Change to Financial Statements for 2016 Subsequent to Previous Issuance of 4Q press release
Siem Offshore Inc. (the Company) reports that, pursuant to IAS 39 , the Company has recorded a loss of approximately USD60.3 million in relation to prior years’ currency losses in a cash flow hedge that had accumulated in other comprehensive income in the financial statements of its wholly-owned Brazilian subsidiary, Siem Offshore do Brazil (Siem Brazil). This loss is recorded subsequent to the release of the preliminary results for fiscal 2016 on 23 February 2017.
In past years, Siem Brazil successfully bid on term contracts from Petrobras for new vessels which it built in Brazil and financed using USD-denominated debt. Because Siem Brazil’s financial statements were prepared using Brazilian reals (R$) as the functional currency, its income statement reflected significant fluctuations in currency exchange gains and losses when accounting for the USD-denominated debt. To reduce the fluctuations, Siem Brazil established a cash flow hedging strategy under which USD-denominated revenues from specific vessels and related contracts were matched against the USD-denominated debt. As long as the revenue cash flows were highly probable and in USD and were sufficient to cover the debt service for the USD-denominated debt, then the resulting gains or losses on the USD debt were recorded and accumulated as other comprehensive income in shareholders’ equity rather than recorded in profit or loss.
During the past several years, Brazil in general and Petrobras in particular experienced significant financial stress. The Brazilian real fell during 2015 from approximately R$2.6 to the USD to R$4 to the USD, or a devaluation of approximately 50%. Furthermore, Petrobras either terminated or did not exercise its option to extend contracts for a number of vessels, including several vessels that had been identified in Siem Brazil’s cash flow hedging strategy. The sharp devaluation of the R$ and the significant increase in the amount of R$ that was equivalent to the USD-denominated debt increased the balance in other comprehensive income.
After considering recently received information relevant to the ability of Siem Brazil to reverse the balance of accumulated translation differences in other comprehensive income, it was concluded that the recent termination of vessel contracts and loss of highly-probable USD cash flows and the continued devaluation of the Brazilian real made it unlikely that the accumulated balance would naturally reverse during operations. Therefore, USD60.3 million related to the accumulated translation differences in other comprehensive income is recognized through profit or loss. Consequently, other comprehensive income is increased by the removal of the USD60.3 million and retained earnings is decreased by the same amount of USD60.3 million that is recorded in profit and loss; therefore, shareholders’ equity remains unchanged and there is no cash effect. See the effects of the changes due to the recording of the loss below.
Preliminary results as presented before adjustment for Loss (in 000’s):
USD(82,117) Net loss attributable to shareholders
USD (0.10) Loss per share
Results subsequent to the adjustment for Loss (in 000’s):
USD(142,417) Net loss attributable to shareholders
USD (0.17) Loss per share
Shareholders’ equity both before and after adjustment for Loss (in 000’s):
For further information, please contact:
Dagfinn B. Lie – CFO
+47 901 99 051