Note 5 - Vessels, Equipment, Project Cost and Intangible Assets

Consolidated

(Amounts in USD 1,000)

Land and buildings

Vessels under construction

Vessels and equipment

Drydocking

Capitalised project cost

Purchase cost on January 1, 2015

4,128

145,015

2,084,094

54,855

17,597

Correction opening balance January 1, 2015

3,656

2,669

1,821

Capital expenditure

63

122,614

8,282

19,495

461

Movements between groups

1,024

-1,024

Vessels delivered in 2015

-

-62,970

62,970

-

-

The year's disposal at cost

-3,805

-

-151,452

-4,032

-6,179

Effect of exchange rate differences

-75

-12,095

-78,085

-1,001

-

Purchase cost on December 31, 2015

310

192,563

1,930,488

71,986

12,676

Accumulated depreciation on January 1, 2015

-433

-

-351,882

-32,569

-6,632

Accumulated impairment on January 1, 2015

-14,500

-14,500

Correction opening balance January 1, 2015

-1,501

-687

The year's depreciation

-2

-

-84,954

-16,318

-4,813

Impairment

-

-159,465

Movements between groups, impairment

7,000

-7,000

-

-

The year's disposal of accumulated depreciation

410

-

43,186

3,722

4,836

Effect of exchange rate differences

5

-

9,611

603

-

Accumulated depreciation on December 31, 2015

-20

-7,500

-566,506

-44,563

-7,296

Net book value on December 31, 2015

291

185,063

1,363,982

27,423

5,380

Purchase cost on January 1, 2016

310

192,563

1,930,488

71,986

12,676

Capital expenditure

3

333,544

68,805

9,444

2,083

Business combinations

-

-

184,516

-

-

Vessels delivered in 2016

-

-505,685

505,018

666

-

The year's disposal at cost

-

-10,424

-47,073

-11,683

-27

Effect of exchange rate differences

-11

25

-2,675

-84

-

Purchase cost on December 31, 2016

302

10,024

2,639,079

70,328

14,732

Accumulated depreciation on January 1, 2016

-20

-

-392,540

-44,563

-7,296

Accumulated impairment on January 1, 2016

-

-7,500

-173,965

-

-

Movements between groups

-

7,500

-7,500

-

-

The year's depreciation

-13

-

-96,747

-12,645

-1,873

Impairment of vessels

-

-1,766

-58,414

-

-

The year's disposal of accumulated depreciation

-

-

21,435

11,005

59

The year's disposal of accumulated impairment

-

-

24,433

-

-

Effect of exchange rate differences

1

-

71

-12

-

Accumulated depreciation on December 31, 2016

-32

-1,766

-683,233

-46,216

-9,111

Net book value on December 31, 2016

270

8,258

1,955,845

24,112

5,623

The balance of capitalized project costs relate to specific contracts. The costs are amortized over the term of the specific charter contracts.

The vessels are divided into the following components and economical life-times:

Component

Percentage of total

Economic life-time

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

2.5 years

Equipment

3 years

Intangible assets

(Amounts in USD 1,000)

Goodwill

Research and development

Trademarks and licences

Total

Balance on January 1, 2015

17,318

2,704

9,684

29,705

Moved from Vessel and equipment

-

9,240

-9,240

-

Investments

-

561

7

568

Effect of exchange rate differences

-1,763

-480

-69

-2,312

Purchase cost on December 31, 2015

15,555

12,025

380

27,961

Accumulated depreciation on January 1, 2015

-

-2,588

-1,180

-3,768

Moved from Vessel and equipment

-

-777

841

64

The year's ordinary depreciation

-

-932

-9

-941

Impairment on intangibles

-

-6,704

-

-6,704

Effect of exchange rate differences

-

238

-

238

Accumulated depreciation on December 31, 2015

-

-10,764

-347

-11,112

Net book value on December 31, 2015

15,555

1,261

33

16,849

Intangible assets

(Amounts in USD 1,000)

Goodwill

Research and development

Trademarks

and licences

Total

Balance on January 1, 2016

15,555

12,025

381

27,961

Business combinations

1,123

-

-

1,123

Investments

-

38

-

38

Effect of exchange rate differences

-581

61

7

-513

Purchase cost on December 31, 2016

16,097

12,125

387

28,608

Accumulated depreciation on January 1, 2016

-

-10,764

-347

-11,111

The year's ordinary depreciation

-

-493

-

-493

Effect of exchange rate differences

-

-21

-7

-28

Accumulated depreciation on December 31, 2016

-

-11,277

-354

-11,632

Net book value on December 31, 2016

16,097

847

33

16,977

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.

Impairment vessels

Tangible and intangible assets with finite lives are tested for impairment if indicators are identified that would suggest that the carrying amount of the assets exceed the recoverable amount. The Group performs an assessment to determine any indicators of impairment. An impairment loss is recognized if the carrying amount exceeds recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost of disposal (FVLCOD) and value in use (VIU) and each vessel is considered a separate cash generating unit (CGU).

As of December 31, 2016, impairment indicators were identified for all OSV vessels, mainly due to lower freight rates, and impairment testing has been performed.

Value in use (VIU)

VIU is based on the present value of discounted cash flows for each separate CGU for its remaining life based on market views for future periods.

Discount rate

The discount rate used in the value-in-use calculation is a real average cost of capital after tax ranging from 7.59%–9.62%.

Operating expenses

Operational expenses that are directly attributable to the CGU are based on budget with an annual escalation as applicable. Dry-docking costs are included as scheduled.

Fair value less cost of disposal

FVLCOD (level 3) is determined as the amount that would be obtained from sale of the asset in a regular market, less cost of sales, based on an average of third party valuation reports from two independent ship brokers. The company understand that shipbrokers apply newbuilding price parity as basis for their appraisals. Newbuilding prices are adjusted for building supervision costs and other additional costs, which results in an estimated delivered cost of a newbuilding with prompt delivery adjusted for age of each vessel.

Impairment testing

Based on the assessment an impairment charge of USD 60.2 million has been recognized which represents a write down of OSV vessels to their recoverable amount. The recoverable amount was based on the higher of FVLCOD and VIU calculation with each vessel as a separate cash generating unit. Impairment of USD 60.2 million is related to 13 vessels in the Group’s fleet.

(Amounts in USD 1,000)

2016

12/31/2016

Vessel

Valuation Method

Impairment recognized

Recoverable amount

PSV 1

VIU

1,209

1,300

PSV 2

VIU

4,071

27,848

PSV 3

VIU

4,036

29,672

PSV 4

VIU

8,974

28,930

PSV 5

VIU

2,130

28,930

PSV 6

VIU

8,977

21,646

PSV 7

VIU

16,442

1,099

PSV 8

VIU

1,825

75

PSV 9

VIU

1,766

8,258

OSCV 1

VIU

2,668

34,319

OSCV 2

VIU

3,543

37,315

OSCV 3

VIU

2,188

82,621

OSCV 4

VIU

2,351

82,621

Total

60,180

384,634

Sensitivities

Impairment of USD 60.2 million was recognized as of December 31, 2016. The VIU calculation is mainly affected by changes in WACC and freight rate assumptions.

A reduction of freight rate assumption of USD 1,000 per day for remaining life for each vessel would increase the total impairment by approximately USD 21.6 million. An increase in freight rate assumption of USD 1,000 per day would imply an impairment of approximately USD 39.6 million, relevant for only 10 of the vessels. With an increase in freight rate assumptions of USD 1,000 day, VIU would become higher than FVLCOD for certain vessels.

An increase in WACC of 0.5% would increase the total impairment by approximately USD 12.6 million. A decrease in WACC of 0.5% would imply an impairment of approximately USD 48.3 related to only 11 of the vessels. With a decrease in WACC of 0.5%, VIU would become higher than FVLCOD for certain vessels.

Board Of Directors

Financial Statements

Notes