Enquiries to: Tine Svae
Dir. line: +47 22 93 97 84
Our reference: 11/7244
Filling code: 732
In accordance with the Securities Trading Act Section 15-1 subsection (3), the Financial
Supervisory Authority of Norway (Finanstilsynet) has reviewed certain accounting topics
related to the financial reporting of Northern Offshore Ltd. for 2010. The financial
statements for 2010 have been prepared in accordance with US Generally Accepted
Accounting Principles (US GAAP). Reference is made to previous correspondence, most
recently the issuer's reply dated 9 August 2011.
Below is a summary of the topics addressed by the review. The review is hereby considered
2. Parent company financial statements
As referred to in Finanstilsynet’s Circular 10/2001, the annual financial statements must
contain audited financial statements of the parent company and for the consolidated group.
This requirement is governed by the Securities Trading Act §5-5 (2) which states that "The
annual financial report shall comprise 1. The audited financial statements…. " and §5-5 (3)
that states "the audited financial statements shall comprise such consolidated accounts
drawn up in accordance with Regulation (EC) No 1606/2002, cf. Accounting Act section 3-9
subsections (1) and (2). The annual accounts of the parent company shall be drawn up in
accordance with the national law of the EEA..."
Northern Offshore Ltd.’s annual report for 2010 includes audited consolidated financial
statements. On page 51 of the annual report for 2010 there is a section entitled
“Supplemental Parent Company Only Information” which includes a balance sheet,
statement of operations, statement of cash flows and a note for basis of presentation. As the
parent company information only includes a note for basis of presentation, it does not fulfill
the requirement for a full set of financial statements for the parent company as required by
the Securities Trading Act.
Finanstilsynet appreciates that US GAAP does not provide guidance for how to prepare
parent company financial statements. The company has accounted for its investments in its
consolidated subsidiaries under the equity method of accounting in the “Supplemental Parent
Company Only Information”. Finanstilsynet believes that applying US GAAP with an
exception for accounting for investment in subsidiaries under the equity method appears to
be a reasonable basis for preparation of these parent company financial statements.
The issuer has confirmed that it will expand its note disclosures to present a full set of notes
in all future annual filings. Northern Offshore Ltd.'s comments concerning the parent
company financial statements have been noted for the record, and Finanstilsynet has no
further comments in this regard.
In addition, the Securities Trading Act requires the parent company financial statements to
be audited. The audit report for 2010 includes an emphasis of matter that states that the
“Supplemental Parent Company Only Information” has been subjected to the auditing
procedures applied in the audit of the consolidated financial statements and, is fairly stated
in all material respects in relation to the consolidated financial statements taken as a whole.
The company has stated that an auditor who conducts their audits in accordance with US
Generally Accepted Auditing Standards is not able to render an unqualified opinion to be
issued to shareholders on "parent company only" financial statements. This is due to the
lack of guidance in US GAAP on the preparation of parent company only financial
statements. Finanstilsynet recognizes that the auditor may need to adjust their audit report
from a standard audit report on US GAAP financial statements, but believes that the auditor
will be able to find a practical solution to this issue. For example the audit report could refer
to "Basis of Presentation" rather than US GAAP. Finanstilsynet expects the audit report for
2011 to state that the parent company financial statements are audited.
3. Impairment loss disclosures
In the financial statements for 2010, the company has recognized an impairment loss of USD
205 million, which represents 55% of total operating expenses and 145% of net loss.
Disclosures regarding a description of the facts and circumstances leading to the impairment
and the method for determining fair value as required by Accounting Standards Codification
(ASC) 360-10-50-2 were not provided in the financial statements for 2010. The issuer has
confirmed that the following disclosure will be included in its annual accounts for 2011 and
its interim report for Q3 2011:
"Long-lived assets including property, plant and equipment are evaluated for recoverability
whenever events or a change in circumstances indicate that the carrying amount may not be
recoverable. Each recoverability test is based on a comparison of the undiscounted cash
flows to the carrying value of the asset. If an asset is not recoverable based on the results of
the recoverability test, the asset is written down to its estimated fair value. In the fourth
quarter of 2010, we recorded an impairment charge of $205.4 million on our jackup fleet,
which includes the Energy Enhancer, Energy Endeavor and Energy Explorer. The
impairment resulted from persistently low dayrates and utilization in the markets our
jackups serve and the related impacts on their estimated fair market values. Fair market
values were determined based on sales prices for similar assets as well as perceptions of
potential buyers and sellers in the jackup market."
Finanstilsynet has noted this for the record, and has no further comments in this regard.
Finanstilsynet has not considered whether the above matters are subject to the securities
legislation's provisions regarding the requirement to disclose inside information in
accordance with the Securities Trading Act section 5-2 subsection (1) and section 3-2.
Finanstilsynet expects the issuer to consider its requirement to disclose inside information on
a continuous basis.
Finanstilsynet has forwarded a copy of this letter to the issuer's appointed auditor and to
On behalf of Finanstilsynet
Head of Section