DSND Inc Annual Report 2002

CONTENTS

Key Figures

3

Board of Directors’ Report

4

Consolidated Profit and Loss Account

11

Consolidated Balance Sheet

12

Consolidated Cash Flow Statement

14

Accounting Principles

15

Notes to the Accounts

19

Auditor’s Report

29

Shareholder Information

30

2

KEY FIGURES (Amounts in USD 1 000)

Income Statement Total operating revenues Operating expenses Balance sheet adjustments Depreciation Net operating result Net financial items Result before taxes Taxes Result for the financial year

Balance Sheet Fixed assets Current assets Total assets Shareholders' equity Provisions for liabilities Long-term liabilities Short-term liabilities Total liabilities and shareholders' equity

2002

2001

2000

135 244 -119 464 -20 694 -4 914 -8 199 -13 113 -734 -13 847

276 687 -256 371 -30 229 -9 913 -22 646 -32 559 -17 081 -49 640

261 633 -260 542 -26 979 -33 041 -58 929 -14 222 -73 151 19 267 -53 884

2002

2001

2000

133 954 51 339 185 293 94 236 1 913 15 778 73 366 185 293

312 226 105 772 417 999 81 249 6 396 232 823 97 529 417 999

344 958 127 247 472 205 124 106 12 861 218 314 116 924 472 205

2002

2001

2000

62.85 -0.22 -33 807 -0.54 11.67% 15.00 1.50 50.86% N/A N/A 0.70

58.27 -0.85 -71 732 -1.23 7.34% 19.80 1.39 19.44% N/A N/A 1.08

54.83 -0.98 -135 908 -2.48 0.42% 28.60 2.26 26.28% N/A N/A 1.09

Key Ratios Note Average number of shares (million) Earnings per share in USD (EPS) Net cash flow in USD 1 000 Cash flow per share in USD (CEPS) Operating margin (EBITDA) Stock Exchange Price as 31 December (in NOK) Book equity per share in USD Book equity ratio Price/earnings per share (P/E) Price/cash flow per share (P/CE) Liquidity ratio

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Definitions (1) Earnings per share = Consolidated profit for the year/Average number of shares outstanding (2) Cash flow = Result before taxes + Depreciation + Balance sheet adjustments - Taxes payable (3) Cash flow per share = Cash flow / Average number of shares outstanding (4) Operating profit before depreciation and Balance sheet adjustments as % of Operating Revenues (5) Book equity per share = Book equity / Average number of shares outstanding (6) Equity ratio = Book equity / Book total assets (7) Price/Earnings per share = Stock Exchange price at 31 December / Net earnings per share (8) Price/Cash flow per share = Stock Exchange price at 31 December / Cash flow per share (9) Liquidity ratio = Current assets / Short-term liabilities

3

BOARD OF DIRECTORS’ REPORT GENERAL The new parent company DSND Inc came into operation in October 2002. After a compulsory and mandatory offer, DSND Inc became 100% owner of the shares of DSND Subsea ASA and became the parent company of the DSND Group. The financial report for DSND Inc is prepared in accordance with Norwegian GAAP and as a continuation of the financial figures for DSND Subsea ASA. The variances with regard to presentation compared to the consolidated financial reports for DSND Subsea ASA up to 3Q 2002 are: • •

DSND Inc’s reporting currency is USD compared to NOK for DSND Subsea ASA. The 50% investment in Overseas Drilling Ltd (Joides Resolution) and the 41.33% investment in KS Big Orange XVIII/Tracer Offshore ANS (Big Orange) are consolidated in accordance with the equity method, compared to the gross proportional method for DSND Subsea ASA. This is done to be consistent with the way the 50% share in Subsea 7 is reported.

DESCRIPTION OF THE BUSINESS DSND Inc is an industrial investment company within the oil service industry. DSND Inc’s main investment is in Subsea 7, which is a leading offshore subsea contractor for the global oil and gas industry. Subsea 7 was established on 22 May 2002 when DSND Subsea and Halliburton Subsea, a business unit of Halliburton’s Energy Services Group, combined their respective subsea interests in the upstream oil and gas service industry in this 50/50 owned company. Subsea 7 represents the continuation of the offshore activities of DSND and Halliburton respectively in the areas of subsea pipelaying and the installation and maintenance of various types of subsea installations. The company controls 20 vessels, of which the great majority are highly specialised dynamically positioned (DP) vessels that carry out deep water pipelaying, deep water subsea construction, diving support and subsea surveys. In addition Subsea 7 owns and operates one of the world's largest fleets of remote operated vehicles (ROV). More than 100 vehicle systems undertake global operations, from diving support and multi-purpose vessels, barges and drilling rigs. The company operates three pipeline construction yards. Subsea 7 has offices in UK, Norway, USA, Brazil, Singapore and Cayman Islands. The company has established representation in West Africa, and has accordingly a presence in all the important deep water markets for subsea activities. In addition to the ownership in Subsea 7, DSND Inc owns vessels within the offshore oil and gas service industry, mainly with activities in Brazil. 2002 RESULTS On the corporate side, the 2002 was an intensive and active year in DSND as three major targets were achieved; - The transaction with Halliburton where Subsea 7 was established - The relocation of the corporate holding company from Norway to Cayman Islands through a share swap arrangement - The refinancing of the company’s short term debt of approx NOK 620 million through a private placement with a claw-back arrangement and a three year convertible bond loan. Since DSND and Halliburton in May 2002 combined their respective subsea interests in Subsea 7, the 2002 results for DSND Inc are based on a result of approx five months of full DSND operations, followed by approx seven months of Subsea 7 (DSND Inc’s 50% share) performance and the remaining activities within DSND Inc. Operating revenue for 2002 amounted to USD 135.2 million and the operating loss was USD 4.9 million. The pre-tax loss was USD 13.1 million in 2002, compared to a loss of USD 32.6 million the

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previous year. DSND recorded a net loss in 2002 of USD 13.9 million, compared to a net loss of 49.6 million 2001. Depreciation amounted to USD 20.7 million in 2002 including write-downs of USD 4.5 million, and contribution from associated companies was USD 4.0 million. Net financial items came to a negative of USD 8.2 million in 2002. In accordance with the Norwegian Accounting Act, the Board of Directors confirms that the annual accounts are prepared based on the assumption that the enterprise is a going concern. SUBSEA 7 Results The 2002 revenue in Subsea 7 was USD 457.5 million with an EBITDA of USD 43.2 million, which represents an EBITDA-margin of 9.4%. The result before tax was a loss of USD 0.2 million and the net profit was zero. The figures were affected by a one-off cost of USD 10 million. The one-off costs relates to fees and costs for initial financing, restructuring and organisational issues, operational rationalisation and various start-up costs. The results include a gain of USD 3.7 million from the sale of the geotechnical vessels Bucentaur and Markab, which were sold in fourth quarter 2002. Operations During the first weeks of operation in the second quarter 2002, Subsea 7 went through a phase of restructuring and implementation. The work of combining the subsea organisations from the two parties, DSND and Halliburton, into one new team in Subsea 7 progressed according to plan. A high level of activity and utilization of the fleet, both with respect to construction work as well as ROV/Survey business, characterized the third quarter 2002, which was the first full quarter in Subsea 7. Highlights of this period includes significant work for Norsk Hydro with installation of Njord risers and replacement of the Tune pipeline, completion of Alba bundle project for Chevron, completion of West of Shetland work for BP, a major pipelay job on the Talisman Caswi Project and the ongoing contracts for Petrobras with the flexible pipelay vessels Lochnagar and K3000. New contracts in 2002 and backlog Subsea 7 commenced trading on 23 May 2002 with an initial worldwide order book of approx USD 800 million. During the time the company was in operation in 2002, several major contracts were awarded. In May the company was awarded a contract in the UK from Venture Production plc. In June Subsea 7 was awarded a contract by Modec International LLC for the development of the Bijupira/Salema fields in Brazil. In July the company was awarded the Caswi pipeline replacement contract in the UK, and in August Subsea 7 secured its first contract in the Norwegian sector since the company’s formation by the award by Norsk Hydro for the replacement of flowlines on the Tune field. The contract value was USD 25 million. In September it was announced that the Ringhorne contract (Jotun and Balder Gas Disposition Pipeline Systems) in the North Sea, will be performed by Subsea 7 in co-operation with TechnipCoflexip’s Norwegian entity on a 50/50 work split basis following the award by Esso Norge AS. The total contract value is estimated at EUR 75 million. In October Subsea 7 was awarded a subsea installation contract with a value of over USD 30 million by BP for its Thunder Horse and Atlantis developments in the Gulf of Mexico at depths of 6,000 and 7,000 feet respectively. In November it was announced that Subsea 7 is to install pipelines and an umbilical for BP Exploration Operating Company Limited in the Schiehallion Development, located West of Shetland in water depths of up to 450 metres. Later in November 2002, Subsea 7 was awarded a contract in

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Australia in joint-venture with Technip-Coflexip. The Joint Venture contract, worth around USD 55 million, is for the subsea offshore works associated with the new second trunkline from the Goodwyn and Rankin gas condensate fields on the North West Shelf. The worldwide order book of Subsea 7 as per 31 March 2003 was USD 790 million. Approx USD 695 million of this backlog of work is on a cost reimbursable basis, while approx USD 95 million is for execution of a particular scope on delivery of a particular product on a fixed price basis. The reason for this high ratio of cost reimbursable contracts is the company’s strong Frame Agreement position in the UK, Norway and Brazil and also the large volume of work to be performed for Kellogg Brown & Root (a 100% subsidiary of Halliburton) on the Barracuda / Caratinga field offshore Brazil. DSND OTHER ASSETS During the first half of 2002, DSND sold the vessels Norskald and Mirfak. Norskald which was built in 1958, was sold for USD 1.1 million and the sale resulted in USD 0.1 million book loss. Mirfak, which was built in 1966, was sold for NOK 1.6 million and the sale resulted in a book loss of NOK 2.0 million. The two vessels had been in lay-up since 1998. Part of the DSND’s fleet was not transferred to Subsea 7, and the remaining fleet comprises 17 vessels, of which 13 are fully owned, two are partly owned and another two are chartered. In addition DSND act as manager and operate three other vessels. The vessel Joides Resolution is on a time charter contract with Ocean Drilling Programme until the end of September 2003, while the vessel Big Orange XVIII is on a time charter contract with Dowell Schlumberger for work in the North Sea Basin until August 2010. Dowell Schlumberger has a right to cancel this contract from August 2005. DSND’s ownership interest in the vessels Joides Resolution and Big Orange XVIII is 50.00% and 41.33% respectively. The vessel Buccaneer, which is bareboat chartered by DSND on a financial lease with ongoing purchase options, completed its contract with Elf Congo in October as scheduled. DSND is currently pursuing different short and long term possibilities for the vessel. The vessels Helder, Atria and Taurus are currently laid up. The owned and managed supply/crew vessels in Brazil, achieved an average utilisation ratio of 98% in 2002. In December, DSND Consub signed a five years contract with Petrobras for one of the supply vessel as an oil spill recovery vessel. The total contract value was approx BRL 33 million. The chartered vessel Olympic Princess continued its contract with Schahin according to plan. DSND Consub has a contract with the Brazilian Navy for the development of Combat management systems to be installed on six frigates, known as the Modfrag-project. In December 2002, DSND Consub signed an additional contract with the Brazilian Navy for the development and installation of similar Combat management systems onboard a new corvette. This award was an acknowledgement of the performance of the ModFrag-project conducted by DSND Consub. Through this contract, DSND Consub keeps the leadership of development and installation of such systems in Brazil. The latter contract has a duration of five years and the contract value is approx BRL 25 million. SAFETY AND ENVIRONMENT DSND Inc provides offshore services for the oil and gas industry. One of the core values of DSND is a strict observance of laws, best practices and acting responsibly in the environment. The company is in compliance with environmental regulations imposed by relevant national authorities and international conventions. Our core values states that the company shall not compromise on safeguarding the individual life, health or safety. There have been no serious accidents involving employees in 2002 regarding the operational activities and vessels fully owned by DSND Inc. There is always a risk that bunkers and oils onboard our ships may cause pollution to the environment and that collisions and serious breakdowns of the vessels may occur. However, regarding the operational activities and vessels fully owned by DSND Inc, the company has systems with the aim to

6

preventing incidents and to mitigate the damages should they occur. DSND Inc did not experience material spills of fuel during 2002 and caused no environmental harm. The safety and environment issues regarding the activities in the jointly owned companies Subsea 7 and ODL are not commented in this report as the DSND share of these companies are reported as financial investments. MANAGEMENT AND ORGANISATION Following the incorporation of Subsea 7 and the partial transfer of former DSND employees to the new company, the remaining activities of DSND involve approx 430 employees. As of 31 December 2002, the total number of employees in the group, excluding Subsea 7, was 441, whereas 435 were employed in Brazil (DSND Consub) and five in DSND Subsea AS. CORPORATE GOVERNANCE General As a company incorporated in the Cayman Islands, DSND Inc is principally subject to Cayman Islands laws and regulations with respect to corporate governance. Cayman Islands corporate law is to a great extent is based on English law. In addition, certain aspects of Norwegian Securities law apply to the Company due to the Company’s listing on the Oslo Stock Exchange. There are currently 80,802,798 issued in the company. DSND Inc has issued one class of shares. The shareholders' voting rights equal the owners' interest. The company endeavours to maintain high standards of corporate governance and is committed to ensuring that all shareholders’ of the company are treated equally. The Board monitors the performance of management through regular meetings and reporting. The CEO of the company is not a member of the Board. Relationship with the Siem Industries Group Siem Industries Inc is the controlling shareholder of the company with 58,349,653 of the shares. It is part of Siem Industries Inc’ strategy is to invest in companies with difficulties, and through active ownership apply its management skills, expertise, contacts and financial resources in order to achieve a turn-around. DSND Inc seeks to benefit from the skill and expertise and financial abilities of the rest of the Siem Industries Group whilst at the same time maintaining the necessary independence for the board and management. Siem Industries Inc is represented on the Board through its chairman Kristian Siem and its president Frank Capstick. The remaining three Directors of the Board in DSND Inc are independent of Siem Industries Inc. DSND purchases certain services from other Siem Industries Group companies within the financial and legal areas, and has from May 2003 shared joint office facilities with other companies in the Siem Industries Group in George Town, Cayman Islands. Siem Industries has provided an undertaking to Subsea 7’s banks to back DSND’s obligation as a shareholder of Subsea 7 to provide up to USD 25 million of working capital to Subsea 7. Siem Industries Inc has further provided a guarantee of approx USD 2.8 million to in relation to a DSND contract in Brazil, and is also the largest holder of the company’s convertible bonds. The management and financing of the DSND are otherwise fully standalone from the rest of the Siem Industries Group.

7

Shareholder Issues All the issued shares in the company carry the same rights, and there are no restrictions on voting. Under the articles of association, the Board can issue shares, convertible bonds etc at any time within the limits of the authorised capital without the consent of the general meeting. Shareholders can be represented by proxy at shareholders’ meetings. The shares of the company are freely tradable. The Board are not aware of any shareholders’ agreements pertaining to the company. INDICATIVE INTEREST IN DSND INC In October and November 2002 the company was approached by Cal Dive International (CDI) that culminated in an indicative and conditional offer of USD 150 million for 100% of DSND or alternatively for DSND’s 50% share in Subsea 7. DSND Inc informed CDI and the capital market that the Board, after careful consideration of the impact of the indication and the then prevailing financial condition of the company and its need to complete a refinancing, had concluded that it was not in the interest of the shareholders to enter into any negotiations with CDI at that stage. The Board based its view on the following: -

The share price was low; Subsea 7 was just established and need time to develop to create value for its shareholders; It would be disruptive to the management of Subsea 7 and negative to Subsea 7 to perform due diligence immediately following the merger of the two organizations and financing of the company; Legal requirements in the Subsea 7 shareholders agreement; Discussions with Halliburton as the other major shareholder of Subsea 7.

CDI announced on 18 November 2002 that the successful completion of the refinancing of DSND had altered the capitalization of the Company and that Cal Dive no longer had an interest in DSND Inc. MANDATORY OFFER FROM SIEM INDUSTRIES INC The largest shareholder in DSND Inc, Siem Industries Inc, purchased 4,693,400 shares in DSND Inc on 28 October 2002. The Board of Siem Industries Inc resolved on 14 November 2002 to make a mandatory offer for all the remaining shares in DSND Inc. Such offer is required by law when ownership exceeds 40%. Following the mandatory offer and Siem Industries Inc’s subscription in the private placement of 14 November 2002 the total shareholding by Siem Industries Inc in DSND Inc was increased to 72.2%. FINANCIAL ISSUES DSND de-geared In the Subsea 7 transaction, DSND Subsea transferred USD 156.5 million of bank debt and USD 26 million of financial leases to Subsea 7. As a consequence, the balance sheet of DSND Subsea was significantly de-geared. While the net interest bearing debt in DSND Subsea as of 31 March 2002 (before the transaction) was NOK 2.188 million, the net interest bearing debt (excl. share of Subsea 7) following the transaction was NOK 654 million as of 30 June 2002. The net interest bearing debt as per year-end 2002 was USD 41.6 million.

8

Subsea 7 financing Subsea 7 obtained a bridge loan of USD 200 million, which initially was guaranteed 50/50 by DSND and Halliburton. This bridge loan was replaced early November 2002 by a syndicated USD 200 million long term bank loan. DSND and Halliburton were released from their parent company guarantee obligations following this refinancing, but maintained its commitment for a 50 million working capital support of Subsea 7. Refinancing of short term loans On 14 November 2002 the Board of DSND Inc approved the following plan for a refinancing of the company: -

A private placement of 21,764,706 new shares at NOK 17.00 per share, to raise NOK 370 million with a subsequent distribution sale to other shareholders. A fully-underwritten convertible bond loan of NOK 300 million with pre-emption rights for the company’s shareholders.

The private placement was initially subscribed by some of the Company’s largest shareholders in accordance with their relative share, with the exception of Siem Industries Inc, which subscribe for a portion equal to approx 79% of the private placement. Shareholders of DSND Inc not participating in the private placement were accordingly offered shares in a distribution sale relatively to their portion of the shareholding prior to the private placement. The convertible bond loan has a duration of three years and a coupon of 8%. The strike price is fixed at NOK 20 per share. The convertible bond loan was fully underwritten, of which 75% by Siem Industries Inc. The right to subscribe for shares can not be separable from the bonds issued. The convertible bond loan is listed at the Oslo Stock Exchange. The refinancing secured the repayment of the short term borrowings of approx NOK 620 million and strengthened the company’s working capital. Balance sheet Total assets in DSND Inc were USD 185.3 million as per 31 December 2002, and total liabilities then stood at USD 91.1 million. All of the interest bearing debt in DSND Inc is at fixed interest rates. Shareholders equity as per 31 December 2002 was USD 94.2 million or USD 1.21 per share. The equity ratio was 51%. Bank deposits were USD 16.0 million at year-end. In January 2003, when the new convertible bond loan of NOK 300 million was established, short-term debt of USD 9.3 million and NOK 206 million were repaid. EVENTS IN 2003 In January 2003, Subsea 7 was awarded two UK contracts by BP Exploration Operating Company Limited with a combined value of approx USD 45 million. The first is to install 35 km of 6” coated rigid pipeline in the Eastern Trough Area Project (ETAP) located east of Aberdeen. The subsea tie-back to the central processing facility is part of the Machar Artificial Gas Lift development. The second UK contract is for the provision of Diverless Construction and Inspection Repair and Maintenance (IRM) services for BP’s West of Shetland operations. Also in January 2003, it was announced that Wintershall Noordzee B.V has awarded Subsea 7 a contract of approx USD 14 million for subsea works in the Dutch Sector of the North Sea.

OUTLOOK Through the successful establishment of Subsea 7 in 2002, the company relocated its subsea resources in to a jointly owned company which is well equipped as a subsea construction company, able to offer attractive and competitive solutions to customers. Subsea 7, compared with DSND on a

9

stand alone basis, has the size and global presence which long-term will function as a hedge against regional differences, both with respect to seasonal variances as well as level of activity. Global oil companies are changing their focus from consolidation and cost cutting towards improved reservoir recovery, increased production and larger prospects. General market activity, underpinned by an oil price in excess of USD 20 per barrel, should remain strong for the remainder of this year with a substantial number of offshore projects either committed or in the early stages of development. Subsea activity continues to grow at an encouraging rate supported by aggressive development of satellite and marginal fields, increased tieback activity and continued growth in deep-water areas. The Board endorses the various positive forecasts for the Subsea sector in the short and medium term.

10 June 2003

Kristian Siem (Chairman) (sign.)

Arild Schultz (sign.)

Frank Capstick (sign.)

CEO of DSND Subsea AS Magne Kristiansen (sign.)

10

Richard England (sign.)

John W. Kennedy (sign.)

CONSOLIDATED PROFIT & LOSS ACCOUNT

(Amounts in USD 1000)

Note

2002

2001

2000

135 244

276 687

261 633

OPERATING REVENUES AND OPERATING EXPENSES Operating revenue Project- and ship expenses

-75 917

-161 994

-173 693

Personnel expenses

5,15

-29 251

-75 996

-78 643

Ordinary depreciation, including write down

1,2

-20 694

-30 229

-33 041

2

Other operating expenses

-14 296

-18 381

-8 206

Balance sheet adjustments

0

0

-26 979

Total operating expenses

-140 158

-286 600

-320 562

-4 914

-9 913

-58 929

Net operating result

Financial Income/-expenses Financial income

16

13 282

3 704

23 410

Income from affiliated companies

16

4 046

4 386

4 862

Financial expenses

16

-25 527

-30 736

-42 494

Net financial items

-8 199

-22 646

-14 222

Result before taxes

-13 113

-32 559

-73 151

-734

-17 081

19 267

-13 847

-49 640

-53 884

Taxes This year's tax expense(-)/profit

10

Result for the financial year Earnings per share

17

-0.22

-0.85

-0.98

Diluted earnings per share

17

-0.22

-0.85

-0.98

11

CONSOLIDATED BALANCE SHEET – ASSETS

(Amounts in USD 1 000)

Note

2002

2001

2000

Fixed assets Intangible fixed assets Deferred tax assets

10

0

0

20 907

Goodwill

1

6 271

12 165

14 664

6 271

12 165

35 571

2

77

1 592

2 255

Ships and equipment

2

16 107

259 950

252 593

Land and buildings

2

6

15 096

21 098

Total intangible fixed assets Tangible fixed assets Fixtures and transportation equipment

Other operating assets

2 255

17 293

25 281

18 445

293 932

301 226

109 101

5 364

7 182

137

477

535

0

289

444

Total financial fixed assets

109 238

6 130

8 161

Total fixed assets

133 954

312 226

344 958

Total tangible fixed assets Financial fixed assets Investment in affiliated companies

4

Other long-term receivables Pension funds

5

Current assets Receivables Accounts receivable Other short-term receivables

30 755

75 143

84 348

4 525

17 492

23 103

35 280

92 635

107 451

16

13

60

6

Total receivables Short-term investments Bank deposits and cash on hand Total current assets

Total assets

7

16 043

13 125

19 736

51 339

105 772

127 247

185 293

417 999

472 205

12

CONSOLIDATED BALANCE SHEET – EQUITY & LIABILITIES

(Amounts in USD 1 000)

Note

2002

2001

2000

Equity Paid-in capital Share capital Share premium reserve

8,9 9

Total paid-in capital

808

6 693

6 165

92 595

28 972

0

93 403

35 665

6 165

833

45 584

117 941

833

45 584

117 941

94 236

81 249

124 106

Retained earnings Other equity

9

Total retained earnings Total shareholders' equity

Liabilities Provisions for liabilities Pension liabilities

5

324

227

245

Deferred taxes

10

0

4 754

8 828

Other provisions for liabilities

1 589

1 416

3 787

Total provisions for liabilities

1 913

6 396

12 861

Other long-term liabilities Long-term mortgage debt

11

0

137 540

124 008

Other long-term debt

12

15 778

95 283

94 306

15 778

232 823

218 314

Total other long-term liabilities Short-term liabilities Bank overdraft Accounts payable

0

0

27

18 495

42 221

43 977

Taxes payable

10

567

992

308

Other short-term liabilities

13

54 304

54 316

72 612

Total short-term liabilities

73 366

97 529

116 924

Total liabilities

91 057

336 749

348 099

185 293

417 999

472 205

Total shareholders' equity and liabilities Secured debt

11

0

137 540

124 008

Guarantees

14

0

13 577

14 620

13

CONSOLIDATED CASH FLOW STATEMENT

(Amounts in USD 1000)

2002

2001

2000

-13 113 -46 -384 0 16 194 4 500 0 -5 204 -4 046 273 -313 20 230 18 091

-30 897 -547 -249 -3 29 942 0 0 1 866 144 134 26 368 -5 451 21 307

-72 127 -1 150 -62 -4 33 160 0 8 076 5 130 8 -407 19 130 48 668 40 422

300 988 -884 0 -103 654 0 0 196 450

4 975 -34 792 39 -287 1 358 -2 584 -31 293

208 -16 305 4 -23 650 -26 295 -41 761

0 -235 713 0 49 884 -185 829

59 720 -44 646 -26 365 19 087 7 797

90 307 -73 486 -18 800 0 -1 979

-25 794

-4 421

-9 461

2 918

-6 611

-12 778

Cash and cash equivalents as of 01.01

13 125

19 736

32 514

Cash and cash equivalents as of 31.12

16 043

13 125

19 736

Cash flow from operations Profit before taxes Paid taxes in the periode Loss/gain on sale of fixed assets Loss/gain on sale of shares Ordinary depreciation Write-down of fixed assets Write-down of shares in subsidiaries Amortisation/periodisation of fixed assets Shares of profit and loss of affiliated companies Difference between pensioncost and pension payment Net financial items exclusive gain on sales Change in short-term receivables and payables Net cash-flow from operations

Cash flow from investment avtivities Received from sale of fixed assets Payments for purchases of fixed assets Received from sale of shares and interests in other enterprises Payments for purchase of shares and interests in other enterprises Received from sale of other capital assets Payment for purchase of other capital assets Net cash-flow from investment activities

Cash flow from financing activities Received from raising of new long-term debt Repayment of long-term debt Net cash flow from financing items Capital increase Net cash-flow from financing activities: Effect of exchange rate differences Net change in cash and cash equivalents:

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ACCOUNTING PRINCIPLES General All figures are in USD thousand unless otherwise clearly stated. Basis of preparation The consolidated financial statements of DSND Inc are prepared in accordance with the Norwegian Accounting Act of 1998 and generally accepted accounting principles in Norway. Reporting currency Following the relocation of the ultimate holding company from Norway to the Cayman Islands in year 2002, the group changed its reporting currency from Norwegian kroner (NOK) to the US dollar (USD). Financial accounts for previous periods are recalculated from NOK to USD. Reclassification Comparable figures for previous years are changed in accordance with any reclassifications made. Subsequent events New information concerning affairs existing at year-end regarding the financial year is included in the Profit and Loss Statement and the Balance Sheet in accordance with regular principles. Material events arising after year-end are disclosed in notes. Principles of consolidation In preparing the consolidated financial statement, the group is treated as one economic entity. Intercompany transactions and intercompany balances are eliminated. Foreign currency translation Income statements of entities that prepare their results in a currency other than the US dollar are translated into US dollars at the weighted average exchange rates for each period and balance sheets are translated at the exchange rates ruling at period end. The cumulative translation adjustment arising from the re-translation of the net investment in such entities, are included in stockholders' equity. Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Subsidiaries Subsidiaries, consisting of those entities in which the company has either an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the company and are no longer consolidated from the date that control ceases. Investments in subsidiaries are consolidated according to the purchase method. All inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. The purchase price is assigned to identifiable assets and debt in the subsidiary, and is included in the consolidated financial statements at fair value at the time of purchase. Any premium paid over and above the market value on the identifiable assets at the acquisition date is recognised as goodwill in the balance sheet. Identifiable assets consist of tangible assets and intangible assets other than goodwill. Other entities' interests in subsidiaries not wholly owned by the company are reflected as minority interests based on the book value of the subsidiaries’ net assets. Joint ventures (JV) and Affiliated companies A joint venture is a commercial business governed by an agreement between two or more participants, giving them joint control over the business.

15

An affiliated company is a company over which the group can exercise significant influence, but which is not a subsidiary or a joint venture. Long-term investments in companies where the group owns more than 20% of the voting rights are treated as affiliated companies in the consolidated financial statements. In the consolidated financial statements, joint-ventures and affiliated companies are consolidated according to the equity method. The share of earnings recorded in the consolidated financial statements are based on the after tax earnings in the joint-ventures and affiliated companies, minus internal gains and possibly amortisation of the fair value of acquired assets and liabilities caused by the cost of the shares being higher than the acquired share of recorded equity in the balance sheet. Positive differences between the year-end balance and historic cost are provided for in the reserve for valuation variances. In the income statement, the share of earnings from joint-ventures and affiliated companies are shown as financial items. Use of estimates The preparation of these financial statements in conformity with accounting principles generally accepted in Norway requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue during the reporting period. Actual results could differ from those estimates. Long-lived assets Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset on its eventual disposition. Measurement of any impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. Fixed asset leases Leasing agreements, in which the group has taken over the material risk and the economic advantage of the assets, are recorded as financial leases. The assets are then recognised as fixed assets in the balance sheet, the opposite entry being long-term debt. All other rental or leasing agreements are treated as operational leasing, in which the lease is expensed as it is incurred. Vessels and related equipment Vessels and related equipment are stated at historical cost including any directly related costs of acquisition, less accumulated depreciation. Depreciation is provided on all tangible assets at annual rates calculated to write off the cost of each asset to the estimated residual value, evenly over its expected useful life as follows: Vessels – up to 25 years Equipment - 3 to 10 years Upon retirement or disposal of vessels and related equipment, the costs and related accumulated depreciation are removed from the respective accounts and any gains or losses are included in the income statement.

16

Inventories Inventories are valued at the lower of cost and net realisable value. Cost of inventories is determined under the first in, first out (FIFO) method. Receivables Accounts receivable and other receivables are entered in the balance sheet at face value after provisions for expected losses. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments, less bank overdrafts. Principles of revenue and cost recognition Revenue and costs are recorded in the period in which the transaction is incurred, unless otherwise specified below. Revenue is recognised only when it is probable that the economic benefits associated with a transaction will flow to the company and the amount of revenue can be measured reliably. Project revenue The company follows the generally accepted practice of reporting for long term construction, engineering and project management contracts on the percentage of completion basis as costs are incurred. Under this method, revenue and income is recognised as work progresses on the contract. No profit is recognised before the progress has reached 25% of completion. If a project can be split into subprojects, each subproject is treated separately. The estimated cost used to determine profit at completion reflects all facts or occurrences expected to affect the final cost of the contract. The entire amount of any estimated contract loss is recognised when it first becomes evident. Maintenance and dry-docking costs The company’s policy is to expense all major repair costs and dry-docking costs as and when they are incurred. This includes costs incurred to maintain certification of assets and/or comply with current legislation. Pensions The group finances its present obligations through collective pension schemes. The present-day value of the employees’ future pension benefits related to these schemes is calculated according to technical principles. Pension premium cost is valued at actual value. The year’s change in net pension obligations is shown as pension cost in the income statement. Accumulated changes in estimates and differences are entered over an average remaining earning time for the part of the accumulated sum exceeding 10% of the greater of gross pension obligations or gross pension funds. When valuing the pension funds and pension obligations, estimated values at year-end are used. The estimated values are adjusted each year based on calculation made by actuaries. Financing costs Financing fees relating to new loans are deferred and amortised over the loan term.

17

Costs of share issue Costs of share issues are posted directly to additional paid-in capital. Income taxes The company accounts for income taxes under the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from depreciation on property, plant and equipment, and tax losses carried forward; and, in relation to acquisitions, on the difference between the fair values of the net assets acquired and their tax base. Tax rates enacted, or substantively enacted, by the balance sheet date are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be realised.

18

NOTES TO THE ACCOUNTS (Amounts in USD 1 000)

Note 1 - Goodwill 2002

2001

2000

Purchase cost as at 01.01 Capital expenditure during the year The year's disposal at cost Effect of exchange rate differences Purchase cost as at 31.12

13 984 0 0 -6 446 7 538

18 554 195 -3 560 -1 205 13 984

17 051 3 643 -78 -2 062 18 554

Accumulated depreciation to 01.01 The year's ordinary depreciation The year's write down assets The year's disposals of acc.depreciation Effect of exchange rate differences Accumulated depreciation to 31.12

-1 819 -590 0 0 1 142 -1 267

-3 890 -1 542 0 3 611 2 -1 819

-2 788 -1 539 -46 78 405 -3 890

Net book value as of 31.12

6 271

12 165

14 664

Of which: Purchase of DSND Consub SA Other items Book value of goodwill as of 31.12

6 271 0 6 271

7 403 4 762 12 165

9 269 5 395 14 664

The economic life of goodwill is considered to be 5-10 years. Goodwill that is depreciated for more than 5 years, relates to DSND Consub SA in Brazil. This is an investment in one of the Groups main markets, and is expected to add material value to the Group for more than 5 years.

Note 2 - Fixed assets and leases

Purchase cost as of 01.01 Capital expenditure in the year The year's disposal at cost Effect of exchange rate differences Purchase cost as of 31.12 Accumulated depreciation to 01.01

Office

Ships and

Land and

equipm. Etc

equipment

buildings

Total

6 121

430 997

20 490

32

853

0

884

-4 936

-420 204

-16 329

-441 469

-795

12 356

-4 155

7 406

421

24 001

6

24 429

457 608

-4 529

-171 047

-5 394

-180 970

The year's ordinary depreciation

-196

-15 066

-342

-15 604

The year`s write down of assets

0

-4 500

0

-4 500

3 485

163 501

2 825

169 810

The year's disposal of acc. Depreciation Effect of exchange rate differences Acc. depreciation as of 31.12 Net book value as of 31.12 Economic life Net book value of assets on capital leases Annual lease payment on operational leases

896

19 219

2 911

23 025

-344

-7 894

0

-8 238

77

16 107

6

16 191

4-10 years

3-30 years

10-50 years

Total

0

2 168

0

2 168

45

8 345

454

8 844

19

Lease of tangible fixed assets As of 31 December 2002 the group has future commitments relating to lease agreements entered into. The vessels Fennica, Nordica, Botnica and Olympic Princess are booked as operating leases. The vessels Fennica, Nordica and Botnica are chartered to Subsea 7 on a back-to-back basis. The vessel Buccaneer is booked as a capital lease, and the Group has a purchase option for the vessel during the charter period at a decreasing price.

2003 2004 2005 and thereafter Total

Operating lease 16 762 11 632 55 28 449

Capital lease 2 223 2 230 694 5 147

Net present value of future commitments relating to lease agreements are calculated at a value of USD 26 211 000. The discount rate in the calculation of net present value is 6%.

Note 3 - Investment in subsidiaries Company Registered office DSND Subsea AS Kristiansand, Norway Arcade Offshore BV Landsmeer, The Netherlands DSND Consub SA Rio de Janeiro, Brazil DSND Subsea Ltd Aberdeen, Scotland DSND Coreco Inc George Town, Cayman Islands Total value recorded in the balance sheet

Share 100 % 100 % 100 % 100 % 100 %

Voting rights 100 % 100 % 100 % 100 % 100 %

Cost price 13 421 120 398 58 607 104 432

In addition to companies directly owned by the parent company, the following subsidiaries form a part of the group: Company DSND Shipping AS DSND Shipholding AS Søndenfjeldske Subsea KS Søndenfjeldske Drilling AS DSND Nemo AS DSND Interoil AS Yeoman Shipping Ltd DSND Subsea Holding Inc DSND Lay Vessel Ltd DSND Offshore Vessel Ltd Seateam Subsea Support BV Seateam BV Norsul Offshore Inc Consub Delaware LLC DSND Subsea LLC DSND Oceantech (Nederland) BV DSND Subsea (Holdings) Ltd DSND Oceantech Danmark Aps Seateam (UK) Ltd Seateam Shipping Ltd

Registered office Share and voting rights Grimstad, Norway 100 % Grimstad, Norway 100 % Grimstad, Norway 100 % Grimstad, Norway 100 % Bærum, Norway 100 % Grimstad, Norway 100 % Hamilton, Bermuda 100 % George Town, Cayman Islands 100 % Aberdeen, Scotland 100 % Aberdeen, Scotland 100 % Landsmeer, The Netherlands 100 % Landsmeer, The Netherlands 100 % Panama City, Panama 100 % Delaware, USA 100 % Delaware, USA 100 % Landsmeer, The Netherlands 100 % Aberdeen, Scotland 100 % Vejle, Denmark 100 % Aberdeen, Scotland 100 % Aberdeen, Scotland 100 %

20

Book value 95 736 1 1 15 161 104 432 215 331

Note 4 - Other investments/shares Figures for affiliated companies and joint ventures included in the consolidated accounts based on the equity method. Company name

Profit Operating revenues Operating expenses Operating profit Net financial items Taxes The year's profit

Subsea 7 Inc

Overseas Drilling Ltd.

PR Tracer Offshore

Big Orange KS

Luster Mek. Ind. AS

228 727 -226 336 2 391 -2 172 120 339

3 562 3 562

-258 -258

644 644

1 330 -1 566 -236 -6 1 -241

Balance sheet Intangible assets Fixed assets Financial fixed assets Current assets Total assets

9 162 176 182 119 648 304 992

4 991 4 991

145 145

1 743 1 743

Provisions Other long-term debt Short-term debt Total debt

104 974 93 432 198 406

-

-

-

Kenny Seateam Ltd.

Norex Drillco AS

Total

-

-

230 057 -227 902 2 155 1 770 121 4 046

195 246 441

14 14

43 16 59

9 162 176 420 6 879 119 924 312 385

99 159 258

-

-

105 073 93 592 198 665

-

-

1 1

Exchange rate differences

2 668

1 434

29

485

3

Net book value as of 31.12 Owner interest

103 918 50.00%

3 557 50.00%

116 41.33%

1 258 41.33%

180 34.20%

14 50.00%

58 20.00%

SPECIFICATION OF CHANGES IN NET BOOK VALUE Net book value as of 01.01 Reduction due to merge within the group Added/reduced in the period 106 247 This year share of profits 339 Dividends Effect of exchange rate differences -2 668 Net book value as of 31.12 103 918

4 537 5 354 -4 900 -1 434 3 557

403 -258 -29 116

1 099 644 -485 1 258

161 279 -241 -16 -3 180

14 14

58 58

-5 376

4 019 -

-

-175 -

-

-

-

316 -693

-1 144 1 027

-

24 -48

-

-

-

3 844 -5 376 -804 286

-5 753

3 902

-

-199

-

-

-

-2 050

Of which: Fair value in excess of book value for vessel and goodwill as of 01.01 Added/reduced in the period Amortization of fair value in excess of book value for vessels and goodwill Effect of exchange rate differences Fair value in excess of book value for vessels and goodwill as of 31.12

4 619 109 101

5 869 106 929 5 838 -4 916 -4 619 109 101

When Subsea 7 was established, assets and liabilities were transferred from DSND Subsea ASA to Subsea 7, in exchange of shares in Subsea 7. Net gain from the transferral of assets and liabilities, calulated at an amount of USD 5 376 000 at time of transaction, is accrued as unrealized gain, and has to be entered as income over the next 10 years. In the financial statement for 2003, gain that has to be entered as income, is calculated at an amount of USD 537 000. Parent company shares PR Tracer Offshore ANS Norex Drillco AS Total Group's shares Subsea 7 Overseas Drilling Ltd. Big Orange KS Luster mekaniske Industri AS Total

Registered office Lysaker, Norway Oslo, Norway

Consolidated as Equity method Equity method

Owner interest 41.33% 20.00%

Voting rights 41.33% 20.00%

Paid in capital 173 1 174

Issued, not paid in capit. 0 0 0

Registered office George Town, Cayman Islands Houston, USA Lysaker, Norway Gaupne, Norway

Consolidated as Equity method Equity method Equity method Equity method

Owner interest 50.00% 50.00% 41.33% 34.20%

Voting rights 50.00% 50.00% 41.33% 34.20%

Paid in capital 103 654 3 3 087 93 106 837

Issued, not paid in capit.

21

0 1 826 0 1 826

Note 5 - Pensions 2002

2001

2000

Present value of the year's pension earnings

95

694

599

Interest charges in pension obligation

60

282

260

Gross pension cost

155

975

859

Expected return on pension fund

-52

-324

-312

Net amortization Net pension cost Gross pension obligation Pension funds Uncovered pension obligation

10

12

-14

113

663

533

1 197

5 593

4 593

-873

-5 168

-4 603

324

425

-9

0

-487

-189

324

-62

-198

-324

-227

-245

Unrecorded changes in estimates Net pension obligation Of which unsecured obligation entered in the balance sheet Of which secured obligation entered in the balance sheet Total balance sheet obligation

0

0

0

-324

-227

-245

0

289

444

Total funds entered in the balance sheet Financial assumptions: Discount rate

6.00%

6.00%

6.00%

Expected wage adjustment

3.30%

3.30%

3.30%

Expected pension increase

2.50%

2.50%

2.50%

Adjustm. of the basic National Insur. amount

2.50%

2.50%

2.50%

Expected return on funds

7.00%

7.00%

7.00%

Note 6 - Other short-term receivables

Prepaid expenses Outstanding insurance claim Stores (ships and others) Accrued revenues other than project revenues Prepaid income taxes and other taxes Other short-term receivables Total other short-term receivables

2002

2001

2000

263 1 047 308 0 1 122 1 785 4 525

4 236 867 6 964 956 1 091 3 378 17 492

3 132 544 2 965 5 139 3 249 8 074 23 103

Note 7 - Restricted funds Of the Group's cash balance USD 497 000 was restricted fund for tax withholdings, pension obligations, rent for premises and other.

22

Note 8 - Information about shares and shareholdes Listing of the 20 largest shareholders as of 31 December 2002 Shareholder SIEM DRILLING LTD SIEM INDUSTRIES INC FIDELITY FUNDS - EUROP BROWN BROTHERS HARRI ODIN NORGE ODIN NORDEN NORDEA BANK DENMARK JP MORGAN CHASE BANK CLIENTS TREATY ACCOUNT PUMPØS AS C/O ARILD SCHULTZ SECTOR ASSET MANAGEMENT UBS AG MORGAN STANLEY & CO ODIN OFFSHORE GUNNAR HVAMMEN HERICA AS VERDIPAPIRFORETAKET AVANSE STOREBRAND SMB NEO NET SECURITIES CHRISTIANIA SECURITIES JUST W HØY JENSEN HOLDING AS Total 20 largest shareholders Other shareholders Total number of shares

Number of shares 38 836 185 16 556 761 4 617 848 3 681 386 3 645 286 3 056 158 2 474 580 726 000 681 644 676 144 273 500 172 000 160 000 150 000 126 016 110 000 103 700 100 000 89 000 78 000 76 314 208 1 327 493 77 641 701

Owner interest 50.02% 21.32% 5.95% 4.74% 4.70% 3.94% 3.19% 0.94% 0.88% 0.87% 0.35% 0.22% 0.21% 0.19% 0.16% 0.14% 0.13% 0.13% 0.11% 0.10% 98.29% 1.71% 100.00%

The current total number of shares issued are 80 802 798, of which 3 161 097 were issued in January 2003 as settlement for the mandatory offer for the outstanding shares in DSND Subsea ASA carried out in November/December 2002. DSND Inc has issued one class of shares. The shareholders' voting rights equal the owners' interest. Shares, options and forward contracts owned and controlled by members of the Board, the CEO, the CFO and the managing director in the subsidiary in Brazil: As of 31.12.2002 Name Kristian Siem Arild Schultz Frank Capstick Richard England John W. Kennedy Magne Kristiansen, CEO Terje Sørensen, CFO Rachid Felix, managing director DSND Consub

1)

Shares 0 726 000 0 0 0 20 000 0 0

Options 7 000 7 000 0 0 0 120 000 70 000 15 000

1) Siem Industries Inc and subsidiaries held 58 349 653 shares in DSND Inc on 31 December 2002. Siem Industries Inc is the main shareholder of DSND Inc and is controlled by trusts where certain members of Kristian Siem's family are potential beneficiaries. Kristian Siem who is the Chairman of the company is also the Chairman of Siem Industries Inc.

23

Total 7 000 733 000 0 0 0 140 000 70 000 15 000

Note 9 - Shareholders' equity

Equity as of 31.12.01 (NOK) Equity as of 01.01.02 due to change in functional currency (USD) Effect on equity of change in acoounting principle - shares in affiliated companies

Share

Share prem.

Other

Total

capital

reserves

equity

equity

60 316

261 087

383 612

705 015

6 693

28 972

42 569

78 234

0

0

3 015

3 015

6 693

28 972

45 584

81 249 95 418

Equity as of 31.12.01 due to reclassification of shares in affiliated companies and change in functional exchange rate, converted at the exchange rate as per 31.12.01 Equity as of 01.01.02 converted at exchange rate at time of share swap transaction

8 163

35 336

51 919

-7 573

7 573

0

0

Share premium reserves due to share swap agreement DSND Subsea ASA / DSND Inc.

0

-173

173

0

Equity as of 01.01.02 due to change in face value and share swap agreement (USD)

590

42 736

52 092

95 418

Change in face value

Capital increase

218

49 859

0

50 077

Issue expences

0

0

-193

-193

Continuity differences

0

0

-313

-313

The year's appropriations

0

0

-13 847

-13 847

0

0

-36 906

-36 906

808

92 595

833

94 236

Effect of exchange rate differences Equity as of 31.12.02 (USD)

The conversion of functional exchange rate from NOK to USD was accomplished in the 4th quarter figures in 2002. The conversion is booked at an exchange rate of NOK/USD 7.3887, which equals the exchange rate at the time of conversion. At the same time, the face value of shares has been reduced from 1.00 per share to 0.01 per share. Difference between book value of swapped shares in DSND Subsea ASA, existing of 59 038 092 shares, at a face value of NOK 1.00 per share, and issued share capital in share swap agreement, of USD 590 380.92, existing of 59 038 092 shares at a face value of USD 0.01 per share, is booked against share premium reserve. In the financial statement the share swap agreement has been booked according to the pooling of interest method. The share swap agreement between DSND Subsea ASA and DSND Inc. is carried out as described in the statement below: Share swap from voluntary offer:

55 876 995

Shares issued in private placement:

21 764 706

Share issued in mandatory offer:

3 161 097

Number of shares issued:

80 802 798

24

Note 10 - Processing of taxes in the accounts Deferred tax Temporary differences

Time frame

Receivables Projects in progress Shares Other deposits Participation in limited liability companies Operating fixed assets Special tax account Pension funds/obligations Other short-term differences Other long-term differences Net temporary differences as of 31.12

Short Short Short Short Long Long Long Long Short Long

Tax loss carried forward Basis for deferred tax Deferred tax/tax asset (28%) Deferred tax, companies subject to the tax rules for shipping companies Deferred tax, foreign subsidiaries Deferred tax Deferred tax not recognised in balance sheet Deferred tax as of 31.12 Deferred tax asset, Norway (28%) Deferred tax, companies subject to the tax rules for shipping companies Deferred tax asset, foreign subsidiaries Deferred tax asset Deferred tax asset not recognized in balance sheet Deferred tax asset as of 31.12

2002

2001

2000

0 0 0 0 -11 287 -8 709 142 429 0 16 088 749 139 270

0 -14 966 0 0 -38 25 556 6 436 -43 5 196 0 22 141

-169 307 -44 -455 -390 14 712 4 405 198 0 -5 425 13 138

-146 541 -7 271

-42 092 -19 951

-34 155 -21 018

-2 036 0 0 -2 036 2 036 0

0 -7 882 -4 754 -12 636 7 882 -4 754

0 -8 828 0 -8 828 0 -8 828

0 0 0 0 0 0 0

3 673

3 546

0 7 647 11 319 -11 319 0

0 17 361 20 907 0 20 907

Companies previously organised under the Norwegian tonnage tax regime have been transferred to the ordinary tax regime with effect from 1 January 2002.

Tax payables (USD)

2002

2001

2000

Taxes payable Taxes payable, companies taxed under Norwegian shipping rules (incl. Tonnage tax) Change in deferred tax/deferred tax asset Over/under provisions in previous year Total tax cost for the year

-999

-653

-1 043

0 0 265 -734

-10 -16 417 0 -17 081

-102 20 417 -6 19 267

25

Note 11 - Mortgage debt and secured debt Mortgage debt Lender

2002

2001

2000

0 0 0 0 0

116 551 16 263 20 000 -15 274 137 540

119 994 18 967 0 -14 953 124 008

2002

2001

2000

0 0

137 540 137 540

124 008 124 008

2002

2001

2000

0 0 0

106 413 3 939 110 352

116 481 8 632 125 113

Loan Syndicate with Fokus Bank ASA as agent Danish Ship Finance Den norske Bank ASA Currency translation differences Total long-term mortgage debt in the balance sheet

Secured debt and collateral Debt secured by collateral Long-term mortgage debt Total debt secured by collateral

Book value of assets held as collateral Vessels and shares in vessels Office building Total book value of assets held as collateral

Note 12 - Other long-term debt

Lease of equipment on Botnica Lease of equipment on Skandi Navica Lease of Buccaneer Loan for equipment on Olympic Princess Convertible bond Other interest-bearing debt Other non-interest bearing debt Currrency translation differences Total other long-term debt

2002

2001

2000

0 0 5 147 8 732 0 1 899 0 0 15 778

9 575 21 674 7 173 9 651 49 936 1 863 3 151 -7 741 95 283

10 582 25 388 9 019 0 50 597 3 019 1 430 -5 729 94 306

Instalments falling due over the next 5 years 2003 2004 2005 2006 2007 2008 and thereafter Total

Group 3 586 3 810 1 841 1 363 1 042 4 136 15 778

On 6 January 2003 DSND Inc issued a three year convertible bond loan of NOK 300 million and short term loans of USD 9.3 million and NOK 206 million were repaid.

26

Note 13 - Other short-term liabilities

Provisions for accrued project cost Provisions for other accrued cost Interest-bearing short-term liabilities Public duties payable Prepayments from customers Other short-term liabilities Total other short-term liabilities

2002

2001

2000

101 5 573 38 887 1 328 0 8 416 54 304

4 199 7 476 27 502 1 850 2 644 10 645 54 316

3 975 7 074 47 625 9 765 0 4 173 72 612

On 6 January 2003 DSND Inc issued a three year convertible bond loan of NOK 300 million and short term loans of USD 9.3 million and NOK 206 million were repaid.

Note 14 - Guarantees

Guaranties for current liabilities Total guarantees

2002

2001

2000

0 0

13 577 13 577

14 620 14 620

Note 15 - Salaries and wages, number of employees, etc. Personnel expenses Wages Payroll tax Pension costs Other benefit Total personnel expenses

2002

2001

2000

22 248 4 578 338 2 088 29 251

61 954 9 734 856 3 452 75 996

62 588 10 476 658 4 921 78 643

Other benefits and management's salaries and benefits Total benefits registered to the CEO in 2002 is NOK 1 497 827. Total remuneration to the Board in 2002 was NOK 780 000 . In 2002, 205 000 options were issued to employees, of which 120 000 were issued to the CEO. The call price of these options is NOK 17.50. Auditors remuneration The Group is charged with auditor's remuneration of USD 419 350. This includes USD 296 120 in audit fees, and USD 123 230 in fees for other services.

27

Note 16 - Financial items Financial income Gain on sale of shares Share of result of affiliated companies Interest income Currency gain Total financial income Financial expenses Interest expenses Currency loss Total financial expenses Net financial items

2002

2001

2000

0 4 046 417 12 865 17 328

3 4 386 640 3 061 8 090

7 4 862 754 22 649 28 272

-16 493 -9 034 -25 527

-24 059 -6 677 -30 736

-25 539 -16 954 -42 494

-8 199

-22 646

-14 222

Note 17 - Earnings per share EARNINGS PER SHARE Average number of shares outstanding Result for the year Earnings per share

2002

2001

2000

62 852 -13 847 -0.22

58 273 -49 640 -0.85

54 833 -53 884 -0.98

62 852 -13 847 -0.22

58 273 -49 640 -0.85

54 833 -53 884 -0.98

DILUTED EARNINGS PER SHARE Average number of shares outstanding, diluted Result for the year Diluted earnings per share

The average number of shares outstanding is calculated as a weighted average of outstanding shares during the year. Corresponding calculations have been made for diluted earnings per share, with adjustments for exercisable share options lower than share price per 31.12.

Note 18 - Transactions with related parties As of 31 December 2002 Siem Industries Inc and subsidiaries had rendered the DSND Group loans of totalling USD 38.8 million. The loans were repaid in January 2003. The 2002 accounts includes interest costs and fees of approx USD 5.9 million paid to Siem Industries Inc and subsidiaries relating to loans rendered during the year. Siem Industries Inc has issued a USD 25 million guarantee to DSND to cover a corresponding guarantee from DSND to Subsea 7. Siem Industries Inc has also issued a USD 15 million overdraft facility to DSND to cover possible cash needs form Subsea 7 related to seasonal variance. As per 31 Dec 2002 the balance of the overdraft facility was zero. The 2002 accounts includes interest costs and fees of approx USD 0.3 million paid to Siem Industries Inc and subsidiaries relating to these guarantees. Siem Industries Inc has issued a counter guarantee to DnB related to a guarantee issued by DnB to Schahin. Siem Industries Inc is the largest holder of the company’s convertible bonds. Siem Industries Inc, and subsidiaries, is the main shareholder of the company and is controlled by trusts where certain members of Kristian Siem's family are potential beneficiaries.

Note 19 - Contingent liabilities and disputes DSND is involved in certain legal disputes. As of year-end 2002 it was accrued approx USD 4 million to cover for these contingent liabilities and disputes.

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SHAREHOLDER INFORMATION Information builds marked confidence, and DSND Inc emphasises providing its shareholders and the stock market with timely and relevant information about the company. DSND Inc’s goal for its information activities is to increase interest in the company and improve leading investors and analysts’ familiarity with the company. Communication with company shareholders and the financial community in general helps provide the market with a correct picture of the company and a basis on which to judge its future earnings. The information policy is that all participants should have equal access to information about the company, which is to be made available to all interested parties simultaneously. DSND Inc regularly provides information on the company’s development, activities, and special issues. In addition to the annual report, DSND Inc provides information through financial reports, stock market announcements, press releases and company presentations to analysts and investors. All this information is available on DSND Inc's website which can be accessed at www.dsnd.com Dividend policy DSND Inc’s goal is to give shareholders a satisfactory return on invested capital. The return is in the form of growth in DSND Inc’s share price and in dividend payments. Dividends are determined in accordance with company earnings, future investment plans, and the company’s equity ratio.

Listing of the 20 largest shareholders as of 4 June 2003 Shareholder SIEM DRILLING LTD FIDELITY FUNDS -EUROP BROWN BROTHERS HARRI ODIN NORGE NORDEA BANK DENMARK ODIN NORDEN JPMORGAN CHASE BANK CLIENTS TREATY ACCOUNT PUMPØS AS C/O ARILD SCHULTZ TINE PENSJONSKASSE FIDELITY FUNDS - NORDI BROWN BOTHERS HARRI VERDIPAPRIRFONDET GAM GUNNAR HVAMMEN PROFESSOR LETTEN F SAUGSTADS FOND VERDIPAPIRFONDET AVANSE HERICA A/S ODIN OFFSHORE ODIN FORVALTNING AS UBS AG ABN AMRO INC BROWN BROTHERS HARRI S/A FIDELITY NORDIC JUST W HØY JENSEN HOLDING AS Total 20 largest shareholders Other shareholders Total number of shares

Number of shares 57 179 653 3 064 984 3 057 043 3 055 883 2 582 743 2 512 720 726 000 490 000 252 860 250 000 175 500 170 000 166 016 150 000 140 000 101 000 100 000 94 700 89 000 78 000 74 436 102 6 366 696 80 802 798

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Owner interest 70.76% 3.79% 3.78% 3.78% 3.20% 3.11% 0.90% 0.61% 0.31% 0.31% 0.22% 0.21% 0.21% 0.19% 0.17% 0.12% 0.12% 0.12% 0.11% 0.10% 92.12% 7.88% 100.00%

Financial calendar 2003

14 May 2003 First quarter results 11 July 2003 Annual General Meeting 1 August 2003 Second quarter results 4 November 2003 Third quarter results 14 February 2004 Preliminary results for 2003

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OFFICES & ADDRESSES

CAYMAN ISLANDS DSND Inc P.O. Box 309 South Church Street George Town Grand Cayman

NORWAY DSND Subsea AS Gravane 12 P.O. Box 425 N-4664 Kristiansand Tel: +47 3814 3000 Fax: +47 3814 3001

BRAZIL DSND Consub S.A. Rua Engenheiro Fábio Goulart 155 – Ilha da Conceicão, Niterói Rio de Janeiro Tel: +55 21 2622 9800 Fax: +55 21 2622 9191

www.dsnd.com [email protected]

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