900 98, ,524 - Thereafter 169, ,294 - Total 870,243 98, ,868 The book value of mortgaged assets consist of non-current tangible assets and portion of the accounts receivables and amounts to USD 1,446 million at year end. There are various financial covenants related to the Company s debt agreements. The main prevailing covenants are: - equity ratio to total assets in excess of 30% - positive working capital - certain amount of freely available cash and bank deposit balance The Company and parent company are in compliance with the financial covenants as per December 31, CIRR loan (Both consolidated and parent company) 12/31/ /31/2012 Total CIRR loan commitment 41,718 53,194 CIRR loan drawn on ,718 53,194 Commitment as of December Prior to ordering vessels from Norwegian yards, the Company applied for fixed 12-year interest rate options related to the long-term financing of such vessels. The Company was granted such options for each of the relevant vessel by the Norwegian Export Credit Agency. The Company made certain sale of the right to exercise such options to a first class international bank (the Bank ). Longterm loans drawn from the Norwegian Export Credit Agency are placed as corresponding deposits in the Bank as financial security for the loans drawn. Recognition of the gain, related to each option, is recorded over the term of any drawn loans. Unearned CIRR Beginning of the year 2,523 2,891 Recognized in the profit and loss account Paid-back CIRR - - Net unearned CIRR as of December 31 2,155 2, Siem Offshore Inc., Annual Report 2013

79 Note 13 - Other Current Liabilities PARENT COMPANY CONSOLIDATED 12/31/ /31/2012 (Amounts in USD 1,000) 12/31/ /31/ Social security etc. 5,428 6, Unearned income 3,517 12,510 1,111 - Accrued interest 11,780 7, Other accrued cost, mainly regarding operating expenses vessels 5,133 8,241 6,858 8,100 Other current liabilities 18,203 16,195 8,170 8,256 Total other current liabilities 44,061 50,882 Other accrued cost includes accrued commission, purchase orders and other accrued cost. Other current liabilities includes accrued salaries and incentive program, provision for operating expenses and other short term liabilities. Note 14 - Related Party Transactions The Company s largest shareholder is Siem Industries Inc, with a holding of 34.39%, and is defined as a related party. The Company is obligated to the main shareholder, Siem Industries Inc., for a fee of USD 300 for This fee is the remuneration for the services of the two of the Board members. This fee also covers office in the Cayman Islands and administrative costs. Details related to transactions, loans and remuneration to the executive Management and the board of directors are set out in Note 19. For Parent, all subsidiaries in Note 6 are also defined as related parties. For other related parties, the following transactions were carried out: CONSOLIDATED Sales of services (Amounts in USD 1,000) Service to entity where director has ownership ,290 Total ,290 Above service is provided to companies in which a Board member has an interest. Kristian Siem is the Chairman of Siem Industries Inc., which is controlled by a trust whose potential beneficiaries include members of Kristian Siem s immediate family. Siem Industries holds an interest in Subsea 7. Both Siem Offshore Rederi AS, and Siem Offshore Services AS, all 100% owned by the Company, have charted vessels to Subsea 7 during Siem Offshore Inc., Annual Report

80 NOTES TO THE ACCOUNTS CONSOLIDATED Purchase of service (Amounts in USD 1,000) Service from related parties 14,098 14,501 Total 14,098 14,501 Service delivered from related parties is mainly cost for technical management, corporate management and delivered crew. The service is supported to Siem Meling Offshore DA, 51% owned by the Company, and is delivered by its partner in Siem Meling Offshore DA. CONSOLIDATED Sale of Vessel (Amounts in USD 1,000) Sale of vessel Total In Q1 the vessel Seven Sisters was sold to related comapny Subsea 7. Balance items following purchase and sale of service: CONSOLIDATED (Amounts in USD 1,000) Accounts receivables Accounts payable 2 9 Loans to related parties: CONSOLIDATED (Amounts in USD 1,000) Loan to associates At January Drawings - - Instalments Interest charged Interest received Exchange rate variations At December Siem Offshore Inc., Annual Report 2013

81 The Company holds a long-term loan to Rovde Industripark AS. Siem Offshore Invest AS owns 50% of Rovde Industripark AS. Liability to related parties: CONSOLIDATED (Amounts in USD 1,000) Liability to related parties At January 1 7,506 6,756 Drawings - - Instalments - - Interest expenses Interest paid Exchange rate variations At December 31 7,057 7,506 Siem Meling Offshore DA held USD 7,057 as a long term-liability from its partner in Siem Meling Offshore DA at 31 December The borrowing facility was on market terms of interest. Following transactions with related parties were carried out for the parent company: PARENT COMPANY (Amounts in USD 1,000) Service from subsidiaries 10,075 12,823 Service from associates 1,650 5,644 Total 11,725 18,467 Service from subsidiaries consists of administrative and corporate services provided by Siem Offshore AS, Siem Offshore Management AS and hire of vessels. The parent company hired the vessel Siem Sasha, on bareboat from Siem Offshore Rederi AS. The costs of hiring the vessel was USD 1,462. The vessel was on hire until September Services provided from associates are related to cost for hired crew. The services are delivered by companies owned by subsidiaries of the Company. All terms used for above transactions are at arms length. Year-end balances arising from sales and purchases: PARENT COMPANY (Amounts in USD 1,000) Receivables from related parties Subsidiaries 1, Associates 708 1,117 Total 2,422 1,245 Payables from related parties Subsidiaries 8,948 6,384 Associates Total 6,848 6,848 Siem Offshore Inc., Annual Report

82 NOTES TO THE ACCOUNTS Loans to related parties: PARENT COMPANY (Amounts in USD 1,000) Loan to subsidiaries At January 1 67,177 70,638 Drawings - - Converted to shares -45,353 - Instalments - -6,100 Interest charged 2,076 2,442 Interest received - - Exchange rate variations At December 31 23,637 67,177 Loan to sub-subsidiaries At January 1 17,052 16,434 Drawings - - Converted to shares - - Instalments Interest charged Interest received - - Exchange rate variations At December 31 18,104 17,052 Total loans to related parties At January 1 84,229 87,073 Drawings - - Converted to shares -45,353 - Instalments - -6,429 Interest charged 2,348 3,073 Interest received - - Exchange rate variations At December 31 41,740 84,229 The loan to subsidiaries is held against Siem Offshore do Brasil SA on 31 December The loan against Siem Offshore Invest was converted into shares in the subsidiary at November Loan provided to associates is held against Siem Offshore Contractors GmbH, a company owned 100% by the subsidiary Siem Offshore Invest AS. All loans are on market terms of interest. 82 Siem Offshore Inc., Annual Report 2013

83 Note 15 - Derivative Financial Instruments Assets (Liabilities) PARENT COMPANY CONSOLIDATED 12/31/ /31/2012 (Amounts in USD 1,000) 12/31/ /31/ Currency options -6, Interest rate swaps -4,275-12, Forward currency contracts - 5, Total derivative financial instruments -11,085-6,510 Unrealized gain/(loss) appears as current assets/(current liabilities) in the Statement of Financial Position. For further information regarding profit and loss effect on derivative financial instruments, please see Note 28. Forward currency contracts: The nominal principal amount of the outstanding forward currency contracts on 31 December 2013 were USD million (2012: 30.2 million) of which USD million refers to USD/NOK contracts, USD 28.2 million refers to EUR/NOK contracts and USD 1.0 million refers to GBP/NOK contracts. The forward currency contracts have been entered into in order to hedge future cash flows, including committments related to vessels under construction. Currency options: Currency options have been entered into in order to hedge operational currency exposure. These options are typically pathdependent options which include features related to situations where the underlying reaches or fluctuates within specific barrier levels. This enables the Company to hedge a range in the underlying currency rather than simply a level. Interest rate swaps: The nominal amounts of the outstanding interest rate swaps contracts on 31 December 2013 were USD million (2012: USD million). On 31 December 2013, the fixed rates entered into varied from 1.13% to 2.69%. The floating rate leg of the interest rate swaps are LIBOR and NIBOR. Gains and losses are recognised over the profit and loss. Unrealized gain/(loss) appears as current assets/(current liabilities) in the Statements of Financial Position. For further information regarding profit and loss effect on derivative financial instruments, please see Note 28. Siem Offshore Inc., Annual Report

84 NOTES TO THE ACCOUNTS Note 16 - Guarantees PARENT COMPANY CONSOLIDATED 12/31/ /31/2012 (Amounts in USD 1,000) 12/31/ /31/ Contractual guarantees to Brazilian Navy 4,304 5, ,291 41,542 Contractual guarantees other 150,014 45, ,291 41,542 Total guarantees 154,317 51,390 Contractual guarantees to Brazilian Navy are issued by Siem Offshore do Brasil SA. Contractual guarantees provided by Parent are security for one of the contracting parties of Siem Offshore Contractors GmbH. Note 17 - Commitments Capital expenditures contracted for at the reporting date but not yet paid is as follows: PARENT COMPANY CONSOLIDATED 12/31/ /31/2012 (Amounts in USD 1,000) 12/31/ /31/ Shipbuilding contracts with variation orders 828, , Instalments paid 127, , Unpaid instalments 700, ,702 PARENT COMPANY Instalments falling due over the next 3 years CONSOLIDATED 12/31/ /31/2012 (Amounts in USD 1,000) 12/31/ /31/ , , , , , Total 700, , Siem Offshore Inc., Annual Report 2013

85 Note 18 - Operating Expenses PARENT COMPANY CONSOLIDATED (Amounts in USD 1,000) ,675 5,961 Vessel crew expenses 113, ,128 7,007 8,752 Other vessel operating expenses 76,646 73,670 10,091 10,416 General and administration 50,701 46,817 18,774 25,128 Total operating expenses 241, ,615 Note 19 - Salaries and Wages, Number of Employees CONSOLIDATED (Amounts in USD 1,000) Personnel expenses (1) Salaries and wages 91,362 92,139 Government grants - net wages arrangement in Norway -5,762-7,994 Payroll tax 13,614 18,335 Pension costs, see Note 8 1,887 4,024 Other benefit 2,929 4,286 Total personnel expenses 104, ,790 (1) Personnel expenses includes vessel crew expenses and part of general and administrative expenses, see Note 18. Government grants is a special Norwegian seaman payroll and tax refund given to Norwegian shipping companies. The average number of employees in the Company was for 2013, including onshore and offshore employees. No employees are employed in the parent company. Siem Offshore Inc., Annual Report

86 NOTES TO THE ACCOUNTS Payroll registered to the executive management: (Amounts in USD 1,000) Salary and other short term compensation 2,193 2,449 Total 2,193 2,449 Employees included in the above payroll in 2013 were 5 (2012: 6). Shares in the Company held by members of corporate management in 2013 were 2,608,161 (2012: 2,568,161). In the first quarter of 2013, the Board of Directors of Siem Offshore Inc. has authorized the award of Stock Options to eight key employees of the Company. The exercise price is NOK 8.45 per share. See Note 31 for more information. Loan to executive management: (Amounts in USD 1,000) Balance January 1 4,723 4,350 Changes in executive management - - New loan raised Instalments - - Effect of currency differences Balance December 31 4,356 4,723 Loan on December 31, 2013: (Amounts in USD 1,000) Amount Interest Terms Loan to executive management 4,356 - Share loan (1). Total 4,356 Loan on December 31, 2012: (Amounts in USD 1,000) Amount Interest Terms Loan to executive management 4,723 - Share loan (1). Total 4,723 (1) Share loan: The loans are repayable by the employee when the employee s shares in the company are realized or if the employee leaves the Company. Loans equivalent to USD 4 million are secured by pledges in relevant shares. The Remuneration paid to the Board of Directors in 2013 was USD 437K (2012: USD 483K). Auditor s remuneration PARENT COMPANY CONSOLIDATED (Amounts in USD 1,000) Audit Fee Audit Fee Other Tax/Legal Assistance Other consultants, Fees Total auditor s remuneration Siem Offshore Inc., Annual Report 2013

87 Note 20 - Operating Leases as Lessee The Company has entered into different operating leases for office premises, office machines, and communication satellite equipment for the vessels. The leases also include a substitute vessel on a time charter party. The lease period for the lease agreements varies and most of the leases contain an option for extension. The operating leases in the Parent for 2013 are related to charter of vessels and satellite equipment. One of the chartered vessels, Siem Sasha has been chartered on bareboat agreements from the subsidiary Siem Offshore Rederi AS. The contract was finished September The lease costs were as follows: PARENT COMPANY CONSOLIDATED (Amounts in USD 1,000) ,883 5,783 Annual lease payment on operational leases 8,763 5,261 As of 31 December 2013, the Company had some commitments relating to lease agreements which fall due as follows. PARENT COMPANY Fall due CONSOLIDATED , , and thereafter 2,485 - Total 6,255 Net present value of future commitments relating to lease agreements are calculated to be USD 5,656 for the Company. There are no lease agreement for the Parent. The discount rate in the calculation of net present value is 5%. Siem Offshore Inc., Annual Report

88 NOTES TO THE ACCOUNTS Note 21 - Financial Items PARENT COMPANY CONSOLIDATED (Amounts in USD 1,000) Financial income 5,770 8,676 Interest income 5,360 4, Gain intercompany closure Other financial income ,809 8,752 Total financial income 5,434 4,161 Financial expenses -6,976-1,430 Interest expenses -32,823-40, Other financial expenses -3,309-1,936-7,804-1,456 Total financial expenses -36,132-42,302 Other financial items 1,219 1,283 Net currency gain/(loss) -22,651 2,916 1,219 1,283 Total other financial items -22,651 2, ,579 Net financial items -53,349-35,225 Net currency gain/(loss) includes an unrealized loss of USD 17,180 calculated on monetary items, and a realized loss of USD 3,417 related to intercompany transactions. The net currency gain/(loss) for the Parent of USD 1,219 includes an intercompany currency gain of USD 0,082. Note 22 - Earnings per Share (Amounts in USD 1,000) Earnings per share Weighted average number of shares outstanding 389, ,665 Weighted average number of shares diluted 389, Result attributable to shareholders 22,000 16,576 Earnings per share attributable to equity shareholders Earnings per share diluted attributable to equity shareholders ,04 Option program to executive management, see note 19 and Siem Offshore Inc., Annual Report 2013

89 Note 23 - Contracts in Progress (Amounts in USD 1,000) Recognized 2013 CONSOLIDATED Accumulated per 12/31/2013 Revenue 33,923 43,417 Cost 32,564 39,452 Total 1,360 3,966 Assets / liabilities December 31, 2013 Unearned revenue Accrued project cost Unbilled revenue Revenue 8,608-2,473 Cost Total 293 2,473 (Amounts in USD 1,000) Recognized 2012 Accumulated per 12/31/2012 Revenue 9,494 26,767 Cost 7,272 19,927 Total 2,222 6,840 Assets / liabilities December 31, 2012 Unearned revenue Accrued project cost Unbilled revenue Revenue 829-1,550 Cost 1,439 - Total 829 1,439 1,550 Contracts in progress refer to activity within the Combat Management Systems (CMS) and Cable Installation Segment, see Note 4. At year-end 2013, the activity within CMS had six projects in progress. The degree of completion varies from 32% to 100%. Margin are calculated and included for all six projects. The activity within Cable installation segment included three projects in progress at year-end These projects are in an early phase, and no margin is calculated on these projects for All projects in progress at year-end 2013 are estimated to generate a positive contribution over the total project period. There are no contracts in progress in the Parent. Siem Offshore Inc., Annual Report

90 NOTES TO THE ACCOUNTS Note 24 - Asset Held for Sale CONSOLIDATED (Amounts in USD 1,000) Purchase cost per January Moved from Fixed asset 18,121 53,604 Capital expenditure - - The year's disposal at cost - - Effect of exchange rate differences - - Purchase cost per December 31 18,121 53,604 Booked value for the vessel Siddis Skipper was transferred from fixed assets to asset held for sale in December The vessel was sold on January 8, There is no asset held for sale in the parent company. Note 25 - Other Gain/(Loss) on Sale of Assets PARENT COMPANY CONSOLIDATED (Amounts in USD 1,000) Gain/(loss) on sale of assets, net 29,827 13, Gain/(loss) on sale of assets intercompany Total 29,827 13,692 The net gain for the Company on sale of assets of USD 29.8 million consist of gain from sale of the MRSV Seven Sisters, USD 28.2 million, gain of sale of one of the old, smaller vessels in Brazil, 1.6 million, and a gain of USD 0.03 million for other assets. 90 Siem Offshore Inc., Annual Report 2013

91 Note 26 - Listing of the 20 Largest Shareholders as of December 31, 2013 SHAREHOLDER NUMBER OF SHARES OWNER INTEREST SIEM INDUSTRIES INC. 133,279, % ACE CROWN INTERNATIONAL LIMITED 76,780, % SKAGEN KON-TIKI 10,977, % FONDSFINANS SPAR 10,775, % MP PENSJON PK 9,816, % SKAGEN VEKST 8,036, % WATERMAN HOLDING LTD 7,457, % VARMA MUTUAL PENSION INSURANCE 6,547, % NORDEA BANK NORGE ASA MARKETS 5,063, % DANSKE INVEST NORSKE INSTIT. II. 4,915, % OJADA AS 4,213, % JP MORGAN CLEARING CORP. 4,071, % BARCLAYS CAPITAL INC. 3,717, % DANSKE INVEST NORSKE AKSJER INST 3,559, % ALTA INVEST SA 3,123, % HOLBERG NORGE 3,043, % PUMPØS AS 3,017, % VERDIPAPIRFONDET DNB SMB 3,000, % ROVDEFRAKT AS 2,750, % BERGEN KOMMUNALE PENSJONSKASSE 2,497, % Total 20 largest shareholders 306,643, % Other shareholders 80,947, % Total number of outstanding shares 387,591, % The parent company has purchased 6,333,456 of its own shares through 31 December The purchased shares, under the Cayman Islands rules, cannot be reissued and will therefore be cancelled according to the share buy-back programme announced by the Company on 4 September The purchased shares at year-end are included in the table above in the line for Other shareholders. Siem Industries Inc. is the main shareholder of Siem Offshore Inc. and is controlled by a trust whose potential beneficiaries include members of Kristian Siem s immediate family. Kristian Siem, who is Director of the Company, is also the Chairman of Siem Industries Inc. Terje Sørensen is CEO of the Company and held 1,950,000 shares on December 31, Siem Offshore Inc., Annual Report

92 NOTES TO THE ACCOUNTS Note 27 Subsequent Events Placement of new unsecured bond issue Placement of new unsecured bond issue A new unsecured bond issue of NOK 700 million was completed in March The maturity will be in An application will be made for the bonds to be listed on the Oslo Stock Exchange. Net proceeds from the new bond issue will be used to finance general corporate purposes. Charter contracts for two Well- Intervention Vessels Ordered two well-intervention vessels scheduled for delivery in first and third quarter The two vessels shall be built at the Flensburger shipyard in Germany. Both vessels shall be chartered to Helix Energy Solutions Group. Inc ( Helix ). for a firm period of 7 years with options that can extend the charter period up to 22 years. Helix has entered into agreements with Petróleo Brasileiro S.A. ( Petrobras ) to provide well-intervention services offshore Brazil for an initial period of 4 years with options to extend. The first vessel is expected to be in service for Petrobras by mid-2016, with the second vessel to follow later the same year. Sale of PSV Siddis Skipper The vessel Siddis Skipper, owned by Siem Meling Offshore DA, was sold to an undisclosed buyer on January 15, 2014 at a price of USD 24.5 million. A gain of approximately USD 11 million million will be recorded in 1Q The sales proceeds was partly allocated to repayment of mortgage debt of approximately USD 13.5 million. Siem Meling Offshore DA is 51% owned by Siem Offshore Inc. Charter contract for Siem Atlas The Company and Petrobras entered into a charter agreement for the Platform Supply Vessel ( PSV ) Siem Atlas. The charter period commenced in 1Q 2014 and is for a firm period of two years. Petrobras has an option to extend the charter for two additional years, upon terms to be mutually agreed. The gross contract value for the firm period is approximately USD 26 million. Note 28 - Gain/(Loss) on Currency Exchange Forward Contracts PARENT COMPANY CONSOLIDATED (Amounts in USD 1,000) Unrealized gain/(loss) -12,200 6, Realized gain/(loss) 4,444 5, Total -7,756 12,479 Further details related to the currency exchange forward contracts are set out in Note Siem Offshore Inc., Annual Report 2013

93 Note 29 - Financial Instrument by Category Below is a comparison by category for carrying amounts and fair values of all of the Company s financial instruments. CONSOLIDATED (Amounts in USD 1,000) December 31, 2013 Loans and receivables Assets at fair value through the profit and loss Available for sale Total Assets as per statement of financial position Trade and other instruments (1) 120, ,775 Cash and cash equivalents 101, ,206 Total 221, ,981 (1) Prepayments do not qualify as a financial instrument and are not included in above amount. Excluded prepayments amount to USD 13,517, see Note 9. CONSOLIDATED (Amounts in USD 1,000) December 31, 2013 Liabilities at fair value through the profit and loss Other financial liabilities Total Liabilities as per statement of financial position Bank debts, bonds, loans and other payables (1) - 1,076,930 1,076,930 Derivative financial instruments 11,085-11,085 Total 11,085 1,076,930 1,088,015 (1) Non-financial liabilities do not qualify as a financial instrument and are not included in above amount. Excluded liabilities amount to USD consisting of USD in Taxes Payable, USD in Pension Liability, USD in Social Security Payable and USD in Unearned Income. See Note 13 for information about Social Security Payable and Unearned Income. CONSOLIDATED (Amounts in USD 1,000) December 31, 2012 Loans and receivables Assets at fair value through the profit and loss Available for sale Total Assets as per statement of financial position Financial assets held for sale Derivative financial instruments - 5,829-5,829 Trade and other instruments (1) 130, ,021 Cash and cash equivalents 107, ,068 Total 237,089 5, ,918 (1) Prepayments do not qualify as a financial instrument and are not included in above amount. Excluded prepayments amount to USD 12,966, see Note 9. Siem Offshore Inc., Annual Report

94 NOTES TO THE ACCOUNTS CONSOLIDATED (Amounts in USD 1,000) December 31, 2012 Liabilities at fair value through the profit and loss Other financial liabilities Total Liabilities as per statement of financial position Bank debts, bonds, loans and other payables (1) - 914, ,992 Derivative financial instruments 12,339-12,339 Total 12, , ,331 (1) Non-financial liabilities do not qualify as a financial instrument and are not included in above amount. Excluded liabilities amount to USD 6,439, see Note 13. Parent company (Amounts in USD 1,000) December 31, 2013 Loans and receivables Assets at fair value through the profit and loss Available for sale Total Assets as per statement of financial position Derivative financial instruments Trade and other instruments (1) 97, ,464 Cash and cash equivalents 132, ,068 Total 229, ,531 (1) Prepayments do not qualify as a financial instrument and are not included in above amount. Excluded prepayments amount to USD 1.872, see Note 9. Parent company (Amounts in USD 1,000) December 31, 2013 Liabilities at fair value through the profit and loss Other financial liabilities Total Liabilities as per statement of financial position Bank debts, bonds, loans and other payables - 140, ,739 Derivative financial instruments Total - 140, , Siem Offshore Inc., Annual Report 2013

95 Parent company (Amounts in USD 1,000) December 31, 2012 Loans and receivables Assets at fair value through the profit and loss Available for sale Total Assets as per statement of financial position Derivative financial instruments Trade and other instruments (1) 153, ,765 Cash and cash equivalents 57, ,270 Total 211, ,035 (1) Prepayments do not qualify as a financial instrument and are not included in above amount. Excluded prepayments amount to USD 241, see Note 9. Parent company (Amounts in USD 1,000) December 31, 2012 Liabilities at fair value through the profit and loss Other financial liabilities Total Liabilities as per statement of financial position Bank debts, bonds, loans and other payables - 62,081 62,081 Derivative financial instruments Total - 62,081 62,081 Note 30 Profit Before Taxes, Excluding Interests Reconciliation of net profit for the financial year to profit/(loss) before taxes, excluding interest. PARENT COMPANY CONSOLIDATED (Amounts in USD 1,000) ,845-3,725 Net profit/(loss) 21,544 14,676 6,976 1,430 Interest expenses 36,607 32,673-2,640-3,055 Intercompany interest , Interest income -5,360-4, Tax expense -3,585 4,949-3,367-5,990 Profit before taxes, excluding interest 49,205 48,191 Siem Offshore Inc., Annual Report

96 NOTES TO THE ACCOUNTS Note 31 Share-based payments On the 13 january 2013, the Company entered into a Share option agreement with selected employees. The Board of Directors of Siem Offshore Inc. has authorized the award of share options to eight key employees of the Company. The exercise price is NOK 8.45 per share. The exercise price of the granted options is equal to the market price of the shares on the date of the grant. The Options can be exercised as follows: 2014: 20% of the total number beginning on January 18th : 40% of the total number beginning on January 18th 2015, less any options previously issued. 2017: 80% of the total number beginning on January 18th 2017, less any options previously issued. 2018: 100% of the total number beginning on June 18th 2018, less any options previously issued. The exercise period shall in no event be later than the date falling 10 years after the award date. The group has no legal or constructive obligation to repurchase or settle the options in cash. No options were exercised during The weighted average fair value of options granted during the period determined using the Black-Scholes valuation model was NOK 3.72 per option. The significant inputs into the model were weighted average share price of NOK 8.45 at the grant date, exercise price of NOK 8.45, volatility of 23%, dividend yield of 0%, an expected option life of 10 years and an annual risk-free interest rate of 4.13%. The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over the last three years. See note 19 for the total expense recognised in the income statement for share options granted to certain employees. Value of employee services as per December 31, 2013 are recognized under Retained earnings at USD 3, : 60% of the total number beginning on January 18th 2016, less any options previously issued. 96 Siem Offshore Inc., Annual Report 2013

97 Siem AHTS sisters working back-to-back Siem Offshore Inc., Annual Report

98 CORPORATE SOCIAL RESPONSIBILITY Happy JayNii football team, Accra, Ghana Photo: Ellen Berchelmann Statement on Social Responsibility As a company incorporated in the Cayman Islands, Siem Offshore Inc. ( The Company ) is an exempted company duly incorporated under the laws of the Cayman Islands and subject to Cayman Island laws and regulations with respect to corporate governance. Cayman Islands corporate law is to a great extent based on English Law. In addition, due to The Company being a Norwegian Tax Resident, the Norwegian Accounting law applies to The Company. According to the Norwegian Accounting Act $3-3c The Company should provide a statement on social responsibility. The statement should include which actions are taken by The Company to integrate human rights, employee s rights and social conditions, external environment and the fight against corruption in its business strategies, daily operations and in relation to its interested parties. The Board of Directors has reviewed this statement. It is the opinion of the Board of Directors that The Company complies with regulations in the Norwegian Accounting law with respect to Social Responsibility reporting. Code of Conduct The Company has established a Code of Conduct policy expressing its nontolerance on corruption as well as dealing with ethical principles of the Company. The Company is fully committed to perform its business with integrity and transparency throughout its global operations. As stated in the Code of Conduct Policy it is the policy of the Company to conduct its business in accordance with all applicable laws and regulations and in an ethically responsible manner. Protection of health, safety and the prevention of pollution to the environment are primary goals of The Company. All of our employees and representatives must conduct their duties and responsibilities in compliance with The Company s policy on Health, Safety and Environment, applicable law and industry standards relating to health and safety in the workplace and prevention of pollution to the environment. The Company has implemented policies and control procedures to ensure that only proper transactions are entered into by The Company, that such transactions have proper management approval, that such transactions are properly accounted for in the books and records of The Company, and the reports and financial statements of The Company are prepared in a timely manner, understandable and fully, fairly and accurately reflect such transactions. The Company observes fair employment practices in every aspect of its business. The Company conducts its business with honesty and integrity and competes fairly and ethically within the framework of the law. The Company has entered into agreements with well-known subcontrac- 98 Siem Offshore Inc., Annual Report 2013

99 tors for the delivery of technical management and crew management services to some of the Company s vessels. The Company has also entered into shipbuilding contracts with high standard shipbuilding yards in Norway, Poland and Germany. These subcontractors are subject to review on an ongoing basis. The Company expects that all of its business partners have the same approach to business dealing. Improper payments The Code of Conduct does also include policies on improper payments. The Company does not tolerate any actions / payments which could be viewed as improper payments. No gift, hospitality or travel benefit may be offered to or requested or accepted from any third party if that benefit could be seen to be disproportionately generous or otherwise be seen as something which may induce or make the recipient feel obliged to reciprocate by way of improperly performing his or her function. The Company and its directors, officers and employees will not accept any gift, hospitality or travel benefit either directly or indirectly from business partners, against making commitment, recommending or promoting a certain conduct or position by The Company or otherwise seek to gain personal benefit in relation to The Company s business dealings. Likewise, the Company does not itself offer inducements to anyone associated with business partners to promote a certain conduct or position by such business partner. The Company and any of its people shall not pay money or provide gifts, entertainment, hospitality or any other thing or service of value to any Government Official. This prohibition extends to payments to consultants, agents or other intermediaries when the payer knows or has reason to believe that some part of the payment will be used to bribe or otherwise influence a public official. Political contributions are not authorized. Corporate Social Responsibility The Company respects and promotes harmonious working relationship with the local communities where it operates, but refrains from participating in local politics. The Company seeks to foster a sustainable business for its many stakeholders. The Company is fully committed to comply with local laws and regulations throughout its global operations. The Company is committed to employ local staff where applicable and possible in all countries where it is operating and conducting business. The Company is committed to providing equal opportunity and fair treatment to all individuals on the basis of merit, without discrimination on the grounds of race, colour, religion, national origin, sex, pregnancy, age, disability, marital status or other characteristics protected by applicable law. The Company is dedicated in creating a high-quality working environment under which its people respect and trust each other such that everyone acts in an honest, friendly and proactive way with a responsible attitude and high moral standards. The Company prohibits bullying and harassment in any form including sexual, racial, ethnic, and other forms of harassment. At Christmas 2012 The Company donated funds to Jaynii Streetwise in Ghana. Jaynii Streetwise is a charity and non-governmental organization founded in Ghana by Jay Borquaye and Emmanuel (Nii) Quartey in the deprived area of Jamestown (Accra) with the aim of improving the lives of children and youth. Jaynii Streetwise was born out of their Jaynii Cultural Troupe, a traditional music and dance group which has performed at countless functions locally and internationally. Over time, Jaynii has identified the need to support ongoing efforts by government and civil society to keep children off the streets and in school. As a poor, marginalized and deprived area, many children are found walking on the beach and in the streets during school hours. Most of these children come from very deprived homes. So far Jaynii has identified fifty children aged between 4 to 16 years who have been enrolled into the Streetwise Project, based at Jaynii Beach, a small stretch of beach just below the Jamestown lighthouse which is now their centre. These 24 girls and 26 boys, who were spending their childhood walking aimlessly on the Jamestown Beach, are now enrolled at schools in the communities- Accra Sempe Primary School in Classes 1 to 6 and St. Thomas Day Care Centre. Jaynii, without assistance from parents, buys them school uniforms, shoes, bags and exercise books and registers them in school. After school hours, the children go to Jaynii Beach where they get fed as well as get extra classes, homework help and afternoon activities and entertainment. During 2013 the Company has also donated funds for the funeral and family support of passed away gardener of the Company s office in Ghana. The Company has furthermore donated funds to Pro Criança Cardíaca in Rio de Janeiro, Brasil, a non-profit organization helping children with heart diseases. Pro Criança Cardíaca is a hospital founded in 1996 by Cardiologist Doctor Celia Rose. The mission of the organization is to provide medical care to cardiac children focusing in cardiac surgery and any other procedure that requires high technology treatment to children. They have performed so far 14 surgeries, 1334 out-patient assistance and 802 echocardiography. The Company has also made a donation to the Norwegian Salvation Army. Siem Offshore Inc., Annual Report

100 NOTES TO THE ACCOUNTS 100 Siem Offshore Inc., Annual Report 2013

101 Siem Offshore Inc., Annual Report

102 responsibility statement We confirm, to the best of our knowledge that the financial statements for the period 1 January to 31 December 2013 have been prepared in accordance with current applicable accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the entity and the group taken as a whole. We also confirm that the Board of Directors Report includes a true and fair review of the development and performance of the business and the position of the entity and the group, together with a description of the principal risks and uncertainties facing the entity and the group. 10 April 2014 Eystein Eriksrud Kristian Siem John C. Wallace Chairman Director Director (Sign.) (Sign.) (Sign.) Michael Delouche Director (Sign.) David Mullen Director (Sign.) Terje Sørensen Chief Executive Officer (Sign.) 102 Siem Offshore Inc., Annual Report 2013

103 board of directors Pursuant to the Company s Articles of Association, the Board of Directors of Siem Offshore shall have from three to seven shareholder-elected members. Eystein Eriksrud (born 1970), Chairman of the Board Michael Delouche (born 1957), Board member John C. Wallace (born 1938), Board member Mr. Eriksrud is the Deputy CEO of Siem Industries Inc., the Company s main shareholder. Prior to joining Siem Industries in October 2011, he was partner of the Norwegian law firm Wiersholm Mellbye & Bech since 2005 working as a business lawyer with an internationally oriented practice in mergers and acquisitions, company law and securities law, particularly in the shipping, offshore and oil service sectors. He was Group Company Secretary of the Kvaerner Group from and served as Group General Counsel of the Siem Industries Group from He has served on the boards of Privatbanken ASA and Tinfos AS as well as a number of other boards. Eriksrud is a Norwegian citizen. Kristian Siem (born 1949), Board member Mr. Siem is chairman of Siem Industries Inc., Siem Shipping Inc. and Siem Industrikapital AB and a director of Star Reefers Inc. and North Atlantic Smaller Companies Investment Trust plc. and vicechairman of NKT Holding AS. Mr. Siem is a Norwegian citizen. Mr. Delouche is the president and the secretary of Siem Industries Inc. and is in charge of the Company s operations at the head office in George Town, Cayman Islands. He is a director of Siem Shipping Inc. and a former director of Subsea 7 Inc. Mr. Delouche received degrees in civil engineering (structural) and business and was previously an audit manager with KPMG Peat Marwick LLP. Mr. Delouche is a US citizen. David Mullen (born 1958), Board member Mr. Mullen served as the Chief Executive Officer for Wellstream Holdings PLC until March 2011 following the acquisition of the company by General Electric. Prior Wellstream he was the Chief Executive officer of Ocean Rig ASA and prior to working at Ocean Rig, he was the Senior Vice President of Transocean Inc. where he was responsible for the worldwide marketing, corporate strategy and mergers and acquisitions activities. Between 2001 and 2004, Mr. Mullen was the president of Schlumberger Oilfield Services, North and SouthAmerica. Prior to this, Mr. Mullen served as vice president of Human Resources for Transocean Sedco Forex, Inc. He has also been the director of personnel for Geco-Prakla, managing director of Schlumberger (Nigeria) Ltd., and the district manager for Eastern Venezuela, Wireline & Testing. Mr. Mullen began his carreer with Schlumberger in Mr. Mullen holds a degree in geology from Trinity College, Dublin, and a master degree in geophysics from the University College Galway, Ireland. Mr. Mullen is an Irish citizen. John C. Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers & Co., Limited in London, England. Prior to his retirement in 2010, he served for over twenty-five years as Chairman of Fred. Olsen Ltd., a Londonbased corporation that he joined in 1968 and which specializes in the business of shipping, renewable energy and property development. He received his B. Comm degree majoring in Accounting and Economics from McGill University in In November 2004, he successfully completed the International Uniform Certified Public Accountant Qualification Examination and has received a CPA Certificate from the State of Illinois. Mr. Wallace also retired from the board of directors of Ganger Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping companies with interests in offshore energy services and renewable energy. He is a Director of Callon Petroleum Co, USA where he is Chairman of the Audit Committee. He was inducted as a 2011 Industry Pioneer by the Offshore Energy Centre in Houston. Mr. Wallace is a Canadian citizen. The remuneration of the Board for 2013 is proposed as USD 40,000 per year per Director. Remuneration for the services of Mr. Siem and Mr. Delouche is included to the fixed fee of USD 300,000 p.a. to Siem Industries. This fee also covers office and administrative costs. The remuneration is subject to approval by the shareholders at the annual general meeting of the Company to be held on May 2, Siem Offshore Inc., Annual Report

104 financial calendar 2014 Q Q Q Monday 5 May Thursday 21 August Thursday 23 October 104 Siem Offshore Inc., Annual Report 2013

105 105 Siem Offshore Inc., Annual Report 2013

106 INNOVENTI Siem Offshore Inc c/o Siem Offshore AS Sjølystveien Kristiansand Norway Postal address: P.O. Box 425 N-4664 Kristiansand S, Norway Telephone: Telefax: siemoffshore@siemoffshore.com Siem Offshore Inc., Annual Report 2013