KNOT OFFSHORE PARTNERS LP FORM 6-K (Report of Foreign Issuer) Filed 05/15/14 for the Period Ending 05/15/14 Telephone 44 1224 618420 CIK 0001564180 Symbol KNOP SIC Code 4400 - Water transportation Industry Conglomerates Sector Conglomerates Fiscal Year 12/31 http://www.edgar-online.com Copyright 2015, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934 For the month of May, 2014 Commission File Number 001-35866 KNOT Offshore Partners LP (Translation of registrant s name into English) 2 Queen s Cross, Aberdeen, Aberdeenshire United Kingdom AB15 4YB United Kingdom (Address of principal executive office) Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F Form 40-F Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b)(1). Yes No Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b)(7). Yes No
ITEM 1 INFORMATION CONTAINED IN THIS FORM 6-K REPORT On August 1, 2013, KNOT Shuttle Tankers AS, a wholly owned subsidiary of KNOT Offshore Partners LP, acquired a 100% interest in Knutsen Shuttle Tankers 13 AS, the company that owns and operates the shuttle tanker Carmen Knutsen. Pursuant to Rule 3-05 of Regulation S-X, separate audited financial statements of Knutsen Shuttle Tankers 13 AS as of and for the year ended December 31, 2012 have been included in this report and attached hereto as Exhibit 99.2. Unaudited interim financial statements of Knutsen Shuttle Tankers 13 AS as of and for the six months ended June 30, 2013, prepared on the same basis as the audited financial statements, have been included in this report and attached hereto as Exhibit 99.1. The audited financial statements have been included solely to meet the requirements of Rule 3-05 of Regulation S-X and do not include comparative financial statements for the year ended December 31, 2011 or the board of directors report as required under the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway. The unaudited pro forma consolidated and combined carve-out statement of operations of KNOT Offshore Partners LP for the year ended December 31, 2013, giving effect to the acquisition of Knutsen Shuttle Tankers 13 AS as if it had happened on January 1, 2013, has been included in this report and attached hereto as Exhibit 99.3. ITEM 2 EXHIBITS The following exhibits are filed as a part of this report: Exhibit Number Exhibit Description 99.1 Knutsen Shuttle Tankers 13 AS Unaudited Financial Statements as of and for the six months ended June 30, 2013 99.2 Knutsen Shuttle Tankers 13 AS Audited Financial Statements as of and for the year ended December 31, 2012 99.3 KNOT Offshore Partners LP Unaudited Pro Forma Consolidated and Combined Carve-Out Statement of Operations for the year ended December 31, 2013
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 15, 2014 KNOT OFFSHORE PARTNERS LP By: /s/ ARILD VIK Name: Arild Vik Title: Chief Executive Officer and Chief Financial Officer
Exhibit Index Exhibit Number Exhibit Description 99.1 Knutsen Shuttle Tankers 13 AS Unaudited Financial Statements as of and for the six months ended June 30, 2013 99.2 Knutsen Shuttle Tankers 13 AS Audited Financial Statements as of and for the year ended December 31, 2012 99.3 KNOT Offshore Partners LP Unaudited Pro Forma Consolidated and Combined Carve-Out Statement of Operations for the year ended December 31, 2013
Knutsen Shuttle Tankers 13 AS Unaudited Financial Statements as of and for the six months ended June 30, 2013 Index to Knutsen Shuttle Tankers 13 AS Unaudited Financial Statements as of and for the six months ended June 30, 2013 1 Exhibit 99.1 Knutsen Shuttle Tankers 13 AS Unaudited Statement of Operations for the six months ended June 30, 2013 2 Knutsen Shuttle Tankers 13 AS Unaudited Balance Sheet as of June 30, 2013 3 Knutsen Shuttle Tankers 13 AS Unaudited Statement of Cash Flows for the six months ended June 30, 2013 4 Knutsen Shuttle Tankers 13 AS Notes to Unaudited Financial Statements as of and for the six months ended June 30, 2013 5
KNUTSEN SHUTTLE TANKERS 13 AS Unaudited Statement of Operations for the six months ended June 30, 2013 The accompanying notes are an integral part of the unaudited interim financial statements. 2 Six Months Ended June 30, 2013 Operating income: Operating income 50,958 Commission (909) Total operating income 50,049 Operating expenses: Other operating expenses 5,380 Crew hire (note 13) 6,587 Administration (note 7) 1,526 Total operating expenses 13,493 Ordinary depreciation (note 4) 13,223 Operating income 23,333 Finance income (expense) : Financial income (note 5) 41 Foreign exchange gain (loss) (3,545) Financial expenses (note 5) (10,448) Total finance income (expense) (13,952 ) Income before income taxes 9,381 Taxes (note 11) Net income 9,381 Attributable to: Other equity 9,381 Total 9,381
KNUTSEN SHUTTLE TANKERS 13 AS Unaudited Balance Sheet as of June 30, 2013 June 30, 2013 Assets Fixed assets: Vessel (notes 4 and 8) 602,609 Total Fixed Assets 602,609 Current assets: Inventories (note 12) 1,428 Other current receivables 523 Current receivables due from group companies (note 6) 2,440 Bank deposits (note 3) 16,421 Total Current Assets 20,812 Total Assets 623,421 Shareholders Equity and Liabilities Equity Share capital (notes 9 and 10) 200 Share premium 96,611 Additional paid-in capital 647 Total Capital Paid-In 97,458 Retained Earnings Other equity (note 9) 9,381 Total Shareholders Equity 106,839 Long-term liabilities: Liabilities to financial institutions (note 8) 506,782 Total Long-Term Liabilities 506,782 Current liabilities Trade creditors 1,303 Accrued interests (note 8) 3,777 Current liabilities due to group companies (note 6) 2,527 Current liabilities due to associated companies (note 6) 571 Other current liabilities 1,622 Total Current Liabilities 9,800 Shareholders Equity and Liabilities 623,421 The accompanying notes are an integral part of the unaudited interim financial statements. 3
KNUTSEN SHUTTLE TANKERS 13 AS Unaudited Statement of Cash Flows for the six months ended June 30, 2013 The accompanying notes are an integral part of the unaudited interim financial statements. 4 Six Months Ended June 30, 2013 Net cash flow from operations Generated from operations: Net income 9,381 Depreciation 13,223 Amortization loan expenses 1,209 Foreign exchange gain (loss) mortgage debt 455 Total generated from operation 24,268 Change in working capital (13,180) Net cash flow from operation 11,088 Net cash flow from investments Investments in vessels and newbuildings (289,871) Net cash flow from investments (289,871) Net cash flow from financing activities Proceeds from issuance of long-term debt Loan expenses (230) Repayment of long-term debt (11,467) Net change in group loans (25,688) Net cash flow from financing (37,385) Net cash flow for the period (316,168) +Cash balance as of January 1, 2013 332,589 Cash balance at balance end of period 16,421
KNUTSEN SHUTTLE TANKERS 13 AS NOTES TO UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2013 (In Norwegian Kroner, thousands, unless otherwise indicated) 1) Accounting Principles (a) Basis of Preparation The financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway ( NGAAP ). The interim financial statements have been prepared solely to meet the requirements of Rule 3-05 of U.S. Securities and Exchange Commission Regulation S-X and do not present prior period comparative financial information for the period ended June 30, 2012. (b) Current Assets/Current Liabilities Fixed assets are intended for long-term ownership and use. Other assets are classified as current assets. Short-term liabilities are due within one year or tied to the operation of the vessel. Other liabilities are classified as long-term liabilities. Current assets are valued at the lower of cost and fair value. Short-term liabilities are recorded at nominal value at the time of entering into such liabilities. (c) Fixed Assets and Dry-Docking Yard installments paid on newbuildings are gradually recorded as fixed assets as the installments are paid. All costs regarding construction supervision, construction financing (including building loan interest and provision of guarantees), and purchases beyond the yard contract regarding the individual contract are also registered. Newbuilding contracts are valued in accordance with the lower value of capitalized value and fair value (including time charter contracts entered by the newbuilding), if the loss is not considered temporary. The total cost of the vessel is capitalized at delivery and depreciated linearly over the expected lifetime. Dry-docking expenses are capitalized and depreciated over the period until the next dry-docking. This is in line with the depreciation plan of the vessel and takes into account that the vessel is classified to operate for an additional period. Dry-docking is carried out every fifth year for vessels younger than 15 years, and every 2.5 years for vessels older than 15 years. In the case of a newbuilding, a portion of the total cost of the vessel equal to the dry-docking cost is capitalized. Actual expenses related to repair and maintenance of the vessel are expensed when the work is executed. The fixed assets are valued according to the lowest of the depreciated value and the market value unless the fall in value is assumed to be temporary. (d) Income The income from the charter party is in U.S. dollars ( USD ), and income is recorded in the statement of operations when actually earned. (e) Transactions in Foreign Currency Income and expenditures in foreign currency are converted according to the exchange rate in effect at the time of the transaction. All current assets and current liabilities in foreign currency are registered at the rate of exchange as of June 30, 2013. Realized foreign exchange gain and loss are registered as financial items. The debt is valued at the historical rate, to the extent that the future net nominal income flow exceeds the borrowed amount. To the extent that long-term debt exceeds the net nominal income flow, the unrealized foreign exchange loss on the exceeding amount is recorded. 5
Realized and unrealized profit and loss on foreign exchange are recorded as financial income/expenses. Principal exchange rates As of June 30, As of December 31, As of December 31, As of June 30, As of December 31, As of December 31, (NOK per) 2013 2012 2011 2013 2012 2011 Period ending rate Weighted average period rate 1 U.S. Dollar USD 6.0267 5.5912 6.0065 5.7275 5.8191 5.6079 1 Euro EUR 7.8651 7.3756 7.7718 7.5212 7.4805 7.7974 1 Pound Sterling GBP 9.1910 9.0399 9.2695 8.8384 9.2216 8.9864 100 Japanese Yen JPY 6.0974 6.4946 7.7433 6.0024 7.3006 7.0374 100 Danish kroner DKK 105.45 98.86 104.55 100.88 100.50 104.65 (f) Interest-Bearing Loans and Borrowings All loans and borrowings are initially recognized at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Any difference between proceeds (net of transaction costs) and the redemption value is recorded in the profit and loss over the period of the interest-bearing liabilities. Amortized cost is calculated by taking into account any issue costs and any discount or premium on settlement. Gains and losses are recognized in the net profit and loss statement when the liabilities are devalued or depreciated, as well as through the amortization process. (g) Inventories Inventories are valued according to the net realizable value principle. (h) Tax The tax expense in the income statement includes both tax payable and changes in deferred tax. Deferred tax is calculated at 27% on the basis of temporary differences between accounting and tax values and tax loss carried forward at the year end. Knutsen Shuttle Tankers 13 AS (the Company ) is taxed based on the shipping tax regime. This means that a company is not taxed on the basis of its operating income. Instead, a company is taxed based upon an annual tax of 28% on the company s net financial income. Additionally, a company within the shipping tax regime pay a tonnage tax based on the size of the company s operated vessels. Tonnage tax is classified as an operating expense. A company should meet certain requirements to be within the regime, such as ownership of only ships or shares in shipping companies and ownership of only certain types of financial assets. (i) Cash Flow Hedges The effective portion of the gain or loss on the hedging instrument is not recorded, while any ineffective portion is recognized immediately in the statement of profit or loss as foreign exchange gain/loss. (j) Statement of Cash Flows The statement of cash flows is presented using the indirect method of NGAAP. The liquidity balance is defined as the sum of cash, bank deposits and other short-term liquid deposits. (k) Going Concern The financial statements have been prepared under the assumption of a going concern. 2) Contracts The Company has secured employment of the Carmen Knutsen with a five-year time charter contract that has three, one-year options to extend its term, with Repsol Sinopec Brasil, B.V. from delivery in the beginning of 2013. KNOT Management AS operates for the vessel as a manager on behalf of the Company in accordance with a management agreement. 3) Bank Deposits The Company does not have any restricted bank funds as of June 30, 2013. 6
4) Fixed Assets Six Months Ended June 30, 2013 Vessel: Historical value as of January 1, 2013 325,960 Accumulated depreciation as of January 1, 2013 Book value as of January 1, 2013 325,960 Additions 278,547 Less: Ordinary depreciation 12,090 Book value as of June 30, 2013 592,417 Dry-docking: Capitalized dry-docking as of January 1, 2013 Additions 11,325 Less: Ordinary depreciation 1,133 Book value as of June 30, 2013 10,192 Total book value of vessel as of June 30, 2013 602,609 5) Financial Income and Expenses Six Months Ended June 30, 2013 Financial income: Interest income from group companies/related parties 40 Other interest income 1 Total financial income 41 Financial expenses: Interest expenses 7,880 Other financial expenses 2,568 Total financial expenses 10,448 6) Balances to Group Companies and Associated Companies Six Months Ended June 30, 2013 Short-term receivable due from group companies: Knutsen Bøyelaster VIII KS 1 Knutsen NYK Offshore Tankers AS 2,439 Total 2,440 Current liabilities due to group companies: Knutsen Bøyelaster III KS 6 Knutsen Shuttle Tankers 3 AS 8 KNOT Management AS 2,513 Total 2,527 Current liabilities due to associated companies: Knutsen OAS Shipping AS 570 Knutsen OAS Crewing AS 1 Total 571 7
7) Remuneration The Company has not paid salary or any other remuneration, nor given any loan or guarantees, to the managing director, any leading person or board members during the six-month period ended June 30, 2013. Six Months Ended June 30, 2013 Audit 7 Tax advice Other services besides audit 19 Total 26 8) Mortgage Debt and Financial Instruments Exchange rate Historical exchange (In thousands) USD rate as of June 30, 2013 NOK $93 million secured loan facility (the Carmen Facility ) 91,063 5.6847 5.6847 517,663 Deferred debt issuance (10,881) Total 506,782 Current portion: USD-loan 7,750 44,056 Deferred debt issuance (2,418) Total 41,638 The U.S. dollar ( USD )/Norwegian Kroner ( NOK ) exchange rate as of June 30, 2013 was 6.0267. Estimated outstanding debt after five years is $52 million. Future income flows from fixed contracts in USD exceed debt in USD. Therefore, no foreign exchange gains on USD-denominated debt on the basis of the exchange rate as of June 30, 2013 have to be recognized. The foreign exchange currency loss if recorded would have been NOK 31.1 million. Security for the Carmen Facility is made through a first-priority mortgage in the vessel, assignment of income, pledged bank deposit, factoring agreement, pledge of shares in the Company and guarantees from the owner. Book value of mortgaged assets is NOK 623 million. 8
The Company has aimed to reduce the market risk by entering financial contracts. The Company has entered long-term freight contracts in USD, with the intention of having income, vessel investment and loans in the same currency in order to minimize the effects of exchange rate fluctuations. 9) Equity Share Premium Additional paid-in capital Other equity Total equity Share capital Equity as of January 1, 2013 200 96,611 647 97,458 Net income for the six months ended June 30, 2013 9,381 9,381 Total equity as of June 30, 2013 200 96,611 647 9,381 106,839 Share capital consists of 100 shares at NOK 2,000 per share. The Company is a wholly owned subsidiary of Knutsen NYK Offshore Tankers AS. Financial statements for the group can be obtained at the Company s registered office, Smedasundet 40, 5529 Haugesund. 10) Shares Owned by Board Members and Affiliates Trygve Seglem, Chairman, controls TS Shipping Invest AS, which owns 50 % of the parent company Knutsen NYK Offshore Tankers AS. 11) Tax The Company is taxed based on the shipping tax regime. This means that a company is not taxed on the basis of its operating income. Instead, a company is taxed based upon an annual tax of 28% on the company s net financial income. Additionally, a company within the shipping tax regime pay a tonnage tax based on the size of the company s operated vessels. Tonnage tax is classified as an operating expense. A company should meet certain requirements to be within the regime, such as ownership of only ships or shares in shipping companies and ownership of only certain types of financial assets. Below is a specification of the temporary differences as of June 30, 2013: 9 As of June 30, 2013 Change As of January 1, 2013 Loss carried forward (10,817) (4,522) (6,295) Basis for deferred tax (benefit) (10,817) (4,522) (6,295) Deferred tax (benefit) (2,921) (1,158) (1,763) Deferred tax (benefit) booked
Taxable result shipping tax regime: As of June 30, 2013 Net financial items: (13,952) Non-deductible currency loss 2,571 Deductible building loan interest registered on vessel Interest deduction 6,859 Taxable income before loss carried forward (4,522) Change in loss carried forward (4,522) Taxable income Tax payable Change in deferred tax Tax expense 12) Inventories Inventories amounting to NOK 1,427,876 in 2013 refer to lube oil and stores as of June 30, 2013. Due to the fact that the Carmen Knutsen is contracted on a time charter, bunkers and bunkers stock are for the charterer s account. 13) Crew Hire The Company has no employees and hires all of its crew from Knutsen OAS Shipping AS in accordance with a separate management agreement. June 30, 2013 Specification: Salaries, etc. 4,920 Social Security fees 296 Other salary-related benefits 1,371 Total 6,587 10
Knutsen Shuttle Tankers 13 AS Audited Financial Statements as of and for the year ended December 31, 2012 Index to Knutsen Shuttle Tankers 13 AS Audited Financial Statements as of and for the year ended December 31, 2012 1 Exhibit 99.2 Report of Independent Auditors 2 Knutsen Shuttle Tankers 13 AS Audited Statement of Operations for the year ended December 31, 2012 3 Knutsen Shuttle Tankers 13 AS Audited Balance Sheet as of December 31, 2012 4 Knutsen Shuttle Tankers 13 AS Audited Statement of Cash Flows for the year ended December 31, 2012 5 Knutsen Shuttle Tankers 13 AS Notes to Audited Financial Statements as of and for the year ended December 31, 2012 6
The Board of Directors of Knutsen Shuttle Tankers 13 AS Report of Independent Auditors We have audited the accompanying financial statements of Knutsen Shuttle Tankers 13 AS (the Company ), which comprise the balance sheet as of December 31, 2012, and the related statements of operations and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in conformity with Norwegian Accounting Act and accounting standards and practices generally accepted in Norway; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and provide a basis for our qualified audit opinion. Basis for qualified opinion As discussed in Note 1 (a) Basis of preparation, the financial statements have been prepared solely to meet the requirements of Rule 3-05 of the United States Securities and Exchange Commission Regulation S-X and the Company has not presented prior period comparative financial information for the year ended December 31, 2011 or the board of directors report as required under Norwegian Accounting Act and accounting standards and practices generally accepted in Norway. Qualified Opinion In our opinion, except for the omission of the information referred to in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Knutsen Shuttle Tanker 13 AS at December 31, 2012, and the results of its operations and its cash flows for the year then ended in conformity with Norwegian Accounting Act and accounting standards and practices generally accepted in Norway. /s/ Ernst & Young AS Bergen, Norway May 15, 2014 2
KNUTSEN SHUTTLE TANKERS 13 AS Audited Statement of Operations for the year ended December 31, 2012 (In Norwegian Kroner thousands) The accompanying notes are an integral part of the financial statements. 3 Year Ended, December 31, 2012 Operating income: Operating income Commission Total operating income Operating expenses: Other operating expenses 105 Crew hire (note 11) 700 Administration (note 7) 246 Total operating expenses 1,051 Ordinary depreciation Operating income (1,051 ) Finance income (expense): Financial income (note 5) Foreign exchange gain and loss 874 Financial expense (note 5) (57) Net finance income (expense) 817 Income before income taxes (234 ) Taxes (note 12) Net loss (234) Attributable to: Additional paid-in capital 234 Total 234
KNUTSEN SHUTTLE TANKERS 13 AS Audited Balance Sheet as of December 31, 2012 The accompanying notes are an integral part of the financial statements. 4 December 31, 2012 Assets Fixed assets: Vessel under construction (notes 4 and 8) 325,960 Total Fixed Assets 325,960 Current assets: Other current receivables 714 Bank deposits (note 3) 332,589 Total Current Assets 333,303 Total Assets 659,263 Shareholders Equity and Liabilities Equity Share capital (notes 9 and 10) 200 Share premium 96,611 Additional paid-in capital 647 Total Capital Paid-In 97,458 Retained Earnings Other equity Total Shareholders Equity (note 9) 97,458 Long-term liabilities: Liabilities to financial institutions (note 8) 516,815 Debt to group companies (note 6) 25,688 Total Long-Term Liabilities 542,503 Current liabilities Trade creditors 4,871 Accrued interests (note 8) 350 Currents liabilities due to group companies (note 6) 13,393 Other currents liabilities 688 Total Current Liabilities 19,302 Shareholders Equity and Liabilities 659,263
KNUTSEN SHUTTLE TANKERS 13 AS Audited Statement of Cash Flows for the year ended December 31, 2012 The accompanying notes are an integral part of the financial statements. 5 Year Ended December 31, 2012 Net cash flow from operations Generated from operations: Net loss (234) Depreciation Amortization loan expenses Foreign exchange gain(loss) mortgage debt Total generated from operation (234) Change in working capital 19,529 Net cash flow from operations 19,295 Net cash flow from investments Investments in vessels and newbuildings (78,551 ) Net cash flow from investments (78,551 ) Net cash flow from financing activities Proceeds from issuance of long-term debt 380,688 Loan expenses Repayment of long-term debt Net change in group loans 11,012 Net cash flow from financing 391,700 Net cash flow for the period 332,444 +Cash balance as of January 1, 2012 145 Cash balance at balance end of period 332,589
KNUTSEN SHUTTLE TANKERS 13 AS NOTES TO AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2012 (In Norwegian Kroner, thousands, unless otherwise indicated) 1) Accounting Principles (a) Basis of Preparation The financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway ( NGAAP ). The financial statements have been prepared solely to meet the requirements of Rule 3-05 of U.S. Securities and Exchange Commission Regulation S-X and do not present prior period comparative financial information for the period ended December 31, 2011. (b) Current Assets/Current Liabilities Fixed assets are intended for long-term ownership and use. Other assets are classified as current assets. Short-term liabilities are due within one year or tied to the operation of the vessel. Other liabilities are classified as long-term liabilities. Current assets are valued at the lower of cost and fair value. Short-term liabilities are recorded at nominal value at the time of entering into such liabilities. (c) Fixed Assets and Dry-Docking Yard installments paid on newbuildings are gradually recorded as fixed assets as the installments are paid. All costs regarding construction supervision, construction financing (including building loan interest and provision of guarantees), and purchases beyond the yard contract regarding the individual contract are also registered. Newbuilding contracts are valued in accordance with the lower value of capitalized value and fair value (including time charter contracts entered by the newbuilding), if the loss is not considered temporary. The total cost of the vessel is capitalized at delivery and depreciated linearly over the expected lifetime. Dry-docking expenses are capitalized and expensed over the period until the next dry-docking. This is in line with the depreciation plan of the vessel, and takes into account that the vessel is classified to operate for an additional period. Dry-docking is carried out every fifth year for vessels younger than 15 years, and every 2.5 years for vessels older than 15 years. In the case of a newbuilding, a portion of the total cost of the vessel equal to the dry-docking cost is capitalized. Actual expenses related to repair and maintenance of the vessel are expensed when the work is executed. The fixed assets are valued according to the lowest of the depreciated value and the market value unless the fall in value is assumed to be temporary. (d) Transactions in Foreign Currency Income and expenditures in foreign currency are converted according to the exchange rate in effect at the time of the transaction. All current assets and current liabilities in foreign currency are registered at the rate of exchange as of December 31, 2012. Realized foreign exchange gain and loss are registered as financial items. The debt is valued at the historical rate, to the extent that the future net nominal income flow exceeds the borrowed amount. To the extent that long-term debt exceeds the net nominal income flow, the unrealized foreign exchange loss on the exceeding amount is recorded. 6
Realized and unrealized profit and loss on foreign exchange are recorded as financial income/expenses. Principal exchange rates (NOK per) 2012 2011 2012 2011 Year ending rate Weighted average annual rate 1 U.S. Dollar USD 5.5912 6.0065 5.8191 5.6079 1 Euro EUR 7.3756 7.7718 7.4805 7.7974 1 Pound Sterling GBP 9.0399 9.2695 8.2216 8.9864 100 Japanese Yen JPY 6.4946 7.7433 7.3006 7.0374 100 Danish kroner DKK 98.86 104.55 100.50 104.65 (e) Interest-Bearing Loans and Borrowings All loans and borrowings are initially recognized at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Any difference between proceeds (net of transaction costs) and the redemption value is recorded in the profit and loss over the period of the interest-bearing liabilities. Amortized cost is calculated by taking into account any issue costs and any discount or premium on settlement. (f) Tax The tax expense in the income statement includes both tax payable and changes in deferred tax. Deferred tax is calculated at 28% on the basis of temporary differences between accounting and tax values and tax loss carried forward at the year end. Knutsen Shuttle Tankers 13 AS (the Company ) is taxed based on the shipping tax regime. This means that a company is not taxed on the basis of its operating income. Instead, a company is taxed based upon an annual tax of 28% on the company s net financial income. Additionally, a company within the shipping tax regime pay a tonnage tax based on the size of the company s operated vessels. Tonnage tax is classified as an operating expense. A company should meet certain requirements to be within the regime, such as ownership of only ships or shares in shipping companies and ownership of only certain types of financial assets. (g) Cash Flow Hedges The effective portion of the gain or loss on the hedging instrument is not recorded, while any ineffective portion is recognized immediately in the statement of profit or loss as foreign exchange gain/loss. (h) Statement of Cash Flows The statement of cash flows is presented using the indirect method of NGAAP. The liquidity balance is defined as the sum of cash, bank deposits and other short-term liquid deposits. (i) Going Concern The financial statements have been prepared under the assumption of a going concern. 2) Contracts The Company has entered into a construction contract with Hyundai Heavy Industries, Korea, for the Carmen Knutsen. The Company has paid 50% of the contract sum as of December 31, 2012. The remaining adjusted contract sum with changes amounts to $52.1 million. In addition to the contract sum, construction supervision and company-specific adjustments to construction contracts are incurred. The Company has secured employment of the vessels with a five-year time charter contract that has three, one-year options to extend its term, with Repsol Sinopec Brasil, B.V. from delivery in the beginning of 2013. The Company has signed a contract regarding construction supervision of the newbuilding with Knutsen OAS Shipping AS. KNOT Management AS operates as a manager on behalf of the Company in accordance with a management agreement. 3) Bank Deposits The stated amount includes a bank deposit amounting to Norwegian Kroner ( NOK ) 332,589,139 (equal to $59,470,800), which will be partly used to finance the last installment to the yard payable January 2, 2013. 7
4) Fixed Assets 2012 Vessel under construction: Book value as of January 1, 2012 238,020 Additions 87,940 Book value as of December 31, 2012 325,960 5) Financial Income and Expenses 2012 Financial income: Other interest income Total financial income Financial expenses: Interest expenses 2 Other financial expenses 55 Total financial expenses 57 6) Balances to Group Companies and Associated Companies 2012 Long-term liabilities due to group companies: Knutsen NYK Offshore Tankers AS 25,688 Total 25,688 Current liabilities due to group companies: Group contribution to Knutsen NYK Offshore Tankers AS 13,393 Total 13,393 7) Remuneration The Company has not paid salary or any other remuneration, nor given any loan or guarantees, to the managing director, any leading person or board members during the year. 2012 Audit 7 Tax advice Other services besides audit 5 Total 12 8
8) Mortgage Debt and Financial Instruments The U.S. dollar ( USD )/NOK exchange rate as of December 31, 2012 was 5.5912. Estimated outstanding debt as of the year ending December 31, 2017 is $56.2 million. Future income flows from fixed contracts in USD exceed debt in USD. Therefore, no foreign exchange gain on USD-denominated debt on the basis of the year-end exchange rate is recognized. The foreign exchange gain would if recorded be NOK 8.6 million as of December 31, 2012. Security for the Carmen Facility is made through a first-priority mortgage in the vessel, assignment of income, pledged bank deposit, factoring agreement, pledged shares in the Company and guarantees from the owner. Book value of mortgaged assets is NOK 659 million. Historical exchange rate Exchange rate as of December 31, (In thousands) USD 2012 NOK $93 million secured loan facility (the Carmen Facility ) 93,000 5.6847 5.6847 528,674 Deferred debt issuance (11,859) Total 516,815 Current portion: USD-loan 7,750 33,042 Deferred debt issuance (2,369) Total 30,673 The Company has aimed to reduce the market risk by entering financial contracts. The Company has entered long-term freight contracts in USD, with the intention of having income, vessel investment and loans in the same currency in order to minimize the effects of exchange rate fluctuations. 9) Equity Share Premium Additional paid-in capital Other equity Total equity Share capital Equity as of January 1, 2012 200 96,611 14,274 111,085 Net loss for the year (234) (234) Group contribution (13,393) (13,393) Total equity as of December 31, 2012 200 96,611 647 97,458 Share capital consists of 100 shares at NOK 2,000 per share. The Company is a wholly owned subsidiary of Knutsen NYK Offshore Tankers AS. Financial statements for the group can be obtained at the Company s registered office, Smedasundet 40, 5529 Haugesund. 10) Shares Owned by Board Members and Affiliates Trygve Seglem, Chairman, controls TS Shipping Invest AS, which owns 50 % of the parent company Knutsen NYK Offshore Tankers AS. 9
11) Crew Hire The Company has no employees and hires all of its crew from Knutsen OAS Shipping AS in accordance with a separate management agreement. December 31, 2012 Specification: Salaries, etc. 314 Social Security fees 21 Other salary-related benefits 365 Total 700 12) Tax The Company is taxed based on the shipping tax regime. This means that a company is not taxed on the basis of its operating income. Instead, a company is taxed based upon an annual tax of 28% on the company s net financial income. Additionally, a company within the shipping tax regime pay a tonnage tax based on the size of the company s operated vessels, which in 2012 amounted to NOK 0. Tonnage tax is classified as an operating expense. A company should meet certain requirements to be within the regime, such as ownership of only ships or shares in shipping companies and ownership of only certain types of financial assets. Below is a specification of the temporary differences at the end of the financial year. As of December 31, As of January 1, 2012 Change 2012 Loss carried forward (6,294) (3,980) (2,314) Basis for deferred tax (benefit) (6,294) (3,980) (2,314) Deferred tax (benefit) (1,762) (1,114) (648) Deferred tax (benefit) booked 2012 Net financial items: 817 Non-deductible currency loss (544) Deductible building loan interest registered on vessel (4,253) Interest deduction Taxable income before loss carried forward (3,980) Change in loss carried forward (3,980) Taxable income 10 As of December 31, Tax payable Change in deferred tax Tax expense
Exhibit 99.3 KNOT OFFSHORE PARTNERS LP Unaudited Pro Forma Consolidated and Combined Carve-Out Statement of Operations for the year ended December 31, 2013 (In U.S. Dollars, thousands) On August 1, 2013, KNOT Shuttle Tankers AS ( KST ), a wholly owned subsidiary of KNOT Offshore Partners LP ( KNOP ), acquired a 100% interest in Knutsen Shuttle Tankers 13 AS ( KST 13 ), the company that owns and operates the Carmen Knutsen. The purchase consideration was $145.0 million for the vessel less the assumed bank debt of $89.1 million and other purchase price adjustments of $ 0.1 million. The Carmen Knutsen was delivered to its current charterer, Repsol Sinopec Brasil, B.V., in January 2013 under a charter expiring in January 2018. The purchase price was settled by way of a cash payment of $45.4 million and with seller financing provided by Knutsen NYK Offshore Tankers AS in the form of a loan in the amount of $10.5 million. The following unaudited pro forma consolidated and combined financial information is shown as if KNOP s acquisition and the financing of the Carmen Knutsen had taken place on January 1, 2013. Since the Carmen Knutsen was delivered on January 2, 2013, there is no pro forma figure for year 2012. The unaudited pro forma consolidated and combined financial information is based on estimates and assumptions, which have been solely for purposes of developing such pro forma information. The historical information for KST 13 for the period of January 1, 2013 through July 31, 2013 has been derived from the unaudited financial information for the seven-month period ended July 31, 2013. The unaudited pro forma consolidated and combined carve-out statement of operations is prepared in accordance with accounting principles generally accepted in the United States. KNOT OFFSHORE PARTNERS LP Unaudited pro forma consolidated and combined results (In U.S. dollars, thousands) Historical KNOP as of December 31, 2013 1 Historical KST 13 as of July 31, 2013 Pro Forma Adjustments Pro Forma Consolidated and Combined Results as of December 31, 2013 Time charter and bareboat revenues 73,151 9,511 1,125 (1) 83,787 Loss of hire insurance recoveries 250 250 Total revenues 73,401 9,511 1,125 84,037 Operating expenses: Vessel operating expenses 14,288 2,666 16,954 Depreciation and amortization 23,768 2,711 686 (2) 27,165 General and administrative expenses 5,361 78 5,439 Total operating expenses 43,417 5,455 686 49,558 Operating income 29,984 4,056 439 34,479 Finance income (expense) : Interest income 30 30 Interest expense (10,773) (1,764) (896) (3) (13,433) Other finance expense (2,048) (263) 230 (4) (2,081) Realized and unrealized gain (loss) on derivative instruments 505 505 Net gain (loss) on foreign currency transactions 193 (171) 22 Total finance expense (12,093 ) (2,198 ) (666 ) (14,957 ) Income (loss) before income taxes 17,891 1,858 (227) 19,522 Income tax benefit (expense) (2,827) (2,827) Net income (loss) $ 15,064 $ 1,858 $ (227 ) $ 16,695
(1) Adjustment to eliminate cost related to termination of commercial management contract with KNOT Management AS. (2) Adjustment to record depreciation on increased value after acquisition of the vessel the Carmen Knutsen. (3) Adjustment to record finance expenses related to the additional borrowings as if the acquisition had taken place on January 1, 2013. (4) Adjustment to eliminate guarantee commission paid to Knutsen NYK Offshore Tankers AS and TS Shipping Invest AS included in the historical financial statements of KST 13. 2