© S.A. All rights reserved. © Copyright 2004 Stolt Offshore Designed by williams and phoa. Refocused Restructured Reinforced Refinancing Stolt Offshore S.A. Annual Report and Accounts 2003 Stolt Offshore S.A. Dolphin House Windmill Road Sunbury-on-Thames Tel: +44 1932 773700 Fax: +44 1932 773701 www.stoltoffshore.com For the year ended 30 November 2003 2002 2001 Corporate and (in millions, except per share data) $ $$ financial highlights Net operating revenue 1,482.3 1,437.5 1,255.9 (Loss) income from operations (380.5) (123.6) 36.4 Net loss (418.1) (151.9) (14.2) Cash flows from operating activities (27.5) 84.7 16.7 Loss per share: Basic (4.51) (1.79) (0.16) Diluted (4.51) (1.79) (0.16) Weighted average number of economically equivalent shares outstanding: Basic 92.6 85.0 87.2 Diluted 92.6 85.0 87.2 As at 30 November 2003 2002 2001 (in millions, except per share data) $ $$ Long-term debt and capital lease obligations 385.0 335.0 358.7 Shareholders’ equity 107.3 517.1 660.0 Book value per Common Share and Common Share equivalent 1.16 5.54 7.57 2003 Operating revenue by region (in $ millions) Africa, the Mediterranean and Caspian Sea region (AFMED) 673.8 Northern Europe and Canada region (NEC) 387.6 North America and Mexico region (NAMEX) 200.6 South America region (SAM) 56.0 Asia and Middle East region (AME) 26.8 Corporate 137.5 1 AFMED 45% 4 SAM 4% Total 1,482.3 2 NEC 26% 5 AME 2% 3 NAMEX 14% 4 Corporate 9% Fixed assets as at 30 November 2003 (in $ thousands) Construction support ships 618.6 Operating equipment 277.3 Land and buildings 24.2 Other assets 13.2 Less accumulated depreciation and amortisation (418.7) Total 514.6 1 Construction support ships 66% 2 Operating equipment 30% 3 Land and buildings 3% 4 Other assets 1% Contents 00 Corporate and financial highlights 02 Chairman’s statement 04 Chief Executive’s statement 06 Who we are and what we do 08 Operating review 10 Major projects at a glance 12 Our strategy 16 Management team 18 Board of Directors 20 Financial contents 21 Management’s discussion and analysis 42 Selected consolidated financial data 43 Independent auditors’ report 44 Consolidated statements of operations 45 Consolidated balance sheets 46 Consolidated statement of shareholders’ equity 47 Consolidated statements of cash flows 48 Notes to the consolidated financial statements 71 Corporate information and stock trading history 72 Shareholder information Photography: Willem Poelstra, Chris Moyse and Richard Lewisohn 01 We are rebuilding our Company. With a refocused business, anew organisation, a strengthened management team and a rigorous adherence to procedures, we are on track to return to profitability. So far we have: Refocused our chosen market segments to concentrate on our main strengths and we are selling assets and businesses that no longer fit our core activities. Restructured our organisation with new Regional Businesses fully accountable for all project work in their geographical area. We have changed more than half of our senior management team. Reinforced consistent, coherent operating procedures world-wide with global direction and control provided by the corporate team. Refinanced by raising equity to strengthen our balance sheet, negotiating a new bonding line and changing the covenants on existing credit facilities to better suit our financial position. To find out more turn to pages 12–15. 02 Stolt Offshore S.A. Annual Report and Accounts 2003 Message from the Chairman Chairman’s statement 2003 was a brutal year for Stolt Offshore. The challenges and costs of turning the Company around have far exceeded the expectations of all those close to the process. At year-end, we reported a net loss of $418 million, after minority interests, which included $177 million of asset impairments. The good news is that we consider most of the restructuring programme is now behind us and there is genuine cause for optimism as we move into 2004. While our strategy for the development of this business over recent years may have been good, with the benefit of hindsight we now see that mistakes were made which stretched our financial capabilities. The former management team did an outstanding job when the Company was a niche subsea contractor, but were not able to handle the multiple acquisitions and the integrations needed to make Stolt Offshore a profitable EPIC (Engineering, Procurement, Installation and Commissioning) contractor. In March 2003 Tom Ehret joined us as Chief Executive Officer to lead the Stolt Offshore turnaround process. In April 2003 Stuart Jackson joined us as Chief Financial Officer. Tom’s first action was to develop his ‘Blueprint for financial recovery’ which has refocused our approach to our markets and restructured our organisation. Under this plan Tom quickly led an exhaustive top-to-bottom strategic analysis and review of the Company. As a result of this rigorous process, substantial changes were made to refocus the business on what it does best. Stolt Offshore is now refocused on the three core markets where it can generate the greatest value: SURF (subsea, umbilicals, risers, flowlines), which has always been the key capability of the Company; conventional construction of platforms and pipelines in areas adjacent to The good news is that we consider most of the restructuring programme is now behind us and there is genuine cause for optimism as we move into 2004. 03 deepwater basins; and subsea inspection, maintenance and In addition, we issued 17 million new Common Shares repair. The other activities, such as the provision of third party to the Stolt-Nielsen Transportation Group on conversion engineering, welding technology and ROV (Remotely Operated of all of the Stolt Offshore Class B Shares to Common Shares. Vehicle) drill support have been or are in the process of being These actions, when they are all complete, will result in a sold. This will enable management to give all of its attention $200 million strengthening of Stolt Offshore’s balance sheet to the three core markets where it can generate the best value. and provide enough cash and performance bonds for the Company An internal and geographic restructuring has taken place and to compete as an independent competitive offshore contractor. a programme of disposals of the assets that we no longer require We have a strong and talented new management team. is now under way. We have aggressively refocused the Company on the markets Project control processes have been reinforced through new where we have the most to offer, restructured the business so tendering and contracting procedures, global supply chain that it can more efficiently address these markets and reinforced management and project management procedures. The discipline the procedures that will deliver quality project management. that Tom is imposing to ensure that these processes are rigorously We have also refinanced the Company so that it can play adhered to will prevent us from taking on the contract risks and a leading role in the offshore construction industry. the onerous contract terms that have hurt Stolt Offshore so badly Stolt Offshore is not yet out of the woods, but the future now over the last four years. looks far better than it did a few months ago. Our customers As the year progressed, the losses on a small number of major have continued to value our abilities through the difficult months. projects in West Africa and the Mediterranean put the Company We won the $250 million Langeled pipelay project in November in breach of the financial covenants on our major credit and our largest ever contract, the $550 million Greater Plutonio agreements. We then spent many months negotiating covenant project from BP, in February 2004. The activity level industry-wide waivers with our lenders in order to gain time to plan and put is slow this year but is shaping up for a stronger year in 2005. into place a major financial restructuring. In mid-February 2004, Stolt Offshore raised $100 million in a private placement with European investors and we intend to raise approximately $50 million more in a subsequent issue. A new bonding facility of $100 million was put in place with a number of existing lenders and our banks agreed new covenants on our credit Jacob Stolt-Nielsen lines that were more appropriate to our financial situation. The Chairman Stolt-Nielsen Transportation Group also agreed to convert $50 million of subordinated debt into Stolt Offshore Common Shares. ‘2003 was a brutal year for Stolt Offshore. The challenges and costs of turning the Company around have far exceeded the expectations of all those close to the process. At year-end, we reported a net loss of $418 million, after minority interests, which included $177 million of asset impairments. The good news is that most of the restructuring programme is now behind us and there is genuine cause for optimism as we move into 2004.’ ‘Stolt Offshore is not yet out of the woods, but the future now looks far better than it did a few months ago. Our customers have continued to value our abilities through the difficult months. We won the $250 million Langeled pipelay project in November and our largest ever contract, the $550 million Greater Plutonio project from BP, in February 2004. The activity level industry-wide is slow this year but is shaping up for a stronger year in 2005.’ 04 Stolt Offshore S.A. Annual Report and Accounts 2003 Chief Executive’s statement We are putting Stolt Offshore back on track. The Blueprint – a clear strategy for financial recovery 2003 was a year dominated by a small number of large loss- We have identified past problems and defined our new strategy.