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

TANGIBLE 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, 2016

310

192,563

1,930,488

71,986

12,676

Capital expenditure

3

333,544

69,690

9,444

2,083

Business combinations

-

-

183,631

-

-

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

 

Purchase cost on January 1, 2017

302

10,024

2,639,079

70,328

14,732

Movement between groups

-

-

4,558

-4,558

-

Capital expenditure

-

-

14,282

2,911

2,8242

Vessels delivered in 2017

-

-

-

-

-

The year's disposal at cost

-

-10,024

-55,720

-26,407

-

Effect of exchange rate differences

38

-

13,437

478

-

Purchase cost on December 31, 2017

341

-

2,615,636

42,751

17,556

 

TANGIBLE ASSETS

Consolidated

(Amounts in USD 1,000)

Land and buildings

Vessels under construction

Vessels and equipment

Drydocking

Capitalised project cost

 

Accumulated depreciation on January 1, 2017

-32

-

-475,286

-46,216

-9,111

Accumulated impairment on January 1, 2017

-

-1,766

-207,946

-

-

Correction opening balances January 1, 2017

-

-

-7,329

7,329

-

The year's depreciation

-12

-

-113,042

-7,340

-1,412

Impairment of vessels

-

-

-126,299

-

-

The year's disposal of accumulated depreciation

-

-

31,660

24,575

-

The year's disposal of accumulated impairment

-

1,766

18,238

-

-

Effect of exchange rate differences

-3

-

-15,627

-1,713

-3

Accumulated depreciation on December 31, 2017

-46

-

-895,631

-23,366

-10,527

 

Net book value on December 31, 2017

294

-

1,720,005

19,385

7,029

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

The vessels are divided into the following components and economical lives:

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, 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

388

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

Intangible assets

(Amounts in USD 1,000)

Goodwill

Research and development

Trademarks

and licences

Total

Balance on January 1, 2017

16,097

12,125

388

28,608

Investments

-

15

-

15

Effect of exchange rate differences

2,132

146

17

2,295

Purchase cost on December 31, 2017

18,229

12,285

404

30,918

 

Accumulated depreciation on January 1, 2017

-

-11,277

-354

-11,632

The year's ordinary depreciation

-

-370

145

-225

Effect of exchange rate differences

-

-135

-161

-296

Accumulated depreciation on December 31, 2017

-

-11,782

-370

-12,152

 

Net book value on December 31, 2017

18,229

503

35

18,766

The Goodwill is mainly related to Siem Offshore Contractors. As also disclosed in Note and Subsequent Events , the shares in this company has been sold in 2018. The sales price for the shares does not indicate any need for impairment as of December 31, 2017. 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

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, 2017, 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 7.24%–9.51%

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 shipbrokers. The company understand that shipbrokers apply newbuilding price parity as basis for their appraisals. Newbuilding prices have been 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 126.3 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 126.3 million is related to 28 vessels in the Group’s fleet.

(Amounts in USD 1,000)

2017

12/31/2017

Vessel

Valuation Method

Impairment recognized

Recoverable amount

PSV 1

VIU

7,714

6,006

PSV 2

VIU

4,709

15,774

PSV 3

VIU

6,784

6,232

PSV 4

VIU

7,486

5,953

PSV 5

VIU

5,681

10,526

PSV 6

VIU

8,312

18,879

PSV 7

VIU

10,838

-

Other 1

VIU

6,043

40,066

Other 2

VIU

5,000

69,179

Other 3

VIU

360

-

Other 4

VIU

3,645

1,131

AHTS 1

VIU

4,873

61,047

AHTS 2

VIU

9,570

53,039

AHTS 3

VIU

3,733

61,047

AHTS 4

VIU

2,967

61,047

AHTS 5

VIU

11,503

49,288

AHTS 6

VIU

1,500

61,047

AHTS 7

VIU

1,500

61,047

AHTS 8

VIU

1,500

61,047

AHTS 9

VIU

1,500

61,047

AHTS 10

VIU

1,500

61,047

OSCV 1

VIU

3,000

78,916

OSCV 2

VIU

595

32,180

OSCV 3

VIU

6,523

75,173

OSCV 4

VIU

3,000

75,787

OSCV 5

VIU

2,332

34,506

CAN 1

VIU

1,490

2,037

CAN 2

VIU

2,640

7,421

Total

VIU

126,299

1,070,467

Sensitivities

Impairment of USD 126.3 million was recognized as of December 31, 2017. 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 43.7 million. An increase in freight rate assumption of USD 1,000 per day would imply an impairment of approximately USD 84.7 million, relevant for only 19 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 32.3 million. A decrease in WACC of 0.5% would imply an impairment of approximately USD 93.1 related to only 20 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